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Cloud computing ushers in a new era for capital markets

Across the capital markets industry, early moves towards accessing the benefits of cloud computing are gaining growing momentum.

Overview

 

Capital markets have lagged other industries in adopting cloud technology. There are a number of reasons for this: security concerns, legacy investments in custom applications and “siloed” IT governance, to name a few.

As a result, cloud applications are mostly restricted to specific back- and middle-office activities, and, to some extent, to commoditized areas outside core systems.

But because of cloud computing’s unique blend of scalability, flexibility, cost efficiency and massive processing power, the technology is gaining ground among brokers, banks, pension funds and others.

Capital markets’ traditionally had a monolithic cloud supplier base centered around the exchanges. But as demand increases, suppliers will become more diverse. We’ll see, for example, industry-wide utilities that target specific vertical processes.

Cloud is having its coming-out party, no longer confined to the back office in capital market firms.

Key Findings

The industry’s recognition of cloud benefits is gaining momentum amid rapidly-changing dynamics. The foundations of the capital markets have been virtualized—and inherently cloud-like—since the 1980s.

Since then, exchanges have effectively acted as quasi-monopolistic cloud providers, charging fees to provide trading algorithms and services remotely and on a shared basis to market participants. That, in turn, saved customers users the expense and effort of creating, provisioning and upgrading these services themselves.

But our research shows that ongoing changes in regulations, technology and business practices are disrupting established industry dynamics, creating new opportunities and challenges.

These trends, combined with rising cost pressures since the 2008 global financial crisis, are creating new concerns for capital markets firms.

Cloud computing may play a role in finding solutions to these issues, which include:

  • Fragmentation of liquidity

  • Changing regulatory landscape

  • More demanding customers

  • A more dynamic trading environment

  • The need for sustainable cost reduction

  • The need for smarter and more sophisticated risk management.

Authors

Bob Gach is our global capital markets industry managing director. His responsibilities include setting strategy, developing our offerings, establishing investment priorities, managing large global accounts and working with our global account teams.

Mark J. Grindle is a senior manager in our infrastructure and cloud strategy group. He has significant IT transformation experience in several areas, including: strategy, planning, organizational change, private and public cloud, data center facilities, infrastructure, network, end-user computing and applications.

Emmanuel Sardet is a managing director in our financial services group. He helps design, build and run agile and scalable technology to deliver operational efficiencies and transformational outcomes.

Steve Scemama is a managing director with our global capital markets leadership team, piloting capital markets technology and trading platforms business services. He works with investment banks to transform their business and IT organizations, supporting the operating model and IT architecture, implementing trading solutions and developing alternative sourcing approaches.

Andrew Starrs is our group technology officer—financial services, responsible for developing industry-specific technology strategies and shaping technology-enabled change programs for banking, insurance and capital markets clients.

Industry & topics highlighted

Technology Financial Services