The landscape of cloud hosting for trading technology has undergone a sizable shift in recent years. Major exchanges like Nasdaq, TMX and Aquis are now embracing cloud technology, signalling an evolution from scepticism to acceptance. This transformation was highlighted at the recent AFM & Exberry Tech Day in Amsterdam, where industry leaders gathered to discuss cutting-edge developments such as GPU-powered Edge Trading Tech and Exchange-as-a-Service. 

The panel, “Cloud-based Exchange and Clearing Solutions on the Rise”,  featuring Alex Mirarchi from Amazon Web Services, Hamish Adourian from Sinara, Ayodeji Balogun from AFEX, Stuart Turner from Avenir Technology Limited, and moderated by Guy Melamed from Exberry, provided invaluable insights into the future of exchange technology.

Overcoming regulatory hurdles

The journey of cloud adoption in exchanges has been marked by a number of milestones over the past decade. Initially, regulatory challenges, particularly regarding data location, posed substantial hurdles. However, the tide has begun to turn, especially when FINMA, the Swiss Financial Market Supervisory Authority, began to shift its stance, catalysing a broader change in regulatory attitudes. Today, exchanges are implementing robust risk mitigation strategies, including comprehensive backup protocols, to address lingering concerns.

Balancing benefits and cost

Cloud technology’s well-documented benefits – rapid time to market, elasticity, and flexibility – have been pivotal in driving adoption. However, the industry is witnessing a nuanced approach, with exchanges opting for either cloud-native or hybrid deployment models. Currently, cloud solutions are proving particularly advantageous for specific use cases such as cryptocurrency exchanges, commodities markets and pre-trade operations. The trend is clear: an increasing number of trading functions are migrating to the cloud, as evidenced by Nasdaq’s Outpost initiative and TMX Group’s Quantum XA trading platform for the TSX and TSXV. 

Despite the clear advantages, cost management remains a critical consideration for exchanges contemplating cloud adoption. To mitigate these concerns, AWS, for example, has taken proactive steps to assist customers in managing expenses, emphasising the importance of software optimisation and leveraging monitoring services to maintain cost-effectiveness. Industry experts note that increased cloud costs often correlate with heightened trading activity, presenting a positive trend for exchanges.

Innovating exchange infrastructure

Looking ahead, cloud providers are making significant strides in addressing colocation concerns. For instance, AWS is pioneering a two-layer method that brings cloud infrastructure into existing datacenters while also offering rack space within the cloud environment. This innovative approach aims to recreate the colocation experience within a cloud framework, potentially redefining how exchanges operate.

Another exciting development is the emergence of GPU-based edge computing for inference in trading environments. This technology promises to push the boundaries of what’s possible in high-frequency, low-latency trading scenarios. By leveraging the parallel processing power of GPUs, exchanges can potentially achieve unprecedented speeds in data analysis and decision-making. 

The concept of Exchange-as-a-Service might also gain traction as an innovative new offering. This model envisions multiple exchanges sharing infrastructure, settlement systems and other core components. Industry leaders can begin to contemplate how new levels of efficiency and collaboration might be achieved in an era of increased cooperation and resource optimisation.

Are you ready?

As we stand on the cusp of this new era, exchange CEOs must stay informed about these rapidly evolving cloud technologies. The cloud revolution for exchange infrastructure is well underway, with industry experts predicting that within the next five years, the majority of markets, especially in post-trade operations, may transition to cloud-based solutions.

The exchanges that successfully navigate this technological transformation will be best positioned to thrive in an increasingly digital and interconnected financial world. The race to harness the power of cloud technology is not just about staying current – it’s about shaping the future of global financial markets.