FX Markets Require Adaptive Trading-Specific CEP

1 July 2008

Liquidity management in the FX market can only be met with adaptive complex-event processing (CEP) technologies designed specifically for trading. This is according to Ali Pichvai, CEO of Quod Financial, the leading provider of advanced execution technology for the global capital markets.

"In order to achieve a holistic approach to liquidity management, a large number of events - risk metrics, positions rates, and auto-hedging instructions/orders - need to be processed to inform dynamic decisions in real-time," states Pichvai. "The previous generation of CEP technologies simply cannot handle this volume of complexity. In order to be effective, CEP engines must natively understand the objects and relationship between trading events, and order or quoting workflow. This dynamic approach can only be achieved with adaptive trading-specific CEP, and is essential in an environment as complex and fast-moving as the modern FX market."

According to his most recent white paper 'Adaptive Event-driven trading in the Foreign Exchange markets', Pichvai cites adaptive, trading-specific CEP as empowering the FX markets in the four following ways:

- Liquidity/execution management: The optimization of both internal liquidity and access to multiple trading venues. This is supplemented by pro-active management of the execution process across fragmented liquidity, commonly referred to as smart-order routing. Advanced smart-order routing will be liquidity-seeking, going after both the transparent, but also (by building in predictive models) the non-transparent liquidity.
- Auto-hedging/position monitoring: Dynamic monitoring and management of risk for a given bank, connected to the liquidity management/execution to generate hedging orders.
- Rate/price management: The management of price/rates for standard and non-standard currency pairs, taking into account the desired spread per client. This can be fully automated with the possibility of partial manual processing.
- Risk management: The client margin calculation and the management of risk. The holistic approach will have a complete view of the level of margin/credit vis-à-vis the client for their current position, but also take into account the open orders.

"We have successfully applied our adaptive trading-specific CEP technology to the equities market for our advanced smart-order router, and are pleased to bring this technology to another asset class to meet the challenge of FX liquidity management," concludes Pichvai.

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