When Wall Street is bustling with trades, banks that want to scale up will shell out $10,000 for a new trading phone and desk. Adding a floor? That’ll run you $500,000, says CEO Jerry Starr. The same costs will come up if a company needs a second trading floor to protect its business.
Starr’s company, Cloud9 Technologies, believes there’s no need for a phone anymore when traders can use something easier: cloud computing. His two year old startup claims to have an app that can handle those same calls and add security and compliance. And while the market is still early, Cloud9 is gaining the support of the financial establishment with each dollar it raises.
The latest firm to stand with Cloud9′s app is billionaire Steven Cohen’s firm Point72 Asset Management. The firm, which employs more than 1,000 people and manages $11 billion in Cohen’s assets, invested in Cloud9 directly through a new startup-investment unit called Point72 Ventures and is rolling out the product in its expansion into new offices in Europe and Asia. The investment closes out a $30 million funding round led by JPMorgan and including Barclays and ICAP.
Their backing represents a gradual acceptance of trading by app, Starr claims, centered around security concerns and the ability to recreate a trade that goes bad. Cloud9 started out with energy traders who have the lowest thresholds for security and compliance, then moved to brokers. “Now we’re moving up the food chain,” Starr says. “The last will be the tier 1 banks.”
That’s historically proven a challenge to contenders looking to break through the status quo of voice trading, which in may respects still operates functionally as it did when the fictional Gordon Gekko would have been building his trading empire.
What Cloud9 can mean for Wall Street in the long term is a customizable flexible trading setup that could eliminate the need for some trading floors as employees can work wherever their institution allows. JPMorgan, for example, put the company through 40 demonstrations before implementing the service, and has it turned off outside their office. Were a natural disaster to strike, the bank could simply turn on remote trading and keep its employees home or in areas with power and internet connections with little more than flipping a virtual switch.
Point72′s significance in the consortium backing Cloud9 has more to do with how communications will evolve between the buy-side and the sell-side, the firm says, and it will look to make more investments in that category. “The financial services industry has had a lack of true innovation for decades around telecommunications,” says Pete Casella, co-head of the Ventures wing of Point72 and a former executive at JPMorgan, where he’d become aware of Cloud9 and its potential (Point72 was already separately looking at the technology, too). “We were blown away by Cloud9’s ability to solve so many of the structural and technical problems plaguing trading desks.”
While companies could see benefits in their recording of trader interactions for compliance, Starr stresses the flexibility of not being bound to a phone. “Not needing this big trading telephone desk in front of you, the space you save alone is huge. All you need is a secure internet line.”
Point72 Ventures, the venture arm of billionaire Steve Cohen’s investment firm, has joined a consortium of investors in backing a New York-based fintech startup that helps trading firms replace their legacy telephone systems with a cloud-based application.
Cloud9 Technologies has raised $30 million from the group, which includes existing investors JP Morgan, Barclays and Icap, it said on October 12. Trading firm Hudson Ridge Asset Management, one of the startup’s early clients, also joined the financing round.
JP Morgan, Icap and Barclays made initial seed investments in the company in April.
The new money will be used to help Cloud9 extend its offering to investment banks and move into new markets. It recently opened an office in Singapore.
Running in a similar way to the popular voice communication app Skype, Cloud9 technology provides a cloud-based desktop service that replaces the phone systems traditionally used by traders. It is supported by Amazon’s cloud infrastructure, which has been growing in popularity among large financial institutions.
Jerry Starr, the chief executive and co-founder of Cloud9 Technologies, said: “The problem is traders use very expensive telephone systems, the lines are very convoluted. We said ‘let’s take a fresh sheet of paper and figure out how to solve the problem’.”
Cloud9 claims its product is around 50% cheaper than the traditional phone-based systems, is more secure and offers better audio quality.
Michael Intrator, president and CEO of Hudson Ridge Asset Management, said in a statement: “We have been using Cloud9 since the beginning. We chose to invest in Cloud9 because the technology has been reliable, and transformative for us.”
Launched in 2014, the startup initially serviced energy traders and later expanded into the interdealer-broker market. It now has around 2,700 users in more than 29 countries and recently launched a new feature connecting Cloud9 users to trading counterparties not using the system.
The move comes as capital markets firms warm to the idea of moving their applications to public cloud providers, such as Amazon Web Services. Goldman Sachs is an investor and a client of Bracket Computing, a startup that provides an additional security layer around public clouds.
Richard Kerschner, chief corporate development officer of Icap’s post-trade, risk and information services division, said in a statement: “The rapid growth of Cloud9 since the company’s launch in 2014 has paralleled the industry’s adoption of cloud technology and we’ve seen the opportunity to extend the platform’s benefits into areas such as workflow, compliance and advanced analytics.”
There are over seven billion people in the world, connected like never before through a global communications network. They have access points across the planet through wireless coverage and broadband in their homes and communities. Google and Facebook are putting balloons and drones over remote regions to deliver Internet access to rural locales.
