Arguably the most challenging decisions facing a head of technology or data is determining which workflows, data, and applications should be migrated to the cloud, and what that timeframe should look like. Yet while the cloud might seem inevitable, a new report that surveyed financial institutions across the buy and sell side shows that most firms still rely on legacy technology for their datacenter needs.

The report, which was conducted by the Depository Trust & Clearing Corporation (DTCC) and research and advisory firm Celent, found that 60% of those surveyed still use a mainframe, and 44% of those don’t plan on retiring their mainframe(s). The report states that for those that are not already well along their cloud journey, in the near term, it will come down to a blend of rearchitecting legacy platforms, and sunsetting others, with an eye toward cloud-native solutions for future development where possible.

As WatersTechnology has reported previously, Fidelity’s asset management arm has migrated nearly all of its trading applications to the cloud; for its Americas operations, Société Générale plans to close all of its US datacenters “in the next few years”; banks like UBS, RBC and JP Morgan, as examples, are in the 30% to 50% range when it comes to their cloud migration strategies. Bank of Montreal’s chief architect and innovation officer, Lawrence Wan, told WatersTechnology last year that he estimated in three years, BMO will have 30% of its workloads in the cloud, 50% on premise, and 20% on an external service provider. He also said he didn’t see the bank being 100% on the cloud. “We will always have an on-prem presence and capability,” Wan said.

The DTCC/Celent report—which was compiled by interviews with 28 technology and operations executives across 19 North American financial institutions (63% sell side, 21% buy side, 16% “other”)—found that 67% of those surveyed said that they expect to be “cloud first” (meaning new applications are built as cloud native), or have fully adopted cloud by 2024.

In a post-pandemic world, it’s widely understood that capital market firms seek to exploit the benefits and flexibility of the cloud. What might be less known is what becomes of the hardware that has underpinned the capital markets for the better part of a century.

Showing the shifting mindsets between asset managers and banks, the report states that 25% of buy-side respondents indicated using a mainframe, so—perhaps unsurprisingly—sell-side firms, with their varied financial services offerings, are more reliant on mainframes. Additionally, 56% of participants responded that they plan to retire their mainframes with 80% of those responders expecting a five-year timeline for retirement with the remaining 20% looking towards a more than 10-year time frame.

The mainframe computer may seem like an archaic relic, but its relevance has remained. Manufacturers like IBM—the leading mainframe provider in the financial services space—have been continually enhancing their systems to better incorporate AI and cybersecurity tools, as well as incorporating modern programming languages. These evolutions are important as they’ve allowed for easier transitions to the cloud while allowing for the continued use of hybrid cloud models.

“We still see a strong lean towards private cloud, but we will likely see a sort of hybrid approach, as there is definitely more happening in the public cloud today. But there’s still a lot of interest around private and there are technical and regulatory considerations with that as well,” says Rob Palatnick, managing director and global head of technology research and innovation at the DTCC.

The report—titled “Preparing for a Cloud-Enabled, Data-Driven World”—finds divergent data when breaking down what development looks like in the cloud on the buy side versus the sell side. Among asset managers, 50% indicated that the development of all client-facing applications as cloud-native was complete, 40% indicated a timeline of three-to-five years, and 10% at five-plus years. Alternatively, the sell side indicated slower figures, with 29% indicating development was complete, 57% at a timeline of three-to-five years, and 14% at five-plus years. Both sides project similar timelines of more than three to five years for the rearchitecting of legacy applications, both client-facing and internal.

The reality of the cloud is that while some firms will close their internal datacenters, they are moving to facilities run by a third party. The datacenter industry is going to be just fine, says Monica Summerville, head of capital markets technology research at Celent. “The hosted/managed datacenter industry is very healthy at the moment because firms are less likely to want to keep equipment in their own premises or run their own datacenters,” she says. Some will also look to co-location, as Nasdaq is doing with AWS. Announced last year as part of a multi-year partnership, Nasdaq will incorporate AWS Outposts, a managed solution that allows AWS infrastructure to run on premises, into its data center in New Jersey.

But the cloud hasn’t been all smooth sailing, and some are still learning lessons as they go. Many firms set up what is referred to as cloud centers of excellence with the goal of establishing guidelines and standards for how applications are written in the cloud. This centralized model can ensure standardization and reuse of application patterns, but some CTOs surveyed by Celent voiced issues with the model for slowing down development. Some models don’t allow for flexibility in innovation, and in some cases, firms are using rules instead of looser guidelines, which can hinder development and innovation. The federated approach to this model wins out as it allows for better flexibility for teams to innovate while still following guidelines.

“The study participants largely agreed it makes sense to have a centralized team developing standards and guidelines,” Summerville says. “But if that turns into a gatekeeper function, it can hold business back.”