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Traditionally hardware-centric nexuses, Financial Market Infrastructures (FMIs) are increasingly deploying Software as a Service (SaaS) to increase flexibility while reducing time to market, cost, and risk.
SaaS is a delivery model in which software is centrally hosted and provided on demand, enabling automatic updates rather than leaving that to the client. SaaS has been offered by enterprise software companies for years and is now making further inroads in the product suites of FMIs, i.e., the exchanges and other firms that provide the services critical to the functioning of financial markets.
Carl Slesser, Head of Trading Technology, Marketplace Technology at Nasdaq, said that SaaS enables a ‘capital-lite’, low-commitment way for market operators to branch out beyond equities, fixed income and FX, and into new realms such as digital assets and carbon trading.
“With SaaS, we can deliver trading platforms in a quick and low-risk way,” Slesser told Traders Magazine. “For the industry, it means people can try business ideas quickly and new entrants can move into the market fairly easily, whereas before the barrier for entry was quite high in terms of cost, experience and more.”
Stability, security and reliability are must-haves for FMIs; in the past, adding a new business onto a firm’s tech infrastructure introduced enterprise risk if something went awry. “With SaaS there’s no ‘contagion’ risk to the existing business,” Slesser said. “You can set up a parallel environment to trade, for example, carbon credits, and it won’t disturb what you’re doing otherwise. If it doesn’t work, it can be taken down.”
Slesser highlighted four advantages of SaaS for FMIs: compacted time to market, where a new platform can be up and running in 13-16 weeks compared with 9-18 months previously; risk reduction; optimizing resources via lower capital expenditures; and access to innovation. “You’re effectively buying into an innovation roadmap, where you get features and updates delivered to you on an ongoing basis,” he said.
In Nasdaq’s first-quarter earnings conference call on April 19, CEO Adena Friedman cited strong demand for SaaS-based market technology solutions. Nasdaq reported annualized SaaS revenue of $729 million in the first quarter of 2023, up 11% from the year-earlier period, and SaaS revenue increased to 36% of the company’s annual recurring revenue,
Going forward, Slesser expects FMIs to deploy SaaS to operate many of their core functions as the industry continues to migrate to the cloud, including trading and surveillance but also other areas such as index calculation and data services.
“Public cloud has its constraints at the moment, but I think in the long term, everything will move to the cloud,” he said. “SaaS is very complimentary to that.”
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