By James Rundle
Published on: August 01, 2011, Waters
Cloud is happening. Whether you are for the technology, against it, or somewhere in the undecided middle—it has taken root in financial services, and it’s here to stay.
As with anything that generates a lot of buzz in a short space of time, it is tempting to dismiss cloud computing as a passing fad—gimmicky and over-hyped. But doing so ignores its usefulness.
Cloud has gotten the attention of exchanges, and firms across the buy side and sell side—many of which have already adopted it in some form. This does not mean, however, that the technology is perfect, or that it is an appropriate solution for every part of the business. There are ongoing discussions about the security and integrity of cloud computing—issues that firms raised when “cloud” first entered the financial services lexicon. So, what exactly does this technology offer, how does it differ from what came before it, and what aspects need to be examined as it becomes more pervasive?
Cloud computing is not a new concept or technology in the same way that, for example, televisions were when they were initially introduced back in 1923. The financial services industry is familiar with technology provided on an application service provider (ASP), or software-as-a-service (SaaS) basis, and with the idea of hosting data outside of a localized environment.
Web-based email has been doing this for years, albeit in a simple way. What public and hybrid cloud environments offer is more of an amalgamation of existing technology such as this, usually combining that package with elastic, scalable computing power, where enormous, on-site IT infrastructures can become redundant as everything is hosted and managed by a provider. In theory, in a cloud-based world, a large firm could run off a few laptops, a printer, a phone line and a high-speed internet connection—such is the purported potential of the technology.
Security concerns—about the reliability of the data host, the privacy of the data stored, and the integrity of the systems—remain the primary sticking points for firms considering cloud technology. In an audience poll taken during a recent Waters webcast on cloud computing, 51.54 percent of respondents said security was their chief concern.
This response is understandable: The idea of relinquishing direct control of one’s infrastructure is unpalatable for many firms. Vendors of cloud-based technology, however, are confident that this is simply a transition that will take time to make.
“I compare it to parts of the industrial revolution, when manufacturing grew rapidly, but all of the factories had their own little power station bolted on the side, because they wanted to control that,” says Neil Smyth, marketing and technology director at StatPro, whose Revolution technology offers portfolio analysis and reporting software in a cloud environment. “It was very important to them, and they had to dedicate resources and effort to providing the power for their factory. That then started to become a utility when we had the National Grid in the UK, and it quickly moved to people just plugging into it, and consuming it. Rather than having to worry and provide their own power source, they were able to consume it as a service.”
NYSE Technologies, via its cloud-based Capital Markets Community Platform, offers an interesting case in point of how cloud technology is being utilized in an industry-specific manner. The commercial technology arm of NYSE Euronext touts its resources, experience in the market, and importantly, the wide range of historical data it can offer to clients.
“What makes us think that we can step into a game with Amazon and Google, who are extremely well-capitalized and have tremendous scale? We realized we actually had some very unique, very distinct differentiators,” says Ken Barnes, senior vice president, global platform services at NYSE Technologies. “The first thing was that we had services. We wanted to create a service-enabled cloud, with the services that our clients really care about. We knew we had the matching and order-routing capabilities to direct flow from our markets and other markets. We had other value-added services, like all the trade and quote data we have—the data that is widely used in the quant community. The fact that we can marry them together into one service bundle, where there’s one company behind it servicing it, integrating it, documenting it, means it would be powerful.”