Global stock exchanges enter ‘technology arms race’

I tend to shy away from customer stories with all the revulsion I normally reserve for a Celine Dion album, so it is begrudgingly that I will mention that fact that IBM Software is announcing a raft of new customer wins in the financial sector.

Customers including FlexTrade Systems (a “pioneer in broker-neutral algorithmic trading platforms”) are upping their IT installations and helping to fuel the momentum being seen around many of the world’s 161 exchanges who appear to be driving a sort of technology arms race.

In some cases, entire trading systems are being ripped and replaced as the realisation dawns that even a modest increase in trading speed can result in huge profits and help exchanges compete better against one another. Essentially, they want to be able to identify the best time to buy and sell securities and thus determine the best trading trajectory for a given portfolio, but with pinpoint accuracy.

IBM says that large investment firms trade assets and shares in high volumes, which can have a major influence on the market price. If they buy or sell assets too quickly, the trading volume can shift the price and erode investor profits. On the other hand, if the investor waits too long to make the trade the price may slip due to market volatility, lowering the yield.

"Many companies in our field use rudimentary algorithms they've created in-house to schedule transactions, but in our view, anyone who's serious about optimization uses a powerful optimization engine like CPLEX from IBM," said Vijay Kedia, president and CEO, FlexTrade.

Whether or not you buy the arms race analogy, the key to IT-optimsed success on the markets is to be able to analyse key market factors in real time. These factors typically include time of day, number of shares, price, volatility and industry. Because these market factors are so numerous, changeable and complex, IBM insists that its software solves a challenge that is beyond the capabilities of the human brain or modern spreadsheets.

Unsurprisingly perhaps, IBM’s low-latency messaging and analytics technologies are of major use in this sector – and many of these new super fast systems are running Linux.

But would something simple such as file format incompatibilities restrict the widespread deployment of Linux even further throughout the financial services sector so that it sat on literally thousands of desktops? A little research told me that there is a conference every year called Linux on Wall Street for those who want to listen to speakers weigh up the various virtues of IBM’s offerings versus the likes of SUSE Linux Enterprise from Novell. IBM has in fact operated a “Linux Center” in Manhattan since 2002, so the market may be bigger than many of us think.