September 26, 2012 – NASDAQ OMX Group wants to move record-keeping for brokers into the cloud.
The operator of three national stock exchanges said it is launching two online services that will store regulatory records for customers at Amazon Web Services data centers.
NASDAQ is calling its new cloud computing platform FinQloud. The first two services are named R3, for Regulatory Records Retention and SSR, for Self Service Reporting to the Securities and Exchange Commission. The cloud services, NASDAQ said, are intended to substantially reduce “cost and complexity’’ of meeting regulatory reporting demands, particularly SEC Rule 17a-4, which allows broker-dealers to employ, under certain conditions, electronic storage media to keep permanent records of trades.
“It’s really about reducing cost for the industry,’’ said Ted Myerson, global head of access services for NASDAQ OMX. He and chief corporate development officer Gary LaFever said the cost of storage for brokers, institutional investors, proprietary trading firms and investment banks will drop by roughly a factor of six.
The starting price for storing data at Amazon’s centers will be 45 cents for a billion numbers or letters. That compares to what LaFever estimated at $2.50 on a typical write-once-read-many optical drive, often called a WORM device. At the top tier, where a customer stores five quadrillion numbers or letters or more, the cost drops to 10 cents a billion.
Customers, who must apply to be “members” of the service,’’ also will get savings by not having to keep duplicate copies of their data. Copies can be pulled off the master copy in real time, for analysis or reporting, LaFever said.
The service will also allow customers to set “natural expiration” dates for storing different types of data. Marketing materials may only need to be stored for a year, while actual trade information may, by law or regulation, have to be kept for seven or more. The Commission, in passing the rule, said many larger broker-dealers “no longer create traditional order tickets,’’ entering most orders directly through electronic systems which automatically retain an electronic record of the trade entry.
All data will be stored in encrypted form, using 256-character encryption techniques. The encrypted data will be transmitted by a secure private path from NASDAQ’s data center in Carteret, N.J., to a cluster of Amazon data centers near Ashburn, Virginia, where NASDAQ maintains a backup facility. The keys for encrypting and decrypting the data will be kept at NASDAQ’s data center in Carteret.
Most of the regulatory reporting service was developed by NASDAQ, the “virtual WORM drive” was a roughly 50-50 effort with Amazon and most of the data storage and retrieval involved was developed by Amazon.
No launch date for R3 or SSR were announced.
NASDAQ expects to extend its regulatory reporting services, in conjunction with Amazon, to cover futures, options and swaps, as well as storage and maintenance of “living wills’’ required by the 2010 Dodd-Frank Wall Street Reform Act. Those wills are required to be created by the end of next year by large financial firms.
The FinQloud service will, in effect, be a “protected warehouse for regulated data,’’ said Eric Noll, Executive Vice President of Transaction Services U.S. and U.K. at NASDAQ OMX.
The Commission, in passing Rule 17a-4, originally noted that many larger broker-dealers “no longer create traditional order tickets,’’ entering most orders directly through electronic systems which automatically retain an electronic record of the trade entry.
This story originally appeared at Securities Technology Monitor.
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