Nasdaq’s Cloudy Outlook for Global Market Technologies

It has taken well over a decade, but the momentum toward entirely cloud-based global capital markets is gaining force. Companies like Nasdaq are pushing for a fully cloud-enabled future for all elements of their business, which is putting companies like AWS at the forefront in delivering on-prem-like latency with the kind of rapid scalability wild trading requires.

Nasdaq was one of the few large companies to get on the AWS train early on. In 2008, Nasdaq built a platform called Market Replay, which let traders relive the events of an entire day of trading across all stocks down to the millisecond. That was revolutionary at the time, but ultimately worked well because it was data-intensive but without the real-time hook traders expect across the board.

Adena T. Friedman, president and CEO at Nasdaq, said the AWS relationship was sealed when this service came with an eye-opening pricetag: $20. From that point, there have been annual news items showing how Nasdaq uses emerging AWS technology to keep adding services, often various SaaS offerings for corporate clients, investment managers, and banks – along with specifically tailored services for any of the 130 markets Nasdaq powers globally.

“Because our systems are responsible for seamlessly handling hundreds of billions of transactions per day, there are key attributes that are critical: to be hyperscalable, ultra-resilient, and highly performant down to the nanosecond, as well as fair for all participants,” Friedman said at AWS re:Invent. “Our end-to-end order-to-trade process occurs in 20 microseconds or less. Any given day our systems manage 3 million messages per second with peak days at 60 billion messages entering our trading engines and 120 billion messages exiting.” She explains those specific peaks hit at the beginning of the pandemic as retail investors flooded the market.

These ultra-low latency, scalable requirements might sound like a tough nut for any cloud to crack, but Nasdaq thinks it can get similar or even improved latency and performance with all the scalability it needs by blending a strategy based on AWS Outposts, which are basically AWS-managed datacenters localized with existing infrastructure. In Nasdaq’s case, the AWS Outpost will connect directly to Nasdaq’s central datacenter in New Jersey, creating the first ever capital markets private local zone.

“We have spent the last two years working with AWS to pioneer ultra-low-latency edge compute systems designed specifically for capital markets. Leveraging AWS Outposts, we can bring the edge directly into our primary datacenter,” Friedman says.

What this is leading toward will represent another first, and a sign that the public cloud can not just compete with on-prem, large-scale systems, but possibly exceed them. The real value though is scalability, especially with sharp spikes in demand.

Friedman says that the last several years for market services on the cloud have been based on data distribution, market operation, revenue management, and regulatory systems. But the last element that is also key to functional markets is getting the matching engine piece down. In short, this is the technology that turns an order into a trade.

Nasdaq will be looking to AWS to handle matching engine demands, starting first with US auctions markets. This is a big deal since the financial giant is already the largest marketplace for multi-listed options in the US. Beginning in 2022, Nasdaq will bring the first US options market to bear, all on AWS, and then follow up with more markets as the regulatory and other hurdles are crossed.

Friedman adds the goal is to create a cloud center within the Nasdaq footprint to allow for a transition into the cloud for now, but they are setting the stage for something more widely-encompassing and beyond just Nasdaq.

“We are already engaged to deploy cloud-based trading and clearing, and as we consider the largest and most complex exchange clients with similar latency and scale needs, the steps we take with our own will standardize the market for them as we transform the backbone of the economy.”