What Market Operators Need to Know About Software Deployment and Operating Models for Market Technology

Financial market infrastructures (FMIs) are under pressure to adapt amid increased volatility and volumes. As markets and investors evolve, operators must also evolve to best ensure liquidity, efficiency, and resilience. However, many are running into the challenge of legacy technology that is typically costly to maintain, inflexible to change, intensive to upgrade and lacking interoperability.

These dynamics have led exchanges, central counterparty clearing houses (CCPs) and central securities depositories (CSDs) to reassess their technology estates. Increasingly, many are leaning into platform and solution modernization as a way to optimize today and prepare for tomorrow.

While market operators have been judicious in their approach to transformation, the pace of change necessitates a rethink as the status quo becomes less tenable. A key decision point in this modernization journey is deciding deployment and operating model. Choosing the right option is crucial to realizing scale and agility, which is why many FMIs are looking to cloud deployment and managed services to enhance efficiency, capacity and innovation.
 

As cloud infrastructure has evolved and matured, there are now services available that are able to support mission-critical, core FMI workloads, fueling a transformation of markets and how participants interact with market operators. These innovations can help FMIs to address challenges with infrastructure provisioning and scalability amid growing transaction volumes and client demands.

By leveraging advancements in infrastructure provisioning, scalability and data analytics, cloud-enabled models provide a robust framework that streamlines operations and enhances interactions for market operators. These models can provide FMIs with an accelerated on-ramp to modernization, making advanced technologies more widely accessible and cost-effective. This shift toward cloud deployment models can allow organizations to refocus on core activities, innovation and enhanced client services.
 

In this rapidly evolving landscape, organizational agility has become crucial. 
Financial market infrastructures must be able to quickly adapt to changing market conditions, 
integrate new technologies and respond to emerging competitors 
with scalability, flexibility and optimized resourcing.
 

The emergence of cloud-enabled models has many implications for FMI modernization and their adoption of advanced market technology. When outlining the desired outcomes of a modernization effort, market operators should focus on the factors determining ideal deployment model selection.

The decision often boils down to:

• Where to host the software (cloud infrastructure vs. on-premises)
• How to manage and operate the software and infrastructure (internally or leveraging Software-as-a-Service, Managed Service or Infrastructure-as-a-Service offerings)

There are three main deployment and service models:

• Self-managed: FMIs deploy and operate solutions in-house, either on cloud infrastructure or on-premises. This option provides the highest level of customization but in turn incurs higher overhead and capital costs.
• Managed service: FMIs work with a market technology vendor that handles solution hosting and operation, on cloud or physical hardware. This model still allows for customization and individual upgrade schedules while outsourcing resource-intensive functions to a specialized vendor, helping to reduce total cost of ownership (TCO).
• Software-as-a-Service (SaaS): FMIs benefit from standardized, configurable applications deployed on cloud infrastructure and managed by the vendor. Updates are part of the service, offering shorter time-to-market and lower TCO thanks to vendor-managed infrastructure and information security.

Many questions will guide the selection process including regulations, data requirements, location, latency and throughput requirements, customization and standardization needs. Broadly, FMIs should consider these factors within the context of desired outcomes such as:

Evolving market demands and reforms – such as extended trading hours and T+1 settlement cycles – reward agile organizations with streamlined infrastructures and the ability to innovate and enhance services. 

Advancements in cloud computing, AI and data analytics transform market operators’ capabilities to monitor and capitalize on change. Acquiring purpose-built, vendor-managed software can allow financial organizations to accelerate their modernization journeys while also deploying and updating software more quickly.
 

Maintaining self-managed systems can entail significant costs, not only in terms of capital expenditures to support infrastructure but also operating expenses that extend to the hiring, training and retention of top technological talent. Staffing costs may not be the headline, but over time become key vectors to total cost of ownership.

The opportunity cost of not modernizing is coming into focus. The new market operating model is crystalizing around cloud, 24-hour trading, international scale, resource flexibility and AI. It all makes for a strong business case to act now.

Managed services and cloud infrastructure offer FMIs a way to optimize TCO through a combination of outsourcing hosting, information security and operational services. 
 

Applying AI and advanced data analytics will be essential to the future relevance and competitiveness of FMIs. This naturally figures into the overall deployment model selection.

Self-managed environments will allow for the highest degree of customization, but perhaps not the necessary agility and time-to-market. In a crowded, rapidly evolving market, those latter qualities could be key differentiators for FMIs. Managed services can help accelerate adoption of modern technology infrastructure that fosters insights, innovation and data monetization.
 

Future-proofing is a key priority for FMIs. When considering deployment model, it’s crucial that market operators take into account their future ideal states. Some deployment methods may be more restrictive in terms of adapting to future trends and reforms.

Organizations can benefit from proven solutions that are updated and maintained by providers with extensive experience in capital markets infrastructure. A long-standing history and expertise provide reliability and robust performance, making these managed solutions and infrastructure highly trusted and effective in meeting complex industry demands.
 

FMIs must determine what they need to meet resilience and performance demands while readying for the future of transformative innovations such as AI and digital assets. Cloud-enabled infrastructure is fundamental to modern data management and built-in optionality to help ensure organizations are in an agile position to scale up through increased outsourcing and consumption of managed services.
 

For FMIs, deployment model selection is inherently tied into the opportunity costs of delaying modernization. The compelling business case for transformation is clear: cloud computing deployment models and managed services can provide the necessary scale, agility and resilience to navigate the rapidly changing landscape of financial markets.

The Nasdaq Eqlipse suite of cloud-enabled trading technology, clearing technology and CSD technology solutions allows FMIs to modernize and address core challenges while positioning the business for opportunity. By leveraging Nasdaq’s expertise as both a technology provider and market operator, FMIs can reduce implementation risks, ensuring they maintain resilient operations while driving growth and expanded services.
 

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