Colt and Celent recently teamed up to look at how cloud adoption is changing in the capital markets. We produced a report, that uncovered some interesting results. For capital markets, cloud is beginning to become the all-pervasive technology that it is in many other industries and market participants are now asking how they can move to the cloud, rather than whether they should.
We see the need to access the cloud by capital market participants as a main driver for larger bandwidth on our Colt IQ network. Users are also expecting their network to the cloud to provide the same intelligence, flexibility and elasticity seen in the cloud to ensure a homogenous experience end to end; luckily SDN technology makes this possible today. While it’s tempting to think that we’re heading for a situation where financial markets and their participants are all cloud-based entities, this may not be the case just yet. As it is, the demand for increased, on-demand bandwidth points to certain, “high demand” applications or services being moved to the cloud.
This has been hastened by the ever increasing regulatory needs, like the impeding MiFID II regulations in Europe, which massively increase firms’ reporting and transparency responsibilities, as well as the amount of data firms deal with every day. This has presented an entirely new set of challenges for capital markets firms, not around market factors but around processing and storage capacity. Functions such as trade reporting, market surveillance and testing are all ripe for a move to the cloud. We’ll also begin to see more collaborative uses of the cloud for functions that are common to all participants but do not constitute any competitive advantage – regulatory compliance, for example.
An eye on the road ahead
Clearly cloud solves many problems faced by market participants– scalability, flexibility, lower capex and no footprint to name a few – but it also presents its own set of challenges.
With many cloud providers operating data centres outside the countries their clients operate in, data sovereignty regulations come into play. Storing sensitive client information outside the country of origin may be tricky. Where is that cloud datacentre located? What does that mean for access to data stored on its servers? It would benefit anyone moving to the cloud to understand various governments’ attitudes to data privacy. This is perhaps even more pressing if you’re a global bank with a local presence. Cloud providers have taken note and are working with participants to provide cloud capabilities from multiple locations.
Control is also an issue. Putting all your eggs in one cloud basket isn’t sensible, so rather than firms using one cloud provider for all their needs, we’re seeing firms looking to use a variety of clouds to ensure they don’t end up depending on one vendor and getting locked in. Users are expecting open standards to enable connectivity and portability between multiple cloud providers.
Data security in a cloud deployment is another area financial firms are concerned about. Such firms want to know that their data is secure in transit to and from a cloud as well as while at rest in the cloud. Again we are seeing cloud providers focusing a lot of effort and investment to ensure such security concerns are addressed. At the same time, there are multiple connectivity options into the cloud, like dedicated links or managed extranet connections, that can provide more security compared to internet connections.
Despite these concerns, and some organisational inertia to overcome, the move to the cloud seems inevitable given the drivers and the increasing adoption rates. We’re perhaps not going to see entire institutions move to the cloud, lock stock and barrel but we will see non-sensitive functions move first, to be followed by more sensitive activities later. Reporting, testing, surveillance all are examples of areas where a cloud-based infrastructure makes sense. The flexible capacity and compute offered by cloud based services makes it an understandably attractive proposition. Understanding what obstacles need to be overcome to make cloud adoption a reality is key in ensuring the success of any transition.
Such move to a cloud model will only be complete – and realise its desired impact – if the network used to reach such deployments can mirror the cloud experience in term of intelligence, flexibility and elasticity. Expect an on-demand approach everywhere: in the cloud as well as the network.