Are Capital Markets Firms Really Benefitting From Cloud?

Which Trading Functions are Best Suited to Cloud

By Mike Powell, CEO, Rapid Addition

In our earlier blogs (here and here), we discussed the factors driving increased adoption of cloud technology by capital markets firms seeking to benefit from potential efficiencies. But what do their real-world experiences look like? And are firms realizing the benefits promised by cloud vendors?

It may be difficult for cloud to live up to the hype. But according to a survey of 20 capital markets organisations commissioned by Rapid Addition and conducted by A-Team Group (see below for more information), trading firms are deriving genuine benefits. Often these translate into more efficient workflow and faster time to market, but there’s more to it than that. Here’s a quick scan of what the survey found:

Agility/elasticity. Cited as a key benefit, especially where firms want to rapidly deploy a new line of business, exploit an emerging opportunity, or experiment with a new model while also retaining the ability to rapidly unwind or exit if needed. This is particularly useful when firms enter new geographical markets where they have no physical footprint and are reluctant to invest heavily in deployed infrastructure until the business model is proven.

Unplanned access to capacity. Relieves companies of the need to invest in expensive capacity as risk mitigation for extreme market conditions or where infrastructure might become redundant should the business be scaled back. On-demand access means firms can test a new business idea or deal with unforeseen data processing needs only when needed.

Spin up/down for testing. Enables rapid response to new trading ideas, business opportunities or customer requests. Having this capability reduces IT teams’ reliance on hardware supply chains (something that was exacerbated during the Covid-19 pandemic) or convoluted procurement processes. However, several survey respondents were keen to point out that a lack of an appropriate process for ‘spinning down’ temporary capacity can often lead to avoidable cost burn.

Catalyst for innovation. Capacity and scalability give organizations the room to innovate, unshackled by the limitations of on-prem infrastructure and operational resource constraints. This liberates technology teams and key expertise to focus on value-adding research and development rather than building and running the underlying infrastructure, ultimately creating a competitive advantage both in terms of potential IP and time to market.

Ease of Big Data integration. Enabling digital transformation can unlock the full value of an enterprise’s data. Cloud can host with ease the huge datasets needed by modern trading operations. But it can also support the computational power needed to process that information, and apply advanced machine learning and AI tools to drive workflow automation and extract value.

Efficient tick data storage. For on-prem setups, storage upgrades come at a cost, making for some tough choices when a firm’s data needs outgrow its infrastructure’s capabilities. Cloud’s elasticity allows firms to apply compute resources for processing large data sets in short bursts to complete trading-related tasks such as pre and post-trade analytics, risk modelling, analyzing trade surveillance data, and so on.

Availability of expanded toolsets. Hosting analytical software, risk systems, trading applications and the underlying infrastructure is expensive; application and OS licenses must be maintained, servers must be monitored for performance and capacity, backup data stored, anti-virus measures applied and kept updated, and so on. Often firms underestimate the total cost of ownership of such activities and the human resource needed to implement them. Cloud can help eliminate or simplify the overhead of running application environments and provide additional toolsets that enhance efficiency.

Potential infrastructure cost savings. Cloud’s flexibility and elasticity can deliver cost savings on infrastructure and may yield a reduction in operating costs vs. on-premises implementations, where hardware needs regular updating or is under- or over-utilized. While the cost-saving argument is not always clear-cut, it is important that firms are honest about their total cost of ownership (see prior paragraph) when comparing in-house managed infrastructure and toolsets with cloud.

Not all the benefits widely attributed to cloud migration will be experienced by adopters. Some survey respondents noted that the above benefits were only applicable to dynamic workflows, such as burstable loads. They don’t always exist for static or predictable workloads, in which circumstances, said some, the costs are greater in the cloud.

But in general, the firms we surveyed confirmed they were deriving concrete benefits from their cloud deployments, whether they met the expectations of the original business case or not.

In future blogs, we’ll be identifying which functions are best suited to cloud, along with the potential obstacles to successful adoption, so stay tuned.

This article was originally published by Trading Tech Insight as part of our partnership with The A Team Group.