Following on from yesterday's entry, another interesting paper from IBM appears at Finextra - it covers similar ground but focuses more on the advances in IT which will make the cuts feasible.

The figures are impressive: electronic buy-side order flow will go from 52% in 2005 to 80% of the total in 2007. This represents an increase from 1.2 billion shares a day in 2004 to 3.1 billion a day in 2007 - a revolutionary shift in the way the markets work.

Algorithmic trading will have to be fast enough - in the tens-of-milliseconds range - to catch favourable prices before they shift. At present, the LSE sees over 3,000 quotes for each completed trade, a real waste of resources for the traders. Cutting latency will be vital to bring this down - the report suggests that players will start to co-locate with market data sources to cut transmission times, and may also construct "military-grade networks for assured data services".

The headline of this post, incidentally, is IBM's way of explaining that voice brokers (or "lone gunslingers") are outdated and set to be replaced by computerised trading systems (or "robots with machine guns").

Comment on algorithmic trading, robots or machine guns at the Risk Forum.