Event Processing blog

Déjàvu all over again?

It is fair to say that High Frequency Trading (HFT) is a divisive subject at the best of times; for every expert claiming that it benefits markets in the form of liquidity provision, tighter spreads etc, you can always find another who claims that it poses significant dangers and creates a 2-tier market. Whatever the truth, it appears that there are an increasing number who subscribe to the latter point of view, with the aim of excluding HFT from the market altogether.

I wrote previously about recent declines in trading volumes as an indicator that the HFT “backlash” is having effect. HFT is the unpopular kid in the class no-one wants to sit next to. Witness the recent spate of announcements of new venues that explicitly exclude or penalize HFT and its practitioners. In the FX space we’ve heard about

Mako FX’s plan to build what it calls the fastest trading platform in the wholesale FX market, and more recently the launch of a new venue called FXSpotStream backed by 6 major FX banks who will also be the primary liquidity providers. 

This all gives a real sense of déjà vu, bearing in mind that the EBS FX market was started by a bunch of banks to provide a private inter-bank market, before they let the sharks in and ruined the party. It seems that EBS themselves are now having second thoughts. This highlights something I’ve been saying for some time with regard to HFT; namely, that the market is well equipped to take corrective action if participants care enough, without knee jerk recourse to poorly thought-through regulation. Commercial imperatives will force balancing actions once the pendulum swings too far. This trend is not confined to the FX markets – see CA Chevreux’s launch early this year of Blink, a Dark Pool for European Equities that excludes HFT.

Besides excluding or penalising the HFTs, another "balancing action" I'm seeing is the rapid rise of smart FX execution algos. Our customers have been using traditional VWAP and Percent of Volume style Algos with our Progress Apama FX eCommerce solution for some time, but more recently customers have been telling me how they've had to adapt these algos and build more sophisticated variants, to avoid signalling risk and defeat the HFTs.

This trend to smart algos follows closely what we've seen in the equity and exchange-traded futures markets previously. If it seems like we're re-treading old ground here than that's hardly a surprise - fashions come and go.

But right now it certainly seems that HFT is rapidly running out of friends to play with.

Tune in to our P&L Webinar  “FX Aggregation without the Aggravation” tomorrow to hear more. If you're attending P&L's 2012 Readers’ Choice Digital Markets Awards and Hall of Fame dinner in NYC on Thursday May 31, stop by the Progress Software table to learn more about the Apama FX eCommerce solution. 

Can market surveillance help to keep traders on track?

By Richard Bentley, Vice President, Capital Markets, Progress Software

There’s no doubt that today's high speed capital markets and cross product, cross market trade volumes mean regulation struggles to keep up with changes in the market.  MiFID II is an example of a financial regulatory directive that is seen by many as lacking real detail and remaining open to interpretation - and misinterpretation. In a panel discussion at the TABB Group Trading Surveillance event in London on last Wednesday evening, industry experts agreed that, in Europe at least, few financial services firms are afraid of regulators.

So as many new regulations remain wooly, ignored or have yet to be implemented - or in the case of ESMA (the European Securities and Markets Authority) the regulation is simply statements of clarification – the panel was asked how surveillance and risk is going to be managed moving forward? Questions were also  raised about the regulatory burden in the future and whether those outside of the "Big Five" would be able to resource the demands for growing compliance departments. Will this lead to an uneven playing field?

According to TABB Group new compliance costs are indicated at between 512 and 732 million euro, with ongoing costs between 312 and 586 million euros.  But while regulators are still determining what regulation will look like, the need for market surveillance is undiminished. Traders made about 13.3 billion euros ($18.2 billion) from market manipulation and insider dealing on EU equity markets in 2010, according to an EU commission study.  With some arguing that firms can only do so much to survey markets themselves as trades cross multiple brokers and gateways, the panel discussed the need for fragmented market data to be brought together in a consolidated tape and surveillance performed at an aggregate market-wide level. 

With respect to High Frequency Trading, there was discussion and agreement that pre-trade checks should be built in and regulators should be feared, as in some Asian markets where some market participants adopt a mindset that constantly asks "will I be allowed to trade today". That "Fear Factor" is key and there isn't fear of regulation yet in Europe.

The timeliness of market surveillance was discussed with the panel suggesting that transactions should be monitored retrospectively, but also in real-time as they happen. Clearly, there’s still a role for historic analysis of the market as some abuse takes place over an extended period of time and new abuse scenarios are discovered which can then be applied to historical data. It’s a little like having your DNA stored on file for a time in the future when forensic techniques improve. But there is also no doubt that the need for real-time surveillance to spot manipulation as it happens can be a significant factor for organisations looking to protect themselves and the market, which is one of the reasons it is mandated by Dodd-Frank and MiFID II.

