Each of the three largest US exchanges, NASDAQ, NYSE and CME Group has recently announced its cloud strategy, but exchanges and financial markets as a group have been slow to get on the cloud bandwagon. Too slow given the potential benefits to their customers and their own needs to increase revenue, market transparency and competitive advantage. That according to a recent white paper released by The Melbourne Group entitled The Winds of Change in Market Data : Winning Cloud Strategies for Exchanges and Trading Venues.
The new NYSE Technologies’ Capital Markets Community Platform is a significant and bold IaaS play that aspires to become the Amazon Web Services for financial markets by leveraging the tight community and unique technology needs within financial services that so often prevent generic offerings like AWS and Azure from competing on Wall Street. NASDAQ and CME Group on the other hand have placed their initial cloud strategy bets one level up on the cloud stack with data-as-a-service offerings, NASDAQ Data-On-Demand and CME DataCloud respectively.
Now that the big three have all made claims to the cloud, it seems like only a matter of time before each of the remaining hundreds of stock exchanges and trading venues around the world follows suit with its own cloud strategy. Right? The answer is not so clear, because every exchange is a little different. Different markets. Different regulations. Different customer needs. Very few have the capital and scale to tackle the IaaS market. In fact, it remains to be seen if NYSE can achieve anything near the automation, elasticity and scale of AWS within the limited scope of financial services. According to the Melbourne Group, the safer cloud strategy for most exchanges and trading venues is probably closer to the CME and NASDAQ approaches that use the cloud to reach new customers and monetize underutilized market data assets.
The business case centers around four trends that are creating significant market data technology challenges for financial market participants.
- Market data costs are skyrocketing due to the expansion of electronic trading
- New trading venues and technologies are driving mergers and consolidations
- Transparency requirements driven by regulator responses to the financial crisis
- Mobile technology enables new usage patterns for market data
Altogether, these trends add up to the the exchange version of the “too much data, too many apps crush” that is being felt throughout the financial services sector. In response, The Melbourne Group offers up the following cloud strategy for exchanges and trading venues.
There appears to be decent upside to adopting any one of these recommendations, while the downside seems minimal. Unlike IaaS, market data doesn’t come with the high security obstacles that are pervasive in the financial services sector. The primary challenge is cost-effective distribution of exponentially increasing amounts of market data and a good cloud strategy should open up many opportunities for exchanges and trading venues in both cost reduction of internal data management and revenue enhancement from expanded data delivery.