Bank of America Merrill Lynch’s Josephine Kim lays out the reasons why the close price benchmark is so important and how experienced traders can utilize technology to meet the benchmark.
Close Price Benchmark
Mutual Funds Interest in the closing price is due to the structure of the market. Mutual funds are marked at the end of the day at the closing price. This is the published net asset value (NAV) that indicates that the mutual fund will be marked once a day, and where all the purchases and sales of that mutual fund will be marked at. This is a relic of the market structure of mutual funds. Now, mutual funds are not traded each year or all day long – buys and sells are made at any point during the day and the price is given at the market close. If mutual funds are traded on any given day, the mutual fund trader is going to attempt to get the closing price if at all possible.
Transition Trades Another way in which a trader would try to beat the closing price is via a transition trade. This is when a pension fund moves assets from one manager to another by selling the assets in one manager’s holding in order to buy the assets from another. The pension fund may go to a specialist transitional manager, who takes all the holdings from the current manager, sells them, uses the proceeds to buy the holdings for the new manager, and then passes those holdings back to the new manager. This process has a mark on valuation and the closing price is that mark.
Index Rebalancing The final type of trade that allows traders to beat the closing price is index rebalancing. Asset managers may opt for a guarantee on their trade. Brokers will bid aggressively for those trades with the same tradeoffs occurring. Index rebalancing trades have an additional nuance in that everyone in the market typically knows whether the street has to buy or sell a stock for the rebalance, so brokers will put out research ahead of the rebalance.
The brokers then have to make a tradeoff, knowing there is potential demand to buy or sell these stocks from many different buyers and sellers. Traders must decide whether to trade early because they know everyone is going to buy the stocks when the index weight goes up, or trade them later (or even the next day), because everyone is going to sell. In the last few years, more and more investors have the requisite information to make the right decision on rebalancing trades.
Implications of Missing the Close Price The implications of missing the close price benchmark are straightforward. If the trader purchases below the close price, the mutual fund investor buys the fund at a higher price than their investment, which creates transfer of wealth from the new purchaser to the shareholders of the fund. If the mutual fund is not able to beat the close price but requires funds in excess of the new investment, then the existing shareholders subsidize the purchase.
In a transition trade, missing the close price on the funds to sell and the funds to buy creates numerous problems. For transition trades, brokers will very often give an assessment of the expected range of slippage ahead of time, based on the liquidity of the portfolio they are trying to liquidate and the portfolio they are trying to invest in. The broker clearly hopes to land within that range. If they are outside that range however, the transitional manager might refund some of their fee or maybe even negotiate a profit share ahead of time to incentivize them to minimize slippage. Unless the transition manager is able to buy at a discount, missing the close price means a loss to the fund. This slippage can have major implications for the value of assets retained by the client.
Rudolf Siebel, Managing Director of BVI Bundesverband Investment und Asset Management, shares the perspectives of German asset managers and their needs and goals for the coming year.
Technology and Trading Costs BVI represents German investment fund and asset managment industry which manages ¤1.7 trillion in assets such as bonds, equities and derivatives. Trading is an issue dear to our hearts. In particular, we welcome the improvements in electronic trading over the past decade especially those based on standards, such as the FIX Protocol, which enable automation based on standardization. That is one of the reasons why we became part of the FIX community in September 2011. Costs of trading have certainly fallen over the past few years, particularly with regard to the costs charged by brokers and venues. Also, trading costs have been implicitly lowered through a reduced market impact. Our members sense that with electronic trading they can be much closer to the market and limit the loss of market value because of the latency in trading. Our members, however, have seen that the cost of support and analytics has not fallen. Some also believe that the buy-side trading volume side had declined and that the sellside volume is on the increase.
Value through Innovation Having discussed issues of electronic trading within our industry, I think the increased ability to analyze market impact and trading costs has provided value. Over the past few years, our membership has seen value shift very quickly to better market access, especially through smarter routing technology. Based on mutual studies, only about 65% of the turnover of the DA X is now on the Deutsche Boerse, and for the FTSE 100, only 50% is now on the LSE. It is absolutely vital for our members to be able to access different liquidity pools, whether lit or dark. Smart algorithms have become a main issue, but not necessarily in view of improving low latency. Our members are asset managers who base their decisions on the selection of securities and asset classes, not necessarily on squeezing out each latent nanosecond. As a result, low latency trading is a secondary priority for BVI’s members, but smart order routing is obviously important given the large number of venues in the European market. At my latest count, there are about 70+ different types of trading venues, be they exchanges or other trading platforms.
