Last November, Nasdaq announced that it had partnered with Amazon Web Services and would be migrating its North American markets to its cloud in a phased approach. The exchange group is now on track to take the first step in that migration, with the porting of MRX, one of its six options exchanges, to AWS infrastructure, which is set to begin on November 7.

Marc Murphy, senior vice president and head of market operations, strategic programs, and shared trading services product management for Nasdaq’s North American markets, says the exchange group expects the staged migration to be complete by year-end. Nasdaq will move successive tranches of options from its existing servers onto AWS racks in its datacenter at NY11 in Carteret, New Jersey. Once that is completed over the course of a few weeks, the current hardware and software stacks will be sunsetted.

Murphy says customers should not experience disruption and will not have to connect to MRX any differently than they do now.

Nasdaq selected MRX as the first workload to migrate to the cloud because it made for a good test case. It’s relatively small in terms of volume, but nonetheless has a broad profile of participants. And it’s an options exchange, which made it a much more complex proposition for a re-platforming exercise than an equities exchange. Options markets are associated with complex order books, and generate vastly more data than other asset classes, especially since apps like Robinhood have driven the rise of retail trading in these derivatives. Retail traders now account for 50% of the market.

“No matter how small an options market is, it’s a big challenge to consume all the industry data that must be there—the Options Price Reporting Authority (Opra) and Consolidated Audit Trail (Cat) feeds—to make sure your auctions are working correctly. It would have been easier to start with equities, but it was a deliberate choice to start with options, to make sure we had something that we could scale,” Murphy says.

Nasdaq also picked MRX because it had benefited from an internal modernization project, dubbed Fusion, which standardized all the exchange group’s derivatives markets in Europe and North America, harmonizing the common elements of each venue’s code base into one software stack. When required, bespoke configuration and software can be built on top of that foundation to customize the exchange for the idiosyncratic needs of each market.

“We had already kicked off this internal project to modernize derivatives. So, we were just further ahead in terms of the software engineering side of things, and it made sense to keep going with that into the cloud, into Outposts with AWS,” Murphy says.

Establishing an Outpost

AWS Outposts is core to Nasdaq’s strategy for moving to the cloud. Fully launched in 2019, Outposts is a suite of managed services that extends AWS compute, storage, and database services from the cloud provider’s regional datacenters to clients’ on-premises facilities. There are multiple reasons why AWS customers might want to pipe in AWS services closer to where their users are generating data, usually in metropolitan areas far from Amazon’s giant server farms; for some of Nasdaq’s customers, ultra-low latency is a major concern.

Rather than using off-the-rack Outposts, however, Nasdaq and AWS have co-developed a specialized version tailored for ultra-low latency applications, to be used by Nasdaq’s internal markets. The exchange group also hopes to offer this solution to its market technology and exchange customers globally, Murphy adds.

In parallel with moving to AWS racks in its existing datacenter, AWS, Nasdaq, and Equinix have partnered to build a private Local Zone right next to the NY11 facility. Local Zones, which are deployed extensions of AWS’s regional datacenters, are another way that the cloud provider extends its services to where users are. The first Local Zone was built in 2019 in Los Angeles and is leveraged by several companies including Netflix, for its cloud-based video effects studio.

The Nasdaq facility will be the first private Local Zone that AWS has built. Nasdaq will be the gatekeeper of whoever resides in that datacenter, which Murphy says is important for a host of reasons, but primarily so that Nasdaq can extend its colocation services.

“We expect that existing clients will continue to use their own specialized hardware and networking equipment. But what we also expect to see is a new segment of clients that are happy to co-locate their code track or algorithms on part of or on a full Outposts server, either in the Local Zone or in our existing datacenter,” Murphy says.

For that new type of client, Nasdaq wants to offer more elastic, usage-based pricing. This could bring down the barriers to entry for, say, smaller shops, Murphy says.

“We think about a couple of young engineering students sitting in a garage, messing around with cloud services, and finding some interesting angle on that, and then offering them the ability to be proximate to our trading systems on AWS for maybe a couple hundred bucks a month. And hopefully, they become a larger firm over time,” he adds.

Murphy says moving to AWS also opens access to more capabilities for co-lo clients. “If we wanted, say, the machine-learning services that Amazon has as out-of-the-box products, we can do that co-located with our trading systems,” he says. “Clients will be able to access these services in a low-latency manner, in close proximity to the trading system.”

Murphy says Nasdaq hasn’t decided yet what market will be migrated next once the MRX migration is done. The exchange must consider not only internal factors like volume or customer profile, but also external ones, such as the dates when other exchanges are undertaking similar migrations. The New York Stock Exchange (Nyse), for instance, is engaged in its own re-platforming exercise, moving equities and options venues over to its new trading technology platform, Pillar. Nyse Arca Options has already been migrated over, but the exchange plans to move more markets to Pillar.

