Cloud Infrastructure for Open and Resilient Capital Markets

How will Cloud Infrastructure Affect the Future of Capital Markets?
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Beyond high availability and disaster recovery, cloud infrastructure provides the capital markets with scalability and versatility that standalone organizations would typically struggle to replicate with traditional computing, networking, and storage solutions. These attributes of scalability and versatility are foundational to sustained real-time connectivity and interoperability needed for open and resilient capital markets. The resiliency of the capital markets rests on their capacity to sustain internal and external stressors while meaningfully adapting to new operating parameters, from the economic to the regulatory and everything in between. Cloud infrastructure is an excellent means of strengthening the capital markets’ adaptive capacity.

What’s next for the capital markets and cloud services?

Industry ecosystem collaboration around shared cloud native utilities is an essential next step toward maximizing the benefits of cloud within the capital markets at scale. Narrow, use case-specific cloud initiatives have demonstrated, replicable outcomes for institution-specific processes. Growing product and service commodification within the markets is making the broad adoption of shared utilities and business-process-as-a-service (BPaaS) offerings an apparent inevitability. This trend towards shared utility platforms is anticipated to be self-reinforcing and perpetuate ongoing industry consolidation.

As firms adopt cloud infrastructure en masse and the capital markets ecosystem embraces public and private shared utility platforms, competition is expected to solidify with a few large firms competing on volume and a raft of smaller firms providing specialized services, or competing in narrow market segments. So, while cloud infrastructure will help cultivate openness and resiliency in the markets that global industries rely on, it will also diminish traditional competitive attributes. Investment in non-differentiated business processes, including those executed on the cloud, will increasingly fail to provide a defensible competitive positioning.

How can capital markets firms differentiate themselves considering these potential outcomes?

A great first step is to identify and eliminate technical debt in the process of comprehensively leveraging cloud infrastructure elements towards a digital-first business model. Next, firms might consider how mutualized industry infrastructure is going to change the value of their competitive differentiators. Are the profits stemming from superior speed to market sustainable or will technology have eliminated informational asymmetries and associated profits? Are the industry channel partners going to be around in five years to provide deal flow or will access have been democratized by a variety of agile new market entrants? For those firms unable to consolidate deal or order flow and operate profitability across commoditized product and service classes, the answer may lie in how they can generate and monetize data. Presumably, there will always be a marginal competitive benefit in customizing technologies like cloud services faster or better than the competition, but ultimate differentiation will likely originate from firms’ capacity to generate or acquire and then either sell or act upon quality data.

As discussed, cloud architecture lends well to shared industry utilities and is generative to openness and resiliency which the public and therefore (hopefully!) regulators demand. A natural evolution of this impending market development is the adoption of distributed ledger technologies (DLT). DLT further enhances the openness and resiliency cloud architecture provides by introducing an immutable quality of transparency. The trusted capital markets ecosystem model of tomorrow rests on the successful co-adoption of these technologies. Firms and technology vendors in the space are encouraged to think critically about their current business models as tomorrow’s market structure is expected to exhibit markedly different competitive dynamics.

To learn more about the ways in which technologies like cloud are expected to affect the capital markets, click the button below to access IDC’s new eBook, Planned Adoption of Private Cloud within the Capital Markets.

Thomas Shuster is Research Director for IDC Financial Insights responsible for the Worldwide Capital Markets Digital Transformation Strategies program. Thomas' core research coverage includes the transformation of the capital markets industry, particularly sell-side investment banking, and the use of technologies to modernize and leverage opportunities in the market.