At Sinara, we are constantly looking for ways to take advantage of the latest technology to drive better solutions for exchanges, clearing houses, and, of course, their members. I recently had the great opportunity to take part in a panel discussion at AFM Tech Day 2024 in Amsterdam focused on exchange technology and the cloud, where we examined the current state and likely trajectory of cloud adoption by exchanges. The session sparked some really insightful conversations around both the promises and the pitfalls of cloud-based solutions in this space.
Cloud Costs and Economics
One of the key takeaways from the discussion was that while cloud technology offers impressive flexibility and scalability, costs can add up rapidly. Cloud providers often charge based on usage—compute, storage, networking—these costs can sometimes be hard to fully understand, and can escalate if not carefully managed. It’s tempting to think of cloud as a catch-all solution, but it’s important to do the analysis, fully grasp the cost model, and weigh the benefits of cloud agility against the total cost of ownership. A hybrid approach might sometimes be more effective, allowing exchanges to start in the cloud and eventually migrate certain workloads on-premises or to a dedicated data centre (or even dedicated hardware supplied by the ‘cloud’ provider). At Sinara, we’ve certainly found that it’s essential to develop solutions that are purpose-built for cloud environments, while still allowing for on-premises deployment if preferred.
Skillsets for Cloud Success
We also talked about the specific technical requirements of successfully harnessing cloud capabilities. Leveraging containerisation and orchestration—using tools like Kubernetes—enables exchanges to scale their operations more efficiently, but doing so requires a specialised new skillset. Software also needs to be developed or adapted with these tools in mind, and teams need to be proficient in managing this type of architecture. Simply ‘lifting and shifting’ legacy, non-cloud-native applications to the cloud can often result in poor performance or increased costs or complexity, and might fail to fully take advantage of what the cloud offers. Exchanges need to be strategic when transitioning to the cloud, focusing on re-architecting applications to leverage cloud-native features like scalability and resilience.
Use Cases: Where Cloud Shines for Exchanges
There are, of course, some excellent use cases where cloud deployment really shines for exchanges. Market data platforms, specialised or niche trading platforms, and portals that require high availability but aren’t latency-sensitive are ideal candidates. Cloud environments are also perfect for running test environments, allowing exchanges to scale up and down depending on demand. However, as we discussed, it’s essential to ensure that production and testing environments are aligned—having them in separate clouds or with different configurations can lead to unpleasant surprises when it comes to rollouts of new versions. A robust CI/CD (continuous integration & deployment) pipeline is also needed, something that can be an additional challenge to adopters.
Regulations and Operational Resilience
A crucial point raised was the importance of considering regulatory requirements when moving data and software to the cloud. For exchanges operating under frameworks like DORA (Digital Operational Resilience Act), maintaining control over data is essential. It’s not enough to move to the cloud and assume everything will run smoothly. Companies need to ensure they understand where their data is stored, implement effective backup strategies, and make sure they can maintain operational resilience. The cloud can indeed go a long way towards meeting all these requirements, but only if trading systems are set up correctly and can recover gracefully. Otherwise, exchanges could face compliance risks or data loss. Think about a worst-case scenario where there is an outage and operations team realise they can’t access their backups, or worse, don’t even know where the backups are stored.
Cloud-Native vs. Cloud Hybrid
Another key theme was the distinction between cloud-native and cloud-hybrid architectures. A cloud-native approach—where applications are designed from the ground up to run in cloud environments—can offer superior flexibility and scalability, with different workloads tailored for greater efficiency. However, some exchanges might prefer the hybrid approach, where critical components remain on-premise or in a private data centre, while other functions are shifted to the cloud. This approach can offer the best of both worlds, but it requires careful orchestration to ensure workloads transition smoothly between cloud and non-cloud environments.
Achieving Determinism
Another challenge discussed was achieving determinism in the cloud—ensuring predictable, repeatable outcomes in trading environments. For many exchanges, this is critical, and while the cloud is great for elasticity, it can sometimes introduce latency or inconsistencies that are unacceptable in high-speed trading scenarios. This is again where expertise is needed to optimise the cloud infrastructure, employing suitable messaging frameworks or incorporating algorithms that can adjust for latency differences (rather than trying to completely eliminate them).
What’s Next for Cloud and Exchanges?
Looking ahead to the next two years, the consensus was that we’re likely to see a continued blend of approaches. Many new exchanges or trading venues will almost certainly start in the cloud but may choose to eventually move parts of their operations to a more dedicated data centre model, while many others will go in the opposite direction. Each decision will largely depend on the nature of the exchange, the size of the market, and the specific requirements of the platform.
In summary, the cloud presents exciting possibilities for exchanges, but a thoughtful, well-planned approach is key to success. Careful cost management and a deep understanding of both the technology and the regulatory environment are essential to making the cloud work for trading operations. At Sinara, we remain committed to helping our exchange clients as they deal with these complexities. Whether it’s building cloud-native trading solutions, managing hybrid environments, or ensuring operational resilience in compliance with the latest regulations, Sinara are ready to provide the expertise and tools that the modern exchange needs to stay ahead and to thrive.
