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The Trading Mesh

Adventures in the Cloud: From Capex to Opex & Beyond

Tue, 30 Jun 2015 10:45:00 GMT           


In this article, Mike O’Hara of The Realization Group looks at how the cloud and the use of ‘microservices’ can transform operations for financial firms, bringing greater productivity and agility without sacrificing security. Mike hears from Matt Barrett & Olivier Deheurles of Adaptive Consulting, Jan Machacek & Martin Zapletal of Cake Solutions, Rob Bath of Digital Realty, Matthew Lempriere of Telstra Global Enterprise & Services and Ray Bricknell of Behind Every Cloud. The technology may be complex, but the message is simple: the cloud and use of microservices can bring serious benefits that go well beyond reducing costs.


Writing and additional research by Adam Cox, Associate Editor, The Realization Group.



With the advent of the cloud the financial industry initially thought of two words, security and cost. Could the cloud ever be trusted enough to hold sensitive data? And if security issues could be addressed, just how much money could be saved by taking advantage of the cloud? Often, security concerns overshadowed cost benefits, with good reason as the financial industry is a prime target for increasingly sophisticated technology attacks. But while security will always be an area of focus, an array of techniques to prevent data breaches have been developed to address those concerns. And while cost reduction is certainly a benefit the cloud can bring, experts say there are far more important advantages to be gained. In fact, they argue, many people miss the point entirely when it comes to the cloud. It’s not about trying to lower your cost base. It’s about making your business more flexible, scalable and responsive than you’d ever thought possible.


“What we’re trying to do is realign people’s expectations and beliefs of what the opportunity of the cloud is.”

Matt Barrett, Director, Adaptive Consulting


Belief systems

For some who are looking to turn the business vision of the cloud into reality, the mission starts with changing hearts and minds. Even the word ‘cloud’ brings with it ideas and associations that are often outdated or based on incorrect assumptions.


“What we’re trying to do is realign people’s expectations and beliefs of what the opportunity of the cloud is,” says Matt Barrett, a Director at Adaptive Consulting. “Often, people at larger investment banks think the cloud is all about reducing costs. But the chief benefit is in terms of technological velocity. Which comes from something called ‘induced demand’.


“Induced demand, a recognised economics term, comes about when you reduce the price of something so much that people just end up consuming more of it because it’s so cheap, it becomes almost like water, or cheaper than water in fact,” Barrett says.


“When you induce a huge amount of demand for your cloud computing resources, you find that you’re not necessarily going to save any money, in absolute terms. You discover that you’re using a lot more computer resources, so you end up with a situation where you need to rearrange your organization so that this feast of plenty can massively increase your velocity and your agility.”


“Cloud gives companies the speed of delivery and the speed of reacting to change.”

Jan Machacek, CTO, Cake Solutions


Jan Machacek, CTO at Cake Solutions, agrees. “The point that is missing is that cloud gives companies the speed of delivery and the speed of reacting to change. So if there is a need to really increase the computing power, the cloud is the way to go.”


Experts such as Barrett and Machacek cite a wide range of advantages that the cloud offers, particularly on a distributed system built with a microservice architecture. This is a way of reducing interdependencies among technological functions and it allows for better design, greater efficiency from development teams, more use of automation, increased innovation due to the lowered cost of experimentation, and faster time to market.


Big banks, with their large infrastructures and huge retail operations, are just one group of potential cloud dwellers. The fund industry forms another segment, although to date only a small number of funds have made serious forays into cloud technology. A third segment is trading venues, particularly as changes in market structure create new opportunities for channelling or concentrating liquidity. Regardless of the client type, what is clear is that taking advantage of this technology requires adopting a new mindset. The good news is that for all the questions cloud-sceptics may have, there seem to be good answers.


Private vs public vs hybrid

A big challenge with the cloud concerns how systems should be designed so that sensitive data doesn’t escape and so businesses can use data effectively.


“The opportunity to support a more meaningful base of critical applications in the cloud, leveraging hybrid IaaS as the platform of choice, will probably be the most likely consumption model for financial services.”

Robert Bath, VP, Global Solutions, Digital Realty


“First it must be possible to somehow control the locality of the data,” Machacek says. “Second, if a bank wants to run analytics on the data then it also makes sense to run the analytic jobs as close to where the data sits as possible. I think we’ll see a whole bunch of new engineering solutions to make that easier, because right now it still is a lot of work.”


Echoing many others, Machacek says that if a bank wants to use cloud infrastructure, it will probably use its own data centres because of concerns the public cloud might be too insecure. Many firms adopt a hybrid approach where the public cloud is used for less sensitive information and a private cloud where security is more of a concern.


Rob Bath, Vice President, Global Solutions at Digital Realty, sees hybrid models gaining popularity. “The opportunity to support a more meaningful base of critical applications in the cloud, leveraging hybrid Infrastructure-as-a-Service (IaaS) as the platform of choice, will probably be the most likely consumption model for financial services in the short to medium term. Hybrid IaaS provides the best current alignment of participants security and control objectives, that are so dominant a feature of this space, together with the provision of a more flexible approach to the support of the significantly larger number of business applications financial services firms run in contrast to those in other sectors.”


