Trading firms say their number one challenge is the cost of updating their IT infrastructures following deregulation of trading markets, research by think-tank JWG reveals.
The Markets in Financial Instruments Directive (Mifid) which came into force in November has put pressure on traders to link their IT systems to a host of new share trading venues and share information providers.
Trading firms' IT systems are coming under strain from rising share trading volumes, with order levels set to skyrocket 1600% from today's levels to 191 million orders a day, said the report.
"Current infrastructures are continuing to take on more and more data with increased trading and costs are continuing to rise," said PJ Di Giammarino, CEO at JWG-IT.
Trading firms need robust IT systems to deal with peaks in trading. Companies that provide market data, such as Thomson-Reuters and Boat, are the first to face IT difficulties when trading volumes rise, Di Giammarino said.
The high volume of share trading carried out in the City last week, when companies started buying again after a period of caution, caused problems for some stockbrokers.
"Trading systems across the city experienced issues," said one Stockbroker.
Share trading reached "unprecedented levels for the time of the year," he said. "August and September are normally dead," he added.
Effects of Mifid
Mifid has increased competition between stock exchanges and choice for traders about where to trade, through the removal of the Concentration Rule. This means local trades no longer have to go through local exchanges and has led to the creation of new venues such as Turquoise.
At the same time it has introduced rules that force trading firms to be able to show that they have got the client the best deal including best price possible, with the introduction of the Best Execution regulation.
Trading firms must also commit to getting the best deal available, which requires them to link to receive more real time information from different sources.