FX MYTHBUSTERS
Once again I would argue that the opposite is true. To me the cloud is a truly revolutionary innovation which focuses minds on what institutions of all sizes should be doing. For big companies like major banks the answer should be a no brainer. Typically up to a third of bank staff are involved in IT. Tis is truly financial insanity on a grand scale. But the same is true of much smaller companies who need to concentrate on what their core business actually is. Businesses should harness technology to meet their needs. In the vast majority of cases, including FX e-commerce, these applications are available in spades and can be bought in the open market. Cloud techniques benefit companies of all shapes and sizes as it puts IT processing back where it should always have been, in the hands of IT professionals with all the economies of scale that that entails. It also eliminates waste of resource at the client end and greatly reduces cost and complexity. Te same dynamics apply across the board.
We are experiencing a huge increase in trading volumes so wouldn’t it be better for us to focus our limited IT resources on increasing the capacity of our existing trading and computer hardware infrastructures to make them more scalable and future proof rather than investing in something new like Cloud computing?
Obviously banks particularly will have to make their own decisions on these issues. Nevertheless the advent of cloud is likely to have the same type of impact as the internet did 15 years ago. Arguably inertia and an insistence on developing bespoke in house technology cost the banks dearly as they lost market share to the new electronic brokerages, portals ECN’s etc. who developed superior technology more quickly. Te cost impact this time around is likely to be so great that those institutions that don’t use cloud techniques for delivery will very quickly find themselves truly uncompetitive. It is a King Canute moment.
We anticipate that regulatory changes in the FX market will force us to adopt and apply more real-time risk management methodologies. Won’t risk calculations at times of extreme market stress and volatility be too much for Cloud architectures to deal with effectively?
132 | january 2012 e-FOREX
I agree with the first sentence. It is clear that current risk management procedures are not fit for purpose in most asset classes. In fact to make a political point it is absolutely clear that banks have not learned anything from the sub prime debacle. Replacing it immediately with a sovereign debt crisis. We had a great chance 4 years ago to reform the banks and flunked it. Technology will now separate winners from losers. Te second sentence seems to infer that existing internal IT systems could handle real-time risk management across multiple asset classes. Again I would argue that the opposite is true. My own view is that there will be a fundamental change in the way that banks assess portfolio, credit, operational and market risk which will require far greater intellectual rigour than has been previously deployed. Tis will require organisations to look closely at how they manage complex multi asset class client and market portfolios and to be able to stress test those risks on demand and to come up with risk adjusted positions in more or less real-time. Also the most likely time that banks will be required to produce such reports will be after some massive market shock. Te one thing that is clear to me on this is that current processing capacity will not be able to handle this type of demand. Given this premise it is hard to see how anything other than the processing power available from the cloud would be able to handle it.
We are based in the US and keen to white label our FX platform and trading services
to clients in Asia. Wouldn’t this technology only help us achieve this if we decided to work with a specialist regional provider of Cloud services?
Te cloud is global and that is part of the beauty of it. A New York producer can provide services to a Malaysian user and vice versa. Microsoft have six data centres worldwide and they are unbelievably impressive and provide processing capacity on a truly gargantuan scale. Te cloud will allow smaller banks, who were previously excluded from providing electronic FX services because of budget considerations, into the market. Tere are plenty of liquidity providers around. Te distribution on a white label basis is now available at very affordable price points.
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