:_ ::.,_ - ;:,~-- -':
`
`-
`
`FUTURES & OPTIONS WEEK
`
`E-MAIL EDITION
`
`CLICK TITLE TO READ STORY
`
`VOL 8 NUMBER 44
`B NOVEMBER 2004
`
`**Please read the copyright notice at the bottom of this page**
`
`IPE sees off first Nymex assault
`Buovant trading on floor and screen
`
`SGX fires salvo in Asian e-war
`Brokers ask ifsvstem can take the strain
`
`Election over. eyes turn to CFTC
`
`CBoT delays Denali
`
`IPE moves to block latest Nymex Brent ploy
`
`Case building for NQLX Eurodollar
`
`Fimat Sydnev powers up
`
`October volume round-up
`
`Brumfield prepares to testifv
`
`Share windfall for Mere execs
`
`Hunt for TT prior art
`
`Little prospect of exchanges paying TT
`
`New Eurex software closes ground on Connect
`
`Scott Johnston interview
`
`Editorial
`
`Briefs
`
`People
`
`Out trades
`
`Futures past
`
`Data 1, 2
`
`EST ad
`
`Fortis ad
`
`Ubitrade ad
`
`CMEad
`
`Trading Technologies
`
`FOW TRADEdata ad
`
`© Metal Bulletin pic 2004. All rights reserved. No part of this publication (text, data or graphic) may be reproduced. stored in any data
`retrieval system. or transmitted, in any form whatsoever or by any means (electronic, mechanical, photocopying, recording or
`otherwise) without obtaining Metal Bulletin pic's prior written consent. Unauthorised and/or unlicensed copying of any part
`of this publication is in vioration of copyright law. Violators may be subject to legal proceedings and liable for substantial
`monetary damages per infringement as well as costs and legal fees. For information about copyright licences please
`contact Cec~e Paradot on COPYWATCH in the UK on +44 (0)20 78275254. Brief extracts may be used for the
`purposes of publishing commentary or review only provided that the source is acknowledged. ISSN: 1361-8571
`
`TT0103979
`
`Page 1 of 17
`
`TRADING TECH EXHIBIT 2205
`TRADESTATION v. TRADING TECH
` CBM2015-00161
`
`

`
`FUTURES & OPTIONS WEEK
`
`IPE sees off first
`Nymex assault
`
`Elliott Aykroyd
`
`Buoyant trading on floor and screen
`and 80,000 for the correspon(cid:173)
`Volumes at IPE were
`ding days. In addition, volume
`strong in the first three days of
`for
`the overnight session
`competition, with Nymex yet
`between 2am and 1 Oam has
`to make a serious dent in
`also picked up to around the
`market share. IPE 's morning
`electronic-only session saw
`7-8,000 mark, compared with
`around 14,000, 20,000 and
`previous volume of around
`29,000 trades on the first three
`half that amount.
`days respectively. Floor vol(cid:173)
`By contrast, volumes in
`Dublin began modestly and
`umes in the afternoons were
`page 6 •
`also healthy at 94,000, 73,000
`declined
`
`International Petroleum Exch(cid:173)
`
`ange (IPE)'s 1 November
`switch of the morning Brent
`crude trading session from pit
`to screen seems so far to be
`paying off despite the challenge
`from New York Mercantile
`Exchange (Nymex)'s newly(cid:173)
`launched Dublin trading floor.
`
`Singapore
`
`SGX fires salvo in Asian e-war
`Brokers ask if system can take the strain
`"the contract has been a
`competing products, into the 'e(cid:173)
`Rupert Lee
`success and more of our cus(cid:173)
`war' that has been raging in the
`tomers are now planning to
`US and Europe.
`SOX's
`1 November
`move to electronic trading."
`launch saw more than 2,500 e(cid:173)
`A source close to the
`Nikkei lots traded during the
`exchange said, "broker sup(cid:173)
`day session, equivalent tol5%
`port is there and more firms
`are enquiring about joining as
`of total SOX Nikkei (pit and
`market makers." SOX already
`electronic) day volumes. By
`has several but has declined
`day four, the percentage had
`to name the firms. "Rival
`risen to 25%.