Volatility and Connectivity We are now in a market where there are no longer any safe havens among asset classes, and in times of high market volatility it is absolutely necessary to link your internal systems to outside trading platforms in order to be flexible and quick to market. German asset managers have yet to establish connections across asset classes, and the FIX Protocol is very important as a basis for discussing the connectivity issue. Going forward with Dodd-Frank and new regulation on the European side, the the connectivity with Central Counter Parties (CCPs), will also be a big issue for 2013 and 2014. As far as it is possible, connecting to all markets and asset classes in an electronic way, and connecting to more CCPs will be the challenge for next few years.
Annie Walsh of CameronTec spoke to FX users to better understand the topical issues and challenges facing the OTC Foreign Exchange market and the central role FIX can play in addressing these challenges.
Undoubtedly the capital markets in 2011 will be remembered for many history-making moments including some of the largest currency moves the market can remember. We have witnessed the global foreign exchange market — the most liquid financial market in the world with an average daily turnover in the vicinity of USD4 trillion — bear the brunt of one political crisis after another, causing widespread volatility and difficult to pick currency moves.
Currency friction in Europe and between the US Administration and China will no doubt remain a prominent feature of the global economy for at least the next 1 – 2 years. On top of this remains uncertainty of government, particularly in Europe, and the implications for continuity of fiscal and monetary policy.
Many investment banks too in their search for alpha have been left wondering ”where did the black box get it wrong?” following lack lustre P&L performance, almost industry-wide over recent months.
Without a formal open or close, the FX market presents a true ‘follow the sun’ global market, with inherent levels of opportunity and risk.
Against this uncertain backdrop, the FIX Protocol has great potential to centrally feature in what is undoubtedly the single greatest threat (opportunity, if you prefer) facing the global OTC FX market. That is of structural uncertainty compounded by impending regulatory change to be ushered in, courtesy of Dodd Frank, and MIFID II and III.
With no unified or centrally cleared market for the majority of trades, and little cross-border regulation, due to the over-thecounter (OTC) nature of currency markets, these are rather a number of interconnected marketplaces, where different currencies’ instruments are traded. Inevitably OTC FX will move, however grudgingly, away from its long-standing (self-serving) model of self-regulation, toward greater levels of transparency, regulatory oversight (either directly or indirectly) and centralised clearing.
A Two Speed FX Market
As currently drafted, spot, outrightsand swaps are to be exempt from Dodd Frank’s requirement to be traded via Swap Execution Facilities (SEFs) and be centrally cleared; FX options, Cross Currency (CCY) swaps and Non-deliverable Forwards (ND Fs), however, are not. A perhaps unintended consequence of this two speed approach is the potential for jurisdictional arbitrage, product/financial re-engineering and further fragmentation of execution venues and liquidity.
In the short term, it also means that the sell-side needs to fundamentally reconsider strategies for design, development and deployment of Single Dealer Platforms (SDPs). Multi asset class SDPs will now necessarily evolve to become simultaneously both an execution venue as a destination and a gateway to a SEF, depending on the instrument traded.
BNP Paribas Dealing Services Asia’s Francis So opens up about their new structure, how they use Transaction Cost Analysis (TCA) and their preferences regarding dark pools and High Frequency Trading (HFT) flow.
The Hong Kong dealing desk has been restructured as an externalised/outsourced dealing desk for the buy-side. As a result we are now independent of the asset management group and belong to BNP Paribas Securities Services. Our current name is BNP Paribas Fin’AMS Asia Ltd but this will soon change to BNP Paribas Dealing Services, better reflecting the services we provide. BNP Paribas Securities Services provides middle and back office outsourcing services for buyand sell- side, as well as corporate clients. This new dealing service allows us to provide a full suite of front to back office solutions to meet the needs of the clients. The trend has been for the outsourcing of back office activities and I think it is only a natural progression to consider front office activities. Given the market environment, cost reduction is a key element for asset managers/asset owners. Outsourcing the dealing activity can help reduce cost but more importantly allows the asset manager to focus on delivering greater value to their clients. Our Paris office has been very successful in attracting external clients and in Asia we plan to ramp up activity in 2012.
