By Guillaume Spay Global Solution Director, Treasury Capital Markets at Finastra.
By Guillaume Spay Global Solution Director, Treasury Capital Markets at Finastra.

Financial Clouds in FX - Leveraging a new operating model

By Guillaume Spay, Global Solution Director, Treasury Capital Markets at Finastra.

It’s been said that few markets benefit as well from the specific characteristics of Cloud computing as FX. Why is that?

This is true. There are endogenous and exogenous reasons for it. In the former, the FX market is the backbone of world trade. As such it is fully standardized, both local and global, and links all economies together. Other asset classes are often local but distributed worldwide and customized. So, in terms of distribution, it does not require the benefits provided by the Cloud computing.

On the other hand, the FX market remains relatively far less regulated than others which means it’s easier to realize economies of scale.

What are the key elements required in terms of location, connectivity, latency etc to make Financial Clouds work for FX trading?

Even though FX market participants have different needs and goals, a few elements are key to make the Cloud effective and efficient:

  • The latency / speed. It is often derived from other items such as the connectivity type, the distance and the ability to roll the operations all over the world;
  • The proximity with the liquidity pools;  
  • The security offered by the cloud providers.

Speed and flexibility are critical to survival in the competitive FX market. In what ways does the availability and security of the cloud help FX trading firms to think more strategically about their technology and in-house requirements?

At the opposite of legacy systems, the cloud enables financial institutions to distribute their liquidity anytime and anywhere. In other words, they can get rid of geographical and temporal barriers.

But the Cloud is also extensible and adjustable at will, meaning it is the perfect match to scale for the volatility of the FX market.

The Cloud and its surrounding ecosystem are rapidly evolving. In what ways is it adding functional capabilities for FX trading beyond simply providing hardware replacement?

The Cloud allows the market participants to collect in real time vast amounts of standardized data and apply analytics on it. This has two consequences. First, they can develop tools to improve their decision making in trading either for their own benefit or for their clients. Second, it helps firms to be compliant (thinking here of Best Execution) or adapt faster to new regulations.

FX trading firms need to ensure they follow the best practices in methods and technologies when it comes to security. What steps have Cloud providers taken to enhance security and especially the security of their client data?

In both terms of data integrity and data confidentiality, the mentality regarding the Cloud security has evolved quite a lot lately.

This is partly due to the numerous norms and certifications the Cloud providers have put in place recently. And looking at the list below, you can see it covers all these aspects:

  • Cloud Security Alliance (CSA): best practices for providing security assurance within Cloud Computing
  • Cyber Essentials certification => assessment and risks mitigation from common cyber security threats in IT system
  • All ISO certifications => security management standards & controls; Code of practice for information security controls / for protection of personally identifiable information (PII) in public clouds acting as PII processors; commitment to deliver quality IT service management & monitoring; Business continuity management systems requirements; standard to demonstrate the ability to consistently provide products and services that meet customer and regulatory requirements
  • PCI DSS certification => standard designed to ensure that all companies that accept, process, store or transmit credit card information maintain a secure environment.
  • SSAE 16/ISAE3402 certification => Standard on Assurance Engagements and reporting standard for international service organizations (SOC 1, 2, & 3 reports that cover controls for data security, availability, processing integrity, and confidentiality).

But we also have to consider natural fail-over and disaster recovery capabilities as important elements in this transition.

The Cloud allows market participants to collect in real time vast amounts of standardized data
The Cloud allows market participants to collect in real time vast amounts of standardized data

What options other than a wholesale adoption of cloud computing are available to FX trading firms and why might some consider the hybrid model of maintaining their own infrastructure and data center whilst using some services from a cloud provider?

The hybrid model exists because some Financial Institutions and/or Regulators consider the risks and the client data should remain on premises or inside the country. At the same time, they still want to leverage the cloud for distribution across the globe purpose, scalability, ease of access and speed. This dual model may remain as long as the banking industry and asset classes are not standardised worldwide.

What factors should influence a suitable choice of Cloud provider and in what ways might these vary for different types of FX market participant?

The FX market addresses a wide range of participants, such as global banks, local banks, asset managers, brokers and hedge funds. Each of them is reactive to different set of achievements: execution / distribution costs, liquidity depth, trading automation, client service, latency, localization.

As a result, the choice of a Cloud provider will first be dependent on the mix between the benefits to be achieved and the e-trading vendor technology.

The second element of choice comes from the level of service and scalability offered by the Cloud provider.

And third, the access and openness offered to partners to facilitate the integration and the implementation of the e-trading platform.