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Wall Street’s Cloudy Opportunity

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Wall Street’s Cloudy Opportunity
- By: Rich Miller
  April 7th, 2010
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Panel participants at the Telx event included (from left) moderator Kevin McPartland from TABB Group, Steve Bonanno of Direct Edge, Daniel Marques of Ballista Securities, Walt Terbusch of RCN Metro, Telx CEO Eric Shepcaro, and Shawn Kaplan of ACTIV Financial.

Cloud computing providers have often looked to the financial companies as potential customers. But what about potential competitors?

As the notion of capacity-for-rent gains traction, some Wall Street firms operating armadas of servers to power trading operations are wondering whether there’s untapped revenue in all that hardware, which sits idle once the trading day ends at 4 p.m.

“Once 4:30 rolls around, we don’t need those machines,” said Daniel Marques, the chief technology officer of Ballista Securities, which runs an alternative trading system (ATS) for options traders. “That’s an important resource to Ballista, and we’re not using it two thirds of the day. There’s a lot of redundant hardware sitting around, and there may be an opportunity there.”

‘Subletting’ Idle Machines
Marques discussed the issue Tuesday on a panel discussion on low latency trading at the Telx Financial Xchange data center in Clifton, N.J. He noted that an organization that doesn’t require 24-hour access to its machines could sublet those extra resources.

The notion of harnessing idle capacity also intrigued Shawn Kaplan, business development director for ACTIV Financial, which provides market data to high-frquency traders. “We have to build massive systems to handle 4 million transactions a second,” said Kaplan. “At 4:30 they’re completely cold. What a waste of server resources.”

Amazon has built a huge cloud computing operation without providing its customers with physical access to its data centers – a reservation that would likely be shared by security-conscious financial companies involved in low latency algorithmic trading. But as Marques noted, the mobility of virtual machines creates the potential for remote movement and management of apps.

Some companies have addressed the off-hours issue as an energy conservation concern. “Some of our customers power down remotely after the markets close,” said Eric Shepcaro, the CEO of Telx, which hosted the event at its new data center in Clifton, about 10 miles from New York.

Cloud Options for Non-Trading Apps
Shepcaro said there are many apps that trading firms could move to the cloud model. “Beyond the trading applications, they all have other applications that are in development, and that’s the kind of thing you often seen in the cloud,” said Shepcaro. “Applications like billing, payroll and HR are ideal for cloud today and you don’t care about the latency on those.”

But will we see any cloud-based trading? “At the moment, we haven’t felt comfortable considering cloud for our trading operations,” said Steve Bonanno, the chief technology officer at Direct Edge, which is in the process of transitioning from an electronic communications network (ECN) to a stock exchange.

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Mark MacAuley

Posted April 8th, 2010

Having dealt with financials most of my career, while this sounds interesting in theory (and let’s not forget that Communism works in theory too), that those who are responsible for protecting IP/secret sauce, compliance, auditing, and legal will reject leasing servers across the board. I don’t see Goldman and B of A leasing desks to one another on each others trading floors, or even allowing a competitor in their buildings. Why would they let others in their infrastructure?

Servers are cheap. They own them and control what happens on them. To move into ‘the cloud’ is to relinquish that control and open themselves up to risks that make sub prime mortgage repackaging look like a lower risk proposition. There is a ton of wealth that was lost on Wall Street and I can understand companies looking at alternative ways to generate revenue, however they may want to look at something less risky like recycling their old computers or stripping old cables in old data centers and selling the copper inside them first. Just my personal opinion.

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Posted April 11th, 2010

[...] The plan came to light last week during a panel session on low latency trading. According to Ballista Securities CTO Daniel Marques, his company sees a unique opportunity in its powerful but under-used server infrastructure. [...]