Open Source Technology

Why It's Important: Capital markets firms are locked into long-term licensing deals with established vendors, which inhibits their ability to embed new processes. Meanwhile, banks and brokers are under pressure to reduce infrastructure costs. "All they are trying to do is replace their internal costs," comments Adam Honore, research director of the institutional securities practice at Aite Group. Since budgets are increasing by only 5 percent or 6 percent, most of that goes to regulatory and compliance initiatives, he notes, adding, "You're looking for every opportunity to squeeze costs out so you can spend more of your time working on new initiatives."

Where the Industry Is Now: Banks are funding a new generation of start-ups using open source technologies. Interdealer-broker ICAP launched Euclid Opportunities in March to offer seed funding and support for early stage companies providing innovative technologies in the areas of post-trade risk management, data and other financial market applications. "We are seeking smart people who we think can solve some of the emerging problems in the post-reform workflow," says Steve Gibson, managing director of Euclid Opportunities, who explains that the idea is to start fresh with new, open technologies. "If you could start again, and use some of the next-generation approaches, including the open tools and technologies that are maturing, you could build scalable, robust solutions and distribute the value they offer at a different [i.e., lower] price point than the financial software [vendors]."

Focus In 2012: Financial services firms will continue to examine open source technologies that can potentially replace expensive legacy platforms "There are agile technologies available that can allow solutions to be scaled in a way that the banks are looking to receive value," says Gibson. "The days when G-14 dealers or the top 20 banks would build 20 versions of the same utility are coming to an end." Wall Street firms, he adds, are more receptive to sharing platforms that can provide cost-effective commodity functionality.

Industry Leaders: Euclid is collaborating with three or four banks at a time to address the problems they face, as well as with industry utilities such as SWIFT, according to Gibson, who notes that altogether, the company is working with 13 or 14 banks, clearinghouses and exchanges. But, "Banks are not building as much as they used to," says Aite's Honore. "They are much more interested in investing in the vendor community, and they are interested in influencing firms by product."

Technology Providers: Many Wall Street firms are adopting open source technologies to embed components into their applications. Esper, for example, is an open source complex-event-processing (CEP) platform used by Wall Street firms as well as vendors, including Oracle/BEA; and Jaspers Reports is a popular open-source reporting engine that can pull data from any source. According to Honore, financial services firms are using Jaspersoft to replace expensive business intelligence programs such as Oracle, SAP, IBM and Microstrategy. In addition, many capital markets firms already use QuickFix, an open source FIX engine for defining message types for securities transactions, and Apache Hadoop, a software framework that supports data-intensive distributed applications under a free license. But while Hadoop is "good for querying data out of it," Honore notes, it's "not fast enough to put data into it, which is why the capital markets paradigm is to use column store databases such as Vertica, Sybase, KX and OneTick."

Price Tag: Open source is not necessarily free. "You still have open source licensing agreements" for support and maintenance and accountability issues, cautions Honore.