Max Bowie: Same Cloud, Different Crowd

For hundreds of years, farmers, sailors and all manner of journeymen employed various old wives’ tales for predicting the weather. One sees a red sky in the evening and draws a different conclusion from if he sees a red sky in the morning. One sees a certain type of cloud in the sky and interprets it differently from another. Everyone sees the same phenomenon, but each interprets it differently. Some see opportunity; others see uncertainty. So perhaps we shouldn’t be surprised that cloud computing suffers from similarly different interpretations by different parts of the financial industry.
For example, at the recent North American Financial Information Summit (Nafis), hosted by Inside Market Data and Inside Reference Data in New York, we heard vastly differing opinions on the potential opportunities and drawbacks of cloud. And interestingly, whereas regulators are often criticized for being behind the curve compared to the firms they regulate, they are already taking advantage of cloud in ways that trading firms are still debating.
From Capacity to Cloud
The Financial Industry Regulatory Authority (Finra), for example, was already using big data technologies on a traditionally deployed basis, but realized—with 30 billion transactions and 6 billion shares traded daily to monitor—it had “exhausted” the scale and capacity of these platforms, Finra CIO Steve Randich told Nafis attendees. So he embarked on a project to shift Finra’s storage and processing requirements onto a more elastic and cost-effective cloud model, using Amazon Web Services (AWS), starting with its website and Broker Check system, and ending in 2016, when all of its market surveillance platforms and their intensive data requirements will be moved onto AWS.
“From a physical and logical security standpoint, I believe that, if done right, public cloud computing is as or more secure than self-hosting,” Randich said, adding that the move could ultimately yield cost savings of up to 40 percent, along with other business benefits.
Moreover, when Randich—wary of the data security implications of hosting sensitive data in the cloud—took his plans to the Securities and Exchange Commission (SEC) for approval, he found the SEC already running 58 of its own applications on AWS.
In addition to legal data protection concerns, firms are worried that cloud migrations will involve hidden costs, and do not provide any exit plan.
However, Randich may be right to be cautious: At the same event, Aite Group senior analyst David Weiss said that market participants may be racing into the cloud, drawn by its cost and time-to-market benefits, without doing sufficient due diligence. For example, the new cloud business models offer “insufficient legal protection” of data because legal terms have not evolved as quickly as cloud technology. “Cloud or off-premises servers are no longer your property, and your data may be subject to access without notice,” Weiss said.
Hidden Costs?
In addition to Weiss’ concerns, firms are worried that, while the cost benefits of cloud adoption are clearly attractive, moving to the cloud will involve hidden costs, such as those associated with re-architecting applications to take full advantage of an elastic cloud environment, as well as the yet-untested costs of moving back out of the cloud, if appropriate, since most migrations don’t take any exit plan into account.
“We want to throw out our legacy technology, but the challenge is, do I trust those cloud providers? Do they understand our needs? I know they can do this cheaper than I can today, but can I trust them?” said Nathan Boylan, head of IT at Lord Abbett. “Providers make it very easy to get onto their service, but very difficult to get back out.”
Firms also remain wary of providers that come from outside the financial services space, no matter their pedigree in other industries, though Amazon—no doubt aided by Nasdaq’s AWS-based FinQloud offering specifically for financial markets—has laid the groundwork for greater acceptance and adoption in future. The question is, will cloud providers offer sufficient evidence to reassure users, or will business needs eventually outweigh users’ concerns? With the end of Finra’s project still two years away, by then, we’ll have a better idea of whether its constituents are following suit.
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