“I tell the exchanges today, the day that Google and Amazon and those big, big [cloud providers] figure out the compliance side of this business … is the day you can kiss the exchanges goodbye. The exchanges are sitting there in their ivory tower and saying, ‘Hey we’re fine, we’re protected,’ but that ain’t gonna last much longer. It’s going to last longer than me, but it’s not going to last forever.”

• Bill Lee, senior market data advisor for Interactive Brokers, who enrolled in university in 1969 (to provide context to that “last longer than me” piece).

“I speak with the Big Three and the first thing they always tell me as the cloud guy from Bloomberg is, ‘We want nothing to do with getting into your space. We don’t want to deal with the headache of consolidating market data. We don’t want to deal with the headache of managing entitlements when reporting back to exchanges.’ It’s not an easy space to be in.”

• Cory Albert, global head of cloud strategy for Bloomberg’s enterprise data unit.

Those two statements were made on separate panels at the North American Financial Information Summit (Nafis), which was our first live event since 2019 and was held on May 17. In my humble opinion, I think there’s a fair amount of truth in both of those statements.

Lee is looking to a future state—one that may be a decade or more away, but it’s a state that he views as inevitable if exchanges don’t make drastic changes. Albert is talking about the way things are today. I mean, one could argue that right now with Reg ATS the US Securities and Exchange Commission is running amok saying that most every provider of trading technology is an “exchange”. (A bit of an overstatement on my part … but not by much.) Microsoft Azure, Amazon Web Services, Google Cloud and IBM Cloud (I feel people too often forget about IBM in these conversations) want no part of that … right now.

But consider this: As Reb Natale reported from an event hosted recently by AWS, Fidelity Investment’s asset management arm has migrated 98.8% of its applications exclusively to AWS and plans to stop using physical datacenters soon. Let that number sink in—the fourth largest asset manager in the world is done with on-prem datacenters.

And speaking of exchanges and the cloud, last year it was announced that CME Group and Nasdaq are planning to (eventually) move their entire tech stacks (including matching engines and multicasting systems) to Google Cloud and AWS, respectively. Cloud (not blockchain) is the way forward for banks and asset managers, vendors and exchanges alike.

How can you not see the dominance that has been established in just five years by a small group of massive technology companies? “Oh, it’s just cloud storage.” Yeah, right. But let’s spin this thought exercise forward just a bit.

While the vast majority of banks and asset managers are not on the level of Fidelity, I think we can agree that cloud adoption on Wall Street is a hockey stick pointing to the sky. The original reason for this push was, indeed, all about storage and cost. Trading firms have developed an insatiable appetite for more and more data. Hidden in a field of data was alpha or unforeseen risk or operational efficiencies. But it became too much data.

As a result, what trumps data content is data context. And when it comes to big data analytics, you need to tap into tools provided by—you guessed it—the major cloud providers.

The way I see it, there are five major trends that tied together the reason why some of us are so bullish on Big Tech’s takeover of the capital markets. I don’t think these four companies will replace the likes of Bloomberg, S&P, Ion, SS&C, Refinitiv or even the exchanges (though I understand Bill Lee’s stance), but will they provide massive disruption? Oh, hell yeah. (And it should be said that if Bloomberg were ever to get sold, there are only a handful of companies in the world that could afford that price tag, and that list is basically Big Tech.)

I digress. Ah yes, the five major trends: the development of AI, and specifically machine learning and natural language processing; wider adoption of open-source tools; the embrace of new data delivery mechanisms, most notably APIs; the need for applications to be interoperable; and, finally, the scary world of cybersecurity. (There’s also the emerging sectors of low-code development and quantum computing, but I view those more on the horizon and intrinsically tied to cloud, anyway. If you want to talk Web3 and/or distributed ledger technology…I ain’t your huckleberry.)

Ok, so for those five main trends, let me frame them as I see the current landscape, but please do tell me where you disagree, or where you think I have it a bit off: anthony.malakian@infopro-digital.com.

Again, if you provide a tech solution (whether you’re a vendor, exchange or a bank/AM building something for internal use), the best tech is one that provides context, rather than simply displaying data and, essentially, saying, “Here’s the data…you figure out what to do with it.” (see: Max Bowie’s 4,000-word tome on the subject.)

AI/ML/NLP: Used to break down massive datasets and find correlations between different sources of information. Now, close your eyes: When you think of advanced AI, which companies come to mind? Palantir, Netflix, Facebook? Sure. But also Amazon, Google, Microsoft and IBM, no?

Open source: Even Goldman Sachs loves open source (now), but it’s Big Tech companies that have been contributing for decades.

Data delivery: Table stakes for any cloud provider.

Interoperability: While we may have our issues with Microsoft Office or Google Docs/Sheets, interop, especially when it comes to retail sales, is the domain of Big Tech.

Cybersecurity: Billions and billions of dollars focused on cybersec.

Take it all together, and there is not a capital markets tech company (much less a bank, asset manager or exchange) that has the scale and breadth of services that Amazon, Google, Microsoft, and IBM have. So, as Bill Lee said, if these companies ever figure out the compliance side of the capital markets, this friendly alliance of Big Tech and Financial Tech will deteriorate.

This sea change might not happen in the next decade (if ever…I mean, these are just my opinions) but if it does, the tipping point will be jarring. So as companies are figuring out their cloud and analytics strategies, conversations about disruption should be happening today, even if the shift won’t happen tomorrow.

The image accompanying this essay is “Storm in the Mountains” by Frederic Edwin Church, courtesy of the Cleveland Museum of Art’s open-access program.