Exchanges to Accelerate Cloud Adoption

Cloud adoption needs to happen across the entire capital markets ecosystem, Monica Summerville, Head of Capital Markets at Celent, said.

“The pandemic has been a catalyst for cloud adoption, but the reality is that most exchanges are at an early stage of cloud adoption,” she said in a conversation with Clive Posselt from The Realization Group at the Front Office: The Final Cloud Frontier? webinar.

“One big reason why cloud adoption lagged in the capital markets front office is the complexity of legacy technology infrastructures. So while this complexity does exist within financial firms in general, it’s especially prevalent in the front office due to needs around connectivity to trading venues and counterparties,” she said. 

She added that latency is of course a huge concern: “Most trading firms do have expectations around both network and machine infrastructure latency. And most electronic traders are using algos for trading and if they do that, then they need to keep jitter to a minimum. Finally, for certain markets, the ability to co-locate equipment near the venues is going to be critical,” she said.

According to Adrian Ip, Director of Product Management at Aquis Technologies, up until late 2019 there was no technical capability that was delivered by any of the major cloud providers to be able to send market data and string that out to multiple participants. 

“That’s one of the key reasons why there has been a lot of difficulty in terms of adopting cloud technology for exchanges,” he said. 

Recent industry trends have highlighted how the latest cloud connectivity infrastructures can create an efficient environment for electronic trading, algorithmic execution, direct market access and enhancing market data.

“There is a lot of innovation in the industry, but there is also a very conservative element to the industry, which is driven by regulation,” Ip commented.

“I think technology and regulation compete against one each one another, and really drives innovation,” Mike Smith, Director Global Exchange Relations Management at IPC, added.

“When we look at established markets today I think what you will see is that things will gradually move to the cloud, and then as we progress, we will start seeing matching services moving to the cloud,” he said.

Summerville added that cloud offers lots of advantages: “The most interesting for our industry is around increased agility to ramp up new types of offerings to reach the locations that you weren’t able to before. And obviously, cloud has presence all over the world. So you can very quickly imagine that you can establish multiple points.”

She added that “the costs are lower just from not having to own all that infrastructure and managing and support it, that’s something that the cloud providers can do in a really efficient way.” 

Summerville added that a lot of the cloud service providers are investing heavily in expertise around artificial intelligence and machine learning: “There’s lots of analytics tool sets that suddenly you can have access to.”

Smith said that transformation is here, but it’s not a full lift and shift of their system stack into the cloud: “It’s starting to mature in a way that folks are starting to look at it from the hybrid technology or the hybrid approach. It’s more of a phased approach and see what can fully be efficient into the cloud and what we’re not really sure that could be efficient in the cloud.” 

“I think with adoption of the large exchanges, with agent technology that’s proven to the marketplace that it does work, it is able to happen, I think the pioneers are starting to already come through,” he said.