CEP Emerges from Obscurity

Jeff Wootton, VP Product Strategy, Aleri

I think it’s safe to say that 2007 marked a turning point in commercial event processing technology. It was the year when CEP went from being an extremely obscure technology with very little awareness beyond the early pioneers, to a sudden explosion of awareness and interest in the commercial technology arena. It was certainly noticeable by the Aleri team. 2006 was a year of educating people on what CEP is and what it can do for them – evangelizing if you will. This year there has been very little time for evangelizing, because suddenly the tables have turned and firms are coming to us with inquiries. They have heard about CEP and have become interested in what it can do for them.

And when it comes to that final piece – “what it can do for them” – we at Aleri have been learning along with our customers about the range of different challenges that can be addressed using this technology. When we launched the Aleri Platform in March of 2006, we decided to focus our sales and marketing efforts primarily on the capital markets. While there is nothing in the product that makes it specific to financial applications, we needed to start somewhere and between Aleri’s strong history providing software and services to global banks along with the natural fit for high performance CEP in the trading environment, the capital markets made a logical starting point. Since then we have begun to expand beyond the capital markets with applications in other industries and fields such as telecommunications, security and supply chains. Our customers to date remain heavily concentrated in the capital markets, however. What’s interesting is the variety of applications being implemented using CEP technology, even within the capital markets.

So much of the buzz around CEP in the capital markets is centered on algorithmic trading, that some people simply assume that CEP is nothing more than a tool for algorithmic trading. The reality couldn’t be farther from the truth. Now certainly algo trading is one application where the benefits of CEP are clear: the ability to process market data at very high rates and the ability to run calculations against that data in real-time, delivering results with extremely low latency – this is a natural fit for algorithmic trading, whether it’s strategy trading where you are trying to spot the opportunities and act on them before they disappear, or algorithmic execution where your block trading strategy has to adapt to movements in the market and seek out the best prices among fragmented pools of liquidity. But if you look beyond algo, you will see any number of applications where CEP can be and is being applied.

One application that is getting a lot of interest lately is market depth analysis: consolidating order books from multiple exchanges and exchange alternatives to create a “virtual order book” that represents the entire accessible market for a security. This addresses the increasing fragmentation of market liquidity into multiple pools, recombining them in order to make trading decisions based on the full market rather than parts of the market. Consolidating and aggregating order books is right in the sweet spot for the Aleri Platform, particularly since it handles updates and deletes within the core architecture – a necessity when handling order book data. What’s even more interesting is that once the virtual order book is created in the Aleri Platform, it’s not just something that can be displayed, but low-latency analytics can be run against the virtual book, providing the ability to use the virtual book for algo trading or smart order routing.

Other applications include:

• Market Data enrichment: this can range from data cleansing and validation or data health monitoring, to combining data from different sources and computing proprietary values that get added to the market data record
• MiFID compliance: this can include smart order routing, factoring in all the required static and real-time dimensions into the routing decision, as well as addressing the need for collecting data for compliance monitoring and reporting. In fact, even in cases where the existing order routing technology is adequate, Aleri can be used to provide the collection and monitoring of compliance data
• Auto-pricing: implementing a pricing engine, regardless of the asset class, can allow a firm to automatically adjust their prices in step with movements in the market, reducing lag time and risk. Ability to implement proprietary pricing algorithms and short implementation times have made CEP an attractive platform for this class of application.
• Trade monitoring: whether it’s fraud surveillance, identifying and tracking problem trades, or quality control monitoring, there are a range of firm-specific applications where CEP is being applied
• Position and Risk aggregation: real-time consolidation of position and risk information across multiple trading systems and asset classes provides greater transparency and a greater level of control, without having to replace existing systems

So I hope this gives you a flavor for what we’ve been seeing at Aleri. It’s clear to us and others that CEP is a technology that’s right for the times. It can prove beneficial across a wide range of applications – which makes it challenging at times – but it’s our customers who are showing us the many ways they see to use this powerful new technology.