Introduction

The proliferation of low latency data feeds supporting the growing algorithmic trading market is one of the main drivers for what many people are calling CEP. The extent to which CEP platforms are actually being used and installed within the financial industry is fiercely debated between various reports, press releases, conferences and blogs.

Ultimately, CEP is the process of collecting related and unrelated real-time and historical data and events. Business logic is then applied to those events to detect patterns and conduct analysis.

In algorithmic trading, banks can use CEP, to monitor trades and calculate risk on a real-time basis supposedly allowing for real-time hedging. However, there is some evidence that CEP is being used for risk monitoring, fraud detection and surveillance as well. Last year the US Financial Services Authority (FSA) installed the Progress Apama event processing platform to power its SABRA II transaction monitoring and market abuse detection system, for example.

Despite this, there are some who argue that the promise of CEP does not translate into a good enough business case for the installation of CEP.

Parallel to the activity around promoting CEP, there is a reality within banks dealing with requirements to analyse real-time information and to feed the incessant demands of algo trading engines.

Key findings

• Banks are starting to use CEP for feeding data into algorithmics trading systems as well as for finding dealing opportunities and trading pairs across asset class.
• Risk monitoring, fraud detection and surveillance are also growth areas for CEP.
• CEP installations at banks tend to be localised and seen as experimental rather than main stream technology.
• The costs and infrastructure issues surrounding CEP development may not be fully understood by bank staff interested in ‘cool’ technology.
• Streaming SQL, although well-used, may not be the best language to develop CEP engines.

Conclusion

Ultimately, CEP is not an off-the-shelf application; its benefits rely on being tied into a firm’s internal business model. The technology of CEP enables business rules and logic to be realised for use in functions such as algorithmic trading and surveillance. It is no wonder that the financial industry is interested in using this technology to find dealing pairs, monitor risks and detect fraud.

However, as with any ‘cool’ technology there is a tendency for its hype to overpower the realities of developing, installing and maintaining a relatively young IT environment.

The emergence of third party vendors, Apama, Aleri and Streambase among others, it is evident that there is a market for CEP in the financial services. However, most agree, while the talk around CEP will continue for some time, any real, mature market penetration will probably not happen any time soon.

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Tagged with: 2009, technology, Technology Research Report