For his part, Larry Tabb, CEO of the Tabb Group, a financial markets research and consulting firm, said the Wall Street trading environment currently faces a lot of challenges, especially the need to manage high-speed small transactions on a huge volume basis.
There is also a great need for agility at speeds never seen before, with some 20 firms trying to put out customized trading models to meet the needs of their customers, he said.
"So, it becomes an arms race for the brokers to develop the most sophisticated systems and get those out to market really quickly. They cannot just go out and create this from scratch every time, and they need an open core set they can leverage," he said.
For every trade executed on Nasdaq in August 2005, there were 16 cancellations, a figure that is set to rise to 60 cancellations for every executed trade this year, Tabb said. The number of quotes per trade is also set to rise from 36 in 2005 to 63 in 2006. "This is an enormous amount of data," he said.
Open-source trading standards are at the root of this, not on a code basis but around the underlying standard that allows users to communicate consistently.
This is largely due to The Financial Information eXchange (FIX) Protocol, a messaging standard developed specifically for the real-time electronic exchange of securities transactions, and its penetration on both the sell and buy sides of the business.
"Open source and FIX are also the salvation as they allow a standardized infrastructure so firms can focus on the value-added states; it jump-starts initiatives. FIX also does not stop vendors from competing in this space," he said.
"Linux has also been a tremendous boost to the trading environment as it enables greater control of the server operating system, allows easier clustering and grid marshalling, and lets users leverage less expensive hardware with greater throughput," Tabb said.
Linux and open-source technologies are here to stay, and customers need to leverage what is available today but also contribute to the existing pool. "Also, know where open source fits and where it doesnt, and focus on the value-add," Tabb said.
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