More on modern SOR

There has been some interesting talk lately on EP blogs about Smart Order Routing (SOR) and CEP products. There are posts from Aleri and StreamBase about how SOR is more than just simple decision making. This debate has happened before, since SOR is one of the areas where CEP produts have been used for a long time.

Modern SOR is not just “routing”. SOR is the process by which an order is filled at the best price available right now. This contrasts with algorithmic trading, which is the process by which an order gets filled at the best price available over a longer period of time. SOR basically looks for market depth, meaning available liquidity at a given price range. It might find all the depth it needs on one place, or it might want to allocate an order over several markets at a given price range. So even basic SOR logic can be somewhat complicated, becoming what was once considered “algorithmic trading.”

But SOR is a deeper topic even than just splitting orders based on advertised liquidity. Coincedentally, it is also the subject of some of my recent research. Predictive analytics have already begun to creep into SOR in some shops (where the differences between SOR and algorithmic trading have also begun to blur). The trading arms-race being what it is, I expect everyone to follow suit within a few years. Many others share this view.

So now everyone has begun thinking about predictive analytics in SOR. But there’s another dimension – attacks on SOR algorithms. Just like algorithmic trading shops attack each other’s algorithms directly, the same potential exists to attack SORs. And the more advanced the SOR gets, the more opportunity there is to attack it. It’s a fun topic. 

I see that Mark at StreamBase has noticed some differences between IP routing and smart order routing. I have also noticed this difference. In  the comments on Marks’ post, Opher mentions that some people will want SOR to use probability before they will consider it to be CEP. This is already under way and will probably increase dramatically in the years to come.