Countries covered: United States
The futures industry is leading the evolution to fully electronic marketplaces. Futures Commission Merchants' primary weapon in their battle to retain their role in the marketplace is e-commerce, and they are not delivering an e-commerce strategy fast enough. Many remain unconvinced that the markets will become fully electronic, which inhibits them from successfully adjusting their business model. Furthermore, the services that are most capable of differentiating FCMs from their challengers-such as online access to their expert analysts-will not be widely offered this year. Lastly, even for those who comprehend the magnitude of the threat, the ATS have emerged so quickly that many FCMs are finding it hard to reposition themselves as Internet companies. The markets themselves will not wait for the laggards.
Certainly many FCMs will emerge from this change by retaining their prominent role in the market. Those that succeed (the largest of them certainly have the best opportunity) will reach this objective through directing their resources to the most important areas of e-commerce and effectively integrating it into their traditional business model. This FCM of the future will be part advisory service for investors, part order routing firm connecting directly to virtual markets, and risk management company, controlling customer exposure in global securities positions. By improving connectivity to clients and execution points through FIX and similar standards, and further embracing the Internet as a means of reaching customers, FCMs will certainly retain a significant role in the process. But we are just as certain that the evolution of the futures markets will be the final blow to many traditional firms who fail to execute their conversion to e-commerce companies.
This Research Note highlights the futures industry's commitment to e-commerce using the results of the TowerGroup / FIA IT Survey 2000.
Additional Information
Highlights
Futures commission merchants (FCMs) expect to spend US$473 million on Internet, intranet, and extranet technologies in 2003, representing a compound annual growth rate of 56% from 1999.
Between 1999 and 2001, staffing dedicated to Internet, intranet, and extranet related jobs will increase at a compound annual growth rate of 216%, dwarfing growth in all other areas.
The e-commerce feature that is most important to institutional investors—access to analysts—is not expected to be available from most FCMs until sometime after the end of this year.
Most FCMs currently have no direct links to clients, as nearly 2 of every 3 firms fail to provide direct client connectivity.
Approximately 67% of FCMs are either already using the Financial Information Exchange (FIX) protocol or developing applications based on it, while only 12% indicate that they have no plans to use it in the near future.
The results of the market overhaul are yet to be determined, but FCMs need to respond more aggressively to exchange connectivity than in the recent past. Only 14 cents of every IT dollar they spent in 1999 went to exchange connectivity.
As more opportunities are presented to customers—enabling them to directly access markets and acquire high levels of research and analytics from nontraditional providers—FCMs need to take chances and commit strongly to e-commerce as their primary mechanism for customer service.
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