By Alastair Watson, Managing Director, Transaction Network Services (TNS)
The trading infrastructure landscape has picked up the pace over the past several years, with trends and challenges reshaping how firms approach their technology strategies. As we look ahead to 2025, key developments in cloud adoption, market data dissemination, and technological innovation are setting the stage for what looks like it will be another transformative year.
Reassessing the “cloud first” strategy
For over a decade, financial firms have been pursuing a “cloud first” approach, drawn in by promises of scalability, resilience and cost efficiency from hyperscaler cloud providers. However, 2024 highlighted some inherent challenges with this model that have required us to reassess. First is non-deterministic latency, which hinders trading use cases requiring fair and equal access. Additionally, high latency when interacting with liquidity sources outside the cloud and problematic multicast market data dissemination further limit its applicability.
Security concerns in cloud environments have also remained an issue. Hyperscalers are by definition multi-tenancy and the range of clients is extremely broad. By virtue of this diverse client base and their sheer scale, hyperscalers are more difficult to police and protect than bare metal infrastructure.
Perhaps most significantly, the rising cost of scaling cloud environments is causing concern. While the cloud offers flexibility and the ability to scale rapidly, without significant controls the cost of leveraging the cloud has also grown rapidly. High data egress fees—costs associated with moving data in and out of cloud environments—are a growing pain point for firms that require large-scale data transfers.
In response, TNS has observed a trend of larger firms pivoting toward fully managed physical environments. These dedicated setups address several limitations of the cloud, including support for native multicast traffic, improved security and reduced operational and data transfer costs.
Supply chain recovery
The COVID-19 pandemic created significant supply chain disruptions, with hardware procurement timelines extending to nearly a year. This bottleneck hampered trading firms looking to expand their operations.
Fortunately, 2024 saw improvement and eased supply chain issues. Firms are now able to source and deploy hardware more quickly, enabling clients to establish trading operations in new markets in as little as six weeks.
Technological innovations on the horizon
Emerging technologies will reshape the trading industry in 2025. Layer 1 switching, which has already gained traction among quantitative trading firms, is undergoing significant upgrades. While current implementations cap bandwidth at 10 Gbps—adequate for order entry but insufficient for larger market data feeds—we’re seeing transitions to 40 Gbps and 100 Gbps Layer 1 switching solutions. These advancements will support data-intensive feeds like OPRA’s US Options feed, which frequently bursts beyond 40 Gbps.
Another area of focus is the challenge of supporting multicast market data in cloud environments without packet loss. This is a worthwhile problem to solve and something we expect the industry to make progress with in 2025.
Field-programmable gate array (FPGA) technology is also gaining traction in quantitative trading for its ability to accelerate data processing and liquidity interaction. While deployment and management of this technology is complex, ongoing improvements should drive broader adoption in 2025.
Global market growth is expected
The global equity options market saw robust growth in 2024, driven by several factors. Elevated market volatility, caused by geopolitical tensions and macroeconomic uncertainty, created lucrative trading opportunities. This attracted new participants, including firms with experience in non-US equity options markets entering the US market.
Additionally, changes in market microstructure, such as the introduction of new exchanges like MIAX, MEMX and IEX, have fragmented liquidity and expanded trading opportunities. We’ve seen EMEA-based quantitative firms looking to establish co-located solutions to access these burgeoning markets. Outside the US, the National Stock Exchange of India (NSE) is garnering interest as one of the most dynamic and rapidly growing emerging markets. India’s complex operational environment has led many financial firms to consider building connectivity and infrastructure in Mumbai. And as access to the Bombay Stock Exchange (BSE) improves, a similar surge in activity is anticipated there.
Geopolitical influences and market volatility
Global events continue to cast a shadow over financial markets. Domestically, political developments, including a new administration, are likely to create both opportunities and uncertainties. Firms should be primed to move quickly to deploy infrastructure for any new opportunities.
With fast moving markets comes an increasing need for all market participants to focus on optimizing their latency when sourcing market signals and interacting with liquidity. Those who fail to do this will suffer from negative selection or the inability to target opportunistic liquidity.
As 2025 approaches, the trading industry is at a turning point. Firms are balancing the flexibility of cloud solutions with the performance and cost advantages of dedicated trading infrastructure. Technological advancements, global market dynamics and geopolitical influences are reshaping the landscape, and financial firms should be ready to balance these in an ever-evolving market.
Alastair Watson, European Managing Director for TNS’ Financial Markets business, has over 20 years’ experience delivering technology solutions for Equities global markets. He brings banking sector insight, having worked for UBS, where he was latterly responsible for building market leading execution technology and growing the UBS quantitative client base in EMEA.
