April 18, 2012 - The market size for complex event processing (CEP) systems in the financial industry has grown to roughly $115 million this year, and is expected to grow by around 30 percent every year for the next two years, according to a report released by the research and consulting firm Celent.
In the report, titled “Complex Event Processing: Looking Beyond Algorithmic Trading,” data volumes are increasing exponentially due to growing automation. Trading venues and exchanges are responding to the challenge by upgrading their IT infrastructure to handle large data volumes.
Trading firms too are pressed to expand their data processing capabilities, and therefore there is a growing need for sophisticated analytics for mining large volumes of data.
Such analytics includes complex event processing, a category of technology that allows algo traders to respond to a variety of market data, including current events and news, in order to generate trading orders, by providing high-speed responses to specific patterns or triggers in real-time data.
The financial crisis of 2008 was a driver for greatly increasing demand for this technology, as CEP is being used for continuous and more granular risk monitoring applications.
The boom in high frequency trading is another important factor in the growing popularity of CEP.
“With growing maturity and increased standardization on the execution side, the focus has shifted to high-speed technology for pre-execution trading strategy formulation, especially at buy side firms, which has benefited the growth of CEP,” according to the report.
The report says that CEP systems, currently, are almost evenly split between pre-trade and post-trade applications. Capital markets firms are leveraging the real time capability of these systems throughout the trading process.
Celent estimates that around 75 percent of CEP systems are currently in sell- side institutions, due to an increased focus on monitoring risk more frequently at brokerages and banks.
However, Celent says that the buy-side offers “significant opportunities,” particularly with quantitative trading firms and hedge funds that are aggressively seeking alpha.
CEP systems, according to Celent, have penetrated about 15-20 percent of the potential market on the trade execution side. Although firms are aware of the benefits of the real time capabilities of CEP technology, they are reluctant to hand over trade execution to automated systems.
Places where CEP adds significant value, according to Celent, include other functions such as real time risk, monitoring, compliance, fraud detection, pricing, and analytics.
“Firms-both buy side and sell side-need to look beyond algorithmic trading to explore a vast majority of use cases of CEP applications that can be found outside trade execution functions,” according to Celent.
This market has recently seen the entry of large corporations such as IBM, Oracle, Microsoft, and SAP. Previously, this market had been dominated by niche players with specialized offerings built over their core capabilities. Recent acquisitions signal consolidation in this fragmented market, according to the report, which is a sign that the market is maturing. The top five players account for close to 80 percent of the market, and the entry of large IT players in this space also indicates growing revenue opportunities in the CEP market.
Moving forward, the report says that complex event processing will be used increasingly for multiple applications within a single firm. As a result, enterprise architects will need to rethink their infrastructures and evolve them in ways so they can handle multiple instances of data being used by variety of different modules in real time.
This story originally appeared at Securities Technology Monitor.
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