Spending in capital markets for cloud-related initiatives is expected to be more than $3bn by 2017 according to new research by consultancy Aite Group.

In a report “Capital Markets in the Cloud: Not Such a Gray Area”, Aite said that estimated IT spending in capital markets for cloud-related initiatives was more than $2bn at the end of last year and is projected to rise to more than $3bn by 2017.

Virginie O’Shea, senior analyst at Aite Group, told Markets Media: “Many firms are waiting to see who makes the first move and whether they fail or succeed.”

O’Shea said the initiative this month by Australia’s Macquarie Group will encourage spending on cloud services by rival financial services firms.

Gresham Computing, the UK technology firm, said in a statement at the beginning of July that Macquarie Futures has opted to use Gresham’s Clareti Transaction Control solution in the Amazon Web Services cloud in its brokerage services in North America for trading futures and listed derivatives.

Macquarie clients can use CTC to reconcile all open future positions and cashflows in real-time and proactively manage any risks associated with their portfolio as they will receive immediate alerts if a trade fails to complete or an error is detected. Previously clients had used spreadsheets to monitor their open futures positions and manually reconciled positions at the end of each day.

Matt Sauer, global research manager at IDC Financial Insights, said in a statement: “Macquarie is taking a truly innovative approach in implementing CTC over the cloud to deliver real-time reconciliation services directly to clients. The industry has been striving for cost effective ways to help firms manage their risk more proactively.”

The Aite report said hedge funds have taken the lead in implementing public cloud-based solutions while investment banks and custodians have assessed or deployed private cloud-based solutions.

Aite Group interviewed 21 market participants representing broker-dealers and investment banks, asset managers and exchanges in March and April this year.

In the survey 82% of respondents with a cloud initiative said they expected to increase their IT spending over the next 24 months while 80% of firms without a cloud initiative expect to have something in place over the next 24 months.

The report said: “This reflects the phased approach that many firms have taken to cloud technology adoption—they test it out in non-commercially sensitive areas first and, once they are comfortable with the arrangement, they extend it to other areas.”

The drivers for investment were the ongoing burden of meeting regulatory requirements and ensuring high levels of client support as firms face cost pressures, diminishing human resources and unpredictable levels of profitability.

Cloud adoption is being most commonly used for data management and storage but market participants are looking to use cloud-based services for risk management and trade analytics in the future.

Firms are also assessing using the cloud to maintain commoditized operations and for data-intensive functions such as enterprise risk calculations, quantitative research, and strategic development and testing.

Aite said: “Regulatory, client, and internal drivers have forced most financial institutions to re-evaluate the core reference data sets on which they are basing their trading, risk management, and operational decisions. The establishment of C-level executive positions dedicated to championing data management—a chief data officer or something similar—is proof of this enhanced focus.”

The volume of data has increased as electronic trading has spread across different regions and asset classes.

The report said: “Concerns still exist around security, but over the next 24 months, many firms without any clear strategy around cloud technology are expected to become part of the cloud adoption curve—even if that is just in terms of evaluating the space.”

Other factors holding back the adoption of cloud technology in certain jurisdictions are data privacy and storage requirements as some countries have very strict rules about data access by foreign regulators and location of data storage. O’Shea said that, for example, Swiss regulators prohibit banks for storing data in a cloud.

“North American firms are less apprehensive about using the cloud while pockets in Europe are more enthusiastic,” she added. “Nordic firms have more appetite while the UK is less reticent than Continental Europe. Asia is much more open to cloud technology as the region has fewer legacy IT issues.”

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