Not every cloud has a silver lining

The cloud has gone mainstream in 2020. Financial institutions were slow to adopt this technology because of concerns regarding critical and sensitive applications as well as outstanding requirements relating to redundancy and security. But we’re seeing significant shifts now, with even key exchanges (Nasdaq, CME) announcing plans to move to the cloud.

This would, of course, be a game-changer in how key infrastructure providers shift how their working processes and use of technology. But, while there are undoubtedly benefits, there are also huge challenges. More likely, success will require a more hybrid approach. We’re also seeing a movement away from the cloud to the use of private networks and hardware.

The benefits are cloud services are well known – they are easier to manage and significantly more cost efficient. Storing and sharing data is simpler, computing costs are scalable. Such benefits would help make trading more accessible, with lower entry points, for a broader audience. The cryptocurrency market was the first in financial markets to embrace the cloud as a tool for innovation and disruption. Market data platforms have also found success through the cloud by providing better data storage, and lower cost and with inbuilt scalability.

However, there are some challenges faced when using the cloud do not currently have solutions. A major one is that public clouds don’t support multicast traffic. As multicast is central to ensuring fairness, insisted on by regulators, this acts as a significant roadblock to the use of the cloud.

Until a new “equivalent” solution is found in which real time market data can be delivered with equal time stamps to multiple users, the cloud for infrastructure such as exchanges is not necessarily a perfect or ready-made solution. Financial institutions have concerns also regarding security. Not just data security and secure access, but reliability and consistency. Outages have a huge impact on trading strategies and even small amounts of downtime can be catastrophic.

Financial markets are not uniform and it’s impossible to imagine a ‘one size fits all’ solution. There are simply too many different strategies and use cases.

What is needed is cloud-like solutions that bring the cost effective and scalable solutions of the cloud, combined with the security and flexibility of purpose-built systems. Institutions running latency sensitive strategies have higher requirements regarding network speed and determinism, which can be better met by private networks and connections.

Ultimately, it’s not a single solution but a puzzle with different types of technology being used, ideally in a connected way, to meet the necessary combination of requirements according to the firm’s business and clients.  

By Aleksey Larichev, CEO, Avelacom