Trading Software Has Moved to the Cloud…
… but which vendors can deliver meaningful benefits of the cloud?
Cloud computing for electronic trading is now a reality.
- FIX-based connectivity, the de facto trading protocol, has matured to support mission critical workflows beyond simple order flow.
- Most every vendor delivers trading infrastructure as cloud-based services
Managed cloud solutions provide the benefits of the cloud, i.e. low-cost, elasticity and agility as turn-key solutions
- Yet, many enterprises retain some in-house infrastructure resulting in a hybrid environment, making integration a key technological capability
Competitive advantage comes from agility: the ability to rapidly integrate new cloud services.
- Vendor offerings should not be monolithic; they must inter-operate with other vendors’ and proprietary services.
As cloud’s early benefits of cost savings – via the simplification of infrastructure – evolved into reality, it laid the groundwork for application services hosted within. Trading venues and data vendors now offer their services via the cloud and trading companies are connecting the dots.
The cloud landscape (“cloudscape”) has become an interconnected mesh of on-premise and cloud computing resources. Leading financial firms employ powerful integration strategies to enable orchestration amongst these offerings.
In this paper, we will:
- Review the current state of cloud computing
- Describe technologies strategies that are required for success
- Suggest the criteria by which trading firms should select cloud vendors
Current state of the Cloud
Cloud Computing is the New Normal
Enterprises in every industry have adopted cloud services to reduce TCO, modernize their infrastructure, improve agility, and take advantage of cloud-based application services.
While the use of the cloud for mission critical functions such as email, CRM, and credit card processing is ubiquitous, many investment companies have been cautious about moving proprietary trading applications to the cloud given the elevated security concerns. However, most every financial institution has adopted the cloud as part of its business and IT Strategy.
Why the cloud?
There has been much hype of the benefits of cloud computing. Most everyone agrees that today’s cloud delivers on its promises:
- Reduce TCO – Cloud vendors benefit from economies of scale in reducing hardware costs, as well as reducing maintenance costs.
- Modernize data centers and application architectures – moving to the cloud is a seamless path towards eliminating outdated infrastructure and taking advantage of readily available application services
- Provides agility and elasticity – Cloud vendors can scale up and down to quickly roll out support for a new business initiative or scale back when retiring services.
- Instant domain expertise – Cloud services encapsulate the corresponding domain expertise. The cloud vendor focuses resources on the specific service while the customer focuses on operating his business
Realizing the benefits of the cloud in a specific domain requires a cloud vendor well-versed in that domain. Some vendors have become synonymous with cloud services for their industry. For example, in CRM, salesforce.com is ranked as the leader and for email services, Microsoft and Google are considered the market leaders.
Which cloud vendors should be considered leaders in trading technology? Before we can answer that, we need to review the cloud landscape.
The Layers of Cloud
As the cloud enters its second decade, enterprises of all sizes have discovered the benefits of cloud-based computing on many levels, but at the same time, some organizations have not yet committed to a truly cloud-centric IT Strategy. It is common for executives in the c-suite to need concrete performance indicators to evaluate the benefits of an abstract concept such as “The Cloud” as “an answer to all technology problems.”
Typically, technology executives translate cloud into industry standard layers, which generally map to corresponding physical infrastructure buckets: data center (servers, storage, security and networking hardware), computing platforms (email servers, relational databases, file systems, web servers), and applications/business process (e.g. HR System, supply chains, customer portal, market data feeds.)
Industry analysts have given names to these layers: Infrastructure, Platforms, and Software Services. They represent the cloud’s “virtual” manifestation of the same technology assets that have traditionally been deployed in in-house data centers.
- Infrastructure-as-a-Service (IaaS): Datacenter hardware such as virtual servers and network
- Platform-as-a-Service (PaaS): computing platforms such the file servers, databases, and web servers
- Software-as-a-Service (SaaS): Specific business applications provide services such as CRM or market data portals.
Agility will enable competitive advantage
Infrastructure in the cloud (via Infrastructure and Platforms) has proven beneficial by reducing costs and complexity, but no longer provides a competitive advantage as it is available to all enterprises including you and your competitors. Outsourcing to the cloud to reduce technology costs is the new normal.
Typically, infrastructure moves to the cloud in large clusters. From in-house data centers, racks of servers are retired, being replaced by virtual hardware in a public or private cloud data center. Or specific infrastructure is replaced by an application service in the cloud. The result is a hybrid architecture in which discrete systems interconnect at a high level.
For example in capital markets, transaction or market data is extracted from one system and loaded into another, but this traditional paradigm – of cloud infrastructure replacing in-house systems – does not gain business agility.
Success in the Cloud
The corollary of the previous section is that organizations do not achieve competitive advantage by investing in the basic layers of cloud services that “Provide infrastructure” and “Plumbing” in order to “keep the lights on” or scale when needed.
