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January 2008

Wednesday, January 30, 2008

Real-Time Risk and Surveillance

Posted by Giles Nelson

Last week we heard of Société Générale and its $7B loss. Earlier this week, we at Progress announced that Turquoise, the European Multilateral Trading Facility (MTF), had selected Apama to support its market surveillance and anti-fraud operations (see the previous blog entry for more information on Turquoise). Following our Turquoise announcement therefore, a common question addressed to us has been: "how can technology, and more specifically Apama, be used for risk management and could it have prevented the SocGen loss?"

Specifically on SocGen, considering that the fraud was committed over an extended period of time and by someone well versed in the way that the bank's systems and processes operated, technology by itself certainly couldn't have prevented it. However fraud detection (as our Financial Services Authority and Turquoise customers show) and risk management is a key area where financial organisations have been investing in technology.

Trading and financial markets have accelerated substantially over the last few years. Take the New York Stock Exchange. Between 2001 and 2006 (the last year figures were available), the total number of transactions increased by nearly 400%. Such a change is happening elsewhere in the world. The total number of transactions on the London Stock Exchange for the same period increased by nearly 300%. These increases have been caused both by the total volume of shares traded going up and also by the average size per trade going down. Electronic trading in other products has also increased very substantially - foreign exchange for example.

With markets moving more quickly there is an increased need for organisations to have up-to-date information on their positions and risk exposure. By knowing when limits are breached or when markets have moved unfavourably positions can be adjusted or closed down quickly before things get out of hand. "Up-to-date" often has to mean "real-time" and with the right infrastructure, analysis and reporting technology then real-time really is possible. In particular this is where CEP technology, such as Apama, comes in.

The best known use for Apama in capital markets is algorithmic trading. Algo trading has been a cause, and a response to, the market velocity increases that have occurred. Organisations that have deployed algo trading systems are finding that their use is putting pressure on the middle-office risk function to have a real-time view on trading activity. This has led to the adoption of exactly the same CEP technology to monitor and analyse this trading activity and report in real-time on the associated risk positions. Many of our customers are using Apama for this purpose.

It is this real-time capability of CEP that appeals to both the FSA and Turquoise. As, respectively, a regulator and operator of a market they feel the pressure that comes from the increased velocity of market activity. Conventional market surveillance techniques, where perhaps activity is examined end-of-day or end-of-week are no longer viable. In fact, being able to detect abusive and fraudulent behaviour on a market is of particular importance to ensure the running of a fair market. Often such behaviour takes the form of planned, systematic and repeated interventions which are intended to move the market itself. If you can only find out what occurred days after the event then the markets have already been manipulated and the damage done. By detecting it as early as possible the behaviour can be investigated and stopped.

Can CEP technology used in this way actually create problems? A comment on the FinancialTech Insider blog makes the suggestion that having a real-time view on risk may throw up false positives and thus create more problems. Certainly this is possible, but it should be remembered that technology should always be supportive of a human-centred risk process. Only in the simplest cases will a person not be involved. In the majority of cases further analysis will need to be done and context brought to bear in order to reach a decision about what to do. The value of the technology is to identify issues and potential issues as soon as possible in order for them to be managed in a timely fashion.

Monday, January 28, 2008

Apama Wins Market Surveillance Deal at Turquoise

Posted by Chris Martins

Progress Apama, along with our system integration partner, Detica, has been chosen by Turquoise, the European multi-lateral trading facility, to deliver a real-time market surveillance system. Turquoise is funded by nine of Europe's largest banks and is essentially a new electronic stock exchange that, when it goes live this year, will compete with traditional equities venues like the London Stock Exchange.

Explicit in the announcement is how important market surveillance can be in helping to ensure an orderly market that traders can trust to be fair to all participants. Such confidence helps promote liquidity, which is the lifeblood of any trading venue. Implicit in the announcement is the value of CEP-powered, real-time market surveillance in driving the rapid detection of potential patterns of abuse or other questionable behavior. As Apama observers will note, this is the second selection of Apama and Detica for a real-time market surveillance system.  Last year, the same vendor team was chosen by the British regulator, the FSA.