We treat BNP Paribas Investment Partners (the asset management company of the Group) as one of our most sophisticated clients and as such must ensure that the services provided to them are kept to the highest standard. This will be the same for new clients as one of the keys to attracting and maintaining new client relationships is our ability to provide tailor made solutions and services. Clients can range from new start-ups to existing asset managers that already have a dealing desk. We offer flexibility to asset managers such that they can choose the asset class and/or geographical region they want to outsource. For example, some asset managers that already have dealing capabilities in their home market may decide to invest in overseas markets or new asset classes. They need to ask themselves whether it makes sense from a cost perspective to create a new dealing desk where initial volume is expected to remain low.
We have the knowledge, the expertise and the global reach. We have locations in Europe and Asia to cover all asset classes globally. We also serve fund managers located in different geographical regions.
It is important to stress that we are in no way competing against the sell-side. Our clients keep their contractual and daily relationships with brokers. We act as an agency-only trading desk and we do not have any prop flow or take any positions.
We work together with the portfolio manager to determine what benchmarks best suit their needs. They are able to send orders to our global Order Management System (OMS) with a specific benchmark. By doing so, we can measure our execution performance using their specified benchmark, be it Implementation Shortfall (IS), VWAP or a specific measurable benchmark.
Simo Puhakka, Head of Trading for Pohjola Asset Management, shares his experience trading in the Nordic markets, giving his opinions on interacting with HFT, using TCA and knowing whether you can trust your broker.
The prospects for High Frequency Trading (HFT) are really up to regulators. It will be a free market, but as we all know, regulatory changes affect the whole trading landscape. For example, we can see what is happening in France and the debate that is going on in Sweden, which are quite hostile towards HFT, so those countries.
Personally, I think that HFT is a good thing for the market, as long as you have the proper tools to deal with it. There are a number of small firms that have been suffering from HFT
since MiFID I because they lack the proper technology and tools to measure and deal with it. We have not suffered in our dealings with HFT, and I would actually say in many cases, it is the opposite. HFT firms seem to add liquidity and when you have the proper tools to deal with it, you can take advantage of it.
Speaking of tools, we started building our own Smart Order Router (SOR ) a year and a half ago. The goal was to create an un-conflicted way to interact with the aggregated liquidity. In this process we went quite deep into the data and turned processes upside-down with the result that we have full control of how we interact with the market.
On the other hand, I welcome technological innovation from the sell-side; for example, brokers now disclose the venues where they execute trades on an annual basis. The surveillance responsibilities that brokers have are beneficial. Many of the small, local brokers and buy-sides, however, are now finding it challenging to upgrade their technology.
Trusting your Broker
Our approach was to take control of our order flow and only use our brokers for sponsored access. We chose full control because, in some to deliver what I am asking.These questions first arose a few years ago, and we realized we needed to create a transparent, fully-controlled, non-conflicted path to the market. How you interact with different venues – even lit venues, where you have more transparency – will affect your choice of strategy. In most cases, you are better off without brokers making decisions for you. The root of the problem is, when you send an order to the broker, what happens before it goes to the venue? What control do we have over the broker infrastructure, including their proprietary flow, internalization, market making and crossing, not to mention the routing logic?
When we dug into the data, we were quite surprised to see that, although a broker was connected to all the dark liquidity, many of the fills were coming from that particular broker’s dark pool, suggesting there are preferences in the routing logic. Brokers want to internalize flow, which is not a problem, if you are aware of potentially higher opportunity costs. When it comes to dark liquidity, that is an even bigger problem, since our trades were often routed to the broker’s own dark pool or those it has arrangements with.
The Capital Markets Cooperative Research Centre (CMCRC)’s Alex Frino talks about his research over the past 18 months and the conclusions as to the truth about high-frequency trading.
What inspired you to focus your research on High Frequency Trading (HFT)?
There is a very poor understanding of the impact of HFTs on the market place. There is a lot of ill-informed opinion in circulation about the impact of HFT on price volatility, and their contribution to liquidity. I wanted to provide some hard data to help markets move forward and inform sensible evidence-based policy decisions.
There was also considerable interest in the idea of conducting HFT research from our regulator partners, including the FSA and ASIC.
What were your views on HFT at the outset of your research program?