`exchanges might put pressure
`Robert Tan, Head of
`on the market page 4 •
`Refco Asia, told FO Week,
`
`Exchange
`(SOX)'s early success in
`its e-Nikkei contract could see
`the electronic rollout of SOX's
`Taiwan index and Euroyen con(cid:173)
`tracts by the first quarter of
`next year. The move will
`draw Taiwan Futures Exchange
`(Taifex) and Tokyo
`Inter(cid:173)
`national Financial Futures
`Exchange (Tiffe), which offers
`
`TT0103980
`
`Page 2 of 17
`
`

`
`Election over, eyes turn to CFTC
`
`.Jim Kharouf
`
`Following last week's election
`
`victory for President George
`Bush and the extension of the
`Republican majority in both
`houses, Congress is poised to
`address personnel
`issues at
`Commodity Futures Trading
`Commission (CFTC) and look at
`possible changes to futures legis(cid:173)
`lation during the commission's
`reauthorisation.
`The imminent change expect(cid:173)
`ed is the appointment of a Dem(cid:173)
`ocrat to a commissioner's post at
`CFTC. Fred Hatfield, who served
`as chief of staff to Louisiana Sen(cid:173)
`ator John Breaux, is widely exp(cid:173)
`ected to gain Congressional appr(cid:173)
`ovaL having been named by Bush
`lastmonth(seeFO WeekVol9No
`41 ). Acting chairman Sharon
`Brown-Hruska is expected to be
`given a full term as chairman.
`Along with current commis(cid:173)
`sioner Walt Lukken, that would
`
`give CFTC three commissioners
`with two seats remaining vacant.
`Some industry sources say a
`package deal may be in the works
`between the two political parties
`to fill the remaining seats with a
`Republican and a Democrat.
`CFTC rules state that no more
`than three of the five commission(cid:173)
`ers can be from the same political
`party. Brown-Hruska and Lukken
`are both Republicans.
`In the meantime, a subcom(cid:173)
`mittee of the House Agriculture
`Committee plans
`to canvass
`exchanges and firms for a list of
`changes they would like to see
`implemented. Kansas Congress(cid:173)
`man Jerry Moran, head of the
`Subcommittee on General Farm
`Commodities and Risk Man(cid:173)
`agement, told FO Week that he
`plans
`to host hearings with
`exchanges and firms in Chicago
`and New York to get their input
`early next year, as well as Congr(cid:173)
`essional hearings in Washington
`
`Global Clearing provides order
`routing, trading facilities, cleartng
`and settlement of dertvatives and
`underlying products and integrated
`electronic reporting. Fortis finances,
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`. •il••···
`;!~·
`FORTIS
`BANK
`
`for regulators, legislators and
`futures participants.
`"The CMFA [Commodity
`Futures Modernisation Act] cur(cid:173)
`rently gets a favourable response
`from the industry and there are
`not glaring problems," Moran
`said. "I think it is more likely that
`we will make minor adjustments
`rather than wholesale changes.
`But that will be determined by the
`hearing process."
`CFTC's authorisation expires
`at the end of September next year,
`but Moran said he believes there
`will be a push to complete the
`process on time.
`Futures Industry Association
`(FIA) executives have focused
`on changes to the self-regulatory
`powers of exchanges. There is
`also
`interest
`in
`clarifying
`CFTC's oversight powers of
`OTC fx trading, which is being
`challenged in court.
`"With self-regulation, we
`believe it isn't perfect right
`now," said John Damgard, presi(cid:173)
`dent of FlA. "My members have
`long felt that firms who have
`been competitive with open out(cid:173)
`cry have been fined for rules
`passed by guys with a floor men(cid:173)
`tality for the expressed purpose
`of punishing them."
`Single stock futures also
`continue to draw some attention.
