Sunday, June 24

Machine-learned data pushing firms into the cloud despite risks

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As machine learning techniques become more prevalent in financial markets applications, on-premise solutions are lagging behind cloud-hosted platforms, according to a new report by NEX and Celent. 

Financial institutions are looking for more detailed analytics, in real time, on market microstructure, broker and client engagement, and statistically based predictive analytics.

But in-house development isn’t keeping up with that demand.

“On-premise solutions that try to replicate some of the native voice and data processing ML algorithms are lagging behind cloud-hosted platforms,” according to the report.

“This lag between cloud and on-premises capabilities is most obvious in the shift from post-trade and history-based analytics to pre-trade predictive analytics for trading, margin costs, settlement and operational insights.”

And the “infinite scalability” of the cloud is well-suited for recognizing risk patterns, predictive compliance, predictive risk, and detecting anomalies at critical points in the cycle of trading, the report added.

“For decades, capital markets have been plagued by nearly intractable problems, such as trade date mismatches from exchange-traded equities to bespoke OTC derivatives,” said the report. “An industry cloud solution for collecting and running algorithms would yield a new level of continuous monitoring and the opportunity for real-time correction.”

Regulators and the cloud 

Still, financial institutions remain wary of risks such as the economic changes to switching to an outsourcing model, differing regulatory positions across jurisdictions and their data security responsibilities, versus that of cloud providers, the report noted.

The risk of data breaches and subsequent service disruption leads many to question whether cloud providers should be regulated and could open the door to the regulation of technology vendors more broadly.

“While this is unlikely, it is expected that regulators will work with the industry to define common minimum standards and best practices with a delineation of responsibilities between cloud providers and financial institutions,” the report said.

NEX Group, one of the report’s publishers, operates the NEX Abide Trade Repository, which is hosted in the public cloud for cross-asset and OTC derivatives regulatory reporting with approval from the UK financial regulator, the FCA.

The FCA itself is moving to a cloud-based data and analytic infrastructure for transaction reporting. Indeed other regulators are or will follow suit as they feel the pinch of constrained budgets amid exploding data demands.

“As regulators have moved to the cloud, so has the industry, as much of the data will ultimately move to the cloud,” according to the report.


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