Linux's march across the financial-services landscape has been formidable, as evidenced by Sun Microsystem's recent concerted efforts to win back the loyalty of the Wall Street community. But the decisions that several exchanges are making around Linux currently, however, show that a Linux-dominated environment is not necessarily inevitable.
A recent convert to Linux, the Chicago Mercantile Exchange is finding that the platform delivers much better returns than expected. The CME is changing the infrastructure that runs its iLink gateway - which traders use to access the exchange's Globex electronic trading platform - from Sun Microsystems servers running Solaris to Intel servers with Itanium processors running Red Hat Linux.
The CME pursued Linux for cost savings at first, says Charlie Troxel, the exchange's chief technology officer, but it was surprised to discover that the platform delivered much better performance - CME is experiencing five times the performance of Sun/Unix at one-fifth the price, says Troxel. That's why the exchange planned to replace 20 percent of its Sun servers with Linux servers by the end of 2004, and why it's now on track to replace as much as 50 percent of its Sun servers.
The exchange will continue to run its database of historical trade information on Sun servers, however. That database is used to recreate trades in the event of inquiries from customers or regulators. The system - which uses database technology from Oracle - has reliability and scalability requirements that aren't easily met by Linux, Troxel says. He adds that the number of database entries has spiked from 2 million per week two years ago to 500 million a week in December 2004.
Money Isn't Everything
CME CIO James Krause says cost alone isn't enough to drive the exchange to make a technology change. His bottom-line measurements of customer satisfaction are speed and reliability, and no change would happen if the CME compromised on that. "If it costs a few extra bucks to deliver reliability and speed, we do it," he says.
At ArcaEx, the all-electronic equity exchange owned by Archipelago Holdings, CIO Steven Rubinow is exploring options for increasing speed on cheaper computing platforms. Most of the exchange's trading systems run on a Solaris operating system and Sun servers. Rubinow is in the midst of testing Intel Xeons and Itaniums and AMD servers that could run on Linux. But Rubinow says he's also eager to test the performance of Solaris 10, an upgrade to Sun's operating system that was released in November and is tuned to run on the cheaper x86-based servers.
For anything that ArcEx wants on x86-based servers today - and it has new platforms it would like to test with customers by year's end - Rubinow says Linux is the only viable option, since he would want Solaris 10 to receive more testing in the marketplace before depending on it for a critical system. Yet the exchange's IT teams build all of its applications to be operating-system-neutral, so it could switch off Linux as quickly as it adopts it. "It would be less than a day's worth of work," Rubinow says.
Linux clearly is on a roll. Worldwide, servers running Linux operating systems posted the ninth consecutive quarter of double-digit revenue growth in the third quarter of 2004, according to market researcher International Data Corp. Sales grew 42.6 percent to capture 9.2 percent of the overall market, surpassing $1 billion for the first time.
But not every exchange is interested in moving to Linux. The Philadelphia Stock Exchange (PHLX), an existing Solaris customer, has been testing Solaris 10 for a new electronic options trading system, called PHLX XL (for Extreme Liquidity). So far, the tests are yielding increases in capacity and performance.
"Obviously, cost is an issue for us," says William Morgan, executive vice president and CIO at the regional stock exchange. He explains that the Options Price Reporting Authority is requiring that exchanges support 120,000 quotes per second in 2005; PHLX currently can handle 75,000. Morgan emphasizes that cost is an issue for a regional exchange. "You know, we're not the New York Stock Exchange."
Tom Wittman, senior vice president, trading systems development, says the benchmark test results with Solaris 10 come down to one word: performance. "It's the throughput of this data that we have to receive from other markets and from early generation of quote data," says Wittman. Tests show PHLX can increase the speed and decrease hardware costs by moving a ticker application now running on a 12 CPU SunFire 6800 to Solaris 10 on a SunFire 4800 server with four CPUs, says Wittman.
By not switching platforms, PHLX avoids having to rewrite its applications, says Morgan, and instead can focus on competitive projects like the options trading system and regulatory challenges. Stability is also key for a stock exchange, says the CIO. "When you talk about Linux and smaller scale platforms, I like to be very conservative with regard to those architectures," he says. "I'm not trying to tell you that they're unstable, because I don't know. I know that Unix here - Solaris - has a lot of maturation. It's been here a while; it's been proven."
Steve Marlin of InformationWeek contributed to this article.