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Wall Street Opens Doors to Open Source Technologies

The recession combined with access to a worldwide community of developers is driving capital markets firms to adopt open source technologies in increasing numbers.

To read about CME Group's experience with open source, see: CME Group Dives Into 'Coreboot' and Other Linux Open Source Projects

With the financial meltdown eroding IT budgets, large investment banks, hedge funds and other financial institutions have been forced to rethink their attitudes toward open source technology. Use of open source technology is quietly booming in the capital markets because of increased cost pressures, and analysts predict the current economic conditions will drive further industry adoption.

"Financial services firms are taking a different look at open source technology now that they are financially constrained," comments Lloyd Altman, a senior executive in Accenture's capital market's practice. Altman and others suggest there is now a corporate IT mandate to consider open source technologies as a way to save money and reuse existing technologies.

While banks and brokers have been running open source applications in the back office, including Linux and the free Apache Web servers, open source solutions now are finding their way onto the front-office trading desk. "What the crisis has done is shattered the orthodoxy in what is [accepted as the correct way to build out systems, and it has allowed people to think more creatively about how their software works," comments Graham Miller, co-founder and CEO of Marketcetera, an open source platform for building automated trading systems.

And while open source software has faced scrutiny -- over security and support concerns, for example -- some large Wall Street institutions are integrating the technology into their IT environments wherever possible, says Miller, who quickly adds that firms are only doing so in cases where they can maintain "maximum flexibility and control over their trading systems."

Amid the trend, Esper, an open-source event stream processing and complex event processing (CEP) solution, is gaining popularity on the Street. "You download it and you learn it. It comes with documentation," explains an industry source who is involved in the development of trading systems at a major investment bank. He points to several advantages of the open source software: "Esper is already built. Instead of being a standalone server product that runs as a separate product, it's a library that you link in with your own proprietary stuff. That way you don't have to worry about another additional process."

Many Wall Street IT developers and quants are participating in open source technology projects. Some of the largest investment banks -- including Morgan Stanley, JPMorgan and RBC Capital Markets -- use Eclipse, an integrated development environment (IDE) for Java, to develop fixed income trading systems, for example.

"It's kind of like creating your own Visual Studio, which is Microsoft's visual development environment, and the Eclipse framework allows companies to do that for their products," says Adam Honore, senior analyst at Aite Group, explaining the platform's popularity. "You can manage multiple applications from an Eclipse framework from a single integrated development environment."

In another example of Wall Street embracing open source ideals, earlier this year JPMorgan contributed a calculation library for credit default swaps to the International Swap Dealers Association for the good of the world, notes Accenture's Altman.

One of the more popular open source projects among the financial services industry is the Advanced Message Queuing, or AMQP, Working Group, which is collaborating on specifications for messaging infrastructure. Firms including Credit Suisse, Goldman Sachs, JPMorgan Chase and Deutsche Borse Systems participate in the open source AMQP Working Group and collaborate on standards for messaging infrastructure. Vendors in the low-latency middleware area -- including Tervela, 29 West, Solace System and Microsoft -- also have joined the project.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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