When we first set about doing the research 18 months ago, I began by speaking to the investment management community to gather their views and insights into HFT and its impact on their trading. The feedback I got was overwhelmingly negative. One comment sums it up best – an investment manager said to me that “liquidity provided by the HFT community is like fog – you can see it, but when you reach out to grab it, it is not there.” So I began the program expecting to confirm these dominant views. To my surprise we discovered that the realities about HFT are almost exactly the opposite of that the investment managers were telling me.
HFT liquidity has been described as ephemeral by many on the buy-side. What does your research suggest about the ability of the buy-side to interact with HFT liquidity?
We have done research with data from the LSE, ASX, SGX, NASDAQ and NYSE Euronext on exactly this subject. The exchanges furnished us with data that identifies when HFTs are present in the market place. We then looked at the make-take decision. HFTs make liquidity when they put up a quote that gets hit by someone on the other side of the trade. They take liquidity when they hit someone else’s quote. The data clearly showed that HFTs are net makers of liquidity.
Interestingly some of our data also included information about when firms are trading through co-located servers within the exchanges. This data too showed that co-lo HFT activity was also a net provider of liquidity in those markets.
Co-location is described by some as an ‘unfair advantage’. What is your take on that given your research into the area?
My view is that if the advantage is being put to good use in providing liquidity, then it is not being misused. That pool of co-located flow is providing liquidity that would not be there otherwise, so I cannot see how that is a negative for markets.
Many market participants – including recent widely-quoted comments by Andrew Haldane of the Bank of England – are critical of the speed and sophistication of markets generally, using HFT as their example. They argue the playing field is not level and that markets should be slowed to take away perceived unfair advantages. What is your view?
I was frankly amazed by Haldane’s suggestion that markets should be slowed [by introducing speed limits and resting periods]. What he is in effect suggesting is that we should take markets backwards by a decade. That is astonishing to me because I just do not see the arguments. Market participants who do not have the technology to compete with other players can easily access brokers with algorithmic trading engines to help them execute their trades. If you cannot or do not want to build the technology yourself, you can outsource it fairly cheaply and very efficiently.
From an HFT perspective, our research demonstrates emphatically that the liquidity they provide is real and other participants interact with it constantly, so I cannot see a problem there either.
Brown Brothers Harriman’s Garvin Young explains the decision to adopt a Software as a Service (SaaS) trading system in lieu of traditional on-site architecture.
In its capacity as a global custodian, Brown Brothers Harriman (BBH) takes a holistic view of its trade execution process. This view includes front-end connectivity and execution, all the way through to settlement. The firm continually assesses the current and future needs of its clients to ensure that its products and solutions fully meet their requirements.
Searching for a Cutting- Edge Solution
In late 2010, given the rapidly changing landscape of the brokerage industry related to connectivity, regulation, algorithms and back-office efficiencies, we initiated a RFP process to identify an order management system that could best position its clients for the future.
Specific details of the project included a buy versus build analysis, cost/resource considerations, client retention rates, etc. Given the timeframe that we had set for implementation, it became clear that a build-from-scratch solution would have been both costly and impractical. Such a solution would have required BBH to add staff, incur IT spend, expand occupancy space, and bear significant ongoing maintenance costs.
Through the RFP process, we looked for a provider with a reputation for stability. In an environment of microsecond execution, an OMS must be reliable, stable and flexible. The ability to customize the solution was also important. The solution had to include a robust front-end while also keeping with BBH’s requirements of high-quality middle- and back-office processing. Our integrated execution and settlement product required a solution provider with strong expertise around maintaining high straight-through processing levels and real-time client reporting.
As a privately held organization, BBH maintains a high focus on risk management, which meant that a strong track record of regulatory reporting and risk management tools was also critical. The firm’s global and sophisticated client base has complex connectivity requirements, such as Reuters, Bloomberg, ULLINK, SWIFT and virtual private networks (VPNs), to name a few. Further, its clients have specific FIX tag requirements and run multiple versions of the FIX Protocol. We required a solution that was able to meet all these demands.
Identifying the Right Provider
BBH narrowed the search to six top providers of equity execution platforms and went on to select Fidessa. BBH’s Investor Services clients recognize us as a leader in technology solutions, with the capability of offering them a sustainable, long-term and flexible solution that allows them to access new markets to grow their business. We determined that their platform aligned well with these needs, and offered an ideal complement to its existing proprietary solutions.
