UCX cloud trading based on metering
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Recently brokerdealer.nl has been looking at cloud exchanges. In IT It has become common to use hosted "cloud" servers to run applications rather than building an infrastructure. This saves money and adds flexibility. The next logical step is having trading venues in place for these cloud computing resources. Cloud exchanges are where cloud computing resources are traded.
We had a more detailed look at the Universal Compute Exchange (UCX) in Chicago. UCX was founded by an experienced team with the assistance and support of CME.
Metering is the key
The idea behind UCX is that trade-able cloud computing should be centered around consumption of resources. A metering mechanism is required, much like a power meter, to facilitate trading centered around consumption.
A huge difference between power and cloud computing is that power is pretty much the same everywhere, while cloud solutions differ from supplier to supplier. This means a standardized unit is required to compare the capacity of different solutions. For this unit, UCX has selected the Workload Allocation Cube (WAC) by 6fusion. The WAC/hour number can be calculated for usage on different cloud computing environments.
Calculating a WAC
For the actual measuring of the consumption of these resources, UCX selected the UC6 platform, also by 6fusion. This combination of a metering system and a universal usage unit allows for objectively and uniformly quantifying usage.
The market
UCX provides the central price discovery mechanism to give both suppliers and end users a transparent efficient marketplace. This marketplace is easy and relatively simple to access for cloud users. To start trading the registration is straightforward. However, to make cloud trading a success, some effort is required. A user should not jump in and start trading. The right start is metering current usage and understanding how much resources (expressed in WAC) the user needs.
For suppliers, the process requires more work to on-board. The solution provided needs to be assessed and a baseline in WACs must be established. Also an additional assessment of to the quality and security of the supplier needs to be done.
The ucx user interface
The market uses an RFQ model, much like an OTC market. Users can enter an interest and the suppliers provide quotes. The platform provides a user interface to enter RFQs and present the quotes.
Cloud resources are both bought and sold. This provides users with a way to optimize the cost of cloud resources by selling unused capacity. Currently, buying and selling applies to resources at a specific vendor. There is no universal delivery mechanism to make it supplier neutral. Still this ability is an interesting proposition to both IT and finance managers.
Today delivery happens in a choice of two delivery points (regions): US west and US East. UCX plans to introduce 10 more delivery points in the United States in the coming 18 months.
Early success
The Cloud computing industry has grown and evolved enough for the the UCX to make perfect sense. Users range from (Fin)Tech start-ups, who need flexible cloud resources, to enterprises who migrate into the cloud and find themselves owning excess resources which they sell off.
UCX launched for the general public in September and has attracted 14 members who have already traded over 2 million WAC. More members are expected to start in January. UCX wants to at least quadruple volumes next year. Outside the United States, the UCX has already been noticed., resulting in The India Compute Interchange which has been launched in cooperation with the UCX.
Where to go from here
Now that the UCX has been established, more delivery points, including expanding into Europe are necessary. This expansion will be needed for continued success. Introducing more products can mature the Exchange, for example more delivery points and a healthy volume can lead to a cloud index to be introduced.
A cloud index can drive the introduction of new futures and options based on this cloud index. These new derivatives open the door to new and exciting trading opportunities for users, suppliers, funds, and proprietary traders. In time the emergence of an external regulator for the currently unregulated market will signal a new level of maturity of the concept.
Conclusion
The UCX has succeeded in building a functional cloud exchange with a lot of potential. The vision of extending UCX coverage and introducing an Index will be beneficial for the IT industry and the trading world.
For this to happen, UCX will have to live up to the ambition and succeed in extending the delivery points and attract enough volume to become the benchmark. Brokerdealer will follow the developments with a keen eye.
