Overwhelming regulatory change coupled with rapidly rising customer expectations is putting tremendous pressure on the operating models of financial markets firms.
That’s producing a spike in demand for managed services, provided out of data centers, and based on cloud or other outsourcing models.
Although small to mid-sized hedge funds have traditionally outsourced core IT services, demand for cloud-based platforms has escalated due to the emergence of software-as-a-service (SaaS), a computing model in which middle and back office services are hosted at a data center and delivered via the cloud.
“The financial services sector has been cautious about the cloud, but the past year has seen the deployment of cloud services among many varied firms,” said Ganesh Iyer, senior manager, product marketing at IPC Systems, a trading technology firm. “The response shows that the financial services sector has learned from the steps and mis-steps of first adopters and is now ready to reap the benefits of the cloud.”
Spending for cloud computing in capital markets will grow worldwide to $2.8 billion in 2013, according to research firm Celent.
Shifting projects and applications to the cloud helps reduce costs by reducing excess capacity, speeds up deployment times by leveraging existing infrastructure and provides scalable capacity for new projects.
“As many regulatory requirements have aimed to make the sector more transparent, this means that the cloud will not only allow institutions to reduce their IT infrastructure overhead, but provide regulators with easy access to all of the data they require and enable low-cost compliance,” said Iyer.
Software-as-a-Service
There is a strong trend "towards SaaS applications over traditional product-license style engagements as service providers have improved their offerings”, said Iyer.
The availability of, and demand for, information and data, "and the visualization and reporting around that data, has meant that IT departments have had to shift away from a closed door/in-house thought process to one that embraces mobility and flexibility”, said Justin Llewellyn-Jones, chief operating officer at Fidessa U.S, a trading technology firm.
“Combining mobility, flexibility and SaaS has resulted in firms having to examine what other aspects of their business could be moved into the cloud, especially when they start to overlay other considerations such as collaboration and business continuity,” said Llewellyn-Jones.
In addition to SaaS, the other two major service models of cloud computing are infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS).
“The scale required to warrant the investment in the infrastructure and systems necessary to provide current computing systems and platforms for small to medium-sized firms can be substantial,” said Terry Rennaker, vice-president at data center construction firm Skanska USA’s mission critical center of excellence. “Utilizing cloud computing models like IaaS, PaaS and SaaS allows firms to take advantage of systems and processes that formerly were only available to larger firms.”
PaaS, by providing a computing platform as a service, enables users to develop software using tools and/or libraries from the provider. The user also controls software deployment and configuration settings. The provider provides the networks, servers, storage and other services.
Examples of PaaS are Google App Engine, Windows Azure and Salesforce.
Firms are offloading functions that provide little to no competitive value to the cloud, which frees them to focus on their core capabilities.
“Many firms have implemented private clouds for IaaS and PaaS to save energy and equipment costs, and improve self-service,” said Philip Enness, director of markets infrastructure at IBM, a technology firm. “Partnering with vendors that excel at specific business processes can also enhance the capabilities provided to the firm’s lines of business.”
Realizing the full potential of cloud in financial services will entail significant effort, in particular, letting go of decades-old organizational boundaries around asset classes, business units and geographies.
Brad O’Brien, vice-president of development, CFN Services
“Financial markets’ enterprise IT organizations seeking to leverage the power of cloud-based solutions and the related economics face the daunting task of figuring out how to integrate multiple, disparate IaaS, PaaS and SaaS solutions into their trading infrastructure,” said Brad O’Brien, vice-president of development at CFN Services, a provider of managed automated trading enablement services.
Orchestration
Unfortunately, limitless real-time scalability is at odds with the operational realities of modern-day capital market firms.
“Regulations, compliance and organizational silos trump unlimited scalability,” said Alexander Tabb, practice leader and managing director for the crisis and continuity services practice at Tabb Group, a capital markets consultancy.
Newly-emerging “orchestration” technology can mitigate these factors, said Tabb. Orchestration enables automated and controlled provisioning of IT resources and IT-based services using rules-based systems that model and enforce regulatory, compliance and operational mandates.
“Orchestration is slowly penetrating today’s cloud market,” said Tabb. “These environments include offerings as SaaS, IaaS, and PaaS models, all of which are specifically targeted at the institutional capital markets sector.”
IT providers such as Tibco, Oracle and IBM offer bundled orchestration platforms as part of their offerings.
Ultimately, orchestration is a systems integration issue.
“The more platforms that your orchestration technology engages, the more robust the platform will be,” said Tabb. “Concurrently, the more platforms integrated into the system, the more challenging it will be to maintain.”
CFN Services, in partnership with Amazon Web Services, has launched AppHUB, a gateway providing access to leading cloud applications globally.
CFN Services is initially launching AppHUB across a global footprint of 70 financial markets data centers as a secure, scalable on-ramp into the Amazon Web Services cloud.
Trading service and application providers can leverage AppHUB to enhance their virtualized solutions by enabling high-performance and direct access for their clients, while broadening their reach to financial markets participants across geographically-dispersed markets.
“AppHUB simplifies the increasingly complex world by integrating cloud computing offerings from dozens of category leaders in the cloud market through a single access hub, directly connected to a clients’ private data center or within the trading venue itself,” said O’Brien at CFN Services.
