Sybase Q&A: Dale Stevens Discusses CEP in FX Trading

In which portion of foreign exchange (FX) trading do you see the greatest adoption of complex-event processing (CEP)?
Dale Stevens, head of sales, EMEA, Sybase: We are seeing the adoption of CEP in three key areas: market-making, market liquidity analysis, and algorithmic trading. In market-making, clients are using CEP as a high-throughput, low-latency engine for the cleansing of incoming FX data, enriching this FX data to provide additional value-added derived data to their clients, and most importantly, for the auto generation of FX prices reflecting house FX spreads and skews to provide executable FX prices to their clients.

In market liquidity analysis, clients are using CEP as a high-throughput, low-latency engine for the collection and aggregation of market FX prices to enable them to identify the best sources of FX liquidity and prices for executing their trades.
In algo trading, clients are using CEP as a high throughput, low-latency engine for the automation of FX trading strategies to enable them to execute at the best prices in the market and to maximize their trading profits.

How do you see this changing in the next 18 to 24 months?
Stevens: Over the next 12 to 24 months we will see the increased adoption of CEP as a means of monitoring, managing and orchestrating the use of FX trading algorithms to ensure that these specific algorithms are used in a way that best reflects their use in the market. For example, certain algos perform well in fast-moving markets, some perform well in highly volatile markets, while others perform best in trending markets.

As the FX markets become more mature in their adoption of algo trading techniques, the intelligent use of the right FX algos to create the best “mix” will be essential to the future profitability of FX traders in this rapidly evolving market.

What immediate and long-term return on investment (ROI) can firms expect by implementing CEP into their FX trading infrastructure?
Stevens: The most obvious and immediate ROI that firms are seeing by implementing CEP in their FX trading infrastructure is their ability to quickly and flexibly implement the market-making, market liquidity analysis and algo trading use cases to reduce their trading costs and to improve profits. In the longer term, firms will gain substantial ROI from being able to trade more intelligently in the FX markets by implementing the “algo monitoring and orchestration” that reflect best uses in the market. The monetary benefits of implementing these solutions typically show an ROI within six to nine months, and in some cases where clients have existing legacy systems, the ROI can be much quicker, especially for FX market-makers.

Are there common mistakes that you see made by FX trading firms when they look to adopt CEP?
Stevens: Firms are faced with a number of challenges that can impact the effectiveness of adopting CEP within their FX trading infrastructure. Some common mistakes include:
•    Retaining a procedural approach to the adoption of CEP, as CEP is designed to work most effectively in the event-driven world
•    Failure to replace existing outmoded pricing and calculation engines, resulting in operational latency bottlenecks
•    Underestimating the challenges of the new event-driven high-frequency trading (HFT) world—everything is so much faster with trading now happening at the microsecond level
•    Retaining old risk practices that don’t reflect the speed at which transient risks can now occur

How can firms avoid them?
Stevens: Firms can avoid a lot of these pitfalls by embracing the new “event-driven” trading paradigm. Some of the key tasks include, but are not limited to:
•    Moving to an event-oriented architecture throughout the whole of the FX trading infrastructure
•    Upgrading pricing and calculation engines to reflect the new world of HFT FX trading
•    Upgrading risk management systems to be able to cope with true real-time events, including short duration, but high impact, transient concentrations and exposure
•    Performing loads of prototyping, testing and ensuring that the FX traders are involved at each step of the project rollout