Trading Up-On Someone Else's Software and Servers
May 3, 2010
Marlon Weems is a managing director for equity sales and trading at CastleOak Securities, a 40-person, New York-based, boutique investment bank.
He firmly believes his firm is saving money, serving clients better and becoming far more efficient-by not investing in technology to be maintained on-site.
Instead, CastleOak is now renting a combination of software services-referred to by the provider as "hosted" services-that sit off-site on hardware provided and managed externally by an outside firm, thus allowing CastleOak to avoid having to build, manage or update the trading hardware or software itself.
"It's a great service, allowing me to focus on my main mission-to trade effectively and efficiently for my clients," says Weems.
The firm uses one hosted service to trade in individual stocks, another to swiftly trade hundreds or "large baskets" of equities in an automated fashion and yet another to provide a range of algorithms to their customers which can be customized when required.
Specifically, as of February, CastleOak has switched from using a single hosted trading software platform to a suite of Fidessa Group services that not only execute individual trades but also automate middle and back office functions, allow for the simultaneous execution of large quantities of trades and provide about a dozen algorithms that can now be offered to CastleOak's trading customers and customized by Fidessa for CastleOak's clients upon request.
The Fidessa services go by the names the U.S. Trading Platform (USTP) order management system (OMS), the Basket Execution And Management (BEAM) tool and BlueBox algorithmic trading service.
"As a small firm, it makes a lot of economic sense to outsource our software and server maintenance operations," said Weems adding that, "The trick is to find the right hosted service provider," to meet one's specific needs such as his firm's desire to outsource the algorithm provision and update function.
In expanding its use of hosted technology, CastleOak represents a growing number of smaller trading firms and startup broker dealers who are trying to get the most possible bang for their bucks. Evidence includes vendor observations-"Due to broader acceptance, we're seeing firms now willing to work with not just one, but a convergence of hosted services," said David Polen, a senior vice president of hosted products at Fidessa.
Aite Group estimates that 15 to 20 percent of trading firms are currently using hosted systems with the number now leaning toward 20 percent; Citisoft, a consulting firm, puts the current number at closer to 30 percent; and a Microsoft survey released in March of small and midsize businesses reports that in a drive for lower IT costs, 65 percent of such firms now use hosted software, an increase of 40 percent over the last five years. In addition, market analyst IDC estimates that usage of software as a service among businesses at large will grow 35 percent a year until 2013. At that point, it will represent 20 percent of all IT spending worldwide.
The hosted services go by many names, including cloud computing, software-as-a-service (SaaS) or as application services from application service providers. "Hosted software, time-sharing software and cloud computing: they are different names for the same thing," insists Vikram Mehta, CEO of Blade Network Technologies.
Whatever the current moniker, the use of hosted software services involves working with a vendor who provides online access to software that is created and maintained off-site by an online vendor and received on a pay-for-usage model, allowing users to scale usage down or up as needed. The software and the data it acts upon is stored or hosted on servers managed by the vendor. In turn, the vendor handles all software updates and data backups.
