On Christmas Eve, BusinessWeek Online ran an article, “Bring Open Source into Hedge Funds.” Talk about hitting the nail on the head.
The article by Peter Algert, co-founder of the San Francisco-based Algert Coldiron Investors hedge fund, asks for some open-source love for hedge funds. He argues hedge funds are too focused on making money to collaborate on any solution, yet, technology is typically a hedge fund’s second largest expense, after headcount. He writes, “Our ‘secret sauce’ is our trading strategies—it’s not our systems for trading. These platforms can cost even a smaller fund like mine hundreds of thousands or even millions of dollars a year.”
Algert ends the article asking for a return of Tom L. Wood, the founder of TLW Securities, which was a broker-neutral trading platform developed in the 1990s. Though it once handled more than 20 percent of the trading volume on the NYSE, Tom sold TLW Securities in 1999 to a trading firm on Wall Street.
One additional Algert analogy I appreciated:
“Think of these proprietary systems that connect to one another and allow trades to happen as extremely expensive electrical cords. What if every appliance had a proprietary cord? What if you had to pay people to plug in these cords for you? How’d you like to pay $100 and up for every cord for every different appliance, plus engineering fees, plus a percent of the cost of the electricity? That’s a good business for cord companies, but lousy for consumers.”
We couldn’t agree more. The past couple months have brought a lot of press and purchasing attention to open source. Even CFO.com rang in the new year talking about open source: “By 2012 more than 90 percent of enterprises worldwide will deploy OSS in one form or another, predicts Gartner… over the past four years the corporate interest in OSS application and infrastructure software has shown a slow but steady increase.”
We’ve been beating the open source drum for financial services for two years now, and it looks like it’s finally catching on. We recently surveyed our user base and found that 100 percent of respondents would recommend Marketcetera’s open source automated trading platform to a friend or colleague. It’s unanimous, will the next Tom Wood please stand up? Oh wait, we already have.