Google Cloud and AWS see winning over exchanges as key to pitching Wall Street holdouts on the public cloud
- Exchanges are one of the biggest users of the public cloud on Wall Street.
- While many financial firms remain hesitant to move to the public cloud, trading venues have been more willing to make the jump.
- Exchanges serve a large number of financial firms, so public cloud providers are viewing them as a logical bridge towards gaining a larger foothold on Wall Street.
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Exchanges are emerging as a key proving ground for public cloud providers who are hoping to eventually convince all of Wall Street to move to their tech.
While most financial firms are still pondering their approach to moving off physical databases and onto remote servers managed by Amazon, Google, and Microsoft, trading venues have surged ahead in actual adoption and are proving to be one of the most progressive groups of users on Wall Street when it comes to using the public cloud.
In October, Chicago-based CME Group announced a partnership with Google Cloud to offer its real-time futures and options market data. The news came only a month after German exchange Deutsche Borse Group said it would work with Google Cloud as it revamps its technology.
"I think it's a turning point that the exchanges are looking to the cloud overall," Tais O'Dwyer, global director of financial services strategy and solutions for Google Cloud, told Business Insider.
Google Cloud isn't the only public cloud provider to tap into the market. Amazon Web Services has worked with Nasdaq, the London Stock Exchange Group, and the Japan Exchange Group, among others. Microsoft Azure has relationships with CME and Nasdaq.
Exchanges adopting the public cloud "really do give a signal that the public cloud providers, Google Cloud in particular, are ready to support the type of critical business functions that exchanges and other companies provide," she added.
Wall Street's interest in the public cloud has steadily increased in recent years. A recent Refinitiv survey estimated financial firms investment into the tech will account for roughly 48% of their IT budgets in 2020. However, most banks, asset managers, and hedge funds haven't shown a willingness to move more critical systems and tools into the public cloud, with some forgoing it altogether.
Brian Moynihan, Bank of America's CEO, boasted on a recent conference call about the $2 billion the bank saved this year by ignoring the public cloud altogether and instead building out its own private cloud.
And Bank of America's chief technology officer, Howard Boville, told Business Insider in June pricing from public cloud providers was still too high to make the move cost effective.
However, what's held back a majority of Wall Street from greater usage of the public cloud amount to concerns about security and resilience. And while those fears have certainly ebbed in recent years, many banks and investors are reluctant to consider moving certain information, such as data about their customers, into the public cloud.
Exchanges see big benefits from the public cloud.
While banks and hedge funds have remained tight-lipped regarding their use of public cloud, exchanges have become arguably the technology's biggest supporter on the Street.
The draw for trading venues largely stems from the massive amount of data they handle on a daily basis.
"[Exchanges] are focused on driving innovation by leveraging more efficient ways to ingest, manage, and store data in a cost-effective way," John Kain, worldwide financial services business development manager for capital markets at AWS, told Business Insider via email. "We've seen the migration of transaction and market data to the cloud enable exchanges to offer a richer set of data services to their customers."
Nikolai Larbalestier, senior vice president of enterprise architecture and performance engineering at Nasdaq, told Business Insider via email the New York-based exchange operator has been using the public cloud for more than a decade.
The tech is part of everything from Nadsaq's latest innovations and investments, such as the recently acquired alternative data provider Quandl, to systems that have been in place much longer, like the Nasdaq Data Warehouse, which includes tools around data analytics and reporting for its US markets.
Nasdaq would be willing to use the public cloud even more, Larbalestier added, if it were not for one critical piece.
"Biggest factor holding us back in using the cloud more: customer readiness," he said. "But we see customer preferences changing rapidly. We're seeing this trend accelerating."
Ari Studnitzer, CME's managing director of architecture and product management, believe exchanges could serve as the bridge leading more financial firms to use the public cloud.
Studnitzer, who has played a key role in developing CME's strategy for using the public cloud, said exchanges are essentially ecosystems, as they host such a wide variety of market players.
Trading venues represent "the tip of the sphere," he added, and the data they manage and distribute is the weight that will push the processes further along.
"Exchanges are really the hub of that data," Studnitzer said. "So as data becomes more accessible, and obviously in a secure and controlled fashion, that clearly becomes the gravity that then starts to pull people over."
Exchanges lend legitimacy to the cloud
Having such an important piece of the financial markets using the public cloud also stands to benefit providers hoping to convince more financial firms their systems are secure and reliable, which has long been one of Wall Street's main concerns.
Google Cloud's O'Dwyer said exchanges' willingness to adopt the tech is a "tremendously positive signal" that shows the overall industry "it's not just ancillary type of things that they need to run their operation, but very critical things can be managed in the cloud as well."
As a result, providers such as AWS and Google Cloud will continue to view exchanges a way to build their business in what is a big, albeit largely untapped, market.
O'Dwyer and Kain both declined to give specifics around how the business done with exchanges compares to the rest of their customers on Wall Street. However, O'Dwyer said the amount of data the exchanges handle, along with their need to analyzing it, make them an ideal customer.
"The exchanges have stood out as important parts of financial services for us," O'Dwyer said. "We do think that we're uniquely positioned because of the capabilities of our cloud to be able to serve that market in a really competitive way."