A German bank wants to introduce open-source development to the insular, security-conscious world of investment banking.
The London-based investment banking arm of Dresdner Bank AG, Germany's third-biggest bank, this week launched its custom-built, back-end integration tool, called Open Adapter. The open-source application lets the bank reconcile its global banking and trading accounts faster.
By placing the software in the open-source community, Dresdner Kleinwort Wasserstein hopes to promote the use of the integration tool at other banks, said Al-Noor Ramji, CIO at the investment bank.
"The domino effect should be the reduction in the time it takes to make and settle a trade," he said. Using the tool, Dresdner has cut its account settlement times from five days to three and hopes to reduce the cycle time even further to just 24 hours.
Ultimately, reducing settlement times for closing open transactions could drastically reduce the bank's financial risk. On a daily basis, the investment bank is exposed to US$2 billion in risk from open transactions across 10,000 customer accounts, Ramji said.
Ramji said it cost approximately $5 million to develop the Java-based Open Adapter, which uses XML to describe investment banking transactions and runs on Apache and Linux. The software code is available at www.openadapter.org, a site that is hosted by Brisbane, Calif.-based CollabNet Inc.
Individual developers and banks have access to the source code and are free to tailor it to their needs.
While Dresdner hopes proliferation of the application will boost trades and therefore business, firms should be warned against trying to imitate Dresdner, analysts said.
"Our suggestion is to first check whether you can buy or blend software rather than building a complicated infrastructure," said Massimo Pezzini, an analyst at Gartner Group Inc. in Milan, Italy.
Pezzini cited the relatively higher costs of maintaining large custom-built applications as opposed to commercially packaged applications.
"Some things are so painful that they are not worth developing on your own," said Tracy Corbo, an analyst at Hurwitz Group Inc. in Framingham, Mass. "Traditionally, banks build a lot of their own stuff, but now, as time becomes of the essence, we're seeing a commoditization of the applications in that industry, and it might not make sense [for other banks] to develop custom applications."