Opening Cross: Worried About Event Latency? Slow Down and Take the Scenic Route

Ever been stuck behind someone who barged in front of you, only to then move at a much slower pace and hold everyone up? Perhaps it’s the slowpoke in the overtaking lane, or the old lady who elbows you aside on the subway stairs then shuffles down, one step at a time? Or, perhaps, has your firm ever placed a trade knowing you have the fastest infrastructure, only to get held up by third parties or queues of orders at the execution venue?

The glut of activity that accompanies any event-driven trading strategy creates a crapshoot. Got a unique strategy to exploit opportunities created by the latest jobs report or crops report or some other item of news that might affect the price of a company’s shares or options? So does everybody else. And whatever their strategy, they’re trying to respond to the same event. The result is that everybody piles into the market at the same time.

Trying to get to the front of that line is what has driven firms to pay substantial sums for data services that promise to interpret news faster, so they can respond quicker, or to pay a premium for an early heads-up of sensitive material, and to co-locate their infrastructures within exchange datacenters for the fastest access to the market once they get the data. However, having your strategy rely on speed still subjects it to the whims of the marketplace, and the possibility that someone else is chugging along the fast lane in their Corolla while you’re trying to get your Ferrari out of first gear.

The alternative is to avoid the roadblock entirely. Take the scenic route with a longer strategy that avoids interference from other traffic. You’ll have to spend a little more time researching your route, and your margin will suffer from paying a little more for gas to cover the extra mileage, but that scenic route collects more snapshots about the landscape, takes in more context, and covers more ground, perhaps providing a richer experience, and allowing you to react to the trends of other traffic, rather than get stuck in the middle of it.

The complexity of responding to market events is reflected in the acquisitions last week of complex event processing software vendors StreamBase Systems and Apama, which both see potential to expand their services beyond capital markets by allying with broader parents, but also to focus their capital markets efforts by leveraging other parts of the infrastructures run by those parents. The ability to process increasingly-complex events in future will become more important as it becomes harder to gain alpha from event-based strategies, and as firms seek broader strategies that require more interpretation of larger datasets.

Interpreting events requires sophisticated tools, especially considering the myriad inputs that firms are now seeking to scrape for insight. So it’s encouraging to see some exhibitors at this week’s SIFMA Technology Exhibition—such as Actuate, Cambridge Semantics and Digital Reasoning, among others—dedicated to capturing and interpreting Big Data and unstructured data.

And it’s not just new players to the financial markets getting in on the act: Trading turret and network provider IPC’s new Trader Cockpit desktop—a series of components touted last year as a concept, and now in more advanced stages of development—will capture data from sources as diverse as market data, news, broadcast television and video, and a firm’s instant messages, as well as the sentiment of messages between traders over its hoot-and-holler network.

While people used to fear that algorithms would supplant humans entirely, technology providers are coming up with ways to incorporate as much machine-led insight as possible into tools, harnessing algorithms and analytics to create something that can deliver competitive advantage to someone at a desk rather than a black box. And until someone can explain to a black box why it should take the scenic route, these tools will support a mix of man and machine, so you can settle in and enjoy that Ferrari on the longer, more challenging roads that it deserves.