Finally, the panel discussed how turbulent markets and highly publicised breaches of banking controls have demonstrated the importance of protecting market integrity. So while an increase in the complexity of market surveillance inevitably leads to an increase in cost, the panel felt that the punitive and reputational risks associated with surveillance failures justify the business case for improving compliance training, processes and technology.  After all, just as you wouldn’t expect the police to prevent all crime by themselves, it’s clear that investment is needed in surveillance technology to give the regulators a helping hand.

Progress Revolution Session Sneak Peek: Transforming Your Bank to Become Operationally Responsive

Within the banking industry today, we’re observing a significant expansion of choices available to customers, and subsequently loyalty to the primary bank is eroding. What specifically is driving attrition? 

Results from a 2011 customer survey conducted by Capgemini show that “quality of service” and “ease of doing business” are the factors that most strongly influence a customer to both initially select AND leave a bank.

What does this mean for a bank conducting business in the current competitive landscape? It means that connecting with your customer at the right time and right place is critically important. The question that remains is exactly how this seamless connection between the organization and the customer is achieved in the real world.

Immediacy is the critical overlay, and immediacy is achieved through real-time data capture and reporting translated into highly targeted, more relevant offers. Real-time data capture and responsiveness put you in a position to move fluidly with your customer base.  There’s no lag time where a lucrative window of opportunity closes before you have the opportunity to act.

It’s all about connecting with customers on their terms, and this is best achieved through automating the process.  For instance, if you have a customer that has deposited a large check outside the parameters of their typical deposit cycles, you can present an offer for a high yield savings account. This type of offer works well when you connect with your customer immediately because the large deposit is still top of mind, and other choices for investment have likely not yet been identified.

Essentially you’re able to capitalize on your preemptive knowledge that this customer is likely in the market for a savings account product BEFORE the customer is able to research competitive options. 

By anticipating your customers’ needs you’re delivering on the most important factor in retention – ease of doing business.

When you have the tools in place to serve up the right offering to the right customer at the right time, everyone wins.  You don’t want your customer to jump ship because they think you don’t have what they need.  And your customer really doesn’t want to spend their valuable time and energy searching for a solution that they could quickly and easily secure from you.

The beauty of Responsive Customer Engagement is that it evolves operational efficiency into operational agility.  It’s not enough to streamline processes and collect data – it’s about how quickly and effectively you can translate data capture and analysis into real-time, relevant communication with your customers. Believe me, if you’re not focused on real-time customer engagement, it’s highly likely that your competitors are.

I hope that you can join me in Boston on September 21^st at Progress Revolution Boston 2011 to discuss how to leverage software solutions to not only improve operational efficiency but also increase customer engagement and loyalty.  I’m going to be covering cross-sell and up-sell marketing, payment management, and customer on-boarding and other timely topics, and look forward to a lively exchange of ideas!   

 

 

 

 

 

 

PLUS Stock Exchange Making Progress Around Regulation

Changes in financial regulation will inevitably increase the importance of market surveillance for exchanges as well as the regulators. Having asked our experts their opinions on how the changes in approach will affect the market in general, we are now looking at the impact on exchanges themselves, and how they can best prepare to serve their customers and remain compliant through this time of change.

In the last of our short videos, James Godwin and Tony Harrop from PLUS Stock Exchange tell us about how the Progress Apama solution is supporting PLUS Stock Exchange. In particular, we ask, how important is it to have market surveillance technology that can be flexible as new regulations are implemented?

Here they are the other 3 videos that were part of this 4 part series:

• Using Technology to Prepare for Regulatory Change
• Preparing for Changes in the Regulatory Approach
• Cutting Through Confusion on Financial Regulation

 

Using technology to prepare for regulatory change: how can market surveillance technologies help?

Becoming and remaining compliant is a key consideration for brokers and exchanges, especially in a time of regulatory change. It frequently makes the top of the list in surveys on their primary concerns, which is unsurprising given the current confusion surrounding financial regulation.

In this video our experts comment on how technology can be used to help the trading community prepare for upcoming changes to specific regulations, and the overall regulatory approach. We speak to:

• Dan Hubscher, Capital Markets industry marketing manager, Progress Software
• Dave Tolladay, director, Alerts4 Financial Markets
• James Godwin, director of regulation, PLUS Stock Exchange

These experts give their views on how market surveillance and monitoring tools might be able to help market participants as they prepare for change.

