Public Cloud for Capital Markets: Trends and Uptake
Capital markets globally face myriad challenges. Profits are down due to low volatility and dismal volumes. Furthermore, regulatory intervention within the markets is increasing the cost of compliance and adding pressure on existing resources. To overcome these challenges and capitalize on new opportunities, institutions need to invest in the right technology to deliver value without increasing their cost base. As neither the buy-side nor the sell-side can guarantee profit margins in current market conditions, both sides need to focus on their core competencies while outsourcing commodity type work that does not add value. Technology is not only bringing more efficiency through automation but is also seen as a place for cost savings. Financial institutions are looking to upgrade and manage IT infrastructure within their organization, particularly for more standardized processes such as storage.
Consequently, the concept of cloud computing has made inroads in capital markets. Public cloud is a multi-tenant environment where service provider(s) makes resources such as infrastructure, storage or software available over the internet or through a private extranet. The benefits of no upfront capital expenditure, scalability and improved performance is luring capital market participants to invest in public cloud. Although today’s capital markets are not the leading consumers of public cloud, advancements in public cloud technologies are bringing about an uptake that is likely to continue over the coming years.
However, all that glitters is not gold and a number of risks, whether real or perceived, have significantly impacted multi-tenancy cloud adoption within the institutional capital markets. These include issues surrounding data security, control, business continuity and governance. Though concerns over security and data privacy are still prevalent, enterprises have matured enough to accept and experiment with public cloud, with many institutions taking the first steps by storing historical data in the public cloud. At the end of the day, the decision often comes down to cost vs. control. Each institution has its own unique requirements and constraints and keeping them in mind, senior management and IT must be in harmony to make long-term decisions to invest in the cloud. Greater adoption of public cloud services in the financial institutions space is dependent on the resolution of security and reliability issues.
As part of the research, TABB Group reached out to 66 financial institutions from the buy/sell side to understand the market’s familiarity with and use cases of public cloud. Our outreach efforts highlight that financial institutions are still very hesitant to adopt public cloud due to security concerns, however the broader trends suggest that financial institutions have started experimenting in public cloud.
• 23% of the respondents indicated they were comfortable using public cloud. This highlights a positive market shift towards adopting the public cloud.
o The buy side tends to be an easier target for cloud as participants are smaller firms with limited IT budgets, but as strong use cases emerge, sell side firms are also ramping up investments.
• Security concerns remain a significant concern and obstruction.
• Data management is the top use case of public cloud among institutional capital markets.
• The industry will witness increased spending on the public cloud as 60% of the respondents highlighted they plan to increase their investments in the public cloud in the next 12 months.
In this TABB Group Focus Note, Public Cloud for Capital Markets: Trends and Uptake, we explore trends that can help constrained capital markets firms to balance sophisticated and large IT needs against upfront capital outlays. Whether and how you invest in infrastructure-as-a-service will depend on a number of factors: legacy architecture, institution needs, budget and internal politics. TABB Group believes that public cloud has found various strategic used cases in the capital markets that deliver better performance and reduce CAPEX costs, which is why we expect a heightened sense of urgency.
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