Automated Trading's Brave New World Speed, Flexibility and Competitive Advantage Through Open Source Presented by Kevin Mc...
Agenda <ul><li>Introduction </li></ul><ul><li>The Market </li></ul><ul><li>The Latest and Greatest </li></ul><ul><li>Execu...
The Market
Electronic trading has drastically changed the US market Source: TABB Group and Exchange Data US Equity Share volume and t...
Shares by Execution Venue (volume weighted) ’ 06-’09 CAGR Trade flow is continuing to move from sales traders to low touch...
Volatility reaches wild highs… and stays there H 89.53 Source:  Yahoo! Finance, TABB Group
All of which will continue driving up data volumes OPRA Capacity Recommendations Messages Per Second (MPS) 4yr CAGR 98% 6y...
Data is not only abundant, but must also be fast 21% CAGR Spending on Low Latency Messaging Infrastructure $USD Millions S...
The Latest and Greatest
Trading systems are necessary in today’s market environment 98%
When finding liquidity hedge funds value their EMSs and OMSs above all other technologies <ul><ul><li>Which are the produc...
58 responses Why are  you planning to change your EMS? Are you planning to change your EMS? Nearly half of buy side partic...
58 responses Why are  you planning to change your OMS? Are you planning to change your OMS? Fewer are thinking about an OM...
26 responses What are the key factors in selecting an EMS? Customization and Integration are critical
Only the best will do <ul><li>More now than ever, buy side traders know what’s out there and what they want </li></ul><ul>...
So what’s the problem?
2 Yr CAGR 4% 2 Yr CAGR -12% The global trading system market has contracted
Due in large part to a decrease in overall IT spend by hedge funds Estimated Hedge Fund IT Spending ($USD Millions / year)...
98% How much do you pay for your OMS? The cost of broker-independent technology remains high
2 Yr CAGR 43% 5 Yr CAGR -15% Average Number of EMSs Used Buy side traders are consolidating trading activities onto fewer ...
Everyone must do more with less <ul><li>Hedge funds and asset managers will rationalize their application portfolios over ...
Growing while contracting
Hedge Fund Usage of Broker Independent EMSs Proprietary trading platforms are still common  Asset Manager Usage of OMSs
… but IT budget cuts and new off the shelf technology are causing a change <ul><li>Internally developed systems are tailor...
The best of both worlds – Buy vs. Build <ul><li>Buy </li></ul><ul><ul><li>A working (and proven) system right out of the b...
Open source growing in financial services <ul><li>The use of Linux is widespread from major exchanges to top tier investme...
In steps the open source trading system <ul><li>The idea of an open source OMS may prove a good alternative for those cont...
What the future holds
Current Satisfaction with EMS Elements Despite generally high markets, more innovation is needed
Summary <ul><li>In an effort to cut IT spend and create a more efficient trading process, the buy side is increasingly loo...
Automated Trading's Brave New World Speed, Flexibility and Competitive Advantage Through Open Source Presented by Kevin Mc...
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Automated Trading's Brave New World: Speed Flexibility and Competitive Advantage Through Open Source

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In this presentation, TABB Group senior analyst, Kevin McPartland, and Marketcetera CEO, Graham Miller, discuss how open source has come to chance the ecosystem for automated trading in financial services insitutions.

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  • Automated Trading's Brave New World: Speed Flexibility and Competitive Advantage Through Open Source

