Wall Street’s Secret Affair With Linux

Wall Street’s big brokerage houses, always on the lookout for new technology that might give them an edge over the competition, are turning to Linux in a big way. While Linux servers could be found on Wall Street in the past, in skunkworks projects or running small, non-essential applications, the recent economic downturn is making the free operating system look more and more attractive.

“There’s been a marked change in attitude towards Linux in the last six to nine months,” says Mark Hunt, Global Director, Enterprise Product Marketing at Reuters. Reuters has ported its Reuters Market Data Systems (RMDS), which provides real-time market data and financial news, to Linux. Merrill Lynch & Co. is running RMDS on Linux.

“Every major Wall Street firm has at least a pilot going on with Linux,” says Vern Brownell, the former CTO of Goldman Sachs. “And more than half of them are probably in production with mission critical applications.”

Brownell is now head of Egenera, Inc., a Marlboro, Mass.-based firm making a mainframe-class blade server which runs Linux. Egenera’s blade server, running Red Hat Linux, is in use at Credit Suisse First Boston Corp., where it processes some 60 million financial transactions a day. A half-dozen other Wall Street firms are also using Egenera’s blade server, according to Brownell.

Support for Linux from the major computer industry vendors, including IBM, Hewlett-Packard, Oracle, and more recently, Sun, has made the open source operating system acceptable to management of Wall Street firms. IBM recently announced that it is building a Linux porting and testing center in New York, aimed at helping Wall Street firms migrate to the open source operating system. Wares from software vendors whose products are widely used on Wall Street, including Sybase and SunGard, will also be on display at the center.

But it appears to be the downturn in the economy, more than anything, that is driving the move to Linux. As the stock market has headed south, revenues at brokerage firms are dipping.

“Everyone on Wall Street has been using Linux in some fashion, whether using it to power a Web server or just playing with it in the lab,” says John Osmond, an IBM market development executive for the financial services industry. “But what is spurring it in particular now are the business pressures. There’s a huge pressure on costs right now, and people are looking for operational efficiencies.”

Testing at Lehman Brothers, for example, showed that a Linux-based system would cost roughly one-quarter as much as its existing server system, according to published accounts.

The Linux system Lehman Brothers tested was also twice as fast as its current servers. That’s a key factor in the brokerage industry as well. “The investment community is finding that not only can they use cheaper hardware platforms, but they can get a performance advantage as well,” says Hunt. “And on Wall Street, your edge in the market is really determined by the efficiency of your information technology.”

Close To The Chest

Perhaps because Wall Street firms view technology as a competitive advantage, they’re frequently tight-lipped about what goes on behind the doors of their data centers. So while Linux may be spreading rapidly on Wall Street, the brokerage firms aren’t always anxious to publicize that fact.

Although IT executives from Wall Street firms like Salomon Smith Barney, Credit Suisse First Boston and Morgan Stanley Dean Witter have spoken about Linux at trade shows like LinuxWorld, not all of them are willing to speak to the media. For the record, Jeff Birnbaum, CTO of Morgan Stanley will only say “we’re using Linux, but we’re not being more specific than that.”

Wall Street firms are “very keen to look over their shoulders and see what the other fellow is doing,” says IBM’s Osmond, “but at the same time, they never want to say what they’re doing. They like to keep their cards close to the chest.”