By Alexa JaworskiWhile the financial services industry has long used complex event processing, or CEP, platforms to speed up their algorithmic trading and market data efforts, buy- and sell-side firms are increasingly embracing the technology for risk management.Despite the industry's declining IT spending, risk is one of the areas where firms continue to invest. "A lot of that is driven by the need to have more up-to-date risk information more quickly," says Kevin McPartland, senior analyst with New York-based Tabb Group. Traders and compliance and risk management teams all need to understand the firm's exposures in real time, he says, which is where event processing's ability to rapidly sort through vast amounts of data comes in handy."There are an awful lot of firms who are interested in real-time risk," says Adam Honoré, senior analyst at Boston-based Aite Group. "You want to be able to react much faster, especially when you're dealing with counterparty risk. If you're talking about Lehman, Madoff--you've got to be able to react and know your exposures."In a report issued last year, Honoré noted that risk management has climbed to the second most common type of CEP implementation, behind trading. Buy-side block trading platform Liquidnet announced last June that it uses technology from Coral8 to monitor trades and identify suspect activity in real time, and London-based multilateral trading facility Turquoise is using a market surveillance platform developed by Progress Software Corp.'s Apama division and technology consultancy Detica Group. The U.K.'s Financial Services Authority also has a monitoring system from Apama and Detica.
But brokerages have also been turning to the technology for their risk needs. Futures commission merchant Rosenthal Collins Group is expected to soon roll out a system that uses Coral8 technology to identify trading patterns that deviate from historical behavior. Last month, GFI Group, a London-based interdealer broker that specializes in over-the-counter derivatives, said that it plans to use a market and liquidity risk monitoring system from Aleri, which recently acquired Coral8.The new Aleri system, called Real-Time Risk Monitoring, combines the Chicago-based company's CEP platform with its online analytical processing server and is designed to let clients know when they have excessive exposure to a sector, asset class or counterparty. According to Don DeLoach, president and CEO of Aleri, GFI will be able to "absorb, normalize, aggregate and analyze information about various risk exposures in the firm, and then be able to dice and slice that so they can analyze risk concentration and zero in on the cause behind some of the issues they're seeing."GFI currently uses a homegrown system that provides the firm's risk department and senior business management with post-trade risk metrics, says Brian Farrelly, operations strategic projects director at GFI. Initially, explains Farrelly, the firm will use CEP tools to provide a real-time view of pre- and post-trade risk. "Transaction monitoring will be a byproduct of using CEP tools," he says, "in that it will enable us to define a broader range of risk scenarios we wish to monitor and be alerted to, over and above traditional risk metrics."GFI won't be alone in its decision to adopt a CEP platform for risk, according to Tabb's McPartland. "I'm sure we'll see this across all segments of financial services, whether it be the bulge-bracket investment banks, interdealer brokers, hedge funds, traditional asset managers--everyone is looking to manage risk more closely and effectively and closer to real time."
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