As I mentioned last week, the capital markets industry has been slow to adopt cloud. But, just because firms’ move to cloud has been more gradual than some of those in other industries, doesn’t mean the consequence will be any less substantial. To map out what these effects could be, I’d like to take you through a few possible scenarios this week that illustrate opportunities for cloud computing in capital markets.
Cloud-based solutions offer the industry the chance to evolve in three key dimensions:
- Reducing end-to-end industry costs. Multi-bank utilities are becoming more and more attractive to capital markets firms as they struggle to reduce costs. Cloud computing could help enable this next generation of shared utilities, substantially reducing total industry costs.
- Improving market and industry structures. Cloud solutions could help longer-term investors see beyond the current fragmentation in market liquidity, and open up opportunities to create new market infrastructures that better serve their investing needs through cloud-enabled trading structures. Some firms use cloud platforms to link instant messaging hubs within individual investment banks, bypassing the traditional specialist market data providers. This move reflects the overall direction toward creating newer, lower-cost and more accessible market structures through next-generation cloud services.
- Limiting IT and operating costs within the “four walls.” The ongoing evolution of software-as-a-service (SaaS) and platform-as-a-service (PaaS) in the industry is helping firms better leverage the inherent benefits around agility, scalability and speed, while helping reduce their internal cost base. This opportunity underlines the scale of the potential benefits from cloud. To realize these benefits, however, the industry needs to overcome a number of challenges, including concerns over data security and potential loss of control. Data tokenization and encryption are popular answers to the challenges facing information security officers. Layered defenses are increasing confidence that businesses can realize benefits without compromising security.
We believe the industry’s traditionally monolithic and relatively monopolistic cloud supplier base—historically centered around exchanges—will expand to a more diverse and dynamic provider community, including industry-wide utilities targeting specific vertical processes. Firms that seize the cloud opportunity now will gain greater agility, scalability and speed, bringing them a competitive edge and positioning them as the industry leaders of the future. Those that ignore this opportunity may find themselves playing catch-up.
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