The Rise of the Cloud in Capital Markets
I have spent the last several weeks in a variety of detailed conversations, globally, around the cloud in the capital markets with financial institutions, fintechs, technology vendors, cloud providers, and VCs. I continue to see more demand for cloud services.
It is amazing to see the speed in which the capital markets are moving to the cloud. As firms go on their cloud journey, there are a lot of pleasant surprises for business and technology: experimentation is fast and cheap / fail fast and move on; it is harder to build a kludgy app in the cloud; native data organization are for regulatory/compliance and to drive business insight; the ease in updating software; the availability of tools for machine learning for experts and those experimenting; and, the realization that cloud security is probably better than yours (especially if you are dealing with an internal threat or one that has pierced your firewall).
In London, at a great event sponsored by Illuminate Financial Management, I was part of a panel of fintechs, attorneys, and large investment banks. The panel was themed around fintechs bringing their cloud-based innovation into larger financial institutions. There were discussions of the typical workloads running in the cloud: risk, pricing, analytics.
An interesting question came up:In a more conservative financial institution, what types of data are moving to the cloud?
The response: there is a large grey zone between what is in the cloud now and what will never be in the cloud. The “never” was centered around wealth businesses, with sensitive personal identity information and institutional trading positions tying risk to a client.
With that in mind, I attended AWS’s Cloud in Financial Service earlier this month in NY. I listened to the CTO of Vanguard describe his firm’s cloud journey over the last two years. Folks in the audience from a broad range of capital markets firms (both buy and sell side) were paying rapt attention. Quite a few jaws were hanging agape when he discussed how Vanguard started their cloud journey with the most sensitive customer data!
Wherever you are in the journey, it is amazing to see the changes taking place as more of the capital markets value chain move to the cloud. Our research has discussed this shift over the last two years. Fintechs and incumbents like IHS Markit, TickSmith, Nasdaq, Quandl, and CME are driving data innovation and analytical insight via cloud offerings. Firms like LiquidityBook are driving innovation in the front office of trading with their cloud-based trading and order management in equities. In other asset classes, AxeTrading is creating a fixed income EMS leveraging the cloud.
My newest report The Path to the Cloud: The Buy Side Front Office as a Service looks at how the buy side is making this move. The trend of outsourcing the back and middle office has moved forward to the front office. In this report, we look at the decisioning and steps taken by senior management at investment management firms and hedge funds who want operating leverage, data integration, speed, and cost reduction.