Public vs Private Cloud
The financial sector’s hesitancy to embrace Cloud Technology is well-known, and for good reason. Questions of security, regulatory requirements, data location sovereignty and preserving legacy systems all rear their head in digital transformation considerations.
Established financial institutions do not wish to compromise their existing platforms; while cutting-edge trading organisations are looking to the cloud for cost-effective infrastructure which enables them to stay focused on their applications.
This mix of requirements makes it increasingly clear that there is currently no public ‘one-size-fits-all’ network and cloud protocol that can satisfy all participants.While public cloud offers affordability, ease of accessibility, economies of scale, global coverage and flexibility for non-mission-critical operations, vital features indispensable to financial institutions are not included. Consequently, the trade-off between public and private cloud solutions in Capital Markets keep participants, infrastructure providers and regulatory bodies alike on their toes.
In 2021 the supervisory authorities including the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England raised concerns over the sector’s reliance on a few Critical Third Parties (CTPs) in the arena of fintech infrastructure. There is nervousness over whether the hyper scale cloud providers such as AWS, Google and Microsoft will monopolize the financial sector and threaten the role and function of the Exchanges themselves.
In response the Financial Services and Markets Bill was brought before Parliament in 2022, calling for a tighter regulatory framework to apply to CTPs providing infrastructure services into the finance sector. This Bill is expected to achieve Royal Assent later in 2023. This is in parallel to the progress into EU legislation of the similar Digital Operational Resilience Act (DORA). By passing these acts, EU and UK regulators have recognised belatedly that outsourcing of core technology functions by financial services firms is here to stay.
However, given that the detail of how CTPs will be regulated is left to be resolved in secondary legislation, there is a risk that increased regulatory control of CTPs represents a rather reactionary and unresponsive way to both safeguard and enhance operational resilience in the sector. In a nutshell increased regulation cannot move as quickly as the technology and innovations currently beginning to make themselves known to the market; it does nothing to ensure hyper scale cloud provision becomes more tailored to the specific characteristics of Capital Markets; nor does it enable growth.
Exchange technology requirements
As innovative market participants test the digital transformation waters for the sake of increased agility, speed to market and cost-effectiveness, the gap between the capabilities of hyper scale cloud provision and finance-specific technology requirements widens.There are many ways in which public cloud provision falls short of the rigorous necessity for accuracy, simultaneity, security, and data sovereignty, demanded by Capital Markets trading environments. Public cloud access cannot give any low-latency guarantees, so it is wise to consider whether the internet can provide the carrier-grade connectivity required. For example, some financial applications do not work if the latency is above 5 milliseconds.
In these cases, it falls to the infrastructure specialists in the sector to resolve these issues through hybrid cloud, or ultra-low latency private environments custom built for market participants requiring high levels of throughput and consistent nanosecond processing speeds.
For example, PTP or better grade time synchronisation, support for multicast across organisational boundaries and network-level traffic visibility are distinct examples of capability required by the financial cloud that appear nowhere in the generic cloud canon.
Hyper scale public cloud providers have no pressing need to meet PTP (Precision Time Protocol) requirements. In contrast the financial sector’s measurement, control and analytics systems need computer network clocks to be synchronised to within a sub-microsecond of accuracy. Similarly hyper scale cloud offerings have limited use of multicasting technology, since it is not crucial that data is distributed simultaneously. Nevertheless, in dynamic trading environments multi-casting technology is vital to support fair competition.
Network-level traffic visibility allows financial service firms to accurately measure their own and their counterparts’ performance and provide a source of truth impartial proof at the very perimeter of their service. Features that provide this, such as traffic mirroring from network devices or layer 1 optical switching, are notably absent from any current hyper scale cloud offering.
The evolution of the Financial Cloud
Gordon McArthur, CEO of financial cloud infrastructure specialist Beeks Group, comments: “The speed, agility, connectivity, capacity, security and sovereignty required by Capital Markets point towards a different beast of cloud technology than the hyper scale providers are used to.”
“Shared infrastructure and distributed data are a big no-no in trading environments,” McArthur explains. “If you can’t pin your data down to a postcode you are in breach of regulations. And if you’re relying on shared bandwidth your latency is going to be all over the place when concert tickets are released.”
What is emerging is a clear distinction between generic public cloud features and benefits, and the very specific capabilities demanded by financial cloud infrastructure.
“Good as their services are, AWS is not and will never be a specialist financial cloud provider,” says McArthur. “No one, least of all the regulators, wants to see AWS or Google or Microsoft morphing their cloud offering to become a financial Exchange,” he says.“But while the regulators are doing their bit to control the monopoly of CTPs, we’ve been looking at the problem from the opposite end.”
Transforming Exchanges’ relationship with cloud technology
McArthur’s vision is for Exchanges worldwide to become the cloud themselves. He says: “Since 2011 Beeks has been listening carefully to the needs of capital markets’ trading environments, and all our effort has been dedicated to building iterative solutions for them.“We are now in a position to offer Exchanges fully managed and monitored connectivity infrastructure with the lowest latency compute and highest-grade security required, not only for their own use, but for their customers too.” McArthur concludes: “This puts Exchanges on the cusp of a major evolution from cost centre to profit generator.“Public cloud will remain part of the toolset, but Exchanges will have more control over their operation, more insight into their performance and more profit from their business.”
BEEKS EXCHANGE CLOUD OFFERING
Exchange Cloud is a multi-homed, fully configured, and pre-installed. physical trading environment, optimised for Exchanges to offer private cloud solutions as a service to their own customers and maintain space for their own internal use. Exchange Cloud has been explicitly designed for global financial exchanges and electronic communication networks (ECNs) and comprises additional analytics features. Utilising high precision timing tools and supporting unicast and multicast datasets, the platform can be deployed in any exchange anywhere in the world and white labelled by exchanges across different asset classes.