Financial markets were among the first to adopt new technologies, and that has certainly been true of the derivatives markets, which were early adopters of electronic trading. Going forward, new capabilities will transform the way industry participants communicate, analyze, and trade.

I sat down with Google Cloud’s Phil Moyer and former SEC Commissioner, Troy Paredes, for a fireside chat at FIA Boca 2022 to discuss the future of markets and policy, the new technologies that are already paving the way for greater speed and transparency, and how cloud can help promote greater resiliency, performance, and security to enable the long-term vision for the market. The following is a summary of our discussion.

The current state of cloud technology

When it comes to technology adoption, we’re seeing the market and participants adopt cloud technologies, and increasingly, machine learning (ML) on a wider scale. Cloud technology allows for easier, faster, and much more secure experimentation with large datasets and ML.

A recent Google sponsored study by Coalition Greenwich (September, 2021) showed that more than 93% of trading systems, exchanges, and data providers are in some way providing services on the cloud. The same study, revealed that about 72% of the financial industry across the buy side and sell side, intend to consume public cloud-data based market data within the next 12 months.

Data-driven decision-making and risk management have always been, and continue to remain, the cornerstones of the financial markets. Over time, technology innovation has facilitated access to better insights from data, and therefore, better decision-making and the ability to manage risk. That expectation is now mainstream, and will continue to grow in sophistication.

The multi-phased technology trajectory

The movement of exchanges to the cloud will occur in a “crawl-walk-run” fashion, with low-hanging fruits the first to be picked in the near term while bigger, paradigmatic changes will occur over the medium and long term. Some organizations are starting all three stages simultaneously, understanding that each will move at an independent cadence.

The “crawl” phase is one in which foundations are built, starting with organizations moving data to the cloud and experimenting with some degree of analytics. It’s one of the most important phases because it’s where the opportunity to increase transparency and risk management takes shape.

In moving to the cloud, the infrastructure – which in the past relied on a combination of people, processes, and some technology – becomes the code that runs applications. This early phase is key to empowering organizations to shift to a cloud-based, agile-first operating model that makes it easier and more seamless to launch new products in the future, including by freeing up people and resources from IT management to more mission-focused work.

Establishing the cloud operating model simplifies the “walk” and “run” phases where compliance is more automated, latency-sensitive applications are more readily available, and the next generation of exchanges, market participants, and regulators is better prepared to meet future challenges.

The “walk” phase is where much of the innovation happens. Exchanges are making significant progress in leveraging foundational data decisions in the “crawl” phase and innovations in the cloud to improve settlement, clearing, risk management, collateral management, and compliance, and launch new products.

And finally, the “run” phase is where organizations will start to move the latency-sensitive markets to the cloud, as the markets increasingly will demand low-latency and high performance along with transparency and analytics to solve historical obstacles to market access.

Opportunities for both regulators and market participants

Any time significant technological change takes place, regulators explore its implications, particularly with respect to their ability to meet their regulatory objectives.

Increasingly, we are seeing technological change driving more opportunities for regulators and market participants alike. Such changes may also allow better protection of the marketplace, with greater integrity and transparency.

Over time, regulatory regimes – rules, regulations, statutes, interpretations, and guidance – will also adjust to new technologies, both benefiting the marketplace and advancing regulatory goals.

As one example, the cloud is increasing the ability to meet compliance obligations by allowing compliance to be built into transactions. Moreover, predicated on the vision of real-time regulatory reporting, and given the pace of technological change in the marketplace over the last several years, various regulators have been using more advanced analytics. This trend will continue to help them more effectively and efficiently meet their objectives, and monitor and meet the expectations they have for the entire market.

Machine learning’s role in the financial markets

Google Cloud’s head of AI and Industry Solutions, Andrew Moore, said that ML will be doing three key things for us in the next 10 years: giving us meaning, providing concierge services, and serving as a guardian. Extracting information that is critical to investor decision-making can be extremely important. With more data than ever, ML can increase the ability to process it while also becoming more accessible in the cloud and better supporting regulatory objectives.

The technology will likely manifest in trading and anti-money laundering activities as they relate market functions, as well as managing a wide variety of risks – supporting the interests of both investors and regulators in terms of decision-making, surveillance, and protections.

Rather than taking individuals out of the equation, the digitization of markets, assets, and guard rails combined with ML will allow people to focus their expertise in different ways to achieve key objectives.

Building the market foundation for the future

The goals of operational resiliency, security, and privacy will continue to be critical for building the market foundation for both participants and regulators. While technology promises to create advantages in concrete, tangible ways, it will be important to scrutinize potential risks and concerns.

