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Open Source Makes Big Gains at the London Stock Exchange

October 06, 2009

Posted by: Glyn Moody

At first sight, news that the London Stock Exchange (LSE) is moving from the Microsoft .Net-based TradElect to the GNU/Linux-based MillenniumIT system, is just another win for free software.

But the details provide some fascinating insights into the world of very high performance – and very expensive – enterprise systems.

For example, the LSE is not just moving from one application to another, but from running someone else's software to running its own, by buying a company that makes it. One reason: it's massively cheaper:

Compared to the bill of $65 million for TradElect, MillenniumIT, a Sri Lankan developer, is a bargain at $30 million. LSE gains a 100 per cent shareholding in the company, an offshore development centre (located near Colombo) with 451 specialists (around 300 in the software division) and the technology, which boasts high productivity, flexibility, robustness and considerably lower costs than TradElect.

LSE predicts annual cost savings of at least £10 million ($14.7 million) from 2011/12. ‘The new technology is a lot lighter, nimbler and easier to install,’ says David Lester, director of information and technology at LSE. It will also enable faster releases, he adds. The current wait is three to six months.

That's a pretty savage indictment of the costs of a complex .Net system. The GNU/Linux-based software is also faster, and offers several other major benefits:

The new platform will be based on Linux and Solaris, while TradElect is based on Microsoft’s .Net technology. The choice of the latter, which has raised quite a few eyebrows in the market, is defended by Lester. He claims that LSE is coming off TradElect not because of the .Net technology itself (although its trading speed is 2.7 milliseconds compared to Linux-based Chi-X’s 0.4 milliseconds), but ‘for more control, less costs, and the ability to build and innovate’.

Best of all, perhaps, are the knock-on effects:

With LSE and its Italian subsidiary, Borsa Italiana, converting to Linux, Microsoft’s .Net offering is left with virtually no takers – the only remaining one being Johannesburg Stock Exchange (JSE). ‘JSE has been aware for some time that the LSE has been considering its trading technology options,’ says Leanne Parsons, JSE’s chief operating officer.

The South African exchange ‘will be holding discussions’ with its UK counterpart regarding the latter’s technology replacement project. However, it is ‘a bit too early in the process’ to go into any detail, she adds.

A Norwegian exchange, Oslo Børs, which was supposed to start using TradElect in February 2010 (as a result of a service provider agreement signed by Oslo Børs and LSE in March 2009), will now also migrate to MillenniumIT’s offering.

So, rather than being just any old deal that Microsoft happened to lose, this really is something of a total rout, and in an extremely demanding and high-profile sector. Enterprise wins for GNU/Linux don't come much better than this.