Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

CEP Implications of NASDAQ Agreement to Acquire Boston Stock Exchange

Many readers simply do not understand what Complex Event Processing (“CEP”) is and why it has such potential to change the cost and productivity of implementing and maintaining large enterprise software applications. CEP is an emerging technology and technique that Toomre Capital Markets LLC (“TCM”) has intently focusing on during the past several years ever since we discovered two small CEP companies at the 2005 SIFMA show: iSpheres and Streambase Systems. TCM has subsequently written the special supplement article for its client Advanced Micro Devices ("AMD") on the subject of Complex Event Processing that appears in the October 2007 issue of Wall Street and Technology magazine.

Today, on October 2nd 2007, the National Stock Market Inc. ("NASDAQ") announced a definitive agreement to acquire the Boston Stock Exchange ("BSE"), including the holding company (BSE Group), the Boston Equities Exchange (BEX), the Boston Stock Exchange Clearing Corporation (BSECC), and BOX Regulation (BOXR). Along with these businesses, NASDAQ will acquire an SRO (Self-Regulatory Organization) license for trading both equities and options. NASDAQ's acquisition of the BSE Group is valued at approximately $61 million.

Normally such announcements do not attract the attention of Toomre Capital Markets LLC ("TCM"). After all, the consolidation of the listed exchanges has been going on for a while. They no doubt will also continue, especially if the equity markets ever return to one of their periodic extended low volume periods that typically accompany a United States recessionary period. It is not at all clear to TCM in the post Regulation NMS environment just what the competitive value of a listed exchange truly is. The value of a clearing license, on the other hand, is quite clear and helps explain why NASDAQ acquired the Boston Stock Exchange.

Toomre Capital Markets LLC is currently finishing up another White Paper for one of its clients, Advanced Micro Devices (“AMD”). The last AMD White Paper was on the subject of Compliance Risk Management and this one will be on a new methodology of programming called Complex Event Processing (“CEP”).

As part of preparing to write this White Paper on Complex Event Processing, the global practice leader for Financial Services at AMD, Pat Aughavin, and Lars Toomre met with most of the CEP vendors. One of the specialist CEP firms is named Kaskad Technologies, Inc. Their Chief Technology Officer (“CTO”) is a great technologist named Colin Clark and he has been responsible for one of the largest ever implementations of a CEP application. Their lead customer, The Boston Stock Exchange, runs Kaskad's Korrelera Surveillance System to identify possible market abuse and ensure compliance with all rules and regulations.

According to this press release, “The Boston Stock Exchange was seeking a solution that would enable it to quickly analyze large volumes of information in a stream and run real time market surveillance tool to pinpoint activity that violates security exchange rules.”

Russell Lewis, Kaskad Technology's Chief Executive Officer, suggests that a smooth implementation was made possible due to the cooperative efforts between Kaskad Technology and the Boston Stock Exchange. "Our executive team knows it is critical for our clients to have a smooth transition when implementing new software, and we work extremely hard to make the process as seamless as possible. We are pleased that the Boston Stock Exchange experienced a successful implementation and will immediately begin to benefit from improved efficiencies. We are also extremely pleased to see the success of our Complex Event Stream Processing engine and the ability of Korrelera to meet the needs of a stock exchange."

The press release continues “Korrelera correlates data from many streams of information, and finds and processes events based on complex relationships between messages on various streams to provide users with instant information or triggers for other applications. Korrelera is clearly on track to deliver against the stated goals," says Colin Clark, Chief Technology Officer of Kaskad. "The Boston Stock Exchange's implementation marks the first of many exchanges, broker dealers, investment managers, and intermediaries ready to launch Kaskad Technology's solutions."

With NASDAQ’s acquisition of the Boston Stock Exchange, the larger exchange also will be acquiring one of the leading market surveillance applications that just happens to be written with a leading CEP engine. TCM wonders if NASDAQ appreciates what a true gem of a surveillance application they are acquiring and how it might be expanded to meet the other compliance and surveillance needs of the larger exchange.

With NASDAQ’s acquisition of the Boston Stock Exchange (and their Kaskad Korrelera implementation) and the FSA’s adoption of the Progress Apama CEP engine for their next generation of a real-time market surveillance and market abuse detection system, clearly Complex Event Processing has arrived in the main stream of financial services. Many do not yet understand just how powerful and dramatic the changes CEP might bring, but they no doubt will learn in the coming weeks and months.

Please feel free to contact Toomre Capital Markets LLC at the contact details listed below if you would like to learn more about how this new method of processing data can positively impact your firm’s productivity and Economic Value Added (“EVA”). TCM will be focusing most of its efforts on this emerging methodology over the next few months. There are several major announcements in the works that dramatically change the general user’s perception of just what a CEP application can do. Reader comments and queries are most welcome.