What a lot can change in a year! Since the last FPL Canada conference, held in May 2008, Canada has been drawn into the liquidity crunch along with the rest of the world. Yet Canada has a risk and regulatory model that is different from many of its established trading partners, most notably the US and the UK. Can the world learn lessons from the Canadian experience?
With only weeks to go until Canada’s leading electronic trading event, it is still hard to pick what the credit crisis and regulatory environment will look like on June 1st, the first day of the conference. What we do know is that there will be increased regulatory involvement, particularly in areas that were previously not subject to scrutiny. In the run up to the event, we asked a range of experts to comment on what they feel will be the hot topics at this year’s event.
Conference Hot Topics
(A) Market Volatility Market volatility has certainly changed trading patterns. The increasing reliance on electronic trading, leveraged through Direct Market Access/Algorithmic Trading or a portfolio trading desk, is directly connected to the growing need to manage risk, volatility and capital availability. We have seen a dramatic uptake in these services/tools, as there has not only been a focus on how electronic trading is conducted, but also on the expectations of trading costs involved versus benchmarks. The greatest impact has been a higher use of electronic trading strategies relative to more traditional trading and a shift in the types of electronic trading strategies employed.
From a single stock perspective, many traders were loath to execute at single, specific price points due to the potential for adverse percentage swings in the high single to double digits. Algorithms have been employed on a more frequent basis, to help traders participate throughout intervals on an intraday basis, managing risk around the volatility. The violent intraday swings also create significantly more opportunities in the long-short space. Quantitative execution tools have became more of a focus, to take advantage of these opportunities on an automated basis.
What the industry is saying: “In terms of disruptions relating to market volatility, the Canadian trading infrastructure generally held up admirably. Most dealer, vendor, and marketplace systems handled the massive increases in message traffic and activity with little noticeable impact on performance. This is proof positive that the investment in capacity and competition was well worth it and is now paying dividends.” Matt Trudeau, Chi-X Canada
“Electronic platforms using FIX and algorithmic routers handled significant market fluctuations with no impact to performance. Speed to market for orders made it possible for traders to minimize exposure to huge swings in pricing and to capitalize on opportunity.” Tom Brown, RBC Asset Management
“Many traditional desks were shell-shocked and did not know how to respond to the volatility combined with the lack of capital. Electronic trading tools like algos enabled people to manage extremely volatile situations with great responsiveness. They were able to set the parameters for their trades and let the algo respond as market conditions warranted. Trading of baskets/lists made having electronic execution tools critical. You couldn’t possibly manage complex lists in real-time without very sophisticated electronic front-end trading tools.” Anne-Marie Ryan, AMR Associates
“The recent volatility spike means that risk will likely be scrutinized more in the future than in the past. Post-trade transaction cost measurement systems generally do not consider risk but instead focus on cost. To properly align the interests of the firm and the trader, performance measurement systems will need to reflect both cost and risk considerations.” Chris Sparrow, Liquidnet Canada
Jenny Tsouvalis of Ontario Municipal Employees Retirement System (OMERS) sees a need for effective integration of investment management and trading processes. “On-line, real-time electronic trading systems provide quick access to liquidity and when coupled with real-time pricing embedded into blotters, identify the effect of market changes on the portfolios and the effect of trading decisions.”
“Electronic trading has been successful because of its ability to be adaptive, so it is likely to change in reaction to current issues.” Randee Pavalow, Alpha Trading Systems.
“We’ve seen an increase in the use of algorithms and over the day orders as volatility has increased. The ability to smooth orders over a longer period limits the exposure to price swings during the day. VWAP, TWAP and percentage of volume, seem to be the algos of choice for many these days.” John Christofilos, Canaccord Capital
(B) Algorithms and Smart Order Routing
Smart order routing is still relatively new in Canada; however alternative trading systems and exchanges are now becoming part of the trading landscape. While the technology solutions are there, effectively deploying them in Canada requires further development. Presentations at the conference will focus on methods to source liquidity at the primary exchange and via the five alternative trading venues.
