Investing in the cloud

Conventionally a closed arena, the financial services industry is at a digital transformation crossroads, with cloud technologies promising market players a more profitable route. This blog explores how an increasing number of investment banks and financial services institutions are turning to cloud-based market data systems to introduce more flexibility and cost optimisation to traditionally expensive processes. Harnessing the cloud connections that urban-based data centres have will also propel the industry into an era of unprecedented change

By: Patrick Lastennet

For some time, technology evangelists have banged the drum of ‘digital transformation’, as change has slowly but surely pervaded every sector of our so-called ‘Fourth Industrial Revolution.’ Yet, while the financial services sector has arguably led the charge in specific areas of digital transformation, it hasn’t always been smooth sailing.

Until recently, factors such as regulatory compliance, security and migration costs have held FS institutions and investment banks back from shaking the shackles of existing legacy systems. However, times are changing. According to recent Gartner data, one third of financial services CIOs identified digital as a top business priority for 2019 – an increase of 8% from 2018. More specifically, cloud technology is helping companies dealing with real-time market data to become more agile, profitable and cost-efficient. And this is changing the make-up of the industry as we know it.

Delving into the data

Data is the lynchpin of financial market activity that involves high-frequency trading, time sensitive transactions and the calculation of pricing and risk. Usually, access to such data has been controlled by trading venues and vendors, who license the information to end-users. Stock exchanges have also traditionally held a position of power – they set the prices for the cost of data. Expensive platforms, such as those built by Bloomberg and Thomson Reuters, then provide companies with access to this data. With such heavy reliance on third parties for information, financial services organisations are crying out for more choice, more control and more tools to help maintain the high levels of service they provide, without the hefty price tag.

Cloudy with a chance of profitability

A recent survey from the Economist Intelligence Unit found that 74 percent of banks believe the cloud will become a major technology in the industry within the next five years. This mindset shift is echoed in the personnel choices that financial services companies are now making to fully embrace the cloud. And with more cloud-native, millennial developers on the payroll, these companies are shifting their attention from expensive vendors and traditional systems, migrating their critical, real-time workloads to cloud-based, pay-as-you-use platforms. The agility afforded by these cloud platforms – which includes Amazon Web Service’s Outpost service, as an example – means financial services institutions can reduce time to market, transform operations at scale and lower infrastructure costs, among many other benefits.

With increased competition entering the market, a once-closed sector is now suddenly much more open. Market data vendors are suddenly under threat by hyperscale cloud providers, and will have to rethink how they position their offering to win over financial institutions. Instead of stock exchanges and big brokers as the hub, cloud platforms will become the heartbeat of the FS community. The boundaries start to blur between the roles of each stakeholder in the industry, encouraging collaboration between all.

The best of both clouds

So, how can financial institutions and investment banks make the most of the cloud? Firstly, it’s important to acknowledge that, in this new architecture, not all market data will be hosted in the cloud. Some applications are too business-critical or must be retained on-premise for regulatory purposes. External data will also need to be fed in and out of the cloud seamlessly; having an infrastructure in place that enables this is key to cloud success.

Therefore, a hybrid approach – combining private and public clouds from third-party providers – could provide financial institutions with a competitive advantage. To harness the cloud in this way, colocated data centres provide the security and control of a dedicated on-premise infrastructure or private cloud, and the scalability and flexibility afforded by a public cloud, whilst ensuring high-quality connectivity between both. Partnering with a colocated data centre provider also enables businesses to launch new applications and services from the public cloud, without having to invest heavily into hardware or infrastructure. For financial institutions in particular, urban-based data centres allow direct connections to top financial markets, market data vendors, independent software vendors and brokers, significantly reducing latency and improving overall trading performance.

Last year, a World Economic Forum report claimed that the cloud, along with a variety of other digital technologies, had the potential to transform ‘the physics of financial services…creating new centres of gravity where old and new capabilities are being combined in unexpected ways.’ Interxion is playing a crucial role in the evolution of the financial services industry, providing endless innovation opportunities to over 300 financial services institutions in our Central London data centre campus. We offer private access points to the world’s leading cloud platforms, such as AWS and Microsoft Azure. Plus, with locations half a millisecond or less away from every major stock exchange and liquidity venue in Europe, our data centres are strategically placed for all participants in the financial services community.

Get in touch if you’d like to hear more about how we can help you harness the cloud!