What is key, Bath says, is ensuring seamless transitions from the private environment to leased infrastructure options and then on to instance-based buys. “That stitch effectively needs to be physically in place such that as and when customers feel its appropriate to vary the way they consume IT resources, or regulatory or compliance requirements shift disruptively or whatever the case may be, the physical opportunity to establish those connections is in existence thereby enabling the required agility and seperacy of the respective operating environments.”


Freeing up development

Whether a hybrid model or a purely private cloud is deployed, firms wanting to get the most out of the technology need to make some big architectural decisions.


This is where microservices come into play.


Microservices allow work to take place in one part of a distributed system regardless of what is happening elsewhere. If one element needs to be shut down or modified, developers working on another element can just get on with the job without worrying about stoppages or synchronisation. The communication between the components of this distributed system can be tied down to a secure protocol involving cryptography, providing a fully secure interface between microservices.


“People using the cloud and techniques like microservices to de-correlate their teams are able to develop a feature during the day and have this in production at the end of the day.”

Olivier Deheurles, Director, Adaptive Consulting


Olivier Deheurles, a Director at Adaptive Consulting, says this approach can give a huge burst of speed to development. “What you want, in an ideal world, is a development team that is able to iterate very quickly. As soon as they have a feature complete, you would like to be able to start releasing this into production in front of users and getting feedback,” he says. “People using the cloud and using techniques like microservices to de-correlate their teams are able to do that. They can develop a feature during the day and have this in production at the end of the day.”


The use of microservices, according to Machacek, also gives much greater flexibility in terms of data. “It’s so much easier to now say, I can have part of my system running here, I can have another part of my system running somewhere else, and I can still ensure that they don’t leak information anywhere. So I no longer have to duplicate databases or replicate databases or rely on only my data centre to run things.”


He adds: “The key thing is these are independent self-contained units of functionality that can be deployed independently, that can tolerate other microservices going up and down. So they are resilient .”


Not only do microservices address the issue of interdependencies, but also in a distributed system they can operate on different clouds. “Different cloud services give you different computing power, they cost different amounts of money and you can treat them in a different way,” Machacek says.


He gives an example where a sophisticated company such as Instagram may only prepurchase a small number of machines and will buy the rest of its computational power on a spot market. So a provider such as Amazon, if it notices it has 10,000 CPUs available with no one running software on them, can sell that on a spot market at a low price, but with the caveat that those CPUs could disappear with a minute’s notice.


“If you didn’t have microservices and if you didn’t have this distributed message-based system, that would be extremely difficult,” he says.


Another benefit is the freedom developers gain in terms of tools. Martin Zapletal, a Software Engineer at Cake Solutions, says: “In the past, large, monolithic applications, were using a single technology stack and firms were afraid to bring new technologies or upgrade to newer versions because it was costly. But when you have microservices, it is much, much simpler to update the technology or choose a different technology stack for a new service or a different database provider for example.” All of this results in an increase in velocity as the right tool for the job can be used.


Change on all fronts

The cloud and microservices approach entails not just new technology, but organisational change.


One such change is the separation of a firm’s development team or a product team from the infrastructure team. “You only let them talk via an API, so the infrastructure team provides APIs that lets the development and product teams spin up new computer resources, shut them down and configure them,” Barrett says.


“When you have microservices, it is much simpler to update the technology or choose a different technology stack for a new service or a different database provider.”

Martin Zapletal, Software Engineer, Cake Solutions


Zapletal of Cake Solutions says use of the cloud and microservices can achieve high levels of automation for deployment and configuration management. But to get to that stage, new thinking is required.


“Mindset is one of the biggest issues, because people are used to doing things in a certain way and it’s difficult for them to start thinking differently,” Zapletal says. “It’s not just changing the technologies, it’s changing how the teams work, how they cooperate.”


For instance, deployment and infrastructure management changes are markedly different in a microservices-based architecture versus an old-style system.


“The management of hundreds of small microservices is more difficult than managing one single monolithic application,” Zapletal says. “So firms need to change how they do this and automate deployment to be able to start microservices and manage configurations quickly and reliably in multiple deployment environments to allow rapid iterative development.”


If that sounds daunting, it need not be. “This is actually a solved problem,” he says. “There are plenty of tools and technologies that have made this simple. But, it requires some new knowledge and approaches in deployment automation and DevOps areas that many companies are not used to.”


Deheurles of Adaptive suggests that financial firms take their lead from large web companies that have massive platforms with numerous teams. “The thing is, to be able to continue to go really fast, you need absolutely to make each of those teams independent,” he says.


