Waters Wrap: Banks explore new avenues for cloud cooperation

As banks and asset managers move more workloads to the cloud, they’re trying to find ways to cooperate to cut costs and exert more influence over the likes of AWS, Google and Microsoft. Anthony wonders if these early efforts will yield beneficial results for the industry, or prove fruitless.

One thing that I’ve always found amusing is how financial services firms like to partner when they have a problem—but once that problem’s resolved, the knives come out.

A while back, I wrote about how banks love consortiums … until they don’t. For example, Tradeweb and MarketAxess were created by dealer-led consortiums. After they survived, they were sold and the dealers cashed out. Those vendors grew and, in the natural process of things, prices were raised. The dealers complained, and once more, they decided to partner to build a new platform that they would have some control over—enter Project Octopus, which today is called Octaura. Rinse and repeat.

I was reminded of this flat circle recently, when Josephine Gallagher reported from the annual World Financial Information Conference (Wfic) that Goldman Sachs and JP Morgan are leading a group project that is looking “to mobilize industry working groups, where technologists and market data specialists can collaborate on how to deliver and consume market data via the cloud.” The talks were initiated with the help of industry forum FISD.

Essentially, since cloud is such a broad topic and boiling the ocean would be a waste of time and expense, the group is trying to identify what to prioritize as an industry, and what gets pushed to the backburner or cut, altogether.

“It’s about trying to create a community where engineers can share their war stories and ideas,” Nigel Phelan, market data services architect at JP Morgan, told Josephine. “A part of that is getting that constituency of people that use these [cloud] products together to talk about what works and what doesn’t work, and they can then independently feed that back to the vendors and say, ‘Here are the problems.’”

Another senior data executive told Jo: “So everyone’s been used to driving around on back roads and alleyways, we’ve got loads of congestion, it’s really hard to read a map, and you often get lost—it’s really slow. But now, what we’re moving to is this super well-connected motorway.”

You can go back to the ’80s and ’90s to find examples of banks coming together to solve data-related issues. For example, there’s EJV, a company that was created by a consortium of the biggest Wall Street banks to disrupt the world of real-time pricing information (perhaps an early-days Bloomberg killer that didn’t kill?). It was sold a few times and today is entwined inside the pipes of Refinitiv.

Obviously, at this stage, Goldman, JPM, and the others taking part in this working group of engineers aren’t looking to build a consortium. Right now, it’s about sharing ideas and figuring out ways to streamline costs, develop best practices, and perhaps exert influence over the big tech cloud providers, which right now hold most of the cards. (More on that in a bit.)

After the story was published, I spoke with a few market data experts to get a deeper understanding of the issues facing banks when it comes to their cloud migration projects.

Unlike the Tradeweb, MarketAxess, Octaura and EJV examples, which had specific targets in mind—eliminating costs or electronifying manual bidding processes—cloud is broad and has far-reaching implications across all asset classes, trading firms, vendors and geographies.

With that said, even though it’s early stages, it’s yet to be seen whether or not these companies’ opinions will coalesce into an industry consensus position. And what’s not clear is how much these banks view cloud as a competitive differentiator at this point. As we’ve detailed before, the big banks and asset managers have been increasingly migrating workloads and platforms to the cloud, but while the talk is big, the process has been a slow one as investment firms have only recently become comfortable with the big public cloud providers.

So the aim, it would appear, is collaborating and copying best practices so as to get that foundation set across the industry as everyone moves toward the cloud. Once that foundation has been laid, it turns into an arms race.

The two main domains that the working group is trying to address are data at rest and real-time data. Data at rest, and reference data, is an area where collaboration makes sense, as there’s room to improve upon a well-known best practice. And it’s an area where there isn’t a clear-cut competitive advantage.

Real-time data is where, as I stated above, the knives will come out. If Goldman Sachs thinks it’s getting more timely data than JP Morgan, they’re not going to share the trick they use to do that—and that makes complete sense.

Influential responsibility

From talking with folks in the industry, firms want to better understand how to cut network costs, improve data distribution costs, and make it easier for clients and internal users to receive data, among—I’m sure—numerous other issues.

A second data professional who has spent more than three decades working in the capital markets and who was in Prague for Wfic, says, “cloud was present in nearly every conversation.” For data professionals, Wfic is basically Burning Man—a group of people freakishly devoted to a very niche product. In this analogy I’m comparing data to dance music, so I guess I’m equating cloud to Diplo? (I don’t know. …Ask Jo Wright for a better comparison.)

