FEATURE
number of firms that will offer you simple aggregation technology with all the supply chain management that comes with it. But once firms decide to move on from that and look to bring in CEP software, there is a severe increase in the level of complexity. Not only are you brining in new software but you also need to hire a team of quantitative analysts to decipher all the data. It is a huge step and not all firms are ready to take it.”
“Tere are also two sides to using CEP – there is the liquidity coming in from hundreds of data sources that needs to be aggregated and managed to create an internal price. And then there is the pricing data that is distributed to clients. We are already seeing banks struggle to use CEP for both. I think CEP technology has to be used for what it is good at and that means allowing a proprietary trading desk or buy side firm to build and test trading algorithms. Liquidity management, market connectivity and distribution are becoming more and more commoditised, which points towards off the shelf products. Similar to what Patsystems, Trading Technologies and GL Trade did in the futures industry during the last decade”
Kevin Ashby “If you’re a bank aggregating liquidity for mostly
corporate clients then latency is not an issue but if you’re dealing with institutional investors or fund managers looking to make money on small price movements in the market, then you will be judged on speed.”
fragmented and smart order routing is becoming a necessity. Ashby sees no reason why the FX market will not follow the same path.
“We are already dealing with so many sources of liquidity and so much pricing data that if you are not using some serious computing in order to do it quickly, you will get lost. Te whole world is changing and you have to deal with liquidity intelligently but you cannot rely on the pricing engines to do all of this because they are already doing too much as it is.”
Complex Event Processing
Complex event processing (CEP) is often heralded as the potential saviour for FX dealing banks hit by the deluge of data that has resulted from the increased trading volumes. But Ashby says there are a number of issues with CEP that are not always considered. “For a start there is a substantial cost involved. Tere are a
52 | april 2011 e-FOREX
Te talk of low latency is often categorised as an arms race and a battle of resources and spending power but, says Ashby, it is not solely a question of computing power and resources but more about the intelligent techniques that are being used in the programming to reduce the speed of processing. “If you have hedge funds with a team of quants that are coming up with new trading ideas every week and trading in microseconds, you cannot spend days to respond to their bids. And you cannot spend two years developing a CEP engine that tries to respond to all of these bids. What you can do though is have a dashboard that monitors all of these activities and turns off the flow that could be considered toxic – after all, flow is only toxic when you don’t like it. Te winning banks will be the ones that have a dashboard rather than a rear-view mirror and have infra-red lights that are able to see through the fog and what is happening in the distance. And the key to liquidity management is intelligent analysis and an understanding of supply chain management.”
Quality of liquidity sources
One of the challenges in the liquidity management space is how to add qualitative analysis to what is essentially a quantitative process – how do you rank the quality of various sources of liquidity? In theory you could use an enhanced pricing engine that
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