`OneChicago executives advo(cid:173)
`cate changing rules to reduce
`
`margins from 20% to 15%. They
`also would like to see 60/40 tax
`treatment given to traders and
`would like regulators to allow
`portfolio margining. Having said
`that, OneChicago officials also
`say they believe they can contin(cid:173)
`ue to grow the product despite
`such obstacles.
`Despite all of the talk of
`changes to the CFMA, there is
`some discussion about whether
`the act should be reopened at all.
`At a panel on reauthorisation
`during the FIA Expo in Chicago,
`exchange and trade group execu(cid:173)
`tives said opening the CFMA for
`minor changes can give an open(cid:173)
`ing to unintended or unwelcome
`changes from Congress. For
`example, CFTC has been a
`strong opponent of major
`changes to exchange and OTC
`energy regulation.
`Brown-Hruska said during
`the panel that opening the CFMA
`may give a foot in the door for
`legislators who want to apply
`much stronger regulations to that
`sector.
`"If I look at the energy area
`in the last year, some of the
`things circulated around Capitol
`Hill as solutions to perceived
`problems are just an anathema,"
`Hruska said. "They could have
`a real destructive effect on
`this industry and broadly on
`consumers."
`
`CBoT delays Denali
`
`Laurence Davison
`
`Chicago Board of Trade
`
`(CBoT) has delayed the
`launch of Denali, a project
`designed to bring processing
`economies to trading pits, to 18
`January next year. The project
`was initially slated for 25 October
`Explaining the delay, an
`spokesperson told FO Week,
`"CBoT is committed to deliver(cid:173)
`ing enhanced technology to its
`open auction trading floors in
`order to further improve upon
`the high quality trading envi(cid:173)
`ronment
`offered
`by
`the
`
`exchange. Extending the imple(cid:173)
`mentation date will give us
`additional opportunity to incor(cid:173)
`porate and thoroughly test new
`functionality recently requested
`by the user community."
`Testing on the new system
`was meant to occur between 4
`October and 15 October, but no
`indication was given as to
`whether that happened .
`The most important func(cid:173)
`tionality included in Denali
`will be a trade matching appli(cid:173)
`cation to link trades entered
`into the hand-held devices used
`by floor traders.
`
`TT0103981
`
`Page 3 of 17
`
`

`
`IPE moves to block latest
`Nymex Brent ploy
`
`Elliott Aykroyd
`
`International Petroleum Exch(cid:173)
`
`ange (IPE) has moved to block
`a plan by New York Mercantile
`Exchange (Nymex)
`to offer
`exchanges of futures for futures
`(EFFs) in Brent crude. Nymex is
`considering offering EFFs, which
`would allow traders easily to
`move their open interest from
`IPE to Nymex's new Dublin
`trading floor.
`However, IPE informed
`members that taking advan(cid:173)
`tage of such a scheme would
`breach exchange rules. A cir(cid:173)
`cular stated, "we understand
`that another exchange is pro(cid:173)
`posing to offer EFF on the IPE
`Brent crude futures contract ...
`
`Members should be aware that
`the exchange does not offer
`EFF facilities and any pre(cid:173)
`negotiation involving such a
`facility may result in members
`being in breach of their exist(cid:173)
`ing
`obligations
`under
`exchange regulations."
`A spokesperson for Nymex
`told FO Week, "EFF would be
`something we'd like to· do, but
`we are still reviewing regulato(cid:173)
`ry issues."
`IPE head of compliance
`Mike Sayers told FO Week the
`exchange has no demand for
`EFFs from members and "no
`method of entering into such a
`transaction, ... although Nymex
`would be happy to accept
`exchange positions we don't
`
`think there's a facility under our
`rules which allows them to be
`transferred off our exchange".
`The move is reminiscent of
`a recent rule interpretation by
`Chicago Mercantile Exchange
`that prohibited simultaneous
`block trades on two exchanges,
`effectively hindering
`large
`shifts of Eurodollar open inter(cid:173)
`est to Euronext Liffe (see FO
`Week Vol 9 No 27).
