The buzz and hype around cloud computing is practically deafening. However, despite all of the talk, users are still confused about the definition of cloud. But most important for the capital markets: cloud vendors still don't "get it" when it comes to the regulatory and compliance concerns that most firms face on a daily basis. In fact, many capital markets executives feel that cloud vendors don't grasp the the magnitude and severity of their security demands.

The results from a recent Wall Street & Technology Cloud Computing Survey (download here) and the following report from the Innovation Councils, a group of senior capital markets technology executives founded by Julio Gomez, echoes the concerns.

For the real scoop about what capital markets executives are saying about cloud computing, read Gomez' take from the recent Innovation Council meeting that took place this past weekend ...Building a Cloud Strategy It's amazing what can happen when industry leaders lock themselves in a room for two days and don't come out until they have an approach to building a cloud strategy. That's what just happened this week here in Palm Beach, where executives convened for the Cloud Innovation Council: Capital Markets 2010. The firms represented were leaders in investment banking, sales, trading, asset management, and custody, and Council members had a variety of roles from CIO to audit to infrastructure to application architecture. And everyone came to talk Cloud. There are a number of findings from the two days of sessions that we can share here. After a thorough thrashing of "cloud hype," the group worked through myriad business issues, both internal and external, to arrive at several building blocks necessary to pursue the perceived benefits of cloud technologies and services: 1) Prepare to educate vendors: While cloud evangelists are among the best and brightest in tech, and even if they are long-time providers of solutions to capital markets, they likely have no clue the number of hoops you have to jump through for internal audit and compliance. And they may not know it, but your protocols and affirmations now need to be mirrored by them. Getting IT and regulatory executives together to explain necessary controls and transparency to vendors is an essential precursor to adoption of these services.

2)Liability and indemnification are a major disconnect: Reputation risk is at the top of the concerns that firms have. Vendors in the cloud space have not yet grasped the magnitude of this issue. And their standard liability and indemnification language is completely insufficient to get firms to use their services.

3)Nail down your authentication and federated identity capability: Many firms continue to face challenges in this area, and are being force to deal with it as part of internal shared-service initiatives. Taking advantage of cloud-based offerings is severely limited without strong management of this function.

4)Identify lowest risk, lowest value areas for initial forays: Council members are understandably reluctant to put sensitive customer data out in the cloud. But email archiving? Or even non-strategic software development? There are many areas with clear ROI arguments that can be considered for testing in the short-term.

5)Get your physical infrastructure organized: Data center consolidation, virtualization, and the move to cloud services all have physical infrastructure implications. Firms are all over the map in terms of managing physical infrastructure in the face of these initiatives.

Many other areas were covered, including ROI calculations, internal politics, reputation risk, liability, and others. It is clear that there is a lot of value in discussions like this, and that the planning that goes along with investigating cloud-based services is strategic. It would not be wise to dismiss Cloud Computing as hype. It is a catalyst for sweeping discussions about operational efficiency and excellence. And something on which vendors have a way to go before they can sell to the industry. About the Author: Julio Gomez, is co-founder of Innovation Councils and previously founded Gomez Markets, a strategy consulting firm specializing in financial services technology. Prior to Gomez Markets he was Global Head of Research at Financial Insights/IDC, providing extensive research and consulting services to users and providers of financial industry technology. Mr. Gomez is widely known as the founder and CEO of Gomez, Inc., the de facto standard for measuring Internet services quality, which recently sold to Compuware. He is a frequent keynote speaker on market trends and strategic initiatives in financial technology, and has developed content for major financial services technology events. Institutional Investor named him one of Wall Street's "50 Most Influential People" and Time Magazine listed him among the "Fifty Most Influential People Shaping Technology." He has been interviewed for his expertise by numerous print publications and by radio and television networks. Mr. Gomez is a graduate of Princeton University.