Financial markets look set to increase their reliance on low-latency infrastructure.

The growth in algorithmic trading, the proliferation of trading venues and the resulting fragmentation of liquidity, as well as regulatory requirements to demonstrate best execution, are some of the trends driving an ever increasing need for lower latency in asset classes such as equities.

There were five pure-play investment banks at the beginning of 2008 and now there are two, which have in fact altered their status. However, other institutions such as Bank of America, JPMorgan and Barclays have stepped into the breach, and the current volatility in the markets actually makes low-latency infrastructure even more critical.

These findings are highlighted in a new Datamonitor report which surveys the technology vendor landscape in low-latency components including market data delivery platforms, ticker plants, transaction messaging, complex event processing engines and monitoring, as well as connectivity and proximity hosting services.

According to the report, there are a number of start-ups in each segment, and some larger players such as IBM, Oracle and NYSE have been buying up such specialist vendors to increase their market share, a trend which Datamonitor expects to continue.

The report also recognizes that some market participants – particularly some of the larger entities on the sell side – have traditionally preferred to develop their own infrastructure rather than buy from third parties. However, the report questions whether headcount reductions, as well as smaller R&D budgets, might not actually favor the technology vendors in the current market.

Low-latency infrastructure for asset classes such as equities, options, derivatives and FX is still something of a cottage industry and is likely to remain so, at least for the time being. However, larger players have been engaging in M&A activity, and Datamonitor expects this trend to continue as well – especially as the underlying requirement for low-latency infrastructure products and services increases.