“Large web companies are constantly putting new features in front of clients - not necessarily all clients, but perhaps 10% of them - with analytics to know if and how a feature is being used or if there are problems in the implementation. Then they decide if they want to push that feature out to everybody or if it’s a feature that nobody has really noticed and is not using, and is not worth supporting.”


Other benefits

The velocity-iteration question is arguably the most significant of the benefits from this technology, but there are numerous others, each of which can make a big difference.


Matthew Lempriere, Head of the Financial Services Market Segment at Telstra Global Enterprise & Services, says cloud technology lets firms better test software or hardware. “A tailored cloud allows you to have all your cloud-based infrastructure but then have a colo rack that you can place it in. We can place third-party hardware in a rack so that you can try it before you buy it, effectively.”


Sometimes a firm wants to know a product’s limits, so it may want to see if it can handle, say, 50 Terabytes. That’s an amount of memory that most firms don’t have and wouldn’t want to pay for to buy outright. “I want to do extreme testing to see if I can break something, because until I know I can break it, I won’t be comfortable using it. I don’t know where or when it will break.”


“A tailored cloud allows you to have all your cloudbased infrastructure but then have a colo rack that you can place it in.”

Matthew Lempriere, Head of Financial Services Market Segment, Telstra Global Enterprise & Services


Yet another benefit concerns the ability of the cloud to incorporate new hardware. “What will become important for these grand cloud infrastructures is more exotic hardware, more types of applications,” Machacek of Cake says. “There will be many applications that will need a GPU to run. So far there are very few cloud schedulers that allow you to do that, but keep an eye out for those.”


Machacek also notes that deep neural networks have been around for a long time. “But now we have the computing power to actually make use of them.” At the same time, it can be difficult to buy the very specialised hardware needed. “So again, go to the cloud and run one of your microservices on this specialised hardware. It’s the perfect way to spend money as an experiment.”


Buy-side biases

Ray Bricknell, Managing Director of Behind Every Cloud, says many in the fund industry have qualms about security and risk but they often haven’t explored the realities of these concerns or the ways to mitigate them. Bricknell, whose company specialises in the hedge fund and asset management space, says vendors haven’t helped the situation.


“The vendor community doesn’t know how to communicate with this sector and articulate that value in a language that they understand. The vast majority of the managed service providers that we work with have no real capability of actually truly engaging with finance type clients and articulating the value proposition in a way that makes sense to them. It’s a classic IT having trouble talking to the business type of scenario.”


Bricknell expects to see more use of the public cloud for ‘bursty variable’ workloads in the financial sector.


“The classic example that is beginning to emerge is in the area of risk modelling, essentially high volume number crunching that you might do at sporadic points during the business cycle.”


He says any opportunity to speed up processing of such exercises is highly valuable because understanding risk exposures has become so important since 2008.


Right now the fund industry breaks into two camps when it comes to the cloud: small firms that embrace it and established firms that are hesitant.


“New start-ups are being born in the cloud, but most times into a private cloud rather than a public cloud,” Bricknell says. “Then the rest of the market, quite frankly, is nearly all still using infrastructure that is owned and developed and managed by themselves. This segment is now however accelerating toward adoption of 3rd party managed infrastructure.”


“Part of the challenge is investor perception, part of the problem is regulatory (meeting for example BCP requirements). No-one is going to risk attracting a $1bn investment just to save a few bucks on their costs. I can’t see critical production systems being deployed into public cloud by these larger hedge funds and asset management firms anytime soon, but they are beginning to explore using public cloud and the new age world of DevOps tools to make their application development functions more responsive.”


“New start-ups are being born mostly into a private cloud rather than a public cloud, the rest of the market, is nearly all still using infrastructure that is owned, developed and managed by themselves.”

Ray Bricknell, Managing Director, Behind Every Cloud


The mindset question revisited

Many in the financial industry know that they need to change, but there is still resistance or that old belief that the driver will simply be cost.


“It’s the smaller platforms, like the smaller multi-dealer or retail platforms, that will be the first to go that way I think, because they understand the importance of iteration,” Barrett says.


That is particularly important during periods of market change. As an example, a large number of corporate bond platforms are currently being built due to changes in market structure.


“The winners will be the ones that use the cloud for agility and velocity, who iterate towards market fit for what they’re trying to build rather than the old way of, ‘build it and they will come and we’ll just hope and wait, because no one actually knows what it is that the market wants right now.”


Meanwhile, Deheurles says the banking industry seems to be stuck in the past.


“Banks are still in a world where UX (user experience) people and business people who think they know what their client wants and spend weeks or months deciding what they want to build,” he says.


Large e-commerce platforms outside of finance stopped working this way a long time ago. “Now when they think about a feature, they want to put it in front of the client in a matter of days or a week and actually test and measure to see if it’s used and if it’s driving more business.”


Can the financial industry finally take a leap into the future? For firms such as Adaptive Consulting, it all comes back to getting expectations right, and communicating the opportunities to the right people.



For more information, visit:

Adaptive Consulting

Cake Solutions

Digital Realty


Behind Every Cloud



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