There are new dynamics at play in application software development and provision and this is having a particular influence on Financial Software Systems . New paradigms are available to software vendors selling systems or financial firms interested in building their own systems. These dynamics and paradigms are have been lead by the maturing of Open Source ideals and the embrace of Open Source Software by commercial organisations.
Over the past 10 years alternative investment firms have had substantial upgrades in their use of and access to information technology, this has enabled particularly the smaller firms access technology and systems previously only available to the large Institutional Managers.
Driven by outsourcing, the Internet and legislative reporting requirements, new players particularly around software provision have entered the financial software market challenging the traditional vendors to assess how they distribute and price their legacy products.
Particularly amongst hedge funds and other trading firms, there has been a large attraction to lease their core portfolio management systems on an outsourced basis. Allowing them to control their costs and transfer the responsibility of maintaining the system and all it components to the vendor which is set up with the appropriate skills and infrastructure. The trading firm can then focus on its core business, generating positive returns for its investors.
In deploying financial software, most firms never even consider building their own internal systems because of the capital cost and the time saving the comes with buying or outsourcing software and avoiding the overhead of maintaining the software. So how does Open Source impact of the IT strategy adopted by an Investment Management Firm.
A major factor effecting some trading firms which purchase or outsource, is that their requirements become greater than the outsourced solution can deliver. There are various reasons why this happens, three common reasons being:
- the richer operational processes
- new trading strategies and risk management requirements
- enhanced reporting and data analysis.
Enhancement requests to the software vendor can be declined if they don’t form part of the software’s future strategy or the requests may only be delivered in future release too long away. Alternatively building custom functionality outside the the software may require the firm to acquire technology skills and infrastructure it originally aimed to avoid. This all results in messy patchwork of fixes which is applied around the software in meeting the needs of the firms current requirements. All this effort stands to be lost if the firm decides to change software.
Outsource to Opensource
The phrase “Outsource to Opensource” refers to the process reshaping IT strategy by leveraging the benefits and opportunities available through the Open Source movement.
There are new breeds of companies that make their software and its source code available free of charge and sell professional services for commercial support of this software. There are two immediate benefits, firstly to the open source vendor which can now attract a community of external developers to improve and enhance the software. Secondly the software is now transparent, very useful for applications where calculations need to be validated for example risk management analytics or profit and loss valuations.
This is a trend started a number of years back particularly in the Computer Operating System space, companies like RedHat and Canonical (Ubuntu).
OpenGamma [http://www.opengamma.com/] is a very good example of this new breed of company in the financial software arena. They provide a comprehensive software product that is comparable to many traditional Risk Management software options. Trading firms now have a range of choices, from building their own tailored risk management system on top of OpenGamma which will not take years but months to deploy through to purchasing an implementation and maintenance service on similar terms to that of a traditional vendor.
The immediate benefits to this are:
- No vendor lock-in
- Increased software longevity
- Reduced total cost of owership
The trading firm has the ability to effect significant enhancements to the product itself as part of the general open source community. Other community members can choose to provide commercial support to the software on a level playing field with the open source vendor. Being able to evolve the product as and when the needs of the the firm evolve without messy compromises, results in the software having a longer and more cost efficient life cycle.
Navoh Partners [http://www.navohpartners.com/] a financial application technology company, has invested much research into open source software which has a particular bearing on Financial Applications. They have developed a suite of products that leverage the most from available open source software to provide comprehensive software solutions to Alternative Investment Firms. These products allow firms to either outsource their functional requirements or to deploy in-house solutions that exactly meet and can grow with their evolving requirements.
With the best of open source software, open standards and modern design patterns, Navoh Partners makes available a technology platform on which trading firms can benefit from:
- lower software and infrastructure costs
- get exactly what you require now and in the future
- have long term community and commercial support
- outsource the running and hosting of the software
- quick software implementation timeframes
Open Source Software: is referred to as software that is publicly available with a licence that is typically free and relatively unrestrictive. A full definition is provided by the Open Source initiative [http://opensource.org/osd-annotated].
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