Nasdaq Taps Amazon to Host Records Retention System

Nasdaq today said it's launching a cloud-based system hosted by Amazon Web Services aimed at letting broker-dealers store critical records in order to meet compliance requirements.

While it's not the first stock market exchange to turn to the cloud -- the New York Stock Exchange last year launched a community cloud -- the move by Nasdaq will test the limits of using a major public cloud service to host sensitive data.

Specifically, Nasdaq's new offering, called FinQloud, will consist of two systems for broker-dealers: Regulatory Records Retention (R3), a storage and retrieval system, and Self Service Reporting (SSR), which will let firms perform queries and analysis of stored trading records on demand.

Ironically, compliance has been a major showstopper for many firms in the financial services industry as well as other vertical industries where a data security breach or outage could land a company in hot water. But Nasdaq, which for decades has been an early adopter of new technology, appears to believe that a breach or outage is no more likely to happen in the cloud than in its own datacenter.

Eric Noll, executive VP of transaction services for Nasdaq's U.S. and U.K operations, told CNBC this morning the economics of using the cloud are too compelling to pass up. Broker-dealers running their records management systems in Nasdaq's FinQloud will be able to reduce their costs by 80 percent compared with operating them in their own datacenters, Noll said.

By law, financial services firms are required to save records including e-mails for seven years. "In today's complicated market with more and more electronic communications, those storage costs have grown and grown and grown," Noll said. "By partnering with Amazon, what we think we are able to do is offer a lower cost solution to reduce the cost for broker-dealers for their storage and their retention requirements for the regulators."

As Nasdaq's systems outage in May demonstrated during the first hour of trading on the day of Facebook's initial public offering, an internally run system is subject to the same material failures as those that have occurred in the public cloud. Nasdaq has worked with Amazon for six years and Noll believes FinQloud can generate revenues for the exchange without requiring capital investment or operational costs by utilizing usage-based compute and storage.

Moreover, Noll, in his CNBC interview, expressed confidence that Amazon can ensure data will be kept secure. At the same time, Noll said Nasdaq is also applying its own data encryption.

"There's always going to be concerns about data security," Noll said. "Cyber attacks are a reality of today's modern society -- we're going to have to deal with them. I think there are attacks on standalone units as well as other sources of data out there but what we're going to be working with Amazon on is not only taking their info security protections but we're adding layers on it through Nasdaq as well and we will preserve the sanctity of this information for the users of the cloud and with us."

AWS senior VP Andy Jassy, who was present with Noll during the CNBC interview, said financial services companies have used Amazon's public cloud services for years, and expressed confidence that usage will grow exponentially. Jassy said he sees a day, perhaps 10 to 20 years from now, when AWS generates as much revenue as Amazon's $40 billion online retail business. "AWS has hundreds of thousands of customers at this point in over 190 countries and it's growing very, very dramatically," he said.

Yet many companies are loath to put sensitive and mission critical data in the cloud. Nasdaq's decision to do so publicly will no doubt be a closely watched public cloud deployment.

Posted by Jeffrey Schwartz on 09/25/2012 at 1:14 PM