Open-Source Technology May Gain as Wall Street Cuts Back

January 19, 2009
Katherine Heires

With staffing and resource cuts forcing financial firms' IT managers to do more with less, many industry observers see wider adoption of open-source technology on the horizon.

"The market for open source among financial services firms will increase over the next few years," says Larry Tabb, CEO of New York-based Tabb Group. "Developers that can't get money for licensed software will start migrating to open source, especially for products that have been around and thoroughly vetted."

Since 2000, the security and intellectual property concerns about open-source systems have been largely addressed, according to analysts--at least in areas where non-proprietary and less specialized technologies are used. Over the last several years, an increasing number of firms have been implementing Linux, Apache, MySQL and PHP software. Tabb Group estimated in June that Linux would account for 72 percent of the installed operating systems at the 14 biggest investment firms in 2008, up from 60 percent in 2006.

"Open source will be high up on the CTO agenda in 2009," agrees Ian Berriman, a financial systems specialist in London for PA Consulting. "Any opportunities to save on commercial software license fees by turning to open-source alternatives will be something that IT directors will be highly focused on."

San Francisco-based Marketcetera says that it saw a fourfold increase last year in downloads of its open-source trading platform. "The door is wide open in terms of trial and experimental use of open source," observes Graham Miller, CEO of the two-year-old company, which is targeting hedge funds and proprietary trading firms.

Last week, Marketcetera made the first production-ready version of the platform available on its Web site. Developed by Miller and Toli Kuznets, Stanford University computer scientists and hedge fund veterans, the platform features an open-source complex event processing engine, a modular framework for real-time data feeds and analytics, as well as support for multiple broker-dealer connections. Though the system is free, customers are asked to pay for advisory services and add-ons such as pricing logic and integration tools.

In addition to cost benefits, one Marketcetera adopter, Astro Teller, CEO of one-year-old quantitative hedge fund Cerebellum Capital, says his firm had been looking for a trading platform that was easy to modify, since it is constantly updating trading strategies. "With open source, you literally have the code and can make changes in all areas of the platform," he notes. "This reduces the feeling that you are making a commitment to a particular technology that you can't roll back."

Because San Francisco-based Cerebellum has computer-savvy staff familiar with open-source software, it doesn't expect high development costs--a concern that deters some firms from expanding their open-source usage. An institution that needs to hire outside expertise to help change or manage an open-source system can ultimately pay more than it might have for commercial software. Still, "my bet is that we will see a slow and steady uptake of open-source platforms by trading firms as automation and computer science thinking finds a stronger place on Wall Street," says Teller.