Over one billion people carry smartphones and nearly three billion have access to the internet. We connect to each other through our mobile numbers, Skype, SMS, WhatsApp, Messenger, Viber, Snapchat, and hundreds of other methods downloadable in app stores — with such connections being created immediately, as easy as the submission of a “friend” request or the entry of a username. We take for granted that anyone over the age of 35 grew up in homes with a single landline and that the Skytel pager was a revolutionary experience in their lives. Today, more than ever, there is a clear expectation in the consumer space of ubiquitous, instant, and ever-improving communications.
The global equity markets trade over 300 billion shares of stock a day. The foreign exchange market trades over $5.3 trillion in currencies daily. Over $30 billion of corporate bonds change hands per day in the US alone, and the sovereign bond market trades hundreds of billions each trading day as well. Advanced telecommunications have moved a significant portion of this global liquidity into a machine-to-machine paradigm. Yet there are still hundreds of thousands of people working across banks and investment firms that need to pick up the phone and talk to one another in order to trade.
However, in an era defined by smartphones and HTML5 applications, the professionals that control the global money flow predominantly use a single device for their daily voice communication — a trading turret. It’s a giant phone that resembles a switchboard on a trader’s desk — but costs $10,000 — and plugs directly into a series of expensive private lines. Each button on the turret connects a user directly to a single trading counterparty. Unlike the communication technology in the consumer space, the trading turret is not portable, it is not instant (as connections can take days to weeks to establish) and it has improved little in decades. The trading turret looks more or less the same today as it did it in the 1980s. In fact, many of today’s trading turrets are based on technology that is forty years old.
The standard trading turret has changed very little since its introduction in the 1980s.
In spite of the trading turret’s outdated technology and functional limitations, the financial services industry spends an estimated $1 billion-plus per year buying, replacing and supporting these devices. Why? Electronic communications policies for the financial industry are intense and do everything except embrace the technology of our modern communications era. The mantra one so often encounters nowadays in financial services is, “Why mess with something that works — no matter how antiquated?” However, this is no longer an option. Given the increasing demands for better compliance across all communications channels, renewed focus on cost reduction, along with the need for better features and functionalities, it is time for voice communications in the financial services industry to modernize.
We are announcing today our investment in Cloud9 Technologies, the company we believe will transform the way the financial markets communicate via voice. Our team at Point72 Ventures will partner with some of the most prestigious banks and brokers in the world to usher in a new era for front, middle, and back-office trading communications, analytics, and compliance.
Cloud9 provides a cloud-based voice communications platform with more functionality than the incumbent turrets at a fraction of the cost. It provides operational agility for today’s mobile workforce, dynamic disaster recovery, API access to other analytics and communications applications, true BYOD potential, interoperability with legacy trading turrets and an array of other technical and operational benefits. In short, the trader workflow is about to undergo a dramatic improvement. The founding team led by CEO Jerry Starr helped develop the industry’s original turret systems, and are now back to lead the industry into the digital and mobile era.
We at Point72 Ventures and our parent Point72 Asset Management are excited to play our role in helping the industry, our peers and counterparties finally realize the benefits of the modern world of communications.
Cloud9 Technologies, a cloud communications service provider that delivers high performance voice and collaboration services for institutional traders, announced today the close of a $30 million funding round.
Finance Magnates previously reported on Cloud9 in April after the firm announced a series A funding round from a consortium of financial institutions to help it expand its cloud-based voice trading communication solutions globally.
The latest round was led by JPMorgan Chase with ICAP, Barclays and Point 72 Ventures and also includes individual participation by the principals of several leading trading firms, including Hudson Ridge Asset Management, one of Cloud9’s early customers.
Gerald Starr, CEO of Cloud9 Technologies commented, “We are thrilled to welcome Point 72 Ventures and our other investors as we continue to build a technology that acts as a catalyst in terms of changing the communication and process around trading”.
He continued, “Cloud9 has ushered trader communication into the modern age, while bringing mobility, enhanced compliance and security, and more agile communication to the industry. With the close of this round, our team is poised to continue development of products and services that will change the way the financial industry and enterprise businesses communicate and collaborate.”
To date, over 2,700 users in 29 countries have adopted Cloud9 which has proved popular among financial services professionals due to the platform’s ease-of-use, mobility features, strong value proposition and interoperability with other solutions.
Rick Smith, Head of Private Investments at JPMorgan Chase added, “Cloud9’s technology inspired us to revisit our trader voice communication strategy and related workflow. We believe that Cloud9 will empower traders through its ease of use and management, while improving efficiency, enhancing compliance and reducing communications costs.”
Expansion Plans
Cloud9 will use the funding to support innovation, accelerate the development of several products in great demand by its customer base and expand the service offering into new markets.
The firm also recently opened an office in Singapore to meet growing demand in the Asia Pacific region and has plans to expand operations in other markets by early next year.
The rapid growth of Cloud9 since the company’s launch in 2014 has run in parallel with the industry’s adoption of cloud technology. Cloud9 exploited the opportunity to extend the platform’s benefits into areas such as workflow, compliance and advanced analytics.
Background
Cloud9 connects counterparties across all asset classes via a cloud-based communication platform that features end-to-end security, encryption and advanced compliance capabilities, eliminating the infrastructure and expense associated with legacy hardware and telecommunication based solutions.
