Capital markets today: does the future of trading lie in the cloud?

HomeBlogsCapital markets today: does the future of trading lie in the cloud?

Despite the announcement of the Chicago Mercantile Exchange’s (CME) move to the cloud, capital markets trading will remain a hybrid multi-cloud story for the mid-term. 

Michael James, Capital Markets Sales Specialist, Colt Technology Services

Eleni Coldrey, Business Development Director EMEA for Financial Services, Equinix

In our  joint Colt-Equinix mini-series, we’re looking at the factors disrupting the smooth operation of markets and what firms can do to protect their longer-term interests and performance. We began by looking at the effects of increased volatility and what exchange moves mean for capital market firms and will examine the impacts of the data explosion, but here we explore the shake-up caused by moves to the cloud.  

A seismic cloud announcement 

Undoubtedly, Google’s ten-year, billion-dollar investment in moving CME to the cloud shook capital market firms and focused attention on how trading could work in a cloud environment.  

 It was a bold announcement, but it was light on details and didn’t specify how they planned to manage front-office operations in the cloud.  

Could cryptocurrency provide a blueprint?  

Some point to crypto’s success in the cloud, but the comparison doesn’t hold up on closer scrutiny. Crypto exchanges operate pretty differently from traditional exchanges. They tend to have thousands of orders hitting their matching engines simultaneously from thousands of different users. They don’t prioritise trades on a first-come, first-served basis, so deterministic latency isn’t a big issue. In contrast, it’s critical in capital markets and traditional exchanges operating via a member system.  

What’s interesting is that crypto exchanges are starting to move away from their cloud-centric model, adding colocation into the mix. As they work to attract institutional flow and grow up from the retail space, they’ll increasingly choose colocation because they want proximity for control.  

How do you tackle cloud unknowns?  

There’s clear potential for less latency-sensitive workloads to flourish in the cloud. Back- and middle-office and business continuity functions fit well into the cloud model and are likely to migrate first. 

However, there are still questions about how many exchanges and trading venues will migrate to Cloud Service Providers (CSPs). As an example, Blackrock and Microsoft recently announced the Aladdin platform migration to Azure. While NASDAQ is approaching cloud with AWS – creating AWS Outposts in Equinix data centres, using colocation to bring AWS infrastructure to the trading community – could this be the most effective cloud approach for the mid-term? 

As real-time volumes continue to grow in the cloud, future latency and performance are unknown. As markets scale in the cloud, providers will be looking to maximise throughput (lowest latency at the highest bandwidth) and create platforms that support predictable performance during peak utilisation.  

Your partners in the hybrid cloud world  

Capital market firms need to find ways to reintegrate this emerging world of cloud with their colocation strategies. There’s a definite trend for services around trading to move to the cloud and a real opportunity for business continuity services to sit there, too.  

The bottom line is there’s a need for caution around cloud strategies, as well as a need for the right expertise to navigate the shift. The largest global CSPs leverage Equinix colocation, and there are new possibilities around using cloud technology to create virtual points of presence around the world instead of firms building their own infrastructure.  

Our Colt-Equinix partnership is ready to support you as you develop your hybrid multi-cloud strategy. Together, we bring easy connectivity into different cloud locations and between locations and colocation hubs so that the capital market community can find its optimum balance in the cloud. 

For success in the global hybrid multi-cloud environment, you’ll need the right partners. Are you ready? 

Look out for the next blog post in our joint series, focusing on the impacts of the data explosion, coming soon.  

Colt Technology Services

02 November 2022

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