Cloud Computing Powers Global Financial Exchanges
Many of the world’s largest financial exchanges are transforming the way they manage global financial markets through the adoption of cloud computing technologies.
In November, CME Group entered into a 10-year partnership with Google that will see it move its IT infrastructure and markets to the cloud. CME Group says this will allow it to launch new products and services much faster.
Then, a month later, the Nasdaq and Amazon Web Services announced a similar collaboration. Through a multi-year partnership, AWS will work with Nasdaq to transition Nasdaq’s North American markets to a cloud computing environment.
Traditional institutions such as financial exchanges are attracted to cloud infrastructure because they want to “increase market access” and “streamline operations”, according to Adrian Poole, head of financial services at Google Cloud UK.
He explains that they can achieve these goals thanks to the flexible and scalable nature of cloud technology, which allows organizations to scale capacity up or down, at any time.
But Poole adds that cloud adoption isn’t just about improving infrastructure. He points out that multinational companies, like CME Group, are using the greater processing power of cloud computing to “meet customer expectations in new ways” and “drive transformation.”
“The vast amount of computing power offered by the cloud means that data analysis can be done at lightning speed,” he explains. “This means that, when it comes to businesses wanting to do things like risk management, it can be done in real time – adapting to the minute factors such as legal liability and risk management. financial uncertainty.
“Organizations can use these capabilities to their advantage – for example, by using this data analytics to build automated tools that can help mitigate risk.”
Cloud computing also offers a range of security and privacy benefits for financial institutions that hold large amounts of sensitive data and have become prime targets for cybercriminals.
Poole says cloud providers are able to meet the need for ongoing risk monitoring and regulatory compliance by adopting practices such as zero-trust models. These ensure that all user identities, inside or outside a network, are verified.
In addition, customer data is protected by the technical principle of “redundant design”, where critical system components are duplicated to provide backup and increased reliability.
Spectrum Markets, a pan-European trading platform for securitized derivatives, uses cloud computing to store and analyze data. The company’s chief executive, Nicky Maan, says the most important benefit of cloud systems is how they enable digital infrastructure to be used to accelerate business growth.
“It’s really easy to expand the cloud resources you use, as needed, because data storage and processing aren’t dependent on traditional internal hardware capabilities. You can simply rent the extra capacity you need.
“It can even run automatically, when your system detects that it needs more capacity and immediately acquires additional resources,” Maan notes. “So if the number of financial products listed on your site grows from, say, 2,500 to 100,000, you don’t need to install new systems to store all the data or increase your analytics capacity. to handle the extra volume of information. ”
Financial institutions outsourcing their technical infrastructure to a cloud provider such as Amazon, Google or Microsoft must, however, ensure that the systems comply with industry regulations, such as those set by the UK’s Financial Conduct Authority and the Securities and United States Exchange Commission.
“This includes full control of latency – or the speed of information transmission required for accurate pricing of financial products – as well as the ability to transfer any outsourced part of your infrastructure to another provider if something goes wrong,” says Maan. .
“Saying ‘my supplier has gone bankrupt’ is not a valid excuse for the regulator”, he underlines. “So you have to be able to switch providers if they continually let you down.”
But, since switching between two cloud platforms is a daunting task, he recommends that financial exchanges instead maintain “complex, integrated and time-sensitive systems” on hardware infrastructure.
An example of such a system is the matching engine of a digital exchange – “the heart of any market, as it determines the prices at which buyers and sellers transact”.
However, a single cloud provider may not be enough to manage all the risks, suggests Conor Colleary, group vice president of financial services at US IT giant Oracle.
He warns: “With service availability and security being top priorities, exchanges should be aware that the stakes of a service disruption at a single cloud service provider are higher, as organizations need to ensure that they use the best cloud for each particular function or workload to avoid “putting all your eggs in one basket”.
Colleary says companies can avoid system outages, cybersecurity breaches and internet traffic issues by taking a multi-cloud approach – in which they use a variety of cloud services from multiple vendors, instead of just one. This means exchanges can “play to the different strengths of different clouds” and “have a plan B if their cloud service goes down.”
“Resilience and trust are essential as capital markets firms rely on their clients’ confidence in their ability to stay online 24/7, in order to deliver data to clients as quickly as technically possible” , Colleary adds.
In addition, cloud technology makes it possible to move away from obsolete network equipment and servers, which are often time-consuming and expensive to maintain.
Chris Weston, director of client consulting at analyst firm IDC, believes emerging technologies such as artificial intelligence (AI) and quantum computing will transform cloud capabilities for the foreseeable future.
For example, he envisions that companies with many transactions and storing large volumes of data will be able to use quantum computing platforms to perform “computations that until now have been impossible or far too time-consuming with traditional computers”. .
Meanwhile, powerful artificial intelligence tools will allow exchanges to perform “real-time transaction analysis to highlight and mitigate compliance and conduct issues as they arise.”
Weston says he has no doubt that AI and quantum computing “will be part of the technology roadmaps of these organizations over the next five to ten years.”