Commentary: Cloud Computing Tips for Broker-Dealers, ATSs and ECNs
Traders Magazine Online News, April 1, 2010
Cloud computing has burst onto the scene. Broker-dealers, ATSs and ECNs see nothing but sunny skies ahead. This article clears up some of the often nebulous deal terms each should consider before sending trade data to the clouds.
What In The World Is Cloud Computing?
The "cloud" is made up of software and hardware service providers invisible to the traders using them. Traders see only the front-end website. Broker-dealers, ECNs and ATSs timeshare the servers, networks, administrators, and software developers. Traders enjoy the benefits of more services, more flexibility, scalability, more access to liquidity and faster executions. All this comes without broker-dealers, ECNs and ATSs having to incur large upfront capital expenditures for hardware and software requiring frequent upgrades and without having to hire and retain costly IT staff. The cloud has expanded beyond traditional IT services, and now offers a broad range of market data, blotters, portfolio models, analytic tools, dark pools, trading algorithms, and aggregator services.
Choosing Service Partners In The Cloud?
A search for a partner begins with structured due diligence. Examine qualifications, technology, staff, management style and past work of potential service partners. Obtain and review proposals that include detailed descriptions for any services to be provided. Regulated entities that have been through the outsourcing exercise will attest to the many technical and legal obstacles involved in picking the right service partners. A wrong choice can result in significant downstream costs, reputational damage, regulatory liability, or worse. Broker-dealers, ECNs, and ATSs cannot sacrifice performance, increase trade latency, tolerate downtime, skimp on compliance, or injure their customers with technical snafus.
Many large cloud service providers purport to offer "industry standard" service or technology agreements. Make no mistake. These agreements are complex and rife with legal traps. They need to be carefully negotiated with advice of experienced in-house or outside counsel. The devil is in the details, and it pays to have a negotiating team with IT know-how and regulatory and software expertise. Broker-dealers, ECNs and ATSs must avoid letting their judgment be clouded by the lure of potential cost savings in using service providers. They need to think carefully about the following issues when they negotiate cloud computing agreements.
How Do I Make Sure The Cloud Meets Expectations?
Clear specifications in the contract should detail how software is to perform and interact with hardware and other software. The client may want the cloud provider to agree to each and every representation made by the cloud provider's sales staff. The cloud provider, in contrast, may seek to provide performance obligations that meet loose definitions not always tailored to the client's needs. The cloud provider should define "bugs," satisfactory levels of "bugs," what events are deemed a "failure," and remedies for a "failure" occurring. Think "fix" as opposed to mere restoration of service. Think service level obligations and penalties if they are not met. Beta testing provisions may also be included to ensure that the software--before a global rollout and commitment--meets minimum requirements during the beta phase. The negotiation process is an opportunity for the client to "smoke out" the cloud and determine how confident the cloud is about the performance of its products.
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