“The year 2016 is to the cloud as 1996 was to the internet,” according to a speaker at the New York regional event of the FIX Trading Community, held at Thomson Reuters headquarters in Times Square on October 3. The comment underlines the strongly held opinion, expressed by all key speakers at the meeting, that cloud usage for data storage in financial services is at take-off point.
In the last two years, there has been a marked uptick in deployment of the cloud rather than traditional data centers, and the trend is only set to continue. A survey of 250 financial institutions conducted by a leading dealing platform firm in July, the results of which were shared with attendees at the meeting, revealed that 90% say that the bulk of their market data will be on the cloud in four years.
A great many of both the shortcomings and suspicions of the cloud as a viable data storage resource have been overcome in the last few years, both as the cloud itself has undergone rapid technological development and also as innate conservatism to its implementation has lessened.
Yet barriers to even more widespread acceptance remain. Speakers confessed that for some market participants the cloud still might not be the most appropriate solution. Opposition to wider usage can also be found in major banks, wherein entrenched interests sometimes conspire to forestall change.
Despite these caveats, the consensus among speakers and audience on October 3 was that the cloud had reached a point of irresistible progress.
Until recently, banks and other possible users feared that the cloud was unsafe and valuable data could be lost. It was also felt, understandably, that the cloud couldn’t be controlled and managed in the same way as a traditional privately-owned data center. These misgivings are fast becoming redundant. For one thing, the considerable cost advantage of the cloud is proving an unanswerable argument – as it has been over the last 25 years in the financial services industry whenever any technical innovation threatened the status quo.
It’s not that financial institutions have become cavalier about security fears in the face of the cost advantages that the cloud offers, it is that the technological improvements seen in the last several years have made breaches of privacy far less likely. It wouldn’t matter how cheap the cloud is were it not safe.
In fact, it is now believed that the cloud is more secure than other storage applications. The technology designed to safeguard security, involving encryptions and micro-segmentation, is considerably more sophisticated – and at no extra cost - than would be possible in a privately-owned network.
The flexibility of the cloud is such that it can respond to a disaster situation more swiftly and smoothly than a private network, further enhancing security. If an entire region were, for some reason, to be shut down, operations could shift to another region seamlessly. “People are coming to the cloud because they know the water is safer than in their own back yard,” noted one speaker.
But more efficient costs allied to greater security aren’t the only pluses of the cloud. It is also much more elastic than a data center, with the capacity to contract and expand rapidly as trading conditions require. That means that there is no problem with unused space at redundant cost centers, but the protean quality means as well that it can respond to, for example, a situation in which market volumes suddenly triple without subjecting the fundamental structure to undue stress. One speaker noted that he hadn’t been part of an operations call to sort out something which had gone wrong since his organization moved fully to the cloud five years ago.
Considerably more analytics can also be squeezed into the cloud, meaning that specific data points can be recovered much more quickly and easily. While previously this might have taken weeks or months to review hours and hours of tapes to access the required data, with the cloud it takes minutes.
Moreover, the increased variety of analytics means much more can be done with the data, affording all sorts of new opportunities for data usage.
However, there are some applications for which the cloud is not fitting. Speakers noted that there is not much point in shifting large, established assets which absorbed capital expenditure some time ago and have been fully paid for, onto the cloud. It is better to wait until these data centers need to be replaced, and then move them onto the cloud.
Secondly, those trading venues and applications, such as exchanges of HFT outfits, which require low latency as a business imperative and for whom every microsecond counts, the cloud may not yet be the ideal solution. They are better, for the time being, sticking to private data centers. Also, if users have a lot of exotic instruments stored within their data, the cloud might not be suitable without considerable restructuring.
But for a lot of banking services, such as, for example, post-trade processing, the cloud could not be more apposite. “It’s a no brainer,” said one speaker. “For anything you need to store, it’s cheaper and better, and the recovery is better,” he added.
Potential buyers also worry about the availability and readiness of the cloud if a force majeure event – such as September 11, 2001 – were to occur again, conceded advocates of the cloud. “If there is a massive dislocation, and everyone moves in the same direction, is the capacity there? This is a real concern,” said one speaker.
It was also noted that while the cloud is undeniably cheaper over the long run, the start up costs can be considerable and this deters potential customers. There are three main cloud providers and each have specific services, all of which afford particular economies of scale. One cloud provider might be best for a specific work flow, and another for a different work flow. Potential users need to be prepared to use more than one vendor.
Banks often take a piecemeal approach to the implementation of the cloud. Certain businesses will want to press ahead while others, which feel that their existence and profitability is tied inextricably to the status quo, drag their feet. These businesses have been known to employ obfuscation tactics, such as claiming that “the regulators” or “compliance” will not like it.
This is typical of banks, which are large, complex and hierarchical institutions incorporating multiple layers of often competing interests. Speakers agreed that internal opposition to the imposition of the cloud was a major stumbling block and to overcome it the right initiative must be demonstrated by the most senior levels of the organization.
A power shift within banks will also likely foment earlier implementation of the cloud. The sales and trading markets businesses traditionally seek to repel the imposition of new technology, while the data staff like having shiny new toys to play with. Until recently, the traders held sway and their views counted above all else; but, as the business of a bank becomes more and more based on technology, that pecking order has been upset, said attendees. These days, the tech people are in the ascendancy.
It was striking throughout the 75 minute meeting that although there were notes of caution, no-one dissented from the overarching and emphatic theme of the afternoon: the cloud is here to stay and will become ubiquitous. Its advantages of lower cost, much enhanced flexibility and improved security mean that it is set to deliver a knock-out punch to privately owned data centers and become the norm for most types of data storage in the financial services industry.