The StreamBase Event Processing Blog

Turbulent Market Priority #1: An Increased Need to Automate

The "easy" prediction to make about the new #1 priority in the face of economic upheaval would be that cost reduction is job one.  But that's the glass half empty view - firms with an eye on both cost savings AND revenue generation have a different number one priority: automation.

Headcount, not technology, is the top IT expenditure in the banking industry - typically over 40%.  Automated trading provides two big wins:  reduced cost, and increased revenue.  This week's announcement from PhaseCapital is a great proof point.  As Dr. Geoff Goodell said this week - their automated trading system IS their trading operation - it's fully automated. 

So while some firms have retrenched into a navel-gazing state of cost cutting, others have recognized the sudden rise of volatility as a big revenue opportunity.   And low-latency automated trading systems are a key element in seizing that opportunity.  That's why firms use technologies like complex event processing  (CEP), which helps computers monitor thousands of stocks simultaneously and make trading decisions in under a millisecond (one thousandth of a second).

But more than just being fast, the key to winning the trading race is good driving.  Trading expertise often resides in a small number of people:  advantage can be gained by automating the best practices of the sharpest minds in a firm.  This constructive debate within the harsh realities of reduced resources is motivating a new mantra: “People should be paid to think.  All other business activities should be automated.” 

With power comes responsibility.  Some, like George F. Colony, the CEO of Forrester Research, have taken shots at automation in his article called Hal destroys Wall Street.   Likening automated trading to the sentient computer Hal in 2001: A Space Odessey, George argues that computers - not humans - were behind the economic meltdown.   But the computers are not in charge.  In over 20 years, I've yet to see an "unmanned" trading system, or a system that "learns and decides" on its own.  Traders are way too smart for that - they call all the shots.  Automation simply empowers traders to monitor more data, make more decisions, more quickly, and CEP helps them express those ideas more easily.  That's all.  In fact,  we might have been better off if Hal had been involved!

So automation is here to stay on Wall Street, and it not only helps automate trading, it also helps firms manage risk more effectively (as PhaseCapital describes), monitor for improper trading activity while it can still be stopped, and provide more transparency and fairness, not less. 

So increased automation is the first of five new technology priorities in this turbulent economy. 

5 Observations about PhaseCapital's Selection of CEP

PhaseCapital, a Boston-based “quant” investment adviser, announced their selection of StreamBase as their CEP platform.  There has been a lot of interest in this announcement, for many reasons (e.g., here's the front-page coverage in Inside Market Data (warning:  IMD is password protected)). I was involved in some of the interviews with Eric Pritchett, CEO of PhaseCapital, and there were 5 especially interesting things that struck me:

1. Increased use of CEP as infrastructure.  PhaseCapital uses StreamBase at the heart of their high-frequency, low latency trading infrastructure.  It's a better way to build event driven systems, as Eric was quoted in the IMD interview:  "StreamBase technology allows PhaseCapital to abstract the rest of its trading architecture from the feed handlers themselves, enabling the firm to make changes to its data without having to re-engineer other parts of the system."  In the past year, we've seen an increase in firms deploying CEP as event-driven application infrastructure, rather than an embedded component of, for example, and algo trading application. 

2. Expansion of CEP use cases.  PhaseCapital's application of CEP is very broad - it's at the heart of their portfolio management system and risk engine, for U.S equities, futures, and equity options.  They use it for market data management of multiple exchanges to their trading system, and to order state handling and smart order routing. OK, I'll quote myself on this one:  "CEP isn't just for algorithmic trading anymore."  It's becoming a key part of enterprise infrastructure.

3. A comprehensive customer-driven CEP product evaluation.  PhaseCapital performed a comprehensive evaluation - they installed and tested "all the major CEP products," and ran real use cases against the products.  They looked at language, performance, usability, tools, and scalability of the CEP architectures.  Eric summed it up nicely here: "Our team consists of scientists and professional engineers; we are techies at heart, so we appreciate the value of a well-designed system that supports our development and deployment philosophy."

4. The continued rise of the need to automate.  In the article The Five New Technology Priorities, I wrote about the first priority:  automation.  In one interview last week, Dr. Geoff Goodell, who ran the evaluation, described how critical CEP is to their company:  "We're a small team of 15 at PhaseCapital - this CEP-based system IS our trading operation - everything is automated."  I think the need to automate systems is at the heart of StreamBase's recent growth - firms need to do more with less.

5. StreamBase:  the new market leader?   I've spent almost a year watching CEP evaluations play out from StreamBase's side and I'm starting to observe patterns of who's winning business and why.   In just the last six months, there's been a shift - publically, StreamBase has scored wins with BNY ConvergEx, RBC Capital Markets, BlueCrest, and now PhaseCapital.   That's more customer wins than all the other CEP vendors combined in the same period.   What's going on?   It seems to me that the field is separating into "first generation" and "second generation" CEP.  For example, most of Apama's attributes are first generation (single threaded server architecture, unmaintainable code generation for their CEP language, non-SQL oriented language, lack of debugging tools, and an adapter architecture that adds unacceptable latency due to its heritage of having CORBA embedded).  Need proof?  As Dr. Goodell described, Apama didn't even make the first cut in their evaluation.  On the other hand, Aleri was the other final CEP product in PhaseCapital's evaluation, partly because they fared well relative to Apama because of its multi-threaded server architecture. 

The real test of a market and products aren't what the vendors say about their product;  it's what their customers say about their product, and it's exciting to see the CEP landscape and buzz about new applications, new industry trends, and new product category leaders as the market continues to grow.