What the industry is saying: “Significant progress has been made in multiple market connectivity and smart order routing capabilities during the past six months, but there is still a lot of distance to make up compared with other jurisdictions. Participants need to have greater flexibility and control when it comes to order routing.” Matt Trudeau, Chi-X Canada
“The inability of secondary trading venues to accommodate volumes and provide liquidity during primary market disruptions, raised questions as to secondary providers having sufficient connectivity to all market participants and the lack of price discovery transparency.” Tom Brown, RBC Asset Management
“Algorithmic trading technology really proved itself during a primary market outage. Clients were able to execute their strategies on Canadian inter-listed stocks seamlessly. Orders were posted in the United States, and if better prices were available in Canada, the algos grabbed them. However, few clients were willing to post bids and offers in alternative markets when no one else was.” Lou Mouaket and Graham Mackenzie, CIBC World Markets
“Electronic Trading, like traditional trading, is at the mercy of the exchanges being able to post bid and offers and execute orders on a timely basis. Once that connection is disrupted, the ability to order route to other markets through a “Best Market Router” becomes more important. Within a multiple market environment, the ability to execute client orders on other markets has become a must for dealers and clients.” John Christofilos, Canaccord Capital
Exchanges are modernizing, market participants are investing heavily in technology and electronic trading is on the rise. The end result? Firms today face a challenging new market environment, one that is fractured, extremely competitive, and constantly evolving. Portware's Damian Bierman explains why bringing in the experts could be the best investment you'll ever make.
Today’s global trading landscape is vastly different than it was twenty years ago. Structural, economic and regulatory forces, combined with major advancements in trading technology, have ushered in a new era of automated trading. In the United States and Europe, numerous electronic market centers – exchanges, alternative trading systems (ATSs), electronic communication networks (ECNs), and crossing networks – compete for client order flow, offering superior execution speeds, reduced market impact, anonymity, or a combination of the three. New regulations in the US (RegNMS) and Europe (MiFID) have hastened the pace of structural and technological change. As for Asia and other emerging markets, they are not far behind.
At the same time, all market participants – buy-side firms in particular – are under increased pressure to reduce trading costs and rationalize their IT budgets. This is not a new trend. While the recent economic downturn is partly to blame, the goal of bringing increased efficiencies to the trading desk predates the global credit crisis. For firms in all global markets, the challenge is twofold: deploy advanced trading technology that will allow you to navigate – and exploit – today’s complex marketplace, but do so with an eye towards long term value and scalability.
New requirements for a complex market What constitutes “advanced trading technology,” and what do firms really need to compete effectively in today’s market? To answer that question, consider the challenges posed by today’s market:
Access to fragmented liquidity. Firms today face an increasingly electronic global marketplace, and one that offers a wide choice of execution destinations. However, with increased choice comes increased responsibility for execution quality. In such an environment it is incumbent on market participants to take greater control of their order flow. From a trading standpoint, this means the ability to access all available sources of liquidity – including broker execution algorithms, crossing networks, exchanges, ECN’s and other pools of non-displayed liquidity – from a single trading environment.
Advanced trading tools and analytics. Given the complexity of the market, traders must have access to integrated toolsets with which they can make informed decisions. Pre-trade transaction cost analysis (TCA), real-time benchmarking and performance measurement, portfolio-level analytics and post-trade TCA – all of these help traders to efficiently gauge trading costs and route orders accordingly. Consolidating and integrating these toolsets into the trading process is critical. Not only does this drive efficiency, it allows for the analysis of orders at any point during the trade workflow cycle, helping firms gauge traders’ decision making processes (and overall performance).
Performance. For many firms,the recent spike in volatility has been a painful experience. Soaring trade volumes and related message traffic have crippled legacy trading systems. Unfortunately, these kinds of volumes are fast becoming the rule, not the exception. Technology that can withstand this kind of message traffic is no longer a luxury, but an absolute necessity.
True multi-asset support. The ability to trade multiple assets on a single platform offers numerous advantages to firms today. First, connecting data feeds and workflow applications to a single platform reduces integration costs and operational overhead. Second, multi asset systems can support advanced strategies such as auto hedging and multi-asset arbitrage, both of which are becoming increasingly popular.
Flexibility and ease of integration. Given the web of interconnected workflow applications, data feeds, and other third party and proprietary systems that firms have deployed, having a system that can easily interface with the rest of a firm’s technology infrastructure is another key requirement. The alternative – closed systems based on rigid technology architectures and proprietary languages – are difficult and prohibitively expensive to deploy. While the short term costs associated with deploying closed systems are considerable, the long-term costs can be enormous. The more difficult an application is to integrate, the harder it will be to upgrade it or customize it in the future. Eventually, such systems become part of a firm legacy infrastructure: out of date and costly to maintain, but too expensive to replace.