Hello everyone,

Today we are announcing the release of Marketcetera’s Automated Trading Platform version.9. Here are some highlights:

Community
As we continue to evolve the product, we have received tremendous community feedback. To further improve our communication and coordination with our community, we are launching new community tools for documentation (Confluence), bug/issue tracking (Jira), code browsing and reviewing tool (Crucible). We would also like to give credit to Atlassian for providing us with free open source licenses for those tools.

Openness
One of our key design principles is openness and the ability to provide our customers access to the broadest possible array of market data. As another step in this direction, we are please to announce our support for OpenTick Market Data in addition to Activ Financial.

Usability
Again, our community has been invaluable in the area of usability, providing several suggestions for improvements, two of which we were able to address in this version of the product. First of all, we have added the ability to filter and search FIX views in Photon. Secondly, we have improved our desktop notification by adding the ability to enable sound and visual notifications

Control
Rapid implementation of strategies depends on providing the development community the control and tools they require to efficiently customize solutions for their institutions. In our latest release, we have upgraded Photon environment to Eclipse 3.4.1, we have implemented the latest release of the Ruby IDE and created the ability to build Photon directly from Eclipse

Along with the new features we have also implemented a new registration process. Access to downloads, documentation and tickets requires registration to ensure that we can scale our support and service capabilities. Previous registrants will receive new credentials today or tomorrow

As always, we are very interested in your thoughts and feedback. If you have not yet downloaded our software or you are looking for this latest .9 release,  you can find detailed configuration information online or email me directly. Please feel free to post or email me directly.

Download. Run. Trade,

Roy Agostino
CMO, Marketcetera

As John Donne once, almost, famously said, “No open source project is an island, entire of itself.” We might have taken some liberties with the exact wording, but we at Marketcetera take the essential meaning to heart: our products do not exist in a vacuum, they are the building blocks of a greater whole consisting of our partners and other interacting vendors.

We’ve built Marketcetera in that spirit, to be a true open source product with a transparency and flexibility that welcomes add-ons. Front office or back, Eclipse or Java, our platform is built to seamlessly plug into the greater functionality that financial service applications can provide. Graham Miller, our CEO, went into a few of the specifics in an interview with ZDNet’s Dana Blankenhorn last April:

“We have an Eclipse based front-end and a Java-based server back-end. We make use of Ruby scripting in several places – we integrate the JRuby scripting engine in the front-end. We also have a Rails application.”

Still, anything which can build Java code, can build Marketcetera add-ons. “We have an integration story for .Net and other languages,” Miller adds.

But, since most of our customers won’t be building their entire front or back offices from scratch, our partnerships let us package together the best of breed open source solutions for one seamless investment cycle.

Our teaming up with open source integrator dbConcert, announced last week, marks one prime example. The new service package allows dealers and brokers to monitor their trading platforms — including network connections, order flow, and market data — with an unprecedented agility. Our other partners include ACTIV, which helps us provide ultra-low-latency data feeds, event processing and trading strategy development tools.

So where to next? We’d like to move into other parts of the investment cycle, increasing our back office functionality, middleware capabilities, and access to market data. As major financial firms and trading houses re-evaluate the way they do business, open source companies are teaming up and making major forays into this most conservative of markets. Let us know if you’re interested in a partnership with Marketcetera.

When The 451 Group approached Marketcetera 2 months ago to contribute to a commercial open source report, we weren’t quite expecting the end result to be titled, “Open source is not a business model.”

The analyst firm surveyed 114 open source companies, including Marketcetera, on their business strategies. They sought to answer the question that plagues every open source vendor at cocktail parties and VC pitches alike: “How DO you make money if you give your product away for free?”

The answer, it seems, is not simple. The title tells us briefly what open source is not, but the report takes 71 pages to approximate what it can be.  Matt Aslett lists the highlights on The 451 CAOS blog, and sums up the larger idea by saying,

“Open source is a business tactic, not a business model. Open source is not a market in and of itself, nor is it a vertical segment of the market.”

At Marketcetera, we’ve taken the stance that open source should be considered more from the customer’s point of view than the vendor’s. As I wrote in last week’s blog post, open source is a disruptive force in the financial services industry that shifts leverage back to the customer and allows them to define what constitutes value. We’ve already seen this with Linux and are now seeing penetration at the application level.

And from the customer standpoint, open source is what makes our product more valuable than those of our proprietary competitors. For example, if your automated trading system is saving you $10K/day in mere efficiency, why wait 9-12 months to get your system running when open source offers the ease of integration and customization to get you up in days or weeks? This is especially relevant for financial services organizations that demand both a high level of customization as well as the fastest possible implementation of their proprietary trading strategies.

Aslett further notes that the line between open source and proprietary software is blurring as the former is incorporated into the latter’s hardware and software. We can’t disagree. Our Eclipse front end and Java back-end allow our customers and partners to build onto and integrate Marketcetera with proprietary systems.

