NEW YORK (
) -- Exchange mergers, dark pools and algorithmic trading are not just market theory being debated among the world's most powerful banks. They are also daily issues that the financial services industry is pouring billions of dollars of investment to execute and monitor every year.
According to market research firm Celent, global information technology spending by banks and brokerages is expected to increase 3.7% this year for a total of $363.8 billion.
One company taking advantage of the trend is
, which provides trading and surveillance technology to large global exchanges, banks and brokers.
Progress' chief technology officer, John Bates, spoke with
about the role his company plays in the trading fray and how it may benefit from exchange merger mania.
: What does your firm do and what is your typical client?
: One area we have established for ourselves is to help banks produce the technology for high frequency and algorithmic trading. Another area is real time risk and real time surveillance of that trading. We use technology to discover patterns and monitor markets that help clients look for issues, like rouge traders. If a bank can discover a problem before its gets out of hand it can be a real benefit.
In large banks the trading group used to be the only voice. They could turn off risk management. But in todays environment, regulators are becoming more concerned and banks are attempting to employ new surveillance technologies.
As far as clients, we work with dozens of exchanges. Not only the big players, but the emerging players as well. There are many that are not yet public, including new clients in Europe , Middle East and Asia.
: What are some the problems banks are dealing with?
: Markets are getting faster, and there are new and complex ways of gaming the system. We model and capture that.
For example, the May 6, 2010 "Flash Crash." If you look at what has happened in the markets since then there have been dozen of mini flash crashes. Algorithms have gone wrong or a trader has pushed the wrong key. Banks need to monitor that in real time.
Then there are the actual trading programs. The markets continue to move faster and faster each year. The average shelf life of a trading algorithm is three months. Sometimes it week or days, because you discover a patter and its no longer relevant. We help companies keep up to date.
: What is your reaction to reports that some of the large, public exchanges could merge?
: It's something that we expected. There was going to be more consolidation because firms know that they need not only to own more geographic space but, also more cross asset-class liquidity. It will start in equities, but it will move into bonds, currencies and energy trading venues. They will all start to come together.
: Would this mean more or less clients for your company?
: Well, it means fewer clients but with more problems. You also see new players come out as they look to compete against the big exchanges. We saw that in other markets, such as foreign exchange. For example, there has been a big upswing in new exchanges being started in places like Australia and Asia.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.