Capitalizing on the Cloud – a case for Capital Markets

Article by Karan Kirpalani

The Clouds usually make for turbulent flights and hamper perspective overall, but in many applications they can provide clarity, ease of operations and a platform for enhanced customer focus and responsiveness. Despite the issues of privacy and data sensitivity the first reports of effectiveness of Cloud networks for Capital Markets are in – and they seem very positive.

Recent events in the capital markets reflect the continued fragility of a long promised recovery. The crisis in the financial markets seems to have grown a long tail and the new challenges involve doing business while managing tighter regulatory regimes, newer technologies and extreme market volatility, all at the same time. Capital market services are built on a backbone of security, and the smallest breach can undermine a reputation built assiduously across generations. The recent news out of UBS, played out in the backdrop of the post 2008 scenario bears this out effectively.

The generic benefits of a cloud computing solution work magically well for the capital markets. Manageable capital investments, a variable pricing model, lower costs and rapid scalability seem to be the on-going demand among capital market firms, as also the delivery paradigm of an effective cloud network.

While Cloud computing, clearly, is gaining traction on Wall Street, it’s also spawning more debate than other emerging technologies in recent years. According to a research nearly 40 percent of respondents said they already are using some type of cloud, while an additional 31 percent said they are currently considering using services from a cloud. So what is the key driver for companies that turn to the cloud? Cost savings often are cited as a driver, as at any one time firms may be actively using just 80 percent of the platforms in their data centers rather than have the capacity lying idle, one can access it online as required, freeing up computing power and pushing down costs.

But the benefits of cloud computing extend beyond cost savings. In fact, the survey found that perceived savings are actually the No. 2 driver of cloud usage, behind elasticity and scalability. Capital market firms seem to have developed a comfort with back end applications on the Cloud – pure financial applications would most likely follow. It is the nature of almost all new technology adoption trends.

Cloud computing in the capital markets sector already helps manage functionalities that are not core issues to dealer-brokers, hedge funds, and other market makers. In the long run, Cloud computing will not only help run markets but also enable transactions to flow through other markets, with a goal of enabling frictionless trading.

The cloud (Capital Markets Community Platform) is a significant platform in NYSE Technologies’ plan to become an agnostic service provider that builds and hosts services not just for NYSE and its customers but also for competing institutions. NYSE Technologies is positioning the Capital Markets Community Platform as a market-neutral platform for the capital markets industry that will help improve the IT operating model of many Wall Street banks.

Faced with market uncertainty, it is all too easy for executive leaders in capital markets businesses to succumb to “analysis paralysis” or leave all the decisions to the IT department. But the question for the future is, should capital markets compete on the cloud or should they learn to collaborate?