`Separately, IPE has defend(cid:173)
`ed its market against Nymex
`by introducing fee waivers on
`its own Brent contract for the
`morning electronic trading ses(cid:173)
`sion and the afternoon's open
`outcry. Exchange transaction
`fees have been waived for elec(cid:173)
`tronically traded IPE Brent
`
`futures until 2pm UK time
`until 31 December and fees
`have been waived for white
`badge locals on IPE Brent
`open outcry futures until the
`same date.
`In a bid to attract traders to
`Dublin, Nymex has
`imple(cid:173)
`mented a waiver of all
`exchange fees for Brent crude
`futures, including out of hours
`transactions on the exchange's
`Access electronic platform. It
`is also offering a weekly
`stipend of $1,000 to traders
`who maintain a regular pres(cid:173)
`ence of at least four out of five
`working days on the Dublin
`floor. In addition, certain Brent
`trades are eligible for a 50 cent
`rebate per contract per side.
`
`Case building for NQLX Eurodollar
`
`Laurence Davison
`
`Gradually increasing trad(cid:173)
`
`ing volume and open
`interest, combined with an
`increase in participation from
`US traders, could tip the bal(cid:173)
`ance
`in favour of listing
`Eurodollar futures on NQLX,
`according to a Euronext Liffe
`official.
`George Anagnos, Liffe's
`head of business development
`in North America, said, "As
`
`open interest rises, I think our
`customers will start to say that
`there are too many advantages
`being missed by not listing on
`NQLX .... We have an endur(cid:173)
`ing commitment to developing
`both the Eurodollar and our
`US market, and that's one of
`the reasons why we've kept
`the [NQLX]listing."
`Trading in NQLX's single
`stock futures contracts will
`end next month. If there are no
`page 4 ~
`transactions
`
`3.00%
`
`2.50%
`~ 2.00%
`"' ..r:;
`rn
`dj 1.50%
`~
`"' 1.00%
`:2
`0.50%
`
`0.00%
`
`Liffe's Eurodollar
`
`Monthly market share
`-
`- - 30-day average volume
`
`I
`,-- r--r ~rJ
`
`v
`
`v
`
`40000.0
`35000.0
`30000.0 CD
`25000.0 §
`20000.0 g
`15000.0 ~
`10000.0 °
`
`5000.0
`0.0
`
`TT0103982
`
`Page 4 of 17
`
`

`
`... :.::: -"~· :-:;_ .. _ .. _ . - .. '
`
`Fimat Sydney povvers up
`
`Rupert Lee
`
`Fimat Sydney has launched
`
`a brokerage service for
`Australia's annual 218 ter(cid:173)
`awatt hour (TWh) electricity
`derivatives market.
`The firm has hired a three(cid:173)
`person Melbourne-based elec(cid:173)
`tricity broking team that was
`previously with Next Gen(cid:173)
`eration. The unit will compete
`with five other brokerages
`operating
`in
`the market,
`
`including ICAP, Prebon and
`Man Financial.
`Toby Lawson, Managing
`Director of Fimat Sydney, told
`FO Week the team will broker
`all types of OTC electricity
`derivatives, renewable energy
`green
`power
`certificates,
`rights, gas certificates, carbon
`based products, weather deriv(cid:173)
`atives and listed futures and
`options on Sydney Futures
`Exchange (SFE).
`The exchange offers six
`
`electricity contracts under a
`joint venture with D-Cypha, a
`subsidiary of state-owned
`Transpower New Zealand. The
`SFE contracts, which effec(cid:173)
`tively offer credit clearing,
`have seen more than 11,000
`contracts traded so far in 2004,
`equivalent to around 28 TWh
`or 20% of the turnover in
`Australia's wholesale
`spot
`electricity market.