Murphy says he expects that Nasdaq will migrate a second market to AWS in 2023. With Fusion having standardized Nasdaq’s markets, he says, it’s likely that subsequent migrations will take less time than MRX. “There will be a much lower lift for clients to onboard to subsequent exchanges after this one. We will be doing sequential migration of these markets, but we expect to see a shortening of the period between each one,” he says.

Lift and shift

The Nasdaq and AWS partnership speaks to a new trend in the market. Also in November 2021, Google Cloud committed to its biggest financial services investment ever, pledging $1 billion to CME Group and committing to move the exchange’s tech infrastructure to Google Cloud, starting with its data and clearing services. Two years prior, the software arm of Aquis Exchange completed an exercise in conjunction with AWS and the Singapore Exchange to prove that complex exchange architecture and operations can work as efficiently in the cloud as in physical datacenters. It was clear even then that Big Tech’s takeover of Wall Street had begun.

And as for Nasdaq’s choice of provider, the exchange group has a long-running relationship with AWS. The two companies first partnered way back in 2008 for the release of Nasdaq’s Market Replay interface. In 2014, Nasdaq moved from a legacy data warehouse to an AWS data lake housed on a Redshift cluster, which grew to support all its North American markets.

As Phil Moyer, vice president of strategic industries at Google, told WatersTechnology earlier this year, cloud is bringing a paradigm shift to the capital markets. “I think the financial industry has always had significant interconnectedness between all its participants. But in the past, proximity and location determined liquidity. As we look forward, it’s less and less about physical location, and more about the accessibility of the asset and your ability to attract investors while meeting regulatory requirements,” Moyer said.

To do this on a global scale, Moyer said, assets need to be cleared and settled around the clock and as fast as possible to support customers in managing risk. “I think the CME and lots of other exchanges are realizing that accessibility to the capital markets is going to determine the future of liquidity, and not necessarily proximity,” he added.

Some argue that Nasdaq’s and CME’s shifts to AWS and GCP are not true cloud migrations, in the sense of moving everything to virtualized instances on someone else’s computer in someone else’s datacenter. Rather, say these critics, these are simply lift-and-shift exercises that don’t truly take advantage of cloud’s revolutionary promise of elastic scalability.

Nasdaq executives concede that initially the exchange’s move to AWS might not be a “true” cloud migration yet, but say the exchange is content to move slowly and incrementally. As Nasdaq’s head of alternative data, Bill Dague, told the Waters Wavelength podcast, “This [migrating to AWS] is definitely an experiment in the sense that we want to see what it takes to run an exchange cloud where the gaps are things like multicast and other really common technologies in the exchange world that are hard to do in the cloud.”

Murphy would agree. He says the migration of MRX is just the first step in what will probably be a decade-plus-long journey. Nasdaq can’t do anything that would disrupt markets or services, for one, and the regulators must be on board every step of the way.

Much tech migration to the cloud—in exchanges and more generally—is beginning with the low-hanging fruit, shifting the non-mission critical, non-latency-sensitive workloads to the cloud. This is especially the case in exchanges, however, as the big tech providers haven’t historically offered multicast.

But executives at exchanges and in low-latency market data tech firms say the cloud service providers are improving their capabilities in speed, security, and redundancy all the time. AWS, for instance, now offers multicast natively.

Either way, Murphy says, moving to AWS is a natural step for Nasdaq. “As we look at the cloud providers and their explosive growth and the innovation they have, we wanted to be closer to that,” he says.

Perhaps one of the most enticing promises of cloud for Nasdaq is the potential to offer overseas market infrastructure clients—Nasdaq supplies technology to such clients in some 50 countries—cloud-deployed solutions for their own customers, as they look for new ways to differentiate their services. Murphy adds that he imagines Nasdaq offering a standardized co-lo footprint beyond North America, to territories like the Nordics, Singapore, Australia, and Hong Kong, allowing them to swiftly provide market access to firms worldwide in multiple venues.

Whatever the benefits that could be realized in the future, Nasdaq’s approach to the cloud is not a binary of in/out of the cloud, Murphy says. “A binary approach is, ‘We’re going to move to the public cloud, we’re going to put the exchange up into the cloud,’ We’ve appreciated that that’s not the first step in the process,” he says. “Rather, we need to bring the cloud to our clients in the ecosystem, prove the value, and provide services. And from there, we can take steps over the next 10 to 15 years to think about what it means to do things in the public cloud.”