CME, world’s largest derivatives market, partners with Google to move to the cloud

Posted on Nov 4, 2021 6:15 PMUpdated Nov 4, 2021, 6:29 PM

The race for the cloud is accelerating among stock market operators. The American CME, world leader in derivatives markets, will spend all of its operations on the Google cloud, he announced Thursday.

The transfer will not happen overnight, given the challenges for financial stability and customer data security. The two groups are committed to a ten-year partnership. To seal this agreement, Google also invested $ 1 billion in the CME in exchange for non-voting preferred shares.

Long term partnership

“To ensure a smooth transition, we will work closely with our clients and proceed in stages,” warned Terry Duffy, the managing director of the stock market operator. The two groups have worked together in the past. The CME had used Google Cloud to facilitate the real-time dissemination of certain market data from the end of 2019.

As a first step, the CME will continue next year to transfer its activities related to market data to Google’s cloud infrastructure. Compensation, a crucial post-trade activity, will start its migration at the same time.

The transfer of market activities will take longer. It must be said that the various market places operated by the CME are among the most important in the world. Founded in 1898 in Chicago, hence its name, the Chicago Mercantile Exchange specialized in derivatives linked to raw materials such as wheat, soybeans or even oil and gold, before becoming the world champion of futures contracts of all kinds, in particular on the major American stock market indices. It is today the best valued stock exchange operator in the world, with a capitalization of nearly 80 billion dollars.

Another reference for Google Cloud

It is therefore a good reference for Google Cloud. Despite a presence in 200 countries, thanks to its data centers and cables that connect the continents, the group occupies “only” fourth place on the world podium, with about 6% of the cloud market in 2020, according to Gartner. Far behind Amazon (41%), Microsoft (18%) and Chinese Alibaba (9.5%).

But its market share is growing. In finance, Google Cloud says it works with “7 of the top 10 companies specializing in financial markets,” and includes Goldman Sachs, PayPal, Bloomberg, Deutsche Börse, and Refinitiv among its clients. Google notably offers open banking services, virtual agents, and tools to simulate risks on a large scale.

Trillions of dollars traded every day

In 2020, more than 19 million derivatives were traded every day on the various exchanges of the CME, for total nominal values ​​of several trillions of dollars. All of these operations are now processed in physical data centers managed by the stock exchange operator.

High frequency traders are willing to pay dearly to get a few inches closer to these servers. This saves them a few precious milliseconds from their operations, an advantage in mostly fully electronic markets. If all operations move to the cloud, the CME will have to manage the transition with its customers.

The stock operator will also have to show a white paw with regulators. Any threat to financial stability is taken very seriously by supervisors.

Other stock market operators are engaged in this direction, in particular the Nasdaq. The marketplace specializing in technology stocks has already switched some of its North American servers to the Amazon cloud. The American group, which also owns the Stockholm and Helsinki Stock Exchange in Europe, wants to migrate all of its markets to the cloud within ten years.

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