`The electricity derivatives
`market consists of around
`
`although
`90 participants,
`only 30 or so are active deriv(cid:173)
`atives hedge players. Banks
`involved
`include Westpac,
`ANZ and SG. Lawson says
`SG's electricity trading desk
`is
`independent of Fimat's
`business.
`Fimat says the turnover
`ratio between the spot physi(cid:173)
`cal market and the derivatives
`market has room to grow with
`the market considered "still in
`a growth phase".
`
`NQLX Eurodollar
`
`~ page 3
`in the
`following six months,
`the
`exchange will be considered
`dormant and have
`to be
`re-examined by Commodity
`Trading Futures Commission
`prior
`to
`future
`product
`launches.
`it
`that
`Liffe has said
`plans to retain NQLX -
`the
`only US
`futures exchange
`wholly-owned by a non-US
`exchange -
`for new product
`listings. It has also said repeat(cid:173)
`edly that it is considering
`launching Eurodollars on
`NQLX, but has given few
`
`hints as to when a decision
`could be made.
`One of the potential advan(cid:173)
`tages of an NQLX Eurodollar
`listing would be the possible
`introduction of 60/40 tax status
`to Liffe's contracts; US partici(cid:173)
`pants trading Eurodollars on
`Chicago Mercantile Exchange
`currently
`receive
`the
`favourable tax treatment.
`However, Liffe has so far
`held back on
`the
`listing
`because it would require trad(cid:173)
`ing to be handed over from
`Liffe to NQLX on a daily
`basis, which would complicate
`
`matters for European traders.
`But if volume and open
`interest keep rising the case
`for listing on NQLX could
`prove compelling, according
`to Anagnos. He said Liffe has
`seen more
`trading
`in
`its
`Eurodollars
`from
`the US
`over the past two months,
`from both proprietary and
`institutional
`traders. The
`exchange set a daily volume
`record on 1 November, with
`75,928 contracts traded, fol(cid:173)
`lowed by another record -
`93,115- two days later. Open
`interest, meanwhile,
`has
`
`passed the 120,000 mark.
`Anagnos added that LCH
`Clearnet (LCH-C) would be
`a
`"natural
`fit"
`to
`clear
`Eurodollar
`contracts
`on
`NQLX since being awarded
`Designated Clearing Organ(cid:173)
`isation status in the US, but
`that no decision had been
`made. LCH-C has repeatedly
`said that its own plans for the
`extension of its US clearing
`business are also yet to be
`finalised.
`
`• Additional reporting by
`Mike Topping.
`
`SGX fires salvo in Asian e-war
`
`~ page 1
`makers to
`quit SGX," said the source.
`However, some market par(cid:173)
`ticipants have expressed concern
`that SGX does not have the
`required trading infrastructure in
`place to cope with the expected
`volume. A Singapore based bro(cid:173)
`that the
`ker told FO Week
`exchange needs to quickly lift
`capacity and iron out bugs before
`volumes increase.
`"SGX is faced with prob(cid:173)
`lems that I believe to be strnctur(cid:173)
`al in their race to meet the
`[launch] dateline. Should [ elec(cid:173)
`tronic] volumes pick up, we may
`see further stress on the infra(cid:173)
`structure," he said, adding that
`there has been a total of three
`
`periods of SGX lines being
`down since the launch of the
`new system in August. In addi(cid:173)
`tion, "some of the testing done
`by the exchange had been under
`sterile conditions with no
`considerations
`to bandwidth
`utilisation under real market
`conditions," he said.
`However, others were more
`sanguine. A proprietary trader
`said,
`"people
`forget
`that
`Singapore's futures community
`has so little exposure to electron(cid:173)
`ic trading. Events of the past few
`months with Globex and Liffe
`Connect are still reverberating.
`This is the first time members
`have had any siguificant demand
`for an electrouic product. Some
`
`are only now connecting while a
`few vendors have only recently
`connected to the overhauled
`SGX back-end, so one would
`expect some teething problems."
