Peer-to-peer computing - Finance hooks up

The days of effortlessly swiping Limp Bizkit tunes off the Internet are long gone.

But the technology that powered the Napster music-sharing system is finding a home in the financial world.

Napster ran on a peer-to-peer, or P2P, architecture, which tied millions of personal computers together into a gigantic file-access system. It turns out that this type of setup is tailor-made for any business with huge databases that are in a constant state of flux. One of its appeals is economic: A P2P network is relatively cheap because it doesn’t require a big central server at its hub. Instead, it aggregates the capacity of all the interconnected PCs, or processing nodes, becoming the sum of the network’s existing parts.

The P2P movement has spawned specialized vendors like Groove Networks in Beverly, Massachusetts, and Parabon Computation in Fairfax, Virginia, which are delivering practical solutions to biotechnology, energy and other enterprises with sizable computer networks and vast, churning databases. The financial world is especially ripe for this approach; some P2P pioneers see it as a way to make market operations more efficient.

“If you were going to build a market today from scratch, it wouldn’t look anything like the New York Stock Exchange,” says Seth Merrin, founder and chief executive officer of Liquidnet, a New York-based alternative trading system for large institutional equity trades. “P2P is the only way to go in this business.”

Merrin, to be sure, has a vested interest. He built Liquidnet on a P2P platform: Through their online work-stations, buyers and sellers are anonymous, interconnected peers who match orders in much the same way that Napsterites sought out music tracks on each others’ hard drives.

Now that Liquidnet, which went live in April 2001, handles more than 7 million shares a day, it is generating considerable buzz on Wall Street. “This is going to change trading forever,” says mutual fund legend Michael Price, head of hedge fund MFP Investors in Short Hills, New Jersey, and a director of Liquidnet.

The hype can help a new electronic trading business like Liquidnet, which needs liquidity to get off the ground.

Financial institutions are also applying P2P internally. DataSynapse, a New York company headed by former J.P. Morgan & Co. investment banker Peter Lee, is successfully selling a product called LiveCluster. DataSynapse chief technology officer Jamie Bernardin says that it “unleashes the power of underutilized desktop computers and servers to transform the performance of data and compute-intensive applications.”

Wachovia Securities in Charlotte, North Carolina, uses DataSynapse software to aggregate computing capacity in fixed-income derivatives trading. “Where they used to have only a couple of nodes available at any given time, now they have hundreds,” Bernardin explains. Adds Wachovia managing director of trading technology Joseph Belciglio, “We’ve brought the processing time for some of our analytics down from hours to minutes.”

Another application getting the P2P treatment is distribution of analyst research and other communications between buy- and sell-side firms, courtesy of Boston-based WorldStreet Corp. In contrast to Liquidnet, “we chose to focus on pretrade, where the number of events, or interactions, far exceeds trading and wasn’t getting the same attention,” says Alexis Kopikis, a WorldStreet co-founder and developer of its WorldStreet Net platform.

“Napster was fabulous,” says Kopikis. “But it didn’t work in a B2B world.” WorldStreet, unlike Napster, has paying customers, including Credit Suisse First Boston and Oppenheimer Funds. The technology that helped steal a million tunes can truly trade a lot of shares.

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