Nasdaq OMX FinQloud R3 Meets SEC/CFTC Regulatory Requirements, Say Consultants

Many financial services organizations initially delayed cloud technology deployments because of fear over security, regulatory compliance or both. As the technology has evolved, security has improved and costs decrease, more and more firms are evaluating and even deploying cloud-based solutions.

Recently, cloud solution providers are reporting that more financial services organizations are adopting cloud-based technology, as compliance concerns are addressed and as firms get more comfortable with adopting cloud.

For instance, to address compliance and regulatory concerns of capital market leaders when it comes to cloud technology. Nasdaq commissioned two studies of its Nasdaq OMX FinQloud Regulatory Records Retention (R3) product. Nasdaq OMX FinQloud, powered by Amazon Web Services (AWS), is a secure, cloud computing platform designed for the financial services sector. The platform, according to Nasdaq OMX, helps firms reduce the operational costs and complexities associated with data and infrastructure management -- enabling more effective deployment of resources. FinQloud combines AWS’ cloud computing expertise with enhanced security from Nasdaq OMX to provide efficient management and storage of financial data mandated by regulation.

The two separate studies both concluded that R3 met the requirements and was compliant with the Securities and Exchange Commission (SEC) 17a-3 and 17a-4. SEC Rule 17a-3 requires that broker-dealers retain certain records such as customer account ledgers, income ledger, trade blotters and trade confirmations. Rule 17a-4 specifies the manner and length of time these records are to be stored. One of the studies also found that R3 fits the definition of “electronic storage media” as defined by the Electronic Code of Federal Regulations, entitled “Books and records; keeping and inspecting”, which is enforced by the Commodity Futures Trading Commission (CFTC).

The studies were completed by Jordan & Jordan and by Cohasset Associates. Jordan & Jordan has concluded that R3 provides the tools to meet the recordkeeping requirements of SEC Rule 17a-4 and CFTC Regulation 1.31. Cohasset Associates assessment also concluded that the architecture and capabilities of R3, when properly configured, meet the requirements of the relevant conditions of 17a-4(f) and CFTC Regulation 1.31(b)-(c).

If you look at any other storage solution on the market, all of the providers go out and get these type of studies completed," says Scott Mullins, managing director of Nasdaq OMX's FinQloud offering. "The boards of directors of financial firms need something that they can point to to show that it the technology meets the regulatory requirements. Jordan & Jordan has a strong legacy in the industry and Cohasset is the preeminent provider of reviews for records management technology."

With the validation of the R3 solution by two different studies, Mullins says that R3 should be considered by firms who are looking to get a handle of records retention costs. "The largest pain point in the industry today is cost," Mullins says. "Money is hard to make and everyone we speak to is concerned about how to reduce costs."

Mullins describes R3 as a tool that can reduce costs for record keeping and compliance. R3 is also a technology that should fit in well with a firm' future technology blueprint. "All across the spectrum, financial firms are beginning to rearchitect their technology for the future," he says, "If you look at the back office ... the guts of the technology architecture … the technology is typically very old and it is a hodge podge of older systems, purchased applications and home-grown technology. A lot of firms are looking at it and saying they need to rearchitect it. They need help."

In addition to potentially lowering records and retention costs, according to Mullins, R3 is also a solution that compliance officers can use without having to rely on developers and analysts. "We designed our solution around simplicity," Mullins claims. "So compliance officers don't need a heavy technology background or a team of business analysts to do a query." Mullins says that R3 is simple to use and that Nasdaq took an "Apple like" approach to the query tool. "With Apple, everything is plug and play. We are trying to make R3 plug and play so a compliance officer can go in and quickly retrieve what they need." Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio