With data coming in at more than 1,000 events per second, and nearly a quarter of stock market trading volume executed by software, complex event processing technology has eclipsed many traders with its ability to make sense of hundreds of pieces of data at once, identifying and hopefully profiting from fleeting inefficiencies in markets.
"Now that trading decisions are being made in silicon, your ability to execute in the market is a function of your technical speed," says Peter Lankford, director of the Securities Technology Analysis Center (STAC), which sells independent analysis of the components of the capital markets technology stack. "There is an arms race going on."
Until recently, the capital markets group has been the primary battleground in the CEP race. Of late, the high-priced platforms are beginning to creep into the retail side of the bank. The spreading adoption is fueled by some of the same market drivers that have made the technology invaluable in capital markets-the need for speed and exploding volume-and by the fact that CIOs are looking to get more out of their CEP knowledge and spend.
"Some of the business drivers are really the push to real time," says Adam Honoré, senior analyst at Aite Group. "The batch process, end-of-day risk management just doesn't cut it anymore. There's too much competition for your customer, you have to be proactive in how you deal with them. Speed is really the biggest driver."
CEP vendors, who also call their technology event stream processing or business activity monitoring, say that for institutions that have already deployed a CEP engine on the equity side of the house, the next likely implementation has been in risk or compliance. "The credit meltdown has really put a sledgehammer to people's heads," says John Morrell, director of product marketing at Coral8, a leading CEP vendor. "They're saying, 'Oh my God, we really do need to look at risk more carefully.' We're hearing from people all over that monitoring risk is an extremely high priority for them."
Beyond that, vendors discuss quiet implementations in customer-facing Web sites. Sallie Mae implemented Coral8's CEP engine to monitor the behavior of its online loan applicants in an effort to "reduce their abandonment rates, improve performance, and do personalized offers," says Morrell. "Lots of organizations, like Sallie Mae, want to look at information as it is happening in real time and capture the most important events out of the information; they can greatly reduce the amount of information they have to store for later."
The strategy of using a CEP engine to enable multi-channel customer service and cross selling is fairly new, but one analyst says it makes a lot of sense. "To any bank right now, retail utopia is multiple relationships with their customers, except they're fairly monolithic in how they approach it," says Honoré.
Like the Sallie Mae example, Honoré knows of an insurance company that uses a CEP engine to track online insurance applications, and when an application process seems stalled, the company follows through with a multi-channel strategy to reach out to the customer. "It's really pretty slick," he says.
Another real-world banking example, from an institution that Morrell declined to name for client confidentiality reasons, is a commercial banking surveillance system in which the CEP engine is used to monitor a complex set of checks and balances-security measures regarding which accounts employees access and the transactions they initiate.
Even regulators are now using CEP engines, looking for fraud in algorithmic trading, says Mark Palmer, president and COO of StreamBase, another CEP market leader. "The rise in algo trading has caused the regulators to use the same tools to detect and stop fraudulent trading activity as the firms use to enable it," he says.
When it comes to detecting fraudulent behavior or transactions in retail banking, CEP engines must compete with the fraud detection systems that many institutions bought as part of their FFIEC authentication strategies. Plus, fraud detection products like those from RSA, VeriSign and Actimize are ready to be implemented, whereas a CEP engine is more like an empty box that requires customers to build around it. "In capital markets, 55 percent of all development is internal," Honoré says. "If you're a company that bends that way, CEP is a viable option."
But Actimize chief marketing officer Amir Orad argues that most firms won't get as much out of a CEP engine as they would out of a fully developed anti-fraud solution. "CEP requires 'self development' but by doing that you are only covering the issues you know about, versus a vendor that sees a much more complete universe in terms of regulations, threats etc.," Orad says.
Gartner pegs the CEP and business activity market at $150 million in 2007, and projects it to hit $283 million in 2010. Much of the industry demand comes from government; StreamBase is funded by In-Q-Tel, the Central Intelligence Agency's venture capital arm.(c) 2008 Bank Technology News and SourceMedia, Inc. All Rights Reserved.http://www.americanbanker.com/btn.html/ http://www.sourcemedia.com/