There has been much press in the last week regarding the problems that can occur when proper procedures – and technology – are not in place to monitor trading behavior.  The situations are different - the problems at the French bank Société Genéralé appear to involve the Futures trades of a single trader, while Turquoise will be an equities exchange. But billions in losses certainly shine a bright light on the value of being able to monitor activities and respond quickly, regardless of the financial instruments involved. And though the motivations might differ, the value is there whether the monitoring is done by individual firms, by the trading exchanges, or by regulatory authorities.

Tuesday, January 22, 2008

Apama for Smart Order Routing

Posted by Chris Martins

Today Progress announced the Progress Apama Smart Order Router Accelerator.  This extends the core Apama algorithmic trading platform with functionality that is focused on the intelligent routing of orders to different equities markets (exchanges, MTFs, crossing networks and comparable venues.)  Accelerators leverage specific elements of the Apama CEP platform (in this instance, Apama's event processing language for the routing logic, customizable dashboards, and our breadth of connectivity), and focus those capabilities on specific market requirements. 

Our experience with existing customers made it clear that Apama can help "accelerate" the deployment of solutions that address some of the requirements within MiFID and Reg NMS for best execution.  This announcement is a follow-on to a similar one from last year in which we announced an Accelerator with a focus on FX Market Aggregation.

Tuesday, January 15, 2008

The Power of the Apama Name

Posted by Chris Martins

At Progress Software we believe that the Apama name signifies both a product and a brand identity of considerable prominence when you are thinking about CEP and, more specifically, algorithmic trading and other CEP applications.  And we've come across some third party validation of that prominence. Though it may not have not been intended that way, we find the use of “Apama” within a competitor’s online advertisement (see below) an interesting affirmation of Apama’s market leadership - and the power of the name.

Jumping on a competitor’s name by posting ads that display when the name is searched is fairly common practice.  If you do your own searching, you'll find other vendors trying to capitalize on interest in Apama. However, using a competitor’s name in the ads themselves is not OK. The Apama name is trademarked, so its usage is not allowed without permission. And, needless to say, we did not grant this competitor such permission. 

Also unacceptable is the highly inappropriate tactic of making the word “Apama” a link to the competitor’s site.  That's WAY out of line.

Until this is remedied we'll have to trust that those who are sophisticated enough to be investigating complex event processing are likewise sophisticated enough to see through such tactics.   These kinds of marketing gambits really don't advance the interests of anyone.

If you're interested in Apama, we can be found at www.progress.com/apama.   

As you can see in the picture, it’s the name at the top.



Monday, January 07, 2008

Apama and Sonic Win Technology Innovation Awards

Posted by Chris Martins

Progress products have won two "Leaders in Innovation" technology awards in wholesale transaction banking by Financial-i magazine Financial-i.  As judged by a panel of industry experts, Apama  won the award for CEP products and our fellow Progress product, Sonic, won for  Enterprise Service Bus.  Financial-i notes that the awards are for technology leadership demonstrated over the last 12 months, which the magazine judges to be "an ongoing commitment to innovation....built on previous innovations to stay ahead of their competitors." 

Wednesday, January 02, 2008

Dr. John Bates on Fox Business News

Posted by Chris Martins

As readers of this blog know, Apama was chosen by the UK regulatory agency, the Financial Services Authority, to provide the CEP technology that delivers real-time market surveillance as part of the the FSA's SABRE II project (FSA/Apama Announcement). In a recent interview by the Fox Business Network, John Bates discussed how Apama can be used to detect patterns of suspicious trading behavior - much like Apama is so often used to identify and respond to market patterns in support of algorithmic trading applications.  The link below will take you to the Fox URL that plays the video.

Fox Business Interview with Dr. John Bates