The Challenge: Can Linux be trusted with high-end, mission-critical operations? Thus far, the open-source operating system developed by Linus Torvalds has made virtually no penetration into financial services. However, analysts are predicting steady growth rates.
When the executives at hedge-fund firm and technology provider Tradeworx were starting their business in 1999, they had to decide whether to run mission-critical systems on a proprietary platform from a vendor like IBM, Microsoft or Sun Microsystems or opt to build their own using the cheaper, but yet-to-be proven, Linux open-source-operating system.
The difference? Hundreds of thousands of dollars in costs, says Tradeworx chief-technology officer Mike Beller. He says using a proprietary system could cost $6,000 or more per CPU, while a Linux-based system would cost $1,000 to $2,000 per CPU. He also says the savings vary.
They could be 60 to 70 percent or, sometimes, only in the 20 percent range. There is a "huge cost advantage to using low-end technology. So much depends on what you are trying to do."
Not only that, but Beller says, "We needed a very scalable type of technology," to accommodate growth, which would add to the cost if the firm relied on a proprietary system.
He decided that the best way to save money and build a scalable system was to cluster a number of cheap Pentium-style CPUs together through the "inexpensive and stable (Linux) operating system," which allows "us to do a lot of things. It's rock solid," he says. "We have boxes that run for years and don't have to be rebooted."
It appears IT managers need to start thinking about where Linux fits into their IT business model.
TowerGroup, a firm which follows technology in financial services, notes that currently Linux penetration as a workstation-operating system in financial services is virtually nil, as is its penetration in the server-market share.
However, it predicts that the growth rate for Linux in workstations will be 4 percent in financial services and 23 percent in the server space by 2004.
Additionally, TowerGroup says the top 100 financial institutions are expected to spend more than $200 million on Linux by 2003, up from $50 million in 1998.
Sadru Teja, vice president of IT architecture in the systems and technology group at Toronto-based RBC Financial Group, which recently bought U.S. brokerages Dain Rauscher and Tucker Anthony Sutrow, says, "We are actually keeping a close eye on (Linux). We're waiting for it to mature a little bit from a clustering and reliability point of view. It's got a lot of potential."
The things Teja likes about it are that it's "free" and you can use an IBM mainframe to leverage Linux and cut costs.
Linux is the open-source operating system developed by Linus Torvalds.
The source code is free, which means that developers can adapt it to their needs without the worries of breaching licenses or paying fees.
It is used in a number of areas, from network to application development and as an end-user platform. It is considered a lower-cost alternative to other operating systems and firms like IBM and Sun Microsystems are starting to support Linux in their product development.
However, when it comes to high-end, mission-critical operations, Linux isn't thought to be up to the challenge.
It's "not a big player in the mission-critical space," says Al Gillen, an analyst at International Data Corp. Although, he quickly adds, "there's plenty of vendors trying to take it there, but it will be a little while longer before it becomes mainstream." Linux got a boost last fall, when the Securities Automation Corporation (SIAC) and its subsidiary, Sector, Inc., announced that they were porting key applications to Linux, with the help of IBM.
SIAC, which is owned by the New York Stock Exchange and American Stock Exchange, runs the computer and communications systems of those two exchanges and disseminates market information worldwide, while Sector is responsible for making SIAC's technology available to outside organizations.
SIAC announced it was moving its ARTMAIL application, which is responsible for delivering the daily activity reports of buy and sell transactions to Wall Street, from a Sun server to an IBM eServer zSeries mainframe that uses the IBM VM operating system to allow firms to run Linux "virtual servers."
At the time of the announcement, Steve Romano, senior vice president of SIAC, said about 4 to 5 billion shares trade a day, resulting in 15 to 20 million buy/sell transactions that must be processed.
"For these trading organizations, downtime cannot be tolerated. By leveraging Linux technology on IBM's mainframe, SIAC will improve availability while reducing server and maintenance costs," says Romano.
SIAC now plans to port its internal-management reporting from Access database, run on Windows, to IBM's DB2 Universal Database, run on Linux.
One observer says the move gives a "psychological boost" to Linux advocates. SIAC's people are "paid not to screw up." Moving something as mission critical as trade reporting to a Linux-type environment is "big."
However, Linux has downsides.
David Littlewood, director of financial services for Sun Microsystems Inc. in Palo Alto, Calif., whose Solaris-operating system is widely used among Wall Street firms, says that "because nobody owns (Linux)" it is "difficult to get a robust, and proven scalable type of application that securities firms need."
"You don't get to be mission critical and scalable overnight. It's going to take quite a while before it moves into the mission-critical space that firms really need. Firms want to see a track record."
Nonetheless, Littlewood says Sun is "quite pro Linux," noting there's a role for it in financial services. For example, he says its good for developing productivity tools, such as expense systems, Web applications and local-desktop applications.
Marcel van Hulle, vice president of worldwide sales for the Linux platform at IBM in Toronto, says there are two main reasons why customers move to Linux -- reliability and scalability. "It's an extremely reliable environment compared to NT."
Van Hulle says areas where he sees Linux being used are building firewalls, print and file sharing and Web services. Linux servers are also good for firms that have branch offices. "They're easy to maintain and can be replaced by someone onsite," she says.
The downside is that because no one owns Linux, firms are on their own and there is a shortage of software, making support a challenge. But as more developers come on board and firms like Sun, IBM and Oracle support Linux, those issues may become moot.
Beller is not worried about relying on the open-source system and his firm has developed its own middleware system and support for Linux.
When it comes to using Linux, he says management needs to have the "guts" to trust the "technical capability of staff ... Do that and there are wonderful benefits to be gained in terms of cost, reliability and flexibility."