    1. 1. Automated Trading's Brave New World Speed, Flexibility and Competitive Advantage Through Open Source Presented by Kevin McPartland TABB Group
    2. 2. Agenda <ul><li>Introduction </li></ul><ul><li>The Market </li></ul><ul><li>The Latest and Greatest </li></ul><ul><li>Execution Management Systems </li></ul><ul><li>Order Management Systems </li></ul><ul><li>Looking Ahead </li></ul>
    3. 3. The Market
    4. 4. Electronic trading has drastically changed the US market Source: TABB Group and Exchange Data US Equity Share volume and trades Dec 07 Avg. Trade Size 247 Shares / Trade Jan 97 Avg. Trade Size 1,477 Shares / Trade Decimalization
    5. 5. Shares by Execution Venue (volume weighted) ’ 06-’09 CAGR Trade flow is continuing to move from sales traders to low touch channels
    6. 6. Volatility reaches wild highs… and stays there H 89.53 Source: Yahoo! Finance, TABB Group
    7. 7. All of which will continue driving up data volumes OPRA Capacity Recommendations Messages Per Second (MPS) 4yr CAGR 98% 6yr CAGR 81%
    8. 8. Data is not only abundant, but must also be fast 21% CAGR Spending on Low Latency Messaging Infrastructure $USD Millions Source: TABB Group Estimate Percentage of Firms Using Low Latency Data
    9. 9. The Latest and Greatest
    10. 10. Trading systems are necessary in today’s market environment 98%
    11. 11. When finding liquidity hedge funds value their EMSs and OMSs above all other technologies <ul><ul><li>Which are the products or tools that are most useful to you? </li></ul></ul>
    12. 12. 58 responses Why are you planning to change your EMS? Are you planning to change your EMS? Nearly half of buy side participants plan to change their EMS in 2009
    13. 13. 58 responses Why are you planning to change your OMS? Are you planning to change your OMS? Fewer are thinking about an OMS change, yet consolidation is still a key driver
    14. 14. 26 responses What are the key factors in selecting an EMS? Customization and Integration are critical
    15. 15. Only the best will do <ul><li>More now than ever, buy side traders know what’s out there and what they want </li></ul><ul><li>Despite the complexities involved, buy side traders are still willing to make a change to their current OMS or EMS </li></ul><ul><li>The ability to customize, integrate with existing technology and consolidated needed functionality is critical </li></ul>
    16. 16. So what’s the problem?
    17. 17. 2 Yr CAGR 4% 2 Yr CAGR -12% The global trading system market has contracted
    18. 18. Due in large part to a decrease in overall IT spend by hedge funds Estimated Hedge Fund IT Spending ($USD Millions / year) Scenario 3: Steep declines in the number of funds and IT spend among survivors Scenario 2: Across the board decline in hedge funds, and modest declines in IT spending Scenario 1: Current industry figures with modest declines in IT spending Pre-Crisis Spending Estimates
    19. 19. 98% How much do you pay for your OMS? The cost of broker-independent technology remains high
    20. 20. 2 Yr CAGR 43% 5 Yr CAGR -15% Average Number of EMSs Used Buy side traders are consolidating trading activities onto fewer platforms
    21. 21. Everyone must do more with less <ul><li>Hedge funds and asset managers will rationalize their application portfolios over the next year </li></ul><ul><li>The buy side will look to access all broker provided trading tools through a single interface </li></ul><ul><li>Counterparty risk concerns from the global financial crisis will leave some looking for alternatives to broker provided solutions </li></ul><ul><li>Doing more with less continues to be the trend </li></ul>
    22. 22. Growing while contracting
    23. 23. Hedge Fund Usage of Broker Independent EMSs Proprietary trading platforms are still common Asset Manager Usage of OMSs
    24. 24. … but IT budget cuts and new off the shelf technology are causing a change <ul><li>Internally developed systems are tailored to meet the needs of the firm, but starting from scratch and ongoing support is too expensive and time consuming for many hedge funds in today’s environment </li></ul><ul><li>Off the shelf trading technology can prove too sophisticated and too expensive for smaller funds </li></ul><ul><li>What other options are there? </li></ul>
    25. 25. The best of both worlds – Buy vs. Build <ul><li>Buy </li></ul><ul><ul><li>A working (and proven) system right out of the box </li></ul></ul><ul><ul><li>Ongoing support for the product </li></ul></ul><ul><li>Build </li></ul><ul><ul><li>Complete control over the code base </li></ul></ul><ul><ul><li>A system unique to your competitors </li></ul></ul><ul><ul><li>Customizations at will </li></ul></ul><ul><li>Open Source </li></ul><ul><ul><li>All of the above </li></ul></ul>
    26. 26. Open source growing in financial services <ul><li>The use of Linux is widespread from major exchanges to top tier investment banks </li></ul><ul><li>Products such as MySQL and Apache sit underneath many mission critical applications </li></ul><ul><li>A number of banks along with an enterprise messaging provider all support the development of the AMQP messaging standard </li></ul><ul><li>OrecX is used to record spoken trade details </li></ul><ul><li>Financial specific Open Source projects continue to grow in sophistication and usage such as Quick FIX and QuantLib </li></ul>
    27. 27. In steps the open source trading system <ul><li>The idea of an open source OMS may prove a good alternative for those contemplating whether an internally developed system makes sense. </li></ul><ul><li>Open source platforms are created by a community of developers and distributed for free. Providers make money from these platforms by charging fees for maintenance and support. </li></ul><ul><li>A few years ago this idea seemed crazy for financial services, but in today’s cost conscious environment an open source OMS can provide just the right blend of buy vs. build for some buy side firms. </li></ul>
    28. 28. What the future holds
    29. 29. Current Satisfaction with EMS Elements Despite generally high markets, more innovation is needed
    30. 30. Summary <ul><li>In an effort to cut IT spend and create a more efficient trading process, the buy side is increasingly looking to rationalize their use of trading technology. </li></ul><ul><li>Buy side traders know what they want, making customization key </li></ul><ul><li>Everyone is trying to figure out how best to do more with less </li></ul><ul><li>Open Source can provide a piece to that puzzle for many </li></ul>
    31. 31. Automated Trading's Brave New World Speed, Flexibility and Competitive Advantage Through Open Source Presented by Kevin McPartland TABB Group

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