Core trading technology's cloud migration heralds transformative change for the capital markets front office
Abstract
When Celent published “Rearchitecting the Capital Markets on the Cloud” in 2017, we made the bold claim that we were at an inflection point in capital markets. Then as now, as capital-constrained and regulatory-burdened firms remap their future architectures and businesses, more and more are looking to create more stable, cheaper, and safer infrastructure via a cloud model.
Recent Celent research found that the recent impact of the global pandemic turbocharged cloud adoption timelines across securities firms. Most of the firms (67%) we interviewed expect that by 2024 they will be either “cloud first,” meaning new applications are built as cloud native, or to have fully adopted cloud. More recently, we are starting to see an acceleration in the migration core trading infrastructure to the cloud.
Celent believes this is creating new opportunities for trading markets participants to realize efficiencies across their workflows and sets the stage for low-latency trading venues to be cloud hosted. The benefits for the front office from a move to cloud will be both substantive and transformative.
There are many reasons core trading functions continue to adopt an on-premise model. As a by-product while the cloud has been embraced across much of capital markets, front office pricing and execution have remained somewhat immune to its charms. With a reliance on highly specialized hardware, software, and connectivity to support low-latency electronic trading in equities, foreign exchange, and, increasingly, fixed income markets—or, conversely, on relationships and information asymmetry in voice-brokered markets, such as those still prevalent in fixed income markets—trading in the front office has often continued to be supported by on-premises technology. Recent cloud advances around network technology, however, are finally offering support for mainstream exchanges to move venues into the cloud.
For our “Future of Fixed Income Trading Technology” report series, Celent has been researching recent technology advances that make exchanges in the cloud a possibility even for low-latency trading. The importance of this change is best summarized in last year’s Celent blog post “Capital Markets Front Office – Cloud’s Final Frontier?,” which set out that “Capital markets is a network play, and sitting in the center are the marketplaces, the exchanges, and liquidity venues. Once they start moving core systems to the cloud, the rest of the industry will surely follow.”
As this report discusses, this journey is now well in flight. The impact on capital markets will be consequential, as explored in this report and set in context across the fixed-income trading markets in the next report in the Future of Fixed Income series (Part 3, focused on fixed-income price discovery and execution).