Appetite for cloud-based services in capital markets has reached a critical point and that cloud is set to become the main delivery model for certain key functions in the near future, a new study by Celenet reveals.
The research paper, entitled ‘The cloud comes of age in the capital markets’, shows attitudes towards cloud have softened in the last 12-18 months, with participants showing more acceptance of the security, stability and reliability of cloud-based deployments.
The research shows explosion in regulatory requirements(e.g. MiFID II, Dodd-Frank), macroeconomic uncertainty, cost pressures (e.g. Brexit, China’s economy)and fintech innovation are the four key drivers for cloud adoption.
The cloud has emerged to solve these challenges, offering firms a more agile infrastructure that enables them to address ever-evolving regulatory requirements and the proliferation of trading applications as well as the need to rapidly connect to multiple liquidity sources. The cloud is also a key driver for fintech innovation as it facilitates the implementation of new ideas and reduces the cost of failure, Celenet says.
Yet these drivers have varied manifestations across the capital markets ecosystem.
The buy side, in particular smaller firms, is more open to service-based models and has used hosted solutions for most systems, including trade management. Hedge funds are keen to develop insights quickly, making a cloud model more appealing.
The sell side tends to be more focused on maintaining control of their systems. However, they are eager to explore solutions that build better distribution models and to a lower, variable cost model. Many firms have already created private clouds for key resources while moving less sensitive applications to the public cloud.
The adoption of cloud based deployments also varies across business functions, the research noted.
Whereas there has been a wider acceptance for moving non-core and non-proprietary data to a cloud environment, the move of front office functions and proprietary or client information has lagged behind. However, this attitude is shifting as firms become more comfortable with the performance and security of the cloud. Innovative TradingTech, RegTech, and market data services are also expected to move to the cloud.
The research also found that data storage locations, risk liability and organizational inertia are the barriers to be overcome before widespread adoption of the cloud.