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Wall Street's Mission: Cutting Costs While Staying Competitive

With lower trading volumes and more regulations, capital markets firms look to open source and other technologies to reduce IT infrastructure costs.

The Open Source Advantage

Another way firms are cutting costs is with open source technologies, which are free to license but can be customized to meet a company's specific needs.

When Sanjib Sahoo, CTO at optionMonster and tradeMonster, launched an online trading platform in 2008, he turned to open source technologies. "We're saving a ton of money," he says.

The online brokerage runs its platform and infrastructure on the LAMP (Linux, Apache, My SQL and PHP) stack. By using MySQL instead of a commercial database, it has saved millions of dollars over the past three years, which is a significant percentage of its technology budget, Sahoo says. "I think we're the only brokerage firm primarily running on open source," says Sahoo, whose 60-person IT team develops everything in-house. The firm has had a 99.98% uptime, with reliability and scalability that meets the needs of active investors, he says.

OpenGamma's Wylie agrees that there's savings to be had from in-house development. "Any firm that's done custom development will find that it can consume 46% of their total annual spend in risk and analytics," he says. The first version could take 20 person-years and cost $250,000 per person-year, adding up to a $5 million project, he says. And the cost of maintaining, supporting and enhancing the system over its life could be 10 times the initial build cost.

However, Wall Street firms are wary of using open source for trading applications since they don't want to contribute their proprietary code to the community, Wylie says. "The client doesn't have to post anything to the community. Firms don't have to open up their secret sauce to us, but just the stuff that has to talk to our code."

New Financial Reality

Even with cost cutting, firms will still want to do their own internal development to capture a competitive advantage in whichever market segment they decide to pursue. "The financial game is changing, the margins are getting smaller and, the way the economy is, you have to be set up to trade across asset classes," says Fintan Quill, senior engineer with Kx Systems, a provider of databases and tools for processing real-time and historical data.

Sun Trading recently expanded its use of Kx Systems' kdb+ database to support cross-asset trading across new markets and geographies. It uses the platform to enter new markets when an opportunity arises. In contrast, firms with older systems built to handle just one asset class have a difficult time adapting to new markets. The Kx database's real-time analytics and speed has let Sun Trading quickly bring trading ideas to the market, says CIO Kurt Lingel. Sun Trading plans to use Kx to address research and analysis needs as it continues to diversify across multiple asset classes and markets, he says.

[Legacy Outsourcing Requires A Delicate Touch ]

Sun Trading's Chicago and London offices will use the Kx database to capture and analyze large volumes of data in real time for quantitative trading. The move is cost effective because the firm is using the same hardware and staff for all the data, Kx's Quill says. "They're getting better bang for their buck by using one technology to house their data," Quill says.

As specific trading teams look across different asset classes, it's useful to have data in one system, especially if low latency is involved, he says. "If you're doing a correlation trade between FX and something else, from a purely technological standpoint, you'll get a faster return on investment, and you don't need to develop a separate infrastructure," says Quill.

As firms are driving toward efficiencies and being cost effective, it's a prime time to ask what business you want to be in, says Capco's Adiletta. There's a big transition under way from simply trading equities to cross-asset trading, he says. In other words, as their business model changes, firms must capture more market opportunities by capturing more data. "When you look at transformation, it's important to look at expanding your business model to other asset classes and methodologies," he says.

To achieve a transformative reduction in infrastructure costs, experts suggest that firms will need to learn new ways of deploying infrastructure, such as leveraging the cloud. A hybrid operating model is one option in which firms no longer run dedicated infrastructure, says BT's Akass. "They can maintain key parts of their infrastructure and integrate it with other companies," he says. For example, industry-specific clouds, such as NYSE Technologies' Capital Markets Community Platform and BT Radianz's cloud, can provide connectivity to numerous exchanges and deliver data from multiple information providers, some of which sit within their own data centers. "They could save money by not having duplicate links and infrastructure," Akass says.

But no matter what the specific business strategy is, whether it's a multiasset trading approach or something else, firms need to reduce cost, complexity and time to market. Existing systems have powered the industry for decades, but new regulations and budget pressures are forcing CIOs to rethink all parts of their infrastructure spending. n

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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Greg MacSweeney
Greg MacSweeney,
User Rank: Apprentice
1/15/2013 | 10:22:00 PM
re: Wall Street's Mission: Cutting Costs While Staying Competitive
The IT budget cutbacks will continue for the next few years and firms will be forced to look to more efficient technologies, lower cost technologies and elimination of many many many duplicate systems.
Melanie Rodier
Melanie Rodier,
User Rank: Author
1/10/2013 | 7:07:21 PM
re: Wall Street's Mission: Cutting Costs While Staying Competitive
Interesting times, particularly seeing how regulations and the economy are still changing the financial institution landscape four
years after the financial crisis, but all the while the cut-backs are driving some really great innovation. -
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