Are Banks Using Cloud Computing? A Definitive Yes.

Ever since 2009 when NIST published its first definition of cloud computing there has been a promise of community clouds, and now we finally have a second one in the financial services market, thanks to NYSE Technologies. The IT arm of NYSE Euronext announced beta of Capital Markets Community Platform, its cloud computing offering this week, and the effort, on the surface, is a good example for other vertical markets to follow.

For years, financial services firms such as investment banks and hedge funds have been competing on trade execution speed and volume -- where milliseconds per trade can translate into billions of dollars in competitive advantage. And in doing so, they have found that you can't beat the speed of light. Thus if you want very, very fast connections to the stock market, you need to be as close to the servers used by the market as possible. The way to do this prior was to find out where the data center for an exchange was located and put your servers as close as possible and hopefully on the same network backbone. If the exchange was in a colocation facility, then you wanted the cage right next door. This method gave larger investment banks a distinct advantage as you had to be able to afford a full cage and have priority access.

To help level the playing field a bit more, NYSE Technologies new IaaS offering lets financial firms of any size place VMs directly on the same infrastructure as the exchange. Using VMware vCloud Director for secure tenancy, NYSE is able to separate financial firms from each other as well as from the exchange itself. It also lets NYSE control access which presumably promotes fairness in the market. Now financial firms can compete on their trading algorithms, market insights and knowledge without geolocation, colo relationships and big money prioritization creating an uneven playing field. This doesn't mean that a large financial institution can't still colocate a massive server farm, just that winning isn't defined by your ability to do so.

This effort by NYSE is a classic example of a community cloud in that it is a private IaaS solution (yes, there is dedicated hosting too) designed specifically to meet the needs of a particular market and open to all members of that community. It is similar to an effort created several years ago by NASDAQ called Market Replay that let's financial institutions exercise their algorithms against yesterday's market. That cloud solution leverages Amazon Web Services' Simple Storage Service (S3) public cloud infrastructure. But NYSE Capital Markets Community Platform is for access to the live market. This service, when it goes live (expected July 1) will affect actual trades.

Community clouds exist in higher education, pharmaceuticals, and other markets so this isn't brand-new but is another testament to how real the cloud computing market is and shows a best practice for how to set up a solution that serves the unique needs of a particular market. Well done, NYSE.

Comments

The big question is what does

The big question is what does an exchange know about hosting and cloud and can you trust them to offer a reliable, efficient and secure service? Thet want to monetize th proximity but shouldnt they use a partner instead like NASDAQ?

Completely makes sense

Exchanges know a lot about what it takes to run a reliable, always-on, real-time and secure 'cloud' service -- because they already do it day-in and day-out. Imagine the repercussions if the NYSE technology stack came crashing down. Billions of dollars would be at risk.

NYSE and other financial exchanges run some of the most secure and reliable data centers in the world, and many of them already host their customers' (e.g. traders') applications and servers in their environments. Why? As James says, a fraction of a second advantage by one trader over another in doing a trade impacts their bottom line.

So if a highly reliable, real-time and secure data center that is at the heart of the world's largest financial exchange can benefit traders, then it stands to reason that this could become a foundation where other financial services and applications providers, as well as their users, could benefit too.

Steve Crawford
Jamcracker, Inc.