`Another
`dealer
`said,
`"Logically, the next step for the
`exchange is to rollout electronic
`day trading for the Taiwan index
`and the Euroyen. So increasing
`capacity and improving the sys(cid:173)
`tem would already be a high
`priority for SGX."
`Brokers say the rollout could
`be as early as Q 1 2005 for the
`Taiwan index. As a result, Taifex,
`and eventually Tiffe when SGX's
`Euroyen is 'e-launched,' will be
`drawn
`into an
`increasingly
`global electronic war.
`
`Meanwhile, Osaka Sec(cid:173)
`urities Exchange (OSE), which
`also offers the Nikkei 225 con(cid:173)
`tract, has implemented moves
`to protect its turf. The exchange
`will extend its trading hours
`next month to start at the
`time as SGX. OSE
`same
`announced last week that it was
`widening its price limits (see
`FO Week Vol 9 No 43).
`Recently it updated its order
`processing capacity by 44% for
`Nikkei 225 futures. An OSE
`spokesperson told FO Week that
`"the trading system in Nikkei
`225 Options [developed by
`Hitachi and designed by OSE]
`will be enhanced by the end of
`November."
`
`TT0103983
`
`Page 5 of 17
`
`

`
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`
`TT0103984
`
`Page 6 of 17
`
`

`
`October volume round-up
`
`Elliott Aykroyd
`
`The world's big four major
`I derivatives exchanges con(cid:173)
`tinued to post strong growth
`through October as they head
`into the final quarter of another
`bumper year for the industry.
`The main trend of the year
`continued with volume growth
`in the US keeping Europe in
`the shade. Chicago Mercantile
`Exchange (CME) showed some
`of the best figures of the city's
`big three derivatives institu(cid:173)
`tions, reporting average daily
`volume of over 3.2m contracts
`in October, up 32% on October
`2003. Year
`to date,
`the
`exchange is 24.4% up on 2003.
`Average daily volume on
`CME's Globex electronic trad(cid:173)
`ing platform was approximately
`2.2m
`contracts,
`a
`103%
`increase over October 2003.
`
`Electronic trading represented a
`record 68% of total CME vol(cid:173)
`ume in October, compared with
`44% percent in October 2003.
`On 29 October CME's flagship
`Eurodollar future on Globex
`reached 78.4% of total volume,
`making it the largest percentage
`day ever. Eurodollar futures on
`Globex averaged 875,000 con(cid:173)
`tracts per day.
`Meanwhile, total exchange
`volume continued
`to grow
`across town at Chicago Board
`of Trade (CBoT), reaching
`47.8m contracts in October, an
`increase of 12.8% from last
`year. Year-to-date
`volume
`through October was up 29.5%
`on last year at 494.3m.
`Financial options volume
`rose 25.3% from last year
`to 7.9m and 34.2% year to date
`to 78.3m contracts, while
`agricultural options
`trade
`
`increased 47.3% year to date
`to 15.2m.
`Over the Atlantic, growth
`at Europe's big two deriva(cid:173)
`tives exchanges was slower
`overall with Euronext Liffe
`showing the greater change.
`Liffe
`announced
`that
`it
`has traded over 676m futures
`and options contracts
`this
`year, up 13% on the same
`period last year. Average daily
`volume this October remained
`steady compared to October
`last year with 2.8m contracts
`traded.
`Individual equity products
`have
`shown
`the
`strongest
`growth in the year-to-date trad(cid:173)
`ing with over 275m contracts,
`up 28% on January to October
`2003. Equity products as a
`whole traded 406m futures
`and options year-to-date, up
`15% on 2003.
`
`Commodity products traded
`604,000 futures and options in
`October and, in the year-to(cid:173)
`date, are up 19%. Over 7m
`commodity contracts have trad(cid:173)
`ed this year, breaking last year's
`record and casting doubt over
`some market feeling that com(cid:173)
`modity products are not well
`suited to trading on screen.
`Total turnover this year at
`Eurex
`is up on
`last year
`by around 20m contracts,
`about 2%.