Priority one for technology providers is to build an environment of trustless security, including encryption at motion and encryption at rest, ensuring that markets are operationally resilient while instilling confidence for any exchange that runs on top of that infrastructure. Multicloud architectures and approaches are likely also to be part of the solution for operational resilience.

Throughout time, liquidity has been the outcome of improved access, transparency, and security. Technology providers are responding by sharing both the responsibility for, and fate of, the markets of the future to build an efficient, faster, and more transparent and secure financial industry.

You can learn more about our approach in our newest white paper, Building the financial markets foundation for the future.

Government organizations are starting to realize that no single cloud can meet their wide range of needs. According to the Nutanix 2022 Enterprise Cloud Index1, 75% of public sector organizations agree that multicloud is ideal, and more public sector organizations than average have adopted multicloud as a primary IT operating model (outpacing the global average). Furthermore, global public sector multicloud adoption is expected to nearly double from 39% to 67% in the next three years.

Some leaders worry about the perceived complexity of multicloud —as well as cost, security, and overall compliance requirements. But the right strategy, tools, and partners can help alleviate these concerns and help create a path to new levels of efficiency, service delivery effectiveness, and security.

Multicloud math: Greater return at lower risk

Modern financial theory asserts that a diversified portfolio is an effective hedge that yields greater return at lower risk. Similarly, multicloud, a diversified portfolio of clouds, has the potential to yield a stronger return on IT investment, provide a lower risk, and deliver greater overall efficacy. While this may seem counterintuitive, the “Anything as a service” (XaaS) nature of cloud can be even more potent across a portfolio of trusted Cloud Service Providers (CSPs).

Each cloud brings unique strengths and capabilities in terms of costs, services, footprint, support, and innovation. Moreover, each cloud continues to evolve. Implementing a multicloud portfolio has the potential to optimize the power of these clouds while reducing overall risk.

It’s fair to say that considerations should go beyond just a diversification and cost strategy. Multicloud gives public sector organizations the power to select best-of-breed capabilities and match the right workload to the optimal cloud. In addition, multicloud helps empower government leaders to protect themselves against vendor lock-in, fluctuating costs, and potential external risks. It also broadens access to an ecosystem of strategic partners.

Accelerating the cloud adoption curve

Once you get started with your first CSP, it can be easier to incorporate additional CSPs. Many aspects of the processes, knowledge base, and efficiencies created during the first rollout can serve as a playbook for future cloud engagements.

For instance, technical training can be easier and more iterative. When an organization first embraces cloud, it can make significant investments in training engineers and security staff, in addition to general education for the broader workforce. Subsequent cloud training with additional CSPs is then generally easier for teams to learn and adopt. Furthermore, key concepts are transferable, and some APIs and services are exact duplicates—all of which helps make learning new CSPs easier and cost-effective.

Cloud management efficiency at scale

Standardizing processes at scale across providers is essential to avoiding cumulative overhead costs and complexity. Agnostic partner tools play an important role. For example Kion and Prisma Cloud by Palo Alto standardize and automate security, compliance, and financial processes across CSPs. And, Terraform by Hashicorp has an infrastructure-as-code software tool that provides a consistent command-line interface workflow to manage CSPs (even on-premises).

Public sector organizations can use these options to create and maintain cloud environments that have uniform configurations and security postures and can provide real-time security monitoring—reducing costs, boosting overall security, and optimizing resource availability. For instance, in partnership with Palo Alto Networks, Google Cloud built a secure cloud access solution that allows the Defense Innovation Unit (DIU) users to access services in any commercial cloud environment, while performing the required security actions of logging, threat analysis, and session control (read more here).

The right partners for your mission

A successful multicloud strategy starts with finding the right CSPs for your mission. Google’s multicloud solutions can help kick-start the journey with open source collaboration and the ability to build and scale. Beyond core capabilities, it’s essential to find a cloud partner that can help serve the core needs of your mission: simplicity and rapid time to value. For example, Google Cloud’s Anthos helps public sector organizations ensure multicloud security, allowing them to manage containerized applications across multiple cloud and on-premises environments from a single management plane.

The key to multicloud success is managing and optimizing multicloud using proven portfolio techniques to maximize return and reduce risk. Ready to elevate your multicloud strategy? Download our whitepaper, 5 ways Google can help you succeed in a hybrid and multicloud world, to learn more about how diversifying your cloud portfolio can help you meet the needs of your agency and its mission.

References:

1. More IT Leaders Say Hybrid Multicloud is Their Future
2. Study Shows Public Sector Organizations are Leading in Multicloud Adoption