In response to COVID-19, the New York Stock Exchange closed its doors to traders for the first time ever. While the exchange is now reopening the trading floor to a limited number of personnel, it is unlikely to return to the old normal anytime soon. The voluntary shut-down of the U.S. economy was one of the biggest shocks to the stock market in its long history – and while the U.S. stock market passed the floor-free trading test with very little disruption to most activity and participants, COVID-19 left its mark.
Sky-high trading volumes and unprecedented volatility caused data feed delays, latency, and outages due to insufficient drive space and processing power. At the precise time when every trade represented greater risk and opportunity, many market participants did not have the data they required to analyse the unprecedented activity and plan appropriate next steps.
The bright side is that with the technology currently available, we are better positioned today to deal with disruptions brought on by a pandemic than ever before. The vast majority of financial industry participants have access to broadband from home and can function while away from the trading floor or office.
As office buildings and exchanges remain sparsely occupied, cloud providers and collaboration platforms are flourishing. Secure messaging platforms are available to traders who once relied on simply standing up and yelling across the trading floor to other traders. Symphony, a secure online chat platform used by traders to communicate and trade, saw a 40 percent increase in daily users in Q1 of this year. Zoom, Amazon (provider of the AWS cloud platform), and Microsoft (provider of the Azure cloud platform and Teams collaboration app) have all reported massive rises in users and usage, and have been big winners through the pandemic, soaring to new all-time highs.
Mind the preparedness gap
What we are seeing now in the financial industry is a preparedness gap. Some financial institutions rejected the notions of cloud computing and telecommuting for years, and suddenly had no choice but to create work-from-home policies and adopt new business practices overnight. Meanwhile, others built out business continuity plans after 9/11 or simply recognised the potential of cloud computing early-on. For these firms, the transition to work-from-home has been much easier. They already speak “cloud” and have infrastructure in place to handle high volumes with minimal delays, and they can run it all remotely.
But is this a model that works for exchanges? With no end in sight to these big market swings, exchanges have been forced to make immediate upgrades to servers, caches, and networks, while having to put aside their doubts about the cloud and accelerate adoption programmes, regardless of where they are in the digital transformation process. How much easier, faster, and more cost-effective would these upgrades be in a cloud infrastructure?
Understanding the need to properly leverage data and the cloud
Data plays an extremely critical role for financial institutions, and it is important that firms effectively leverage it, allowing traders and quants to focus on their analysis and development of risk and trading models. Even in normal market conditions, trade and quote messaging traffic is growing at just about every trading venue worldwide. Whether running models on real-time feeds or building/optimising models using historical data, the need for additional processing power and data storage is nearly limitless.
We are very fortunate that digital solutions that allow exchanges and market participants to operate as normal during times of social distancing already exist. Cloud solutions can be fully-hosted in a public or private cloud and are more secure than ever before. Storing data in the cloud allows institutions to conduct quantitative analysis, back-testing, algo development, and transaction cost analysis (TCA) more easily and at a lower cost. Data, software, infrastructure, and, many other ‘as-a-service‘ solutions mean that modern cloud offerings can provide any necessary technology in a cost-effective subscription model.
Post-pandemic, the cloud is the only way forward
In a post-pandemic world, investment banks, asset managers, proprietary traders that were once required to work in company offices will be accommodated to operate remotely. The notion of banks and financial institutions collecting, storing, and retrieving massive amounts of data locally will evaporate, leaving behind only the cloud. We should expect to see new policies and regulations addressing the way financial institutions share and store data, and a rise in new cloud solutions tailored to meet the demands of different business segments and functions.
The cloud is set to provide banks and financial institutions with fast and flexible access to the data they need, as well as the processing power required to develop and optimise tomorrow’s trading strategies. By leveraging the cloud, data providers will help their clients remove the need for local hardware, data collection, and data maintenance in a cost-effective manner. Most financial institutions will have little choice but to adopt the cloud to reduce costs, expedite processes, ensure compliance, trade more strategically, and in general, remain competitive – and even thrive – in this new paradigm.