Future Focus – The Cloud Comes of Age
Until recently, trading firms had been slow adopters of the Cloud. In a world often measured in microseconds the general opinion was that on-premise servers and ultra-low latency connectivity was essential. But now the world is changing, and so are opinions.
Refinitiv's recent report of 400 FX market participants globally, showed that COVID-19 has resulted in 59% of respondents working from home, 20% from a business contingency site, and 12% split between sites. With these working practices reflecting financial markets in general, we are increasingly hearing about how the Cloud is helping people to carry on business as usual (BAU) during recent weeks.
Late last year AFME issued 14 recommendations for financial markets to benefit from the full potential of the cloud.
James Kemp, Managing Director, head of technology and operations at AFME, was quoted as saying, "The use of public cloud in financial services offers significant opportunities and benefits for all parties. However, to realise these and increase adoption it is vital that the whole industry, including banks, cloud providers and regulators, continue to collaborate. This includes ensuring the knowledge, skills, security and risks are appropriately assessed and identified throughout this long-term transformation."
Adoption is growing. For example, earlier this week it was announced that Blackrock is working with Microsoft as it plans to host the Aladdin infrastructure on the Azure cloud platform.
Proponents of the Cloud have spoken for many years about the benefits of almost limitless data storage, leveraging additional computing power (as and when needed), improving workforce efficiency, and reducing costs. However, in the new world of remote working perhaps the most important benefit is being able to develop and deploy system upgrades without the need to physically deploy on site.
Currently, the financial markets are functioning efficiently. But imagine if a client needs a liquidity provider to be remapped, or if a regulatory report is found to be incomplete and the regulator asks for it to be updated (and often backdated).
Without the Cloud this would be difficult, if not impossible.
Security used to be cited as a major blocker for Cloud adoption by financial institutions, but with large cloud platforms like AWS and Microsoft Azure targeting the financial markets industry, they have invested heavily in security. At this point in time the consensus among financial technologists is that the security offered by larger platforms is on par with, if not better than, bank security.
But there remains the issue of speed. For asset classes where there is an abundance of low latency market data, like FX or Rates trading, consuming up to 5,000 price updated a second (in volatile market conditions), on-premise technology satisfies a large bank's need for speed.
But dismissing Cloud due to increased latency misses the point – financial firms do more than low latency trading.
We spoke with four FinTechs/RegTechs to demonstrate how Cloud adoption can be (and is being) used in financial markets –
- Ideal Prediction utilises cloud-based technology and a globally distributed team to offer its clients trading analysis and data analytics. As such, it continues to deliver without disruption, which is considered essential by its large global bank clients.
- THETA Trading Technologies, which is developing a new buy-side O/EMS multi-asset platform using SaaS to enable agile delivery of its services. Using a SaaS model, offers an exponential increase in time to market, where projects that previously took months can be reduced to only minutes or hours. Modules are deployed quickly, and future upgrades are simple and cost-effective.
- TransFICC, the provider of low-latency connectivity and workflow services for Fixed Income, also supports a SaaS model. Competitors sell enterprise software for Banks/Asset Managers to run, whereas TransFICC is hosted using Equinix or AWS. Supporting different client requirements, TransFICC deploys in Equinix for latency sensitive clients, but also offers a lower cost solution in the form of AWS for the trading of less volatile assets or for some of the buy-side.
- SteelEye, the compliance technology and data analytics firm, has built its technology platform in the Cloud, which enables the firm to capture and analyse huge amounts of trading and surveillance data. It is able to operate as normal, even with all of its employees currently working from home, and importantly to continue to upgrade its systems and deploy to clients.
Reaching a Tipping Point
During this period of disruption and social distancing the Cloud is proving its worth. As many financial firms embrace new working practices, now and in the future, we should expect the adoption of Cloud-based technology to increase.