But, all of this isn’t to say that open source is no longer a business model. We find it a great way for financial services organizations to get comfortable with our software before they need to make significant financial commitments, but it’s also a mindset and a way of approaching what software could – and should – be. With our upcoming 1.0 product launch, we’ll show just how sustainable open source as a business model can be.

Our team just returned from Wall Street and a battlefield tour of our current market travails. What became clear to me, through our discussions with customers, prospects, analysts and press, is that the current market volatility will accelerate the industry’s adoption of open source software.

Financial institutions have a deep and abiding frustration with incumbent proprietary vendors.  Hedge fund IT departments labor mightily to implement new trading strategies and add analytics so they can beat their competition.  Unfortunately, proprietary software vendors have them in a stranglehold with products that inhibit them from acting quickly or making changes easily. New trading strategies are delayed because the different parts of the system don’t communicate easily with one another.

This is, of course, a structural problem. Proprietary vendors hide their code because they want to capture as much “share-of-wallet” as possible. After all, if your code-base is highly secretive, you have an excuse for not integrating with other vendors in the ecosystem and you can line your pockets by selling solutions to that problem while you’re at it. It’s as if your General Practitioner also wants to be your surgeon, so he refuses to release x-rays of your appendix to the person cutting you open.

Open source software, however, is motivated by exactly the opposite imperative. Open up the code so you can have flexibility, fast implementations and ease-of-use. Offer all the necessary APIs so your open source software can fit into existing ecosystems and can be modified or extended easily. Then, when customers like what they see, let them come to you for more.

Of course, open source software isn’t new. It infiltrated IT departments at the operating system level over 15 years ago. As Wall Street recovers from its current state, open source will proliferate at the application level to bring competitive advantage to trading firms at a much lower cost. The benefits will not only be found in customization and savings, but also in the speed of implementation which will allow traders to achieve Alpha more quickly.

A plague of locusts, a river of blood, maybe some boils?

Hello everyone, my name is Roy Agostino and I am the newest member of the Marketcetera team. I joined just as the latest market gyrations began and I am very curious on the community’s thoughts on how we will emerge from this turbulent period. From my perspective, even as we watch the latest daily storm buffet the industry, it helps me to step back and begin thinking through how current market forces will reshape the financial services industry.

Pauline Skypala, writing in the Financial Times,  muses that even the term “hedge fund” will lose meaning as they converge with the traditional asset management industry. Hedge fund managers actively manage risk (and focus on absolute return), while their more traditional counterparts focus on risk relative to a benchmark (and relative returns).

I maintain that our current market travails will fuel a fundamental change amongst investors, who will insist upon much more transparency and trading strategies built around explicit risk management models. I agree with Skypala’s sentiment that asset managers will find themselves refining their focus as they move away from a “super-market” model of strategies and instead adopt a “boutique” model requiring a deeper subject matter expertise to truly generate alpha.

I also believe this emerging market will also drive a realignment of technology vendors serving the financial services industry. Industry veterans have long suffered with disparate tools never intended to work together, lengthy deployment projects, and vendors more focused on increasing “share of wallet” than customer satisfaction.

While the financial services industry was thriving and prosperous, second-rate vendors were tolerated grudgingly. This brave new world, on the other hand, will see a brutal shakeout and the failure of several sub-standard vendors. Speed, inter-operability and above all else, control will be the defining characteristics of the few software vendors left standing. The speed at which portfolio managers are able to develop and back-test a strategy, raise investor interest, and begin trading on the strategy will determine their likelihood to emerge as a leader (with all the out-sized benefits that entails) in this new era.

Control, speed and inter-operability, the watchwords of our recovering industry - in the meantime, mind the hail!

Let’s not debate the merits of the enormous regulatory changes from the SEC today, but take it as a given that we all need to deal with it.  Today’s unheralded announcement, as well as the 2 week expiration date, represent lightning-fast time frames in an industry that is typically given years to prepare for such large  structural changes.

The software you use should be able to adapt - quickly.  It touches every part of your trading business from regulatory (obviously), to trading strategy formulation, to risk management. When even extra-loud value investor Jim Cramer is suggesting short-term trading strategies because of these changes, you know this represents a fundamental shift.

So how are your systems faring?  What would you like to see them do better? And, what would you like to be able to change right now?

It’s been an eventful week in the capital markets, as four fairly large dislocations sent traders scrambling.
I’m not going to comment on the Fannie/Freddie bailout, or on the glitch at the LSE that halted trading for much of Monday.  And I’ll leave it to Paul Kedrosky at “Infectious Greed” to draw a connection between the Lehman announcement and the first test of the Large Hadron Collider.

