Cloud Technology in the Capital Markets (Paper)
cloud technology in the capital markets
Lessons from the past
Peter Williams - Senior Technical Director, CJC
A helpful case study
learn from the past
The clamour for public cloud
Right now, one of the hottest topics in the capital markets, beyond industry regulation, has been the adoption of public cloud. Big names like Amazon, Google and Microsoft offer utopian scalability to meet demand; no wasted resources, because you pay for what you use and easy and inexpensive set-up, because hardware, application and bandwidth capex costs are covered by the provider.
These services suggest significant cost savings and with their wealth of technology talent, it’s believed that cost benefits will not come at the expense of service quality. Numerous tier one banks have started utilising the public cloud as a means to reduce costs and focus on core business.
But doesn't this all sound familiar ?
In the late eighties/early nineties one of the hottest topics in capital markets, beyond industry de-regulation, was IT offshoring. Big names like IBM, Andersen Consulting and Perot Systems offered utopian scalability to meet needs; no wasted resources, because you pay for what you use and easy and inexpensive set-up, because people, training and management costs are covered by the provider.
These services promised significant cost savings and with their wealth of technology talent, it was believed that these savings would not come at the expense of service quality. Numerous tier one banks utilised offshoring as a means to reduce costs. Everything worked out perfectly - right ?
By 2016 we’d seen that, in many cases, there was failure or suboptimal performance in this strategy. Causes ranged from hidden costs, language barriers and 'call centre hell', to service deterioration due to staff turnover, or a simple lack of understanding of the underlying business and the wider industry by the offshoring firms.
More recently, it has been suggested that the catastrophic technology outage suffered by British Airways was triggered by cost-cutting and outsourcing of around 700 in-house IT jobs offshore. BA's parent company, IAG, has seen a significant drop in share value, while some city analysts are predicting the cost of compensation alone will be in the region of euro100m
So in the capital markets, has a lesson been learned from the IT offshoring experience that could benefit public cloud adoption ?
The public cloud
Only part of the solution
In the capital markets, the lesson of IT outsourcing has been taken on board and the trend has now been reversed. Firms are switching to a more hybrid model, with a combination of near-shore, specialist managed service providers, in-house teams and significantly less fully offshore resource and services.
"Unlike the approach to IT offshoring in the past, other options are being explored with public cloud adoption that will allow firms to get the best out of cloud technology."
– Peter Williams, Senior Technical Director, CJC
Unlike the original approach to IT offshoring, with public cloud adoption other options are being explored that will allow firms to get the best out of cloud technology.
private versus public
Last year, a research paper from Gartner highlighted instances where it made sense to adopt private cloud over public. These included where:
- High application performance is required, with stringent SLAs
- Regulatory compliance, or applications requiring control, or risk tolerance is low
- They are less costly than public cloud services
- Mode 1 apps require greater agility and frequency of releases
According to the RightScale 2017 State of The Cloud Report, adoption of cloud solutions remains robust:
The same report indicates that enterprises run 75 percent of workloads in cloud with more in private cloud (43 percent) vs. public cloud (32 percent):
From CJC’s perspective, these are positive signs.
However, to fully reap the benefits of the cloud there are still challenges to overcome.
The report suggests those challenges embrace:
the private cloud
It's all about the data
So challenges around the cloud have remained fairly consistent. But, in the context of capital markets IT, one of the primary concerns is data.
When working with the data types consumed and produced by financial services organisations, the following must be considered:
"Any organisation considering moving solely to the public cloud should be clear on how much data they intend to store and move. "
– Paul Tomblin, Chief Technology Officer, CJC
Some providers operate a policy where it's free to load data into the cloud, but you are charged for taking it back out again. This means that once a firm has uploaded sufficient data, they are effectively locked into their provider as the price of moving the data out is prohibitive.
The greater the mass, the tighter the lock. This is why we refer to it as 'data gravity'.
Is your firm clear on how much data needs to be stored and moved ?
A number of firms are already in this position and have stated that it would take ten years to recoup their spend if they were to move their data now. It’s just not as simple as deleting and starting again either – what if this data has some regulatory significance and a 5+ year retention policy?
On the topic of data storage, but with wider ramifications, firms must also consider the location of the public cloud datacentres in which their systems would be hosted. Are they where you think they are? Do their locations impact your regulatory and trading responsibilities? Will your systems and applications perform as required?
Another important and often under-appreciated consideration is the amount of control and significance a client has with a public cloud provider. Let’s say, for example, that you are a tier one investment bank with a large-scale deployment with a well know public cloud. The reality is that you are insignificant compared to firms like Netflix and Spotify, so don’t expect preferential treatment. It's a reality that investment banks are not necessarily used to experiencing.
Hybrid is the way forward
... is hybrid.
Data challenges can be met by providers of private cloud managed services. Specialist firms are able to tackle them head on and provide solutions that meet the stringent requirements of capital markets participants.
"Hybrid is almost certainly the way forward; public cloud will absolutely continue to be used and this use will undoubtedly grow. But only in the areas for which it is best suited."
– Peter Williams, Technical Director, CJC
It should be clearly borne in mind that moving to the public cloud does not remove the requirement for support teams to manage applications. Private cloud will be where the smart players differentiate themselves and private cloud providers will be delivering the value.
When specialist skills are aligned with industry specific expertise and systems are delivered from key financial locations and datacentres, the way ahead is clear.
We specialize in cloud technology, as well as consultancy and managed services that optimize data and trading technology operations, processes and commercial control for global capital markets firms. We help our clients:
- Transform their data platforms, both technically and commercially, to control costs
- Access innovative technology solutions
- Understand and comply with a raft of regulatory obligations
- Improve operational processes and control
With a global reach and offices in London, New York, Hong Kong and Singapore, we'd be delighted to learn of the challenges you face around data and how we may be able to help.
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