Enter the Proximity Cloud

Ever since grid and cloud computing popped up on the capital markets’ radar screen, both architectures have been pitched as a cost savings technology that let users spin up virtual servers on demand and retire them as soon as the jobs they ran were over. In addition, firms can transform their capital expenses related to the care and feeding of internal clouds environments to a much lower cost operational expense by paying for just the resources they use by using third-party cloud offerings.

However, most technologists agree that cloud architecture falls down when it tries to run latency-sensitive applications. Most technologists agree that latency-sensitive applications function best on dedicated hardware, which avoids various levels of virtualization and typically are co-located with the exchange or liquidity venue. Cloud environments typically are located outside co-location venues due to the high real estate prices co-location vendors charge.

Speaking with Mark Casey and Adam Wray, CEOs of CFN Services and Tier 3 respectively, they believe that they have solved at least half of the problem through a recently announced partnership. If you are not familiar with the two 5-year old vendors, CFN Services delivers hosted co-located market data and trade execution capabilities to 70 global liquidity centers via its Alpha Platform. Tier 3 offers its clients enterprise-grade virtual private cloud environments within its Chicago, New York and Seattle facilities.

You can see where this is going. It was only a matter of time before the industry saw a “peanut butter in chocolate and chocolate in peanut butter” moment.

Under the terms of the partnership, CFN Services will contract Tier 3 services to power CFN Services’ new Alpha Platform On-Demand that lets users self-provision a virtual private cloud for their applications.

According to Casey, he does not envision latency-arbitrage firms moving their front-office applications to the cloud, but he could easily them running middle- and back-office clearing and settlement applications on the cloud. Other types of trading firms could easily see benefits of moving their trade-strategy testing into the co-located cloud, he adds.

Casey and Wray acknowledge that it is early days for the new service, which is available in Chicago and New York. Tier 3 plans to add nodes in Europe and Asia-Pacific in the second half of the year, which will make it a global offering, says Wray.

Looking at the immediate competition for this service, I am not aware of any direct apples-to-apples offering. There is NYSE Technologies’ Capital Markets Community Cloud (CMCC) and Thomson Reuters’ Elektron, but those are located in NYSE Euronext and Savvis data centers respectively. The vendor with the closest business model is Europe- and Asia-Pacific-focused MarketPrizm, which has not added a computing on-demand offering yet.

The offering looks so obvious now that CFN Services and Tier 3 has announced it, I’m sure that similar agreements will be coming soon from the other providers in about a year or so.