September 8, 2010 - As we head into the fall, Wall Street is buzzing about cloud computing.

A number of upcoming conferences – including from 2010 High Performance Computing Financial Markets show and conference, which will be held in two weeks – feature cloud computing very prominently in their programs. And, according to Sean O’Dowd, a senior research analyst in IDC Financial Insights’ Global Capital Markets Advisory Service, securities firms are more interested in the cloud than even banking and insurance companies.

Greater accessibility to information and applications and lower infrastructure costs are among the key benefits Wall Street firms are looking to realize as they consider moving trade data and business applications, such as customer relationship management, into the cloud.

But there are also risks, according to experts.

First is the security risk. And, as O’Dowd notes, it’s not just worrying about losing customer data, it’s making sure the access rights to any data in the cloud are locked down tight. Companies need to make sure that no one outside the provisioned personnel has access to data, adds Larry Tabb, founder and CEO of the TABB Group. And Tabb urges companies to make sure back-up facilities are in place and working.

In addition to security, there’s an integration risk. According to Tabb, firms need to make sure the cloud services they deploy can be fully integrated into their enterprise for processing continuity and efficiency. And, notes O’Dowd, companies also need to weigh the management and operational challenges that will arise, just as they do during any major IT replacement project.

Other risks include not getting the expected applications performance, the inability to customize application, and the fact that the on-demand fees could actually wind up costing a firm more, not less, than their in-house systems.

And, of course, there’s the risk of choosing the wrong partner. You don’t want the cloud infrastructure to go bankrupt with your data and infrastructure trapped or gone completely, warns Tabb.

Granted, there are ways to minimize the risks. Taking basic steps can go a long way.  

“A search for a partner begins with structured due diligence,” Richard Sharp, Michael Kurzer and Blake Reese, associates in the Litigation Department of Milbank, Tweed, Hadley & McCloy, wrote in an article published in Traders magazine. “Examine qualifications, technology, staff, management style and past work of potential service partners. Obtain and review proposals that include detailed descriptions for any services to be provided.”

But risks can only be minimized if they can be foreseen. Perhaps the biggest risks are the ones no one has thought about yet.

“Are the challenges we mentioned real? Sure,” says O’Dowd. “Are there ones that are unknown? Without a doubt.”  

And the way to minimize the unknown risks? Perhaps the best way is to move into the cloud with a clear path to get out.

“The cloud may create a tangled web that makes terminating a relationship difficult,” wrote Sharp, Kurzer and Reese in Traders magazine. “Availability of transition services should be a consideration at the time of entering any agreement.  Ideally, services should be portable with minimal costs when moving to a new provider. The agreement should allocate costs and require the cloud to provide its full cooperation in the transition. Moreover, the cloud and the client should anticipate how transition and termination provisions could be interpreted in the event of either's insolvency.”

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