The financial services industry continuously uses technology to drive competitive advantage, increase revenue and lower costs. Today, new challenges are facing exchanges and execution venues, and again technology offers the promise of solutions to these problems. Ross Inglis, founder of consultancy The Melbourne Group, outlines why a cloud strategy is essential for any modern exchange.
Exchanges cannot afford to not have a strategy that addresses the challenges of the rising cost of managing market data as a result of electronic trading across all asset classes, increasing transparency requirements prompted by new regulations resulting from the global financial crisis, the increasing use and demand for mobile solutions created by advances in smart phone technology and the shifting workflows of financial professionals, and finally the ongoing battle of fragmentation versus consolidation—and which positions them ahead of their competitors.
This strategy must include the cloud as a key component. Cloud technology offers exchanges the opportunity to increase revenues, expand market share, lower costs, improve customer satisfaction and drive competitive advantage through delivering an open, scalable and secure platform to access the vast data reserves built over the decades that all firms need. Here is a roadmap for harvesting the cloud’s lowest-hanging fruit.
1. Give Cloud Access to Core Data
By creating internet-based data-as-a-service (DaaS) using standard cloud APIs, exchanges can offer institutional and retail customers access to their core market data for front, middle and back-offce applications, as needed, anywhere, anytime. Exposing data as a DaaS offering allows all customers to access the “master copy” of exchange or execution venue data directly from the source, as opposed to via a proprietary, third-party service which may alter the information from its original state and add legacy infrastructure costs.
2. Create Cross-Selling Opportunities with Direct Feed Clients
Clients need data consistency across applications. Those leveraging an exchange’s direct feed or direct market access services can rest easy that their trading activities are back-stopped by consistent historical and reference data made available from the cloud. A DaaS offering coupled with an exchange’s direct feeds allows firms to synchronize and coordinate front- and back-office operations seamlessly.
3. Monetize Stale Assets by Targeting Unmet Business Needs
With the cloud, exchanges can move away from the one-size fits all approach and offer tailored products that allow clients to select and consume only the data required for their specific applications. Further, the low-cost delivery and on-demand global access of DaaS allows exchanges to expand revenues by enabling new uses of their data in new industries. Not only can they deliver new datasets to old clients; they can also tap into new markets that were previously unserviceable due to the high up-front costs of entry and ongoing maintenance of traditional feed technology.
4. Expand and Simplify Global Access and Delivery
Cloud-based DaaS delivery with e-commerce-style purchase and provisioning enables exchanges to access new regions and clients through a 24/7 Web presence where clients select, buy and use their data without a local salesforce. Emerging financial markets are immediately within reach. Easier access to data products drives interest and investment from global clients. International investors currently not participating at a venue can assess, test and validate strategies employed on their local exchanges or on an international exchange more quickly and cost-effectively.
5. Grow Revenue Via Retail Channels
A scalable, low-cost cloud platform allows exchanges to distribute data directly and cost-effectively to retail portals and investors. By accessing these channels directly, exchanges open revenue streams currently outside their reach and strengthen their brand with the investors that use these portals and trade shares on the exchange.
Cost-sensitive retail sites serving hundreds of millions of private investors across the globe can be directly supported by a DaaS offering that eliminates the need for investment in infrastructure, networks and data management. Further, emerging retail markets such as Brazil, China, India and the Middle East can be accessed without building a costly local presence.
6. Deliver New Products Faster to Meet Emerging Customer Needs
New traded products create new data needs for financial firms and market participants. To meet these demands, execution venues need to get complementary data products to market quickly. DaaS allows exchanges to provide immediate, global access to new market data products, while removing the adoption barrier of infrastructure investment for customers.
7. Increase Transparency for OTC Derivatives and Complex Products
New regulations create opportunities for exchanges to handle more trading and settlement of derivative and OTC products and offer new data products that provide greater transparency. A DaaS solution can offer participants and regulators easy global access to activity in these markets, providing accurate and auditable information to help manage risk and meet regulatory and internal compliance requirements.
In conclusion, the emergence of cloud computing as an enterprise computing platform provides new opportunities to increase revenue, lower costs, expand market reach and increase competitive advantage by complementing direct feed technology with cloud-based data-as-a-service offerings. However, one firm’s opportunity is its competitor’s threat, and those exchanges and trading venues that move first to master the new cloud paradigm for data delivery and application development will reap the benefits. Those that lag behind will struggle.
Should regulators take a more active role when it comes to AI oversight, or leave it to the professionals? What will M&A look like in 2018?Subscribe to Weekly Wrap emails