Real-Time Risk and Reward: CEP Outside the Algorithmic Box
Complex Event Processing (CEP) has been building momentum in capital markets over the past two years as firms have sought ways to process, correlate and analyze high-speed data and events for organizational intelligence. Though a number of early CEP implementations have occurred in traditional equities algorithmic and strategy trading, the high number of CEP success stories in algorithmic trading left many with the impression that this is the only or primary practical application of CEP in capital markets. In actuality, there are many instances of CEP moving into other areas of capital markets.
MORE THAN ALGORITHMIC TRADING
The capital markets are, of course, a natural place for a technology that is fundamentally based around the idea of processing data and relating that data in a logical, temporal, ultra-fast way.
Going forward, we will see the application of CEP in the capital markets really take hold and become widespread, not just in the realm of algorithmic trading, but far beyond. Various financial institutions have already migrated CEP technology outside of algorithmic trading, coming up with outstanding solutions. Some completed projects include:
- Data Quality Monitoring. Working with a ticker plant provider, one firm leverages CEP to calculate latency in their market data messaging infrastructure. This allows them to identify latency bottlenecks, switch feeds from different providers based on speed, and make trade-related decisions based on latency.
- Participant Monitoring on a Block Trading Network. The community leverages CEP to enforce the rules of membership. One such rule involves ensuring that traders honor trade matches and partial matches in the network instead of using their block to expose positions held by competitors, then breaking the trade.
- Algorithmic Trading – Scenario Testing. One trading desk employs CEP to acquire option and equity trade data to test hypothetical variations in trade algorithms. CEP allows their Information Technology (IT) team to code a base set of calculations with parameters the traders can dynamically run and monitor. This process speeds time to production for effective trading strategies.
- Real-Time Foreign Exchange (FX) Pricing. One hedge fund processes FX and derivatives market data into their portfolio and trading systems for both risk management and trade opportunity identification.
In addition to these implementations, Aite Group details two more examples of where companies have opportunities with CEP technology in this report. As a testament to the possibilities of CEP beyond the institutional trading desk, the first case highlights a retail discount broker targeting inexperienced options traders with a desire to learn. The second case illustrates how firms can insert CEP engines into existing technology infrastructures and enable real-time capabilities where end-of-day and intraday processing existed before. In this example, CEP enables the firm to see risk as it occurs rather than after. For this study, Aite Group interviewed Coral8 customers we felt were leveraging CEP in new and interesting way. The illustrations above and detailed cases are just a few of the many paradigms capital markets firms can draw from to explore the potential of CEP in their business needs.