Tying Down the Cloud

For general computing, cloud promises to be a blessing by providing economies of scale and quick time-to-market once all the issues have been hammered out. However, trading, which wants an electronic/optical signal to traverse a set distance in the shortest amount of time, makes the compute cloud a hostile environment.

One interesting proposal I recently heard that had to do with introducing trading to the cloud would have global exchange operators move their matching engines into a cloud and then let the matching engine and its order book migrate geographies through the various trading days around the globe. It would provide one source of global liquidity for the market, but it also sounds like it would be a nightmare for the exchange's clients. It would force firms to have a physical presence in each datacenter hosting the matching engine to make sure that they are not crippled by the latency as the matching engine moves from continent to continent.

If exchanges moved onto a global cloud environment, high-frequency traders, as well as anyone else concerned about message latency, would also have to co-habitate in the same cloud.

Then there are regulatory issues faced by moving an exchange book across national boundaries throughout the day. Considering the logger heads that the E.U. and the U.S. have had in the past concerning the movement of financial data, how would the regulators treat the movement of an order book and the identity of those placing the orders? Also, there are the matching methodology and order types that would also have to pass muster with the regulators. At best, this would lead to a global platform that caters to the lowest common denominator in terms of capabilities across all the markets. It just might be better if exchanges focused on regional offerings that would be tailored to address local issues.

Comments? Send them to me at rob.daly@incisvemedia.com

Rob Daly Editor