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CME Group Picks StreamBase’s CEP Platform for Options Pricing

Derivatives exchange initially will tap the complex event processing platform to develop models for settlement pricing of options on futures with plans to expand CEP's use into risk management and compliance.

Rigorous Vendor Evaluation Process

CME selecting the StreamBase CEP platform only after conducting an extensive evaluation of four of the leading CEP vendors: Apama, Aleri, Coral8 (which recently merged with Aleri) and StreamBase, the exchange's Goldman relates, adding that CME leverages an enterprise architecture evaluation framework to evaluate products. Since CME is a big Linux shop, he notes, one of the major requirements was that the CEP platform run on Linux.

Noting that each of the vendor's solutions performed well, Goldman says, "It was really hard to decide. In the end, the decision came down to usability of their development environments."

Each vendor was provided with a request for information, according to Goldman, and each offered CME a demo of its product. CME then selected two of the vendors to proceed with use cases and proofs of concept. "We focused in on Apama and StreamBase mostly on a time-to-market basis," Goldman recalls. "They seemed to be the leaders that did the best job in the area we took them in for."

Commenting on the process, Mark Palmer, CEO of StreamBase Systems, says, "It was probably the most rigorous evaluation [that StreamBase has been through] in five years."

Palmer points out that StreamBase's support for the open source Eclipse development environment and SQL-based development language were big advantages. "Most of the CEP engines are pretty fast, and you can always make something go fast by throwing a lot of hardware at it," he says. "The thing that mattered the most for [CME] was evolving their settlement and pricing logic quickly. CME has over 10,000 products and, obviously, their revenue stream is dependent on creating new ones and, of course, pricing and settling them." According to Palmer, StreamBase's CEP platform will make it easier for CME to change the pricing for products.

Palmer adds that StreamBase is the only CEP platform that includes a debugger, which also improves the development life cycle. "When there's an error in coding logic, you can visually in StreamBase click on the code and see what decisions the code was making," he explains. Other CEP platforms, he claims, don't have this feature, leaving "developers scratching around in the dark to figure out what's going on."

Beyond settlement pricing, CME's Goldman envisions the derivatives exchange using the CEP platform for clearing systems to determine theoretical pricing, and, he says, he is considering tapping the CEP engine for risk analysis as well as regulatory and compliance monitoring.

While the focus initially will be on pricing options on futures, TABB's Nybo says he expects CME to utilize the real-time capabilities and the architecture of the StreamBase platform to enhance the risk-management process. "That's where the future of integrating into risk management and compliance becomes very powerful," he emphasizes. "They can layer the risk management on top of their compliance efforts."

According to Goldman, however, for now CME is going to go slow and spend the next year and a half on the deployment of the settlement pricing application. "Equity options are different than currency options, which are different than index options," he notes.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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