Higher on the food chain: investing in software services that provide standards-based integration capabilities to rapidly deploy new application functionality (aka agility) enables trading firms to take advantage of market opportunities ahead of the competition.
As market efficiency increases, beating competitors to the marketplace will be the key benefit of cloud-based software. Firms do not grow in value by simply reducing costs, rather they grow by successfully executing business strategies.
Agility in Trading – Typical Use-Cases
After discussing the cloud in generic terms, it might be helpful to bring the discussion into concrete terms that resonate with trading companies. Examples of business strategies every trading organization faces are:
The ability to move into new markets
- Quickly connect new trading venues into existing business processes. Typically, the trading firm needs to ensure these services for the new trading venue work seamlessly alongside existing venues: route orders, implement compliance rules, allocate trades, book activity, and update existing risk dashboards.
The ability to quickly implement trading algorithms
- Portfolio managers use fundamental and quantitative trading strategies to find market opportunities. Typically, the trading firm needs to ensure these systems can be deployed rapidly: process market data, deploy algorithms, monitor trading, ensure compliance checks and continually re-deploy enhanced trading models
The ability to trade new products
- New products might require new types of reference and market data from new sources as well as specialized trading partners and third-party pricing components. Typically, this new business strategy would be a combination of integration with new markets, deploying new trading models, as well as enhanced reporting requirements
Adding business units
- Opening a branch office in a new region or for a new marketplace. While the benefit of instant infrastructure is obvious, the ability to take advantage of existing application services and orchestrate new business processes demonstrates significant organizational agility.
Agility From The Cloud
Many of the required capabilities for new business initiatives can be found via the growing interconnected mesh of computing services created by vendors who deploy their products as cloud-based service offerings.
Data and research services are available as distinct cloud-based services, as well as the full range of regulatory and reporting services. The ability to quickly combine and orchestrate the required business processes is greatly enhanced by the agility of cloud-enabled enterprises.
Vendors of trading and data software have also moved to cloud-based services, and these services can be consumed at a very granular level. A trading firm does not need to replace an entire trading system to take advantage of specific products offered by another vendor.
By creating an agile cloud-based infrastructure with integration capabilities to orchestrate business processes based on application services offered by the ever-expanding ecosystem of cloud vendors, trading companies can achieve business initiatives at a dramatic pace.
Trading is all about finding opportunities and pouncing before the competition.
Cloud for Trading Infrastructure
Aside from moving data centers and servers to the cloud, forward-looking trading organizations are also deploying live trading services to the cloud.
Certain vendors already offer a granular set of services based on elastic cloud-pricing models (pay-as-you-go.) The stage is set for companies who recognize the new cloudscape to reap the benefits ahead of their competition.
Consider a simplified functional diagram of trading services:
While the following descriptions of trading services might seem elementary, they are all available today as cloud-based services that can be orchestrated to allow trading organizations to create an entire trading infrastructure in the cloud.
Many organizations will choose to implement these services within proprietary infrastructure, however that should be limited to “secret sauce” scenarios – services that give the organization a competitive advantage over other firms. Basic services are almost always more cost-effective as third party products.
Market and Reference Data
Perhaps the easiest cloud services to digest are the web-based services offered by banks, brokerages, market data vendors, and government agencies. Pulling data into spreadsheets and processing data via enterprise data workflows is easy and ubiquitous.
Numerous data sources are available as cloud services, with new specialized data sources regularly appearing on the cloudscape, which need to be processed depending on specific products traded and trading strategies. Digesting a new data feed can now be done in hours or days, not months.
New data sources can be processed directly within trading strategies as well as be integrated into in-house proprietary data storage applications.
Most every trading venue, from trading exchanges, ECNs, to proprietary broker platforms, are available via the web or as FIX-based cloud services. Regardless of product traded, most venues offer FIX-based order routing and execution reporting which can be quickly certified over standard FIX sessions.
Many vendors have already rolled out cloud-based services to provide advanced risk breakdowns of most every asset class. Integration is via cloud-based services and reports are available as web-based dashboards, file-based reports, or data feeds.
While many trading firms will continue to maintain proprietary risk systems as their secret sauce, off-the-shelf risk reports for basic asset classes allow some trading firms to quickly roll out risk management services.
Order and Execution Management
The largest market share of cloud-based OMS/EMS solutions from are the same vendors that have provided OMS as in-house software suites; These vendors simply deployed instances of their software in a third-party data center on behalf of their customers, effectively co-locating a duplicate copy of the same software that would have been deployed in-house for the customer.
While this approach does move trading infrastructure to a co-located environment, does it deliver all the benefits expected from cloud-based services?
- Can the trading firm implement pre-trade compliance from an alternate vendor while using the OMS system to route orders and allocate executions?