`in
`turnover
`The highest
`October was delivered in fixed
`income products, with 45.5m
`contracts making up more than
`half of the total volume traded on
`the exchange. With 20.2m con(cid:173)
`tracts traded, the Bund retained
`its position as the most success(cid:173)
`ful product while the Bobl
`accounted for 12.3m contracts
`and the Schatz clocked up 8.8m.
`
`IPE sees off first Nymex assault
`
`~ page 1 slightly, Nymex
`Brent crude trading 5,726, 4,891
`and 3,938 contracts on 1, 2 and
`3 November. However, Nymex
`claimed there are more traders
`yet to move across to Dublin,
`both from London and the US,
`so there may be strides in
`trading yet to be made.
`The market in Dublin fared
`well in the morning of its first
`day but trading tailed off in the
`afternoon as the pits opened
`over at IPE.
`the
`A spokesperson for
`exchange told FO Week during
`the day that 4,500 trades had
`been executed by approximately
`1.40pm; IPE opened its floor at
`2pm, after which fewer than
`1,500
`additional
`contracts
`traded in Dublin.
`Approximately 40 traders
`were present in Dublin on day
`one, with a similar number
`waiting for clearance to trade,
`to an exchange
`according
`spokesperson. Of those present,
`around
`15-20 were
`from
`London, five from New York
`
`and the rest were Finex Locals.
`Firms present included PVM,
`BNP Paribas, Rand Financial,
`Man, Calyon, CIS, Amarex and
`Ref co.
`One Local who had made
`the trip from London to Dublin
`told FO Week in the morning,
`"it's a good market... spreads
`and arbs are trading well."
`Across the water in London,
`IPE volumes represented a fair(cid:173)
`ly normal day for the exchange,
`which averaged
`just over
`100,000 Brent crude futures
`daily in September. According
`to IPE, 40 firms and 500 traders
`took part in electronic trading
`on the first day.
`A spokesperson for IPE told
`FO Week that it was a good start
`for screen trading and that while
`clearly some pit traders had
`gone over to Dublin it "wasn't a
`massive departure".
`However, at a press confer(cid:173)
`ence in Dublin last Monday,
`Nymex was bullish about its
`own first morning's work.
`Exchange chairman Mitchell
`
`the
`that
`said
`Steinhause
`exchange had received "tremen(cid:173)
`dous" feedback from traders
`that morning.
`Exchange president Jim
`Newsome told reporters that one
`of the keys to attracting the mar(cid:173)
`ket is to offer spreading oppor(cid:173)
`tunities with other open-outcry
`contracts:
`"We're committed to this
`contract and this marketplace.
`It's not cost prohibitive for us
`to stay here, we're already
`looking at what other synergies
`we can create, whether that be
`Brent options or gas oil. When
`you're trading open outcry, the
`synergies are very important,"
`he said.
`Nymex has a 12-month
`lease on its space at New York
`Board of Trade's Finex estab(cid:173)
`lishment but has not decided
`how long it will actually remain
`there, preferring to leave it up to
`the market to decide whether
`Dublin is a viable option or if it
`will be necessary for Nymex to
`establish a London facility.
`
`Newsome confirmed that the
`exchange is still in talks with the
`FSA over a London venture and
`that it is looking at venues.
`told
`Newsome
`also
`reporters that he believes the
`only loyalty the large oil firms
`such as BP and Shell have is to
`the marketplace: "If we can cre(cid:173)
`ate the deepest, highest-value
`marketplace, they'll come to
`us regardless of what other
`partnerships are involved."
`However, one broker told
`FO Week that whilst he was
`impressed Nymex had managed
`to set up so quickly in Dublin,
`there were some inherent prob(cid:173)
`lems with opening an exchange
`fast. One example he
`so
`gave
`is
`that
`there are no
`video surveillance or telephone
`recording facilities as yet, which
`he said is a deterrent to some of
`his customers.
`A spokesperson for Nymex
`told FO Week that "cameras and
`taped phone
`lines will be
`installed in the