The data professional notes that firms like Goldman and JP Morgan share similar needs—creating clearer standards, lowering costs, sharing common data points and strategies for basic workflows, and being leaders when it comes to the future direction of cloud when it comes to Wall Street’s data infrastructure. They say that while the project could grow into something bigger, to go back to what I wrote earlier, in the “greed is good” capital markets—and with such a wide-ranging target—there’s a good chance that this is an exercise that eventually flames out once egos get involved.

“Based on previous efforts of financial institutions coming together on such efforts, the odds are against it lasting long,” they say. “Historically, they break apart when some in the group object to the power wielded by other, more influential firms. That doesn’t mean this one will or won’t work—but past efforts do no predict success.”

That said, there is reason for the biggest banks to make this work, and that goes back to the “increasing influence” piece that I briefly noted previously.

In Josephine’s story, she mentions that engineers from Amazon Web Services (AWS) and Google Cloud Platform (GCP) are participating in this working group. At Wfic, there was a demo held by AWS on how to query data in AWS Data Exchange (ADX) and one held by GCP, which allowed the group to experiment with its virtual lab environments and stream data from FactSet, TP Icap, Parameta, and CME Group in the cloud. (Google has yet to create something similar to ADX, but one wonders if that day will come in the near future.)

The data professional notes that while AWS and GCP working alongside Goldman and JPM might appear as a positive for the major cloud providers, they do note that if—if—this project really takes off, it could actually disrupt the cloud providers, as opposed to it being the other way around. In this scenario, if the likes of Goldman Sachs and JP Morgan exert their influence over their peers—again, with the purpose of creating clearer standards, lowering costs, and directing the future of cloud development as the backbone of the industry—they can tilt the scales of power in their favor, rather than the major cloud providers dictating terms and conditions.

So where does this working group go from here? The companies involved seem to be starting out in a pragmatic manner: Share stories, contribute ideas, collaborate on a vision around something that isn’t a strategic competitive and revenue-generating differentiator for any single individual firm, but which can potentially yield industry-wide benefits if more firms take part, and ultimately, it reaches a stage where it’s more readily adoptable.

And here’s where the cynic in me comes out: Once that ground layer has been put in place, it will be off to the races and that era of cooperation comes to an end.

A case study in cloud support

Though Goldman Sachs and JP Morgan are taking the lead on the cloud initiative discussed above, the sessions at Wfic were reportedly attended by more than 100 individuals representing banks, exchanges and vendors, who would no doubt be eager participants in the “community” they’re trying to create. Again, these talks were initiated with the help of FISD.

But because the problem is so big and varied, expect other players to pop onto the scene to carve out their own niche in the “helping solve for cloud” space.

For example, last week, US exchange operator IEX Group’s subsidiary SwXtch.io unveiled its CloudSwXtch cloud-native software layer that it claims could help solve many of the problems the banks are seeking to tackle.

Brent Yates, CTO of SwXtch.io, says he’s glad the banks are focusing on these concerns. “I don’t see it as anything other than a positive development,” he says. “We need more people in the industry working on this. … We’re part of the solution, but not the whole thing—there are a lot of moving parts.”

SwXtch.io was set up by IEX after the exchange encountered challenges moving workflows to the cloud. When IEX realized that the challenges affected the entire capital markets—and beyond, such as media and broadcast industries—the exchange set it up as a standalone business.

“The eye-opener for me was that firms want to move to the cloud and work with cloud providers, but their networks won’t support workloads moving to the cloud. There’s the multicast issue, and all the code changes required—and no one wants to change their code,” Yates says. “Firms want to focus on their products, not on networking.”

CloudSwXtch creates virtual copies of a firm’s infrastructure in the cloud using network interface cards and its own switch, which has a minimal impact—around 3 microseconds—on performance. In addition, it supports PTP time synchronization, and has introduced features designed to mitigate the inevitable packet loss likely to occur in the cloud.

“With bare-metal networks, you can over-provision and control the packet flow. In the cloud, you’re going to drop packets. So we’ve built loss-less packet transfer in the cloud,” Yates says. The vendor has also developed a way to recreate packet flow including lost packets without having to re-request data.

The IEX exchange has been using CloudSwXtch in production for more than a year, and now runs its full QA and testing stack—though not the technology that runs its daily exchange matching operations—in the cloud, without having needed to change any of its underlying code. The exchange has also been pushing live market data into Microsoft’s Azure cloud for testing purposes for more than a year, and plans to transition to a fully cloud-based disaster recovery setup in 2023.

“We’re signing deals with companies that have spent tens of millions of dollars to move around 80% of their workflows to the cloud, but find there are still some workflows they just can’t move—and those will need CloudSwXtch,” Yates says.

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