Preparing for changes in the regulatory approach

In this short video we ask our experts how regulatory change will affect market participants, and the markets themselves. Without a crystal ball to predict the future, firms still need to be compliant, while trying to pre-empt the direction of regulatory reforms that are not yet finalized. This will inevitably cause business disruption. The following spokespeople give their views on how brokers, exchanges and other participants might begin to prepare themselves:

• Dan Hubscher, Capital Markets industry marketing manager, Progress Software
• James Godwin, director of regulation, PLUS Stock Exchange
• Dave Tolladay, director, Alerts4 Financial Markets

As Dave Tolladay puts it, “The wrong answer is to do nothing.” So what is the right answer? How do banks emerge as leaders from this time of change?

This is Part 2 of our 4 Part market surveillance video series. Here's Part 1 in case you missed it: Cutting through the confusion of financial regulation.

Cutting through the confusion of financial regulation

Governments around the world seem to view increasing regulation as a way to control the financial markets and avoid future crises. But agreeing and implementing new regulation takes time, and when the markets move as fast as they do it can seem like a constant game of cat and mouse as the market tries to keep up with regulation, and regulators try to keep up with the market.

With changes in regulatory approach taking place with Dodd-Frank in the US, EMIR and MIFID II in the Europe and changes to the role and remit of the FSA expected in the UK, it can be hard for platforms, traders and other market participants to know what to prioritise to stay they right side of the law. In this short series of video interviews, we ask experts in market surveillance for their opinions on:

• What’s causing confusion around financial regulation
• How traders can prepare for changes in the international regulatory approach
• How regulatory changes will affect traders
• And how they can use technology to prepare for regulatory change, looking specifically at how market surveillance technology can help.

We also speak to James Godwin and Tony Harrop at PLUS Stock Exchange about how they are addressing these issues, and how they are using the Progress Apama solution to remain compliant.

Video 1: Why is there so much confusion around regulation?

At the recent TradeTech event in London, voices from around the world echoes the same concerns: with so many changes in regulation, especially for those operating internationally, it is hard to know what to prioritise, how to prepare and where to start. In short, there is a lot of confusion in the marketplace.

In this video we speak to:

• Dan Hubscher, Capital Markets industry marketing manager, Progress Software
• James Godwin, director of regulation, PLUS Stock Exchange
• Dave Tolladay, director, Alerts4 Financial Markets

Gauging their opinions on this issue, we look at where the confusion is coming from and how market participants might begin to address it.

My Baby Has Grown Up

I was proud to recently be appointed CTO and head Corporate Development here at Progress Software http://web.progress.com/en/inthenews/progress-software-ap-12102009.html. But I don’t want anyone to take that as an indication that I won’t still be involved with event processing – au contrair. Event processing (whether you call it CEP or BEP) is now a critical part of enterprise software systems – I couldn’t avoid it if I tried!!

But taking a broader role does give me cause to reflect upon the last few years and look back at the growth of event processing and the Progress Apama business. Here are some observations:

• It’s incredibly rare to have the pioneer in a space also be the leader when the space matures. I’m really proud that Progress Apama achieved that. Our former CEO Joe Alsop has a saying that “you don’t want to be a pioneer; they’re the ones with the arrows in their backs!” Usually he’s right on that one – but in the case of Progress Apama, the first is still the best! Independent analysts, including Forrester and IDC, all agree on it. Our customers agree on it too.
• It’s tough at the top! I had no idea that when you are the leader in a space, many other firms’ technology and marketing strategies are based completely around you. I have met ex-employees of major software companies that have told me that there are Apama screenshots posted on the walls of their ex firms’ development centers – the goal being to try to replicate them or even improve on them. Other firms’ marketing has often been based on trying to criticize Apama and say why they are better – so their company name gets picked up by search engines when people search for Apama.
• Event processing has matured and evolved. Yes it is certainly used to power the world’s trading systems. But it’s also used to intelligently track and respond to millions of moving objects, like trucks, ships, planes, packages and people. It’s used to detect fraud in casinos and insider trading. It’s used to detect revenue leakage in telecommunications and continually respond to opportunities and threats in supply chain, logistics, power generation and manufacturing. It enables firms to optimize their businesses for what’s happening now and is about to happen – instead of running solely in the rear view mirror.
• Despite all the new application areas, Capital Markets remains a very important area for event processing. Critical trading operations in London, New York and around the world are architected on event processing platforms. The world’s economy is continually becoming more real-time, needs to support rapid change and now needs to support the real-time views of risk and compliance. We recognize the importance of Capital Market. My congratulations to Richard Bentley who takes on the mantle of General Manager of Capital Markets to carry on Progress Apama’s industry-leading work in this space. With his deep knowledge and experience with both Apama and Capital Markets, Richard is uniquely placed to carry on the solutions-oriented focus that has been the foundation to Progress Apama’s success.
• Even in a terrible economy, the value of event processing has been proven – to manage costs, prevent revenue leakage and increase revenue.  Progress announced our fourth quarter results today http://web.progress.com/en/inthenews/progress-software-an-12222009.html which saw a double digit increase for Apama and triple digit for Actional. Apama and Actional are used, increasingly together, to gain visibility of business processes without modifying applications, to turn business process activity into events and to respond to opportunities and threats represented by event patterns – enabling the dynamic optimization of business performance.
• But one thing I do believe: that soon there will be no such thing as a pure-play CEP vendor. CEP is part of something bigger. We’ve achieved the first mission, which is to raise the profile of event processing as a new technique that can solve hitherto unsolvable problems. Now the follow on mission is to ensure event processing finds its way into every solution and business empowerment platform. It is one of a set of key technologies that together will change the world.