But let’s look at the darkly comical story of the United Airlines stock plunge at 11am Monday. The catalyst was when a reporter at Income Securities Advisor re-posted a 2002 United bankruptcy filing, feeding a wire service published on thousands of Bloomberg terminals worldwide and flagged as “new” news.

At this point, both traders already skittish about United’s outlook and automated trading systems interpreting the headline negatively began quickly selling stock.

UAL stock takes a dive as the trading volume surges:

The ex-post finger-pointing was, of course, inevitable, but an inordinate share of the blame has been directed towards automated trading systems: “The use of algorithms — which allow computers to make decisions in fractions of a second — appears to be a main culprit in the UAL case”, claims Jonathan Spicer in a Reuters analysis piece.  Quoting marketplace concerns about “taking human judgment out of the news processing”, Spicer concludes that “there’s little doubt the problem was exacerbated by automated trading.”  Yet despite Spicer’s own lack of doubt, he presents no facts or evidence to support this subtle luddism.

To conclude that this market dislocation was caused by automated trading systems gone haywire is to ignore the answers to some fundamental questions.  What were traders without automated systems doing?  And were automated systems doing what their traders were asking them to do?

I spoke with an option trader yesterday who bought puts in UAUA shortly after the headline hit his screen, based on some incomplete information and a quick decision.  Certainly, in retrospect, and in this specific instance, he wishes he had taken the time to call United for confirmation before making his trades.  But had it been a “real” trading opportunity, the opportunity would likely have disappeared in the time it took him to dial the phone.  Trading often requires us to  make decisions on imperfect or even incorrect information, balancing efficiency with confidence.  That concern is in no way limited to the world of automated trading systems.

Automation did not go haywire here.  This was not a cousin of the once-feared Y2K bug, causing computer systems to behave unexpectedly or disastrously.  There are no reports of automated systems doing anything except what their managing traders asked them to do in these precise circumstances; in fact they were doing exactly what other traders in the marketplace were doing or trying to do manually themselves.

Human traders who trade too pathologically quickly on unconfirmed rumors ultimately find themselves at a competitive disadvantage, and before long are financially drummed out of the marketplace.  The same is true of course for any traders who use various tools - like real-time data, electronic order entry, direct market access, automated trading systems, and so on.  Traders with or without automated systems who were too aggressive selling shares of United now find themselves at a financially competitive disadvantage in the marketplace; traders who smartly took the other sides of these trades are now better off.  This process makes the marketplace stronger and more robust in the long run.

The world financial system is nothing if not astounding complex, and we must prepare ourselves for the impossibility of eliminating all human error.  We all remember how a few weeks ago Bloomberg resurrected Steve Jobs (in fewer than three days, no less).  Fallibility is a constant, so it is imperative that we design our systems and train our human and algo traders to strike the correct balance between immediacy and confirmation. As we have said before, it’s not the technology that will make you money, it’s how you use it.

And for those of you still worried if the LHC will destroy the world - check back at this website often.

A few weeks ago we blogged about how block trades have been melting into streams. Buy side, and sell side institutions have already, for the most part, incorporated the new paradigm into their business models.  This week we get news that another exchange has figured it out.  The Deutsche Börse made an announcement that they are cutting the fees for small orders on their Xetra electronic trading platform.

Seeing an increasingly important portion of their revenue stream–that derived from small orders–end up in the hands of alternative trading venues, they took the fairly drastic step of altogether abolishing the €0.60 minimum fee for executed orders. Naysayers point out the €35m in “lost revenue” this will cause based on their current order-flow statistics, but we believe–clearly as does the Deutsche Börse–that this  will lead to dramatically increased streams of smaller orders.

So automate at will; break your blocks into streams, and be confident that the exchanges of the world are moving along with you.

As you might have seen, this week we announced support of Activ real-time market data in the Marketcetera Platform.  Given the limited space in a press release, we weren’t able to say very much about why we think this is a great opportunity.

I’ve actually been a buyer of Activ’s data feeds for many years (I think I was one of their first customers years ago).  And there are several reasons why we keep coming back:

• Fast—Activ’s engineers are constantly working to reduce latency in their market data feeds.  Through custom software, network architecture, and even hardware, they can deliver market data to your doorstep as fast as you need it.
• Phenomenal data—Activ’s data feeds include a wealth of data in addition to the realtime data.  Our customers especially appreciate the full suite of descriptive data about equity options and dividends.
• Pure Java client— Activ provides native interfaces for a number of languages, including Java. This one is key for us, given the use of Java in the Marketcetera product.
• Flexible technology—Activ will even expose its middleware layer for use by and integration of your applications.

Together with these offerings the Marketcetera Platform becomes a more powerful tool for building front-office trading applications.   In short, we are proud to present Activ market data through the Marketcetera Platform.  Please drop us a line if you are interested in the Activ adapter.