The world’s 60 major financial exchanges form the core of the global financial industry. Sixteen of these exchanges – including the New York Stock Exchange, Nasdaq, the LSE and Japan Exchange Group generate more than $1 trillion in market capital, or more than 87% of the world’s total value of equities. At the other end of the scale, Bermuda, Cyprus and Malta are home to financial exchanges with lower market cap. Critical economic data flows through all these exchanges regardless of their size. As this data grows exponentially, these financial hubs are becoming laser-focused on accelerating digital transformation.
Part of one of the world’s oldest and most traditional industries, financial exchanges have faced multiple barriers to digital progress, from costs, security and compliance to corporate trust. Physical hardware for IT services provided a tangible comfort factor, but this is changing as the industry experiences the benefits presented by cloud migration: enhanced security, scalability, cost-savings, real-time access to market data, business continuity and the ability to respond swiftly to changing market dynamics. The Publicis Sapient Future of Cloud in Banking report found that banks are aiming to triple their use of cloud by 2025.
For the world’s financial exchanges, demand for data in real-time and accessible-from-anywhere, is increasing. Innovation in security is rapidly progressing, to address the frequency and severity of security risks; and the need for an interconnected, seamless ecosystem connecting buyers and sellers is growing fast, as the number of specialists on physical trading floors is in decline. Plus, as with many industries, profit margins are being squeezed and organisations are looking to automate and digitalise. Exchanges, like other institutions in financial markets, are looking to the cloud to identify opportunities to streamline operations and drive innovation.
The value of partnerships
This shift to the cloud is driving a new collaborative way of working for financial exchanges, as a series of exciting, multi-million dollar fintech alliances takes shape. In November 2022, Microsoft and the LSE announced a 10-year data, analytics and cloud deal to transform, automate and optimise the exchange. The partnership will see the roll out of Teams, Microsoft 365 and Microsoft Azure.
This announcement was closely followed by news from NASDAQ and AWS in December 2022, highlighting the successful cloud migration of one of NASDAQ’s six Options Exchanges, MRX. The new digital infrastructure is delivering a 10% improvement in service performance, as well as low latency for end-to-end and order-to-trade processes, according to NASDAQ, as it serves millions of investors and ‘seamlessly transacts hundreds of billions of dollars of trades every day’. Until around 2005, the NYSE took around 9 seconds to execute an order; now, it’s instantaneous. And in 2021, the world’s largest derivates exchange, CME Group, announced a partnership with Google Cloud. The partnership gives CME Group’s clients on-demand access to ‘the right data to respond instantly to global marketing-moving events, and to mitigate risk’ – for around 10% of the cost of traditional access.
Financial exchanges may be steeped in tradition, but as the backbone of the global economy they have an unprecedented opportunity to revolutionise access to the world’s financial markets. These technology collaborations for cloud migration are clearly a gamechanger. But why are they trending – and what makes them so successful?
- Resiliency, continuity and security: zero downtime, low latency infrastructure provides a risk-free environment ideal for transporting huge volumes of secure data
- Product innovation tailored to financial markets: tech businesses invest in innovation that helps exchanges stay a step ahead – on-demand services and multicast data feeds, for example – so they can adapt to changing client requirements without the need to invest directly.
- Experience in migration to digital infrastructure: tech firms have a deep understanding of which applications to migrate and when; which data works in silos, and how to pull it together to give the best outcomes
- Access to talent: organisations are still experiencing a skills crisis which could potentially limit their progress and harm their futures. Tech firms boast world-class security teams, so having access to these people is invaluable.
- Built-in compliance: tech partnerships allow exchanges to adjust and scale without the need to directly invest in applications that meet new standards of governance regarding regulatory and environmental regulations
- High levels of automation: a report from Deloitte highlights key areas where futures and securities exchanges are lagging: “Not keeping pace are digital improvements to exchanges’ nontrading operations; many functions remain dependent on spreadsheets, manually intensive operations, and a limited control environment”. Automating these can generate significant benefits, Deloitte states. Tech partnerships can facilitate this automation and simplify processes.
- Partner ecosystems: exchanges benefit from the deep relationships forged between tech firms and their partners, and the interoperability this presents
- Flex and scale with the industry: exchanges are experience consolidation, and working with a tech partner to migrate to the cloud offers flexibility and scalability that aligns with industry change
- Supporting journeys to net zero: cloud migration removes the need for exchanges to run on-premise legacy hardware with high outputs of energy consumption
- Futureproofing: edge and quantum, metaverse and AI are moving higher up the agenda; working with tech partners gives exchanges fast access to digital infrastructure, capabilities and skill sets that leave them perfectly positioned to take advantage of transformative technologies.
The future for fintech collabs
Collaboration with tech giants will continue, as exchanges fast-track their journeys to digital transformation to protect against increasingly-sophisticated threats and evolving regulations. But it’s not just the larger tech firms driving this trend: smaller technology companies are working closely with exchanges too. Working with these smaller tech firms, exchanges benefit from having a greater influence on product development; playing a leading role in developing the partner ecosystem and even helping reshape their customer experience.
So, while couplings between mega brands and major exchanges make the headlines, we should expect to see pairings happening behind the scenes which are less high profile but equally as progressive.
This article also appears in Financial IT