New generation CEP for forex liquidity

In the past 18-24 months, liquidity management has been a top priority at major or more technically savvy dealers. But recognition of its importance in running a more profitable and, indeed, cost-effective business is spreading to the second- and third-tier banks.

The paper, authored by Ali Pichvai, chief executive of London-based trading technology vendor Quod Financial, says that 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. He claims the previous generation of CEP technologies simply cannot handle this volume of complexity.

"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," said Pichvai.

In his white paper, he notes trading-specific CEP helps the FX market in four ways. Firstly, in liquidity/execution management to optimise internal liquidity and access to multiple trading venues. This is supplemented by pro-active management of the execution process across fragmented liquidity, that is, smart-order routing. Advanced smart-order routing will be liquidity-seeking, going after both the transparent, and (by building in predictive models) the non-transparent liquidity, he says.

Auto-hedging/position monitoring is the second benefit. This entails dynamic monitoring and management of risk for a given bank, connected to the liquidity management/execution to generate hedging orders. Thirdly, rate/price management for standard and non-standard currency pairs takes into account the desired spread per client. This can be fully automated with the possibility of partial manual processing.

And finally, 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," says Pichvai.