July saw the launch of Cloud9’s Gateway Service, which connects Cloud9 users to their counterparties, even for those not using the Cloud9 application. This interoperability gives traders and brokers an edge, allowing them to connect with counterparties that they otherwise might not have had access to via the Cloud9 community.
“We are thrilled to welcome Point 72 Ventures and our other investors as we continue to build a technology that acts as a catalyst in terms of changing the communication and process around trading,” said our CEO, Jerry Starr.
“Cloud9 has ushered trader communication into the modern age, while bringing mobility, enhanced compliance and security, and more agile communication to the industry. With the close of this round, our team is poised to continue development of products and services that will change the way the financial industry and enterprise businesses communicate and collaborate.”
Point 72 Ventures’ participation comes as part of their strategy to invest in firms that will both give them an edge and generate returns.
“We believe Cloud9 is an emerging leader in transforming the way the buy-side and sell-side communicate across the capital markets,” said Pete Casella, Partner at Point72 Ventures. “We are excited to partner with Jerry and his team to help attract more of our peers and trading counterparts into the Cloud9 ecosystem.”
Cloud9 has developed a popularity among traders and other financial services professionals who cite the platform’s ease-of-use, mobility features, strong value proposition, and interoperability features as giving them an advantage, allowing them to quickly connect with counterparties and conduct more efficient business.
“We have been using Cloud9 since the beginning,” said Michael Intrator, President and CEO of Hudson Ridge Asset Management, LLC. “We chose to personally invest in Cloud9 because the technology has been reliable and transformative for us. We believe that the company has a future that extends beyond creating an integrated lifecycle around trading communications and beyond the finance industry.”
We will use the funding to support our ongoing innovation – accelerating the development of several products in great demand by our current customer base as well as expand the service into new markets beyond the trading floor. Following the recent opening of our Singapore office, we also plan to expand operations into other global markets by early next year.
ICAP’s participation was led by Euclid Opportunities, ICAP’s investment arm focused on emerging fintech companies.
“The rapid growth of Cloud9 since the company’s launch in 2014 has paralleled the industry’s adoption of cloud technology and we’ve seen the opportunity to extend the platform’s benefits into areas such as workflow, compliance and advanced analytics,” said Richard Kerschner, Chief Corporate Development Officer of ICAP’s Post Trade, Risk and Information Services Division. “Cloud9 is best positioned to provide next generation solutions that will create improved efficiency and additional benefits for traders, brokers, and other financial market players.”
The closing of this investment demonstrates the confidence in our modern, cloud-based technology that is transforming the communication experience for traders, IT Managers and their teams.
Cloud9, a cloud communications service provider, announced this week the hiring of German Soto Sanchez as Global Head of Corporate Development. The former Executive Director of Strategic Investments at JPMorgan Chase & Co.JPM 0.02%, called the move to the Software-as-a-Service company a “no-brainer.”
“This was one of the most compelling opportunities I’ve come across in terms of disrupting and transforming an entire industry market,” Sanchez said.
Old, Expensive
Cloud9 is focused on changing the traditional connection between traders. Today, institutional traders use a device called a trading turret to communicate with other traders in order to execute trades. Although trading turrets have been the norm for the past 40 years, there are a number of reasons this specific area of Wall Street is ripe for innovation.
Because turrets require special hardware, they can cost as much as $10,000 and can take weeks to set up. They’re also stationary, which eliminates the ability to trade away from the desk.
“You’re basically depending on the phone company,” said Sanchez. “It’s all based on 40-year-old technology. It makes no sense to rely on traditional copper wires and for the equipment to cost as much as it does.”
This connection between traders is crucial, especially when hundreds of millions of dollars are exchanging hands.
Cloud9 software provides institutional traders with tools they need to execute voice trading through the cloud and to connect with their trading counterparts with ease.
“We are able to create these connections in a matter of seconds, not days or weeks. And we’re able to do so with no additional cost,” said Sanchez.
How it Works
It works like this: Instead of using a turret, traders can simply download the software and run it through and traditional hardware they own. And unlike turrets, which cost more for each new line, Cloud9 software offers unlimited lines for one fixed price.
The move from phone-based trading to the cloud has been met with resistance by this compliant-heavy industry; Traditional banks are starting to come around to replacing a system they are so used to.
Sanchez continued, “I think what you’re seeing is no longer a debate as to whether or not having a turret on the cloud makes sense. People are now getting comfortable with that. A report came out that states within five years the turret will be dead. Yes, there was some resistance to the cloud, but what you’re starting to see now is comfort. It’s people saying ‘Hey, this works.’”
Cloud9 now boasts over 350 clients in 26 countries, including JPMorgan, Barclays, Eclipse, iCap. Sanchez thinks that’s only going to increase as more banks come around.
“The challenge with banks is they have heightened security and compliance needs. And that’s what we’re going to deliver to them,” he said. “It’s just something that hasn’t existed in the past. We’re being very methodical about it. We want to make sure that we think about the right solutions.”
