IBM’s ‘Cloud Satellite’ targets banks convinced of decentralized trading model

Trading has largely been a centralized function—there are skyscrapers in major cities around the globe branded with a bank’s name to prove as much. It’s because of this that some wondered whether banks, large asset managers, exchanges, and infrastructure providers could handle such a rapid—and strictly enforced—work-remotely setup after the spread of Covid-19 caused global shutdowns.

As it turns out, the world of finance proved resilient. Sure, there were disruptions and challenges that needed to be overcome, but it was a banner year for investment banks as market volatility lead to a surge in profits. While risks pertaining to cyber and financial crime will continue to worry senior executives, the industry showed that it could handle something more akin to a decentralized trading model.

And as a result, Likhit Wagle, general manager of IBM’s Banking & Financial Markets unit, believes the genie is out of the bottle.

“Wall Street firms will absolutely move to a more remote, decentralized model” for trading going forward, he says, in part because banks are struggling to attract graduates with data science and programming skills, but they are also increasingly embracing third-party providers that offer as-a-service and managed services options.

Just as 9/11 and Hurricane Sandy revealed the risks of having a concentration of business operations in one place, if pandemics or extreme climate events become more common, banks are realizing that they need more resiliency when it comes to their trading operations.

It’s important to note that for Wagle, decentralized does not mean every trader working remotely from their own home. Rather, he compares it to a hub-and-spoke model, where a bank’s headquarters is still in a major trading center, but where the bank creates “a single-digit” number of new locations in less traditional locations. For example, Goldman Sachs, which has its main London office in the financial center of Canary Wharf, is planning to open an office in Birmingham, England, and is sending more talent to Salt Lake City and Dallas in the US.

Wagle expects more banks to embrace this type of decentralization, specifically for front-office trading purposes. Those employees will still be expected to be in an office, but he also thinks that other aspects of trading, such as compliance and back-office processing functions, are open to more of fully remote-working setup.

Satellite in my eyes

While capital markets firms of all stripes and sizes are increasingly adopting cloud solutions, banks are choosing to employ more of a hybrid model, rather than making a full shift to a public cloud offering. Wagle says one reason for this is regulatory related, as there are varied rules around what data needs to remain on-site. So, for example, when it comes to transaction processing systems or analytical information that’s subject to data privacy provisions, “those workloads cannot be run on the public cloud, because the public cloud doesn’t have the regulatory compliance to be able to do that,” he says.

“So the banks [want] a compromise situation where they’re saying, ‘We would like to have a public cloud capability, but it should be a public cloud capability that’s sitting in my datacenter, behind the firewalls in my datacenter, so that I can have my cake and eat it, too,’” he says.

It’s this thinking that led to the launch of IBM Cloud Satellite at the beginning of March. The solution enables users to enjoy the benefits of public cloud in an on-premise datacenter.

While in late 2019, IBM announced that it was partnering with Bank of America to build the first financial services-specific public cloud to market, Cloud Satellite isn’t related to that project.

“The disadvantage with [traditional public clouds] is that you can only put that into where the bank’s main datacenters are. If my datacenters are all sitting in New York and I want to set something up in Charlotte or Salt Lake City, I can’t do that. With Satellite, I can actually do that, because I can put [the public cloud environment] into wherever you want it to be.”

This will help banks, which are strictly regulated when it comes to where and how data is stored, as they can get the benefits of a public cloud offering—which include lower costs and better scalability than private clouds—but it sits in the banks own datacenters, even if they aren’t in the bank’s main datacenter. And in the future, the service won’t even have to sit inside a datacenter at all, “just like a normal public cloud,” he says.

“As we go forward, we’re going to put into Cloud Satellite the same controls that we built into the IBM Cloud for Financial Services. What that will mean is you can use Satellite even outside of your datacenter. That would be, in our view, truly transformational because it would enable the bank to use cloud technologies and benefits of cloud technologies wherever they want them, whenever they want them—it doesn’t have to be restricted to their own datacenter.”