More and more analysts start to believe that license based software business models are “pascaleozoic era” relics of the software industry. Though hedge fund software industry does not seem to catch up with the upcoming trend in the software business and continue to ignore open source software as an important part of their business operations.
Why? Why do hedge fund managers prefer paying annual license fees, support fees, one time engineering fees, integration fees for the proprietary systems that suck them into “long term relationship” with their software vendor instead of easy to start and easy to end “one night stands” with open source software projects. Just to get on board and migrate existing operations data to the new software system takes humongous amount of time and, off course, money – that eventually lead to “marrying” software vendor “for better or for worse”.
The answer here most likely lies in the specifics of the hedge fund business, where investing strategies are managers’ bread and butter and are guarded better than detainees in Guantanamo. Hedge fund managers are very sensitive when it comes to giving someone access to their investing strategies or even worse – making them public.
Would the hedge fund managers benefit from opening their software closets and contributing at least a bit of their technological wealth to the industry in general. My personal opinion – yes they will. Technology, hardware and software, is the major overhead cost in the business after headcount. By committing yourself to a certain proprietary system you are limiting yourself not only legally but also technologically. You are constrained by the technological capacity and innovative potential of your software vendor. Your software vendor in its turn is in the business of making money and you are his “cow to milk” therefore all the new features would come at a price with a three digits per hour price tag. If hedge fund open source software will take off and become popular with many contributors you would have an access to a much bigger and more diverse pool of technological “know how”. It will cost you nothing, besides customizing/integrating development cost while implementing it into your own operations infrastructure. Open source may give you tips on improvement to your strategies, lead to new ideas or you can simply adopt a lot of it without any changes. Unlike most of the proprietary systems, open source software will not bind you to a certain hardware manufacturers (that are used by your software vendors) and you would be free to chose what is best for you (and your pocket).
One can argue that its all good, but how about support, reliability and more importantly timeliness of those two. At least having a software vendor there is someone who can add a newly desired feature (that is very important) and at least there is some one to call when the system goes down and this someone is obliged to fix it for you in a matter of days. The answer to that is – if the open software would become popular in the hedge fund business there would be tons and tons of the individual freelance developers as well as dedicated software companies who would be specializing in customization and improvement of it. I believe you would be able to get and so much desired new features and support and you also will be able to shop for these services. Eventually you as a consumer will win.
If open source software has brought so much positive to consumers in other software industries (think Mozilla Firefox, Eclipse) why it can not do well in hedge fund software field???
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Open source software is not a news in the hedge fund world.
Tom L. Wood ran a firm called TLW Securities that developed a pioneering broker-neutral trading platform in the 1990s that offered almost everything I would like to have today. Ironically, Tom’s trading platform was developed in an open-source language called Tcl (pronounced tickle). At one point, TLW Securities, which specialized in hedge fund trading, handled more than 20 percent of the trading volume on the New York Stock Exchange.
Pavel Ahanouski
Open source has long flourished on Wall Street as financial services firms have sought competitive differentiation by tweaking open-source software for enhanced performance and functionality. Wall Street was the first sector to buy heavily into Linux, and it has also welcomed a host of other open-source infrastructure projects.
Indeed, Wall Street adoption has reached the point, in the words of a senior Accenture executive, Lloyd Altman, that open source has become a mandate for cash-strapped financial services firms tasked with doing more with less…
earlier this year JPMorgan contributed a calculation library for credit default swaps to the International Swap Dealers Association for the good of the world
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.
I would say Open Source is an upcoming trend in the hedge fund software world. Its market share (talking about complete projects and software products rather than just development tools) is still very small, though it should change over the years.