- Published: November 2010
CEP in Capital Markets: A Widening Remit (Brief)
- Published: June 2010
- 24 pages
While CEP was originally used as an algorithmic trading engine, financial market participants are developing new applications in smart order routing, market data aggregation, risk management and market surveillance. This report looks at that expansion of CEP's remit.
- Complex event processing technology
- Equities, FX, options.
Highlights of this title
While CEP was originally used as an algorithmic trading engine, financial market participants are developing new applications in smart order routing, market data aggregation, risk management and market surveillance.
Key reasons to purchase this title
- Gain an insight into how the CEP market is evolving thru M&A.
- See what new applications the capital markets are putting CEP to.
BRIEF CEP TECHNOLOGY PRIMER
Event processing has synergies with BI, BPM, BRMS
The two basic flavors of CEP suit different needs
Rules-based pattern matching - as the original approach to- performing CEP, rules-based approaches typically use C++, Java or Prolog (with its inferencing capabilities) to identify patterns of events. Many of these rules-based approaches use Rete algorithms that perform pattern matching and support forward chaining and inferencing. This approach is especially suited to analysis of events by dependency rather than sequence.
Event stream processing - event stream processing (ESP)- approaches use standard SQL, extended SQL, or facsimiles that claim to be "based on SQL" for processing individual or multiple sequences of events for low-latency applications while data is in movement. These approaches appeal to the mainstream of developers familiar with SQL. In many cases, higher-level visualization or model-based approaches have been applied to help business users craft their own logic for detecting complex events. Using ESP approaches, torrents of data are streamed into cache, avoiding the high-overhead I/O and indexing operations of conventional SQL databases. Types of data could include sensor data, stock ticks, network performance data collection nodes, and web clickstream analysis; data can originate from databases, sensor networks or messaging systems. ESP processes multiple streams of event data as it filters meaningful event patterns that often arrive at the rate of tens of thousands of events per second; this is what makes ESP especially suited to capital markets trading.
THE CEP MARKET IS STILL IMMATURE
FS/capital markets remain CEP's dominant segment
Confusion has limited CEP's penetration outside FS
Vendors are pursuing non-FS markets
THE COMMERCIAL CEP SECTOR IS CONSOLIDATING
MICROSOFT IS COMING!
THERE ARE NEW CEP USE CASES IN CAPTIAL MARKETS
Algorithmic trading - CEP's entrée into capital markets came via- the emergence of algorithmic trading, where an engine can be used to underpin automated strategies. In that scenario, CEP offers the ability to handle multiple simultaneous streams of data (such as market data feeds from different providers) to enable split-second trading decisions.
Smart order routing - since then, however, its remit has- broadened. The first additional use case for the technology was in smart order routing, where clearly the ability to handle multiple simultaneous streams of data meant a CEP engine could help make the decision regarding which venue to route a trade to at a given moment, particularly as it can take into account other conditioning factors, such as the fact that a given venue may discount on its fee if a market participant has a good relationship or has already passed a given volume of business that day.
Market data aggregation - equally, as the number of trading- venues has increased in different geographies, so CEP has been harnessed to enable the aggregation of market data from several sources, which is of course particularly vital in enabling strategies of market arbitrage, where a company seeks to exploit momentary discrepancies between the prices being charged at different venues.
Risk management - more recently, the sub-prime mortgage meltdown- and ensuing global financial crisis have led governments and regulators to call for improved risk management, in particular in the area of liquidity risk, with requirements for institutions to carry out intra- rather than next-day analyses. Almost inevitably, CEP vendors have sought to capitalize on such an opportunity, stressing their technology's ability to underpin multiple and even ad hoc intraday analyses of risk exposure, whether for internal operational purposes or to report to regulatory authorities.
Market surveillance/supervision - one of the most recent new- applications for CEP is in market surveillance or market supervision, the term used depending on whether it describes the activity of an actual trading venue policing trades carried out on its platform, or of a financial regulator looking at trading, potentially across multiple venues. The rationale is simple: with systematic (i.e. automated) trading driving down the average size of trades but driving up their number, keeping track of what is going on at any given moment has become an increasingly challenging undertaking, and one which CEP can help address with its ability to look at many simultaneous threads of information.
THE COMPETITIVE LANDSCAPE IS EVOLVING
Others to keep an eye on
Recommendations for enterprises
Decide whether your company develops everything in-house
If not, how much custom development does your company still want to do?
Define the use case(s) for CEP in your organization
Recommendations for vendors
Make the case for a third-party product over a DIY one
Evangelize about the broadening range of use cases
Ask the analyst
List of Figures
Figure 1: Event processing spectrum
Figure 2: StreamBase's sell-side reference architecture
Figure 3: Bishopsgate's view of potential use cases for CEP
Figure 3: Progress Apama's engine in use on the buy side