How can Cloud Transform Capital Markets for Good?

How can Cloud Transform Capital Markets for Good?

Capital Markets CIO Outlook | Friday, June 11, 2021

Almost every industry now uses AI, predictive analytics, and massive data servers in some capacity. Still, hedge funds and asset managers were ahead of the curve in leveraging software and algorithms for risk modeling, pricing, and quantitative trading as early as the early 2000s.


Fremont, CA: Capital markets used to have a reputation for being technologically advanced. Almost every industry now uses AI, predictive analytics, and massive data servers in some capacity. Still, hedge funds and asset managers were ahead of the curve in leveraging software and algorithms for risk modeling, pricing, and quantitative trading as early as the early 2000s. Unfortunately, as the industry grapples with high costs and fee compression, technology and innovation have taken a back seat in recent years.

This is most visible in the industry's relatively slow adoption of cloud computing. Almost every company touts its "cloud-first strategy," but in most cases, the average company has likely migrated only a fraction of its workload to the cloud. This is despite ample evidence that the technology can provide firms with lower costs, greater scale, and increased accessibility. The Covid-19 pandemic, on the other hand, is forcing them to accelerate their cloud journey and provides the ideal opportunity to break free from their cluttered, cumbersome technology setups.

It's easy to see how capital markets ended up in a rat race on the cloud in hindsight. Economic downturns can sometimes serve as catalysts for technological advancement, but this was not the case during the 2008 Financial Crisis. Because of the recession, there has been increased regulatory oversight and a greater emphasis on stability, resilience, security, and robust risk management capabilities. Fiduciary probity and rectitude are admirable qualities, but they are rarely the ideal recipe for innovation.

However, the capital markets industry cannot entirely blame its sluggish cloud execution on the fallout from 2008. As the world entered the digital era, businesses made a series of technological decisions as their operations grew in size and complexity. For example, they purchased software stacks to trade treasuries in the dealer-to-dealer market and developed AI to detect and monitor cyber risks.

It left the average company in charge of large, widely divergent technology estates comprised of various global networks, data centers, and a slew of customized and packaged software applications. It's a classic case of the law of unintended consequences: These businesses initially adopted new technology to keep up with their competitors in the short term, but these lumbering, byzantine technological setups are now holding them back when it comes to cloud computing.

It put the average business in charge of large, disparate technology estates made up of various global networks, data centers, and a slew of customized and packaged software applications. It's a textbook example of the law of unintended consequences: These companies initially adopted new technology to keep up with their competitors in the short term, but these lumbering, byzantine technological setups are now preventing them from taking advantage of cloud computing.

Private cloud platforms will not be a panacea for the cloud conundrum. Designing and building platforms that meet stringent regulatory requirements for workloads and information security takes time and significant investment. Firms, however, do not have to build their own data centers from the ground up; instead, they can use public cloud services. Using the leading cloud service providers (CSPs) provides firms with instant access to the latest technology at a rapid pace, increasing their agility and competitiveness and allowing them to offer a broader range of services in a safe and cost-effective manner.

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