The global exchange market is undergoing massive change — from electronic trading and demutualization, to regulatory requirements and shifting market structure. Exchanges are being forced to reinvent themselves, find new revenue streams, expand into new geographic regions, and enhance their value proposition. For evidence of how dynamic this market is, just consider the deals inked in the last six months alone: CME/CBOT; NYSE/EuroNext; NYSE and India’s National Stock Exchange; and NYSE/Tokyo Stock Exchange.

Given these dramatic changes, one would expect IT spending among exchanges to be booming. However, new research from TowerGroup finds that total IT spending across the global exchange market is growing only slowly.

TowerGroup estimates exchanges globally spent $2.72 billion (USD) on IT in 2006 and that this spending will grow at a rate of 3% through 2009 — breaking down to 4% in 2007 and then slowing to 2-3% from 2007 to 2009. Spending in the US is growing the slowest, with Europe growing moderately and Asia growing the fastest. A graphic illustrating TowerGroup’s estimates of IT spending for major exchanges globally can be viewed and downloaded at:

Underlying this spending is major change. Exchange CIOs are facing the daunting challenge of transforming IT departments into responsive, dynamic, and fast moving organizations. This entails a huge cultural shift and better alignment of technology strategy with overarching corporate goals, such as supporting new products and expanding into new geographies.

Yet CIOs must also focus on gaining efficiencies and developing greater responsiveness to changing market requirements. As CIOs begin aligning IT strategy with corporate goals, pressures on IT cost are building. Of all the public exchanges, those in the United States are currently under the greatest pressure to reduce costs as they go electronic, in order to get their IT expense / revenue ratio in line with that of other financial firms and European counterparts.

The TowerGroup report titled, “Will Exchanges Represent the Next IT Spending Boom?” by Dushyant Shahrawat, research area director in the Securities & Capital Markets research service at TowerGroup, examines changes in IT spending in the exchange sector — analyzing the factors driving technology decisions and providing spending estimates by each major geographical region.

At TowerGroup, Shahrawat’s research covers all aspects of the Securities & Capitals Markets space and the agency brokerage business including: institutional trading, automation, outsourcing, etc.