One firm that reportedly is planning to adopt pattern analysis technology to protect its network from unauthorized access is JPMorgan Chase. The bank already has been using the technology in its retail banking services to track credit card fraud. But, according to industry insiders, it is now preparing to use the technology for its securities services, too. JPMorgan Chase declined to comment.

Securities regulators also are implementing pattern analysis technology, particularly under its most evolved form, complex event processing (CEP), to help stop insider trading. CEP uses analytic techniques such as event streams processing, event correlation and abstraction to detect complex patterns among many events and relationships between events, such as causality and timing.

"Regulators might be looking at stored historical data and real-time data," explains Bill Hobbib, VP of marketing at CEP provider Streambase. "Then you can compute all the real-time trades taking place. As you're monitoring each trade you might be looking at the names [and] times of month with respect to quiet periods when people are not allowed to trade."

The U.K.'s FSA started using Progress Apama's (London and New York) Event Processing Platform to monitor transactions and detect insider trading and other market abuses. Previously, the U.K. watchdog monitored hundreds of scenarios that could indicate trading abuses but was forced to analyze the data after the fact. But by the time abuses were uncovered, the market had long been moved by them. Now the FSA can detect abuses virtually in real time.

Analytics and Compliance

Financial firms' compliance officers also are tapping CEP to assess potential trade events and check them against compliance requirements with the aim of avoiding costly fines. "The interest is particularly around smart order routing and monitoring order routing to show compliance in real time," explains Joe Rosen, currently president of RKA, a New York-based management consulting firm that advises on the use of technology in the global capital markets, and the former managing director of trading technology/head of technology marketing at the New York Stock Exchange.

Meanwhile, with the capital markets becoming increasingly electronic, and multi-asset and multi-geographic trading now the norm, the biggest demand for CEP technology currently is around algorithmic trading. Since CEP streams large flows of data from disparate sources and analyzes it in real time, firms that use the technology are able to trade faster than ever before. "A lot of people are overwhelmed by the speed of data coming out, particularly in equities and options," explains Brad Bailey, senior analyst with Boston-based Aite Group. "That is putting a tremendous amount of strain on infrastructure."

In the midst of today's global liquidity crunch and constantly evolving markets, investment banks are using CEP technology for real-time liquidity management. Until now, most banks managed liquidity manually on an intraday basis in the middle office but were unable to readily determine the actual positions of the bank at any given time during the day, according to Jeff Wootton, VP, product strategy, at Chicago-based Aleri, a provider of event streaming processing technology for financial institutions.

With CEP, however, they can see exact positions down to the transaction level and across the bank, as well as apply predictive analytics based on historical data, Wootton says. "This provides banks with a fast and accurate way to determine how much liquidity they need to borrow, if any, ultimately reducing the costs."

Aleri just released LMS 5, the latest version of its Liquidity Management System, as well as a new Collateral Management Module (CMM). The CMM provides up-to-date enterprise inventory liquidity-centric views of liquid assets positions for day-to-day and crisis liquidity management purposes, and can trigger actions to mobilize these liquid assets, according to Wootton. CMM also provides detailed stock information for use in liquidity risk reporting.

Among those using Aleri's platform for liquidity management is Brussels-based Dexia Bank Belgium. "To calculate the consolidated liquidity ratios, we need to be able to collect important data, such as the liquidity and securities positions, from the different Dexia entities into one central system," explains Johan Evenepoel, global head of repo, cash and liquidity, Dexia Group.

Aleri's clients also include London-based Barclays Bank, and Commerzbank Corporates and Markets (CBCM), which has leveraged CEP for automated pricing and market making, taking in market exchange rates, applying the bank's proprietary algorithms and then calculating prices in real time.

Overall, Aite estimates that revenues for CEP-related products will quadruple in the next two years, reaching $460 million by 2010. The broader event processing (EP) category -- which comprises a range of applications that facilitates the aggregation and processing of event data -- will reach $1 billion, Aite says.

"[CEP] is the next big thing," contends RKA's Rosen. "In the capital markets where you have need for lots of data, you have to have this kind of technology."

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