Google, CME Cloud Partnership Could Upend Tech Investments by Traders

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High-frequency traders have spent years building systems designed to work with the exchange’s data center

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Until recently, there has been a perception that the cloud was unsuitable for high-frequency trading. In the cloud, companies rent access to shared computing infrastructure that can use multiple locations. The cloud is typically designed for less time-sensitive business applications such as browsing, email, streaming video or even supply-chain management. Even high-powered corporate applications rarely demand the same performance as high-frequency trading.

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CME and Alphabet Inc. NS

Google on November 4 announced a 10-year agreement to move CME applications to the cloud. Applications will move to the cloud in phases, with core trading systems eventually transitioning. Before this can happen, CME and Google will need to be rebuilt in cloud systems that match the ultra-low-latency performance of the specialized trading infrastructure.

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“It’s harder than typical cloud migration,” said Philip Moyer, vice president of strategic industries at Google Cloud.

If the CME effort is successful, the cloud-enabled exchange could reduce operating costs and lead to the creation of new revenue-generating data products and services, Mr. Tabb said.

CME said the deal will allow it to develop new tools with Google technology such as artificial-intelligence software to bring in new users faster, streamline operations and monitor market risks.

Mr Tab said that moving the core trading system to the cloud “will elevate those who heavily leverage the CME data center, those who are active traders in the futures markets, their brokers, their technology providers, as well as those who are active in equities.” Traders who rely on high-speed data from CME.”

If CME’s trading infrastructure is moved to the cloud, the exchange’s customers will also need to reorganize their systems to operate in the new environment, Mr. Tabb said.

But Brad Peterson, chief technology and information officer at Nasdaq Inc.,

Said that the cloud has advantages for exchanges.

“The global pandemic has further strengthened our view of the benefits of our cloud transformation, including improved elasticity, scalability, and faster innovation while maintaining the same level of market flexibility and integrity,” he added.

The CIO Journal reported last year that Nasdaq plans to move its markets to the public cloud over the next decade.

“These are early days since our announcement, and we don’t have details for you beyond release at this time,” a CME representative said.

“We are excited to be working with CME to solve these challenges,” Google Cloud said. declined to comment further on the difficulties of migrating to the cloud.

Large business companies often rely on proprietary software that works with customizable hardware, providing control over the speed and stability of their trading algorithms, said David Larvier, a professor affiliated with the Colleges of Engineering and Business at the University of Illinois at Urbana-Champaign. does. , For a cloud-based environment to work on the hardware can require a considerable amount of work, he said.

High-frequency trading firms typically place, or “co-locate,” their servers in the same physical data center as exchanges. Traders’ technology infrastructure is connected to the exchange using as much equal length of cable as possible so that all traders can communicate with the exchanges with equal latency, said Michael Persico, chief executive of Anova Financial Networks, a technology provider . Communication networks used by high-frequency trading firms.

Google Cloud Chief Executive Thomas Kurian told Businesshala that his team is working with CME engineers to ensure that the exchange’s new cloud-based infrastructure will meet the latency requirements of trading firms.

Trading firms also demand that they receive almost on-time market data from exchanges to ensure fair functioning of the markets, Mr Larvier said. This is achieved through a process known as multicast, in which an exchange sends market information to trading firms and data providers who distribute the information to remote trading servers. Historically, the cloud has not supported the multicast protocol known as IP multicast, he said.

Amazon.Com Inc. NS

The Amazon Web Services cloud-computing arm is working to enable multicast capabilities. The company said last year that it had conducted a pilot of such a system with the Singapore Exchange. Ltd.

and the European market operator Aquis Exchange,

Amazon did not respond to requests for comment.

If CME and Google Cloud are successful in moving their business engines to the cloud, the change could put pressure on the particular companies that serve the exchanges, Mr. Tabb said.

Traders are supported by communications companies, including Anova Financial Networks, as well as companies that sell trading software and other offerings to traders and brokers.

Some of these companies, Mr. Tabb said, may not need it if the Exchange business moves to the cloud. Others may need to re-engineer their connections and platforms for the cloud.

Mr. Persico of Anova Financial Networks sees this as an opportunity. “Well-run firms with good people and a history of innovating will be fine,” he said.

John McCormick at [email protected] and Alexander Osipovich at [email protected]

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