In the world of financial trading, seconds count.
Take a bank looking to exchange euros for dollars. The foreign currency markets are constantly changing, and the timing of the exchange is critical to making the transaction a profitable one.
Rather than relying on chance, a number of banks are turning to complex event processing (CEP) to determine when to conduct transactions to maximize revenue and profit.
CEP technology integrates and analyzes data in real time in an attempt to identify cause-and-effect relationships among events as they are happening. It essentially uses past event-based data to find patterns and predict likely outcomes.
In the case of a bank trading on the foreign exchange market, for example, CEP can help identify when the value of the dollar to the euro is at a point where the transaction, if conducted, would be likely to prove most profitable. In such scenarios, even small variances can add up to significant sums, especially at large banks that conduct thousands of trades a day.
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"A penny profit turns into a penny loss in moments," said Justyn Trenner, CEO and principal at ClientKnowledge, a U.K.-based financial research and advisory firm. "The truth is that most banks don't have good systems in place to capture that."
That is beginning to change with the adoption of CEP technology.
Many of the banks that ClientKnowledge works with have seen revenue increases of between low-single-digit percentages and 10% or even 20% thanks to CEP, Trenner said. Others have reduced the number of workers needed to monitor and make trades, allowing them to reallocate their resources to other areas.
CEP technology has become so sophisticated that actually implementing it is far from the biggest challenge customers usually face, he said. It is writing the business rules that will serve as a framework for CEP-based decision making that trips up most banks and financial companies.
"What's really challenging is having the conceptual trading and mathematical skills to make good use of it," Trenner said. "And that's what most banks find challenging."
Adoption of CEP technology in the banking world is still relatively low, he said, but he expects to see the technology increasingly applied to new financial areas like interest rate and fixed income trading.
Trenner concluded: "The banking world isn't short of opportunities to apply this technology."
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