I wish everyone Happy Holidays and a successful and profitable 2010 !!!

Get Yourself Connected

Our integration with Vhayu Velocity, announced earlier this week, is the latest connectivity option we've added to the Apama platform. This follows hot on the heels of the launch of our adapter for the Brazilian BOVESPA market, and got me musing about the importance of connectivity for our Apama CEP platform - and the effort we need to invest to develop and maintain it. All in all we now support more than 40 distinct adapters (as listed here) and are adding more all the time (we have 5 new adapters in development right now).

The importance of connectivity cannot be overstated. One could have the best CEP Engine on the planet, but if there's no way of getting events in and out of it then it's of zero use - the proverbial Ferrari with no wheels. For basic infrastructure, you can go some way with strong support for standard middlewares through JMS, databases through ODBC/JDBC, etc. For Capital Markets however, where latency is often a critical success factor, it is often about direct connectivity to the market, involving development to proprietary and extensive market-specific APIs; although good support for the FIX protocol is most definitely necessary, it is nowhere near sufficient for the low latency high frequency trading world.

Of course, once you have strong connectivity to a particular market then that becomes an enabler - our support for the native market data and order execution APIs of the Chicago Mercantile Exchange (CME), for example, is allowing Apama to play in the proprietary trading world of the Futures and Commodities markets with great success, and it is no surprise that Apama is doing particularly well in Brazil! But such connectivity does not come cheap; as exchanges regularly rev their APIs, adapters need constant care and feeding, and there are always new markets and systems that need to be connected, particularly for a platform like Apama which plays across all asset classes, on a global stage. Apama currently retains a team of 10 Engineers and QA staff who *just* build and maintain our adapters, and we regularly second other personnel to this team to cope with demand spikes.

We took a decision early on to invest in developing our own connectivity; we clearly had options - there are no shortage of intermediaries out there who purport to connect to 000s of different systems. But there's always that one system that they don't support - or don't happen to support on the platform you need - so you never get away from having to build and maintain it yourself to some extent. And then of course there's the need to integrate with proprietary systems - when you start off by targeting your product at the Tier 1 investment banks, there's an awful lot of in house systems you need to hook up to!

In fact, our earliest clients were all of this kind, requiring proprietary connectivity to their home-grown systems. Overall this has been a boon for Apama, as we were forced to focus almost day 1 on building a toolkit which allowed us to rapidly develop new connectivity – resulting in our Integration Adapter Framework (IAF). All Apama connectivity is built using IAF - and as a result benefits from common configuration and management interfaces, uniform latency measurement framework, real-time status reporting and more.

Building and supporting the IAF, developing our 40+ (and counting) adapters, keeping up with exchange upgrades and so on requires a huge investment of time and effort. Whilst this might be a much less glamorous aspect of developing a CEP Platform (my colleagues in Engineering touchingly refer to it as "the filth"), it is a hugely critical one.

... and whatever happened to the Stereo MCs anyway?

We're going on Twitter

Louis Lovas and myself, Giles Nelson, have started using Twitter to comment and respond to exciting things happening in the world of CEP (and perhaps beyond occasionally!).

The intent is to complement this blog. We'll be using Twitter to, perhaps, more impulsively report our thinking. We see Twitter as another good way to communicate thoughts and ideas.

We would be delighted if you chose to follow our "twitterings" (to use the lingo), and we'll be happy to follow you too.

Click here to follow Louis and here to follow Giles (you'll need to signup for a Twitter account).