November 8, 2021
Google has purchased $1 billion of CME Group’s stock in a deal that will move the financial giant’s core trading systems to the Google Cloud. This 10-year partnership is all but guaranteed to boost Google Cloud’s bottom line, as well as improve its fourth-place market share. Google Finance calls Chicago-based CME “the world’s largest financial derivatives exchange,” trading in asset classes that span agricultural, currencies, energy, stock indexes, cryptocurrencies and more. However, the financial-services sector has lagged behind other industries when it comes to moving to the cloud, partly due to regulatory oversight and security concerns regarding client data.
The agreement will “allow CME to bring on new users faster, streamline operations and develop new tools with Google technology, such as artificial-intelligence software for monitoring market risks,” reports The Wall Street Journal.
Research firm Gartner in a June report placed Google Cloud in fourth place among cloud services providers for 2020, with a 6.1 percent share global revenue, trailing No. 1 Amazon (41 percent), No. 2 Microsoft (19.7 percent) and third-placed Alibaba (9.5 percent).
Despite a stellar 41 percent year-over-year Q3 revenue increase — the company’s largest quarterly gain in 14 years — overall profit of $21.03 billion, and a 45 percent increase in Google Cloud revenue, the Q3 report saw Alphabet’s stock price decline by about 1 percent, which WSJ attributed in part to the company’s cloud performance.
WSJ called the transaction, which sees Google taking its $1 billion equity position in nonvoting convertible preferred CME Group stock, “the largest investment Google has ever made in the financial-services industry.” Google Cloud CEO Thomas Kurian, formerly of Oracle, in an interview with WSJ characterized the move as “a reflection of our commitment to the transformation of the financial system, not just to one company’s infrastructure.”
In addition to strong regulatory oversight and security concerns, moving financial to the cloud is also technologically challenging. Exchanges like CME transact huge numbers of trades and quotes processing in millionths of a second. “If an exchange goes down, it isn’t just an inconvenience, but can have ripple effects throughout the financial markets,” WSJ reports.
CME will start moving its tech infrastructure to Google Cloud in 2022, the companies said. Initially, the focus will be on CME’s less speed-sensitive data and clearing services, but the plan is to migrate the whole of CME’s market businesses to the cloud.