There are a number of questions such a move will elicit. Firstly, why do it? Well, there seems to be two reasons as to why and another reason as to why now. The first reason as to why, are the potential cost savings to the exchanges. By not hosting and paying for your own banks of servers (and the time and cost in waiting to have them installed) but instead using a trusted partner firm that solely specialises in that field of business, has its pecuniary and time related advantages. A second reason as to why, is there are additional efficiency improvement benefits from centralised tools, especially disaster recovery and overall improved calculation efficiency. Then there’s the reason as to…why now? Well, that is one of timing, specifically, what has been happening in the greater world outside the server vaults. The Pandemic and the risks that have been exposed from working from home, both for individuals and those working at the dedicated IT departments and datacentres, has shown a weakness and exposure to the way exchanges have in the past (and I suppose still do) work. The Pandemic was not the sole reason why this move has started and gained momentum…but it has been and still is, a major factor in the decision to move this way.
The next and possibly the major question, or series of questions, will revolve around…what will get in the way of the adoption of this new environment? You see, it is all good making these announcements…but how will it be seen through? This revolves around a series of points that will need to be addressed by the exchanges and equally importantly, by their sophisticated customers. Some of the more important ones are, in no specific order…addressing the culture at the exchanges and firms, the legacy systems, recruiting and bringing in specialised IT professionals and expertise, the uncertainty of the benefits of Cloud computing despite the perceived cost savings, the social impact plus the safety, security and speed of this new environment. To address some of these points raised, I will lay out the perception some have of the Cloud. I have heard the Cloud referred to as a big Black Hole, where data goes in and nobody really knows where it goes, if it is safe and can it be properly retrieved and manipulated. This, I suspect is a somewhat outdated perception as adoption in the wholesale markets has been conservative compared to some areas in financial services, such as retail banking where it has been more fully embraced. Additionally, the question of speed, in the past, has been a major one. Yet the speed of calculation has become so much better with Cloud computing, than compared to on-premise systems that may not be up to date or at an optimum efficiency. However, speed of calculation is one thing, speed of access will be a bigger issue…and one the HFT’s and others will need to address. This is probably the biggest question that will need to be answered. How will HFT’s survive and flourish in this new proposed environment.
This leads me to the final point I wish to discuss – the timing of this whole operation. To take as an example, the CME & Alphabet’s Google Cloud have signed a 10-year agreement to move from their current system to the new Cloud based one. This means that we will be well into the 2030’s before this will all, hopefully, be finished… or at least…completed (there’s a subtle difference between those two words). This seems like an inordinate length of time, as we may see many who start the project no longer be there towards its completion. However, I would argue that you may well need that 10-year timescale, to move such a huge undertaking plus time for existing stakeholders along with newly trained specialists, to deploy in this brave new environment. Additionally, this may well bring in new market participants, those not wrapped around earlier legacy systems or without behind the times thinking, who may indeed replace existing stakeholders. Thus, the trading world may look very different in 10 years, compared to what we now have.
25 | ADMISI - The Ghost In The Machine | Q4 Edition 2021
THIS COULD MAKE THE SPENDING OF HUNDREDS OF MILLIONS OF DOLLARS… REDUNDANT!
One thing looks certain. The Cloud is becoming the single biggest enabler of modernisation and automation in the world today…everywhere! The evolution of the Cloud and its effects on trading may become the biggest risk to those not adapting or evolving. It is worth remembering, the Cloud will not pause – for them to catch up.
Eddie Tofpik E:
eddie.tofpik@
admisi.com T: +44(0) 20 7716 8201
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