- How quickly can alternative rebalancing modules be integrated into the OMS?
- What flexibility do the post-trade allocation workflows offer? What is the effort to swap out a different vendor for the firm’s complex allocation requirements?
- Can the OMS feed drop copies for certain product types to a different destination?
Most of today’s OMS/EMS vendor solutions are closed systems. They do not play as good citizens in the cloudscape because they do not provide a granular level of services allowing integration with other vendors. Many of their closed systems do not pass on the true benefits of the cloud: lower costs, more agility, more flexibility and open architecture.
When evaluating OMS vendors, ask the question, “Is the cloud offering merely an outsourced data center version of the platform?” Look for vendors that provide service-based solutions that allow you to quickly integrate the features you need without the baggage of an entire system. Look for vendors that pass on the cost benefits of the cloud.
Agility from Application Services
Once a trading infrastructure moves to the higher level of cloud service (i.e. Application-as-a-Service) new services offering innovative solutions can be rapidly assimilated into production workflows with predictable results.
From the use cases listed earlier, examples where an agile cloudscape of services would allow the trading firm to implement new trading requirements would include:
- Replacing compliance checking on an existing OMS with a third party product in order to comply with regulations in a specialized marketplace.
- Using third party rebalancing engines within an existing order generation workflow.
- Create proprietary trading algorithms based on new cloud-based data sources and real-time liquidity available from any number of trading venues
These seemingly basic real-world use cases often become large headaches creating inefficient business processes that divert key staff for long periods of time.
Agile cloud software allows key staff to focus on the business value of business initiatives, as opposed to spending time implementing commoditized software.
FIX Flyer’s Solutions
Do you want to pounce on opportunities ahead of your competition?
Flyer provides a managed suite of services covering the full front to back workflow. Flyer’s software platform has been built from the ground up to provide a suite of cloud services that enable agility and rapidly implement solutions for the full lifecycle of a trade.
Infrastructure and Platform
It starts with infrastructure. Flyer has deployed its managed services solutions in 2006 in state of the art datacenters providing the security and reliability needed for mission critical trading.
The core engine powering most every Flyer product was designed to operate as network router which has proven a decisive factor in adapting to the cloud environment. With the continued search for liquidity, the trading landscape has grown into a mesh of interconnected networks amongst trading exchanges. Flyer’s hardware and software infrastructure successfully adapts to the changing cloudscape.
Flyer offers a full suite of software, all based on the core networking and connectivity required by today’s trading landscape.
- Low latency non-deterministic routing of messages including order flow
- A Risk Gateway acting as rules-based edge router and a platform for complex compliance checking
- Managed suite of OMS services providing an instant trading station which can also be white labeled by service providers
- Sophisticated allocation engine to put orders and executions back together based on powerful and customizable rules engine
- A monitoring tool set capable of providing high level dashboards and low-level insight into the complexities of FIX messages
- Automated certification software to nimbly connect with large number of trading partners
- A secure network with 100’s of the most popular trading destinations ready for new connections
Integration and Agility
Integration is a key capability of Flyer’s product offering and each functional service can be deployed within a full cloud-based suite or an individual service to interoperate with existing software implementations.
Flyer has 1000’s of integrations in service within its managed services platform.
- Messaging – Flyer’s bread and butter provides messages in FIX, MQ, JAVA, .NET.
- Data Formats – File mapping to and from FIX format, excel, text is a core capability
- Database – data can be written and read directly from relational databases
- Open platform – The Flyer platform has been built from the ground up for customization and integration. There have been numerous uses of Flyer software for a variety of trading requirements
Flyer Trading Network
Flyer Trading Network a secure broker-neutral network with a universal translator normalizing all of your connectivity to major trading exchanges, ECNs and broker/dealers and proprietary trading operations.
As a managed service, your trading system can connect anywhere without the hassle of integrating and managing your own FIX engine or developing custom interfaces to your trading partners.
The original Flyer vision of an ever expanding network became a reality as the trading landscape evolved since 2006. Solutions for all the typical use cases are in production for 100’s of financial firms including buy-side asset managers and hedge funds, sell-side brokers, wealth management service providers, national trading exchanges and proprietary trading groups.
Trading software vendors and other providers of financial information services now offer cloud-based services on a granular level that allow elastic pricing (pay only for those services you need.)
This Software-as-a-Service model allows trading companies to quickly orchestrate business processes with only the required modules which reduces complexity and ultimately costs.
Cloud-based software now reduces technology hurdles to successfully rolling out sophisticated, reliable and secure trading solutions in short time frames.
Software vendors such as FIX Flyer have established a cloudscape of trading services that enable organizations to use technology as a business enabler, not merely as a mechanism to reduce cost and keep the lights on.
For More Information
FIX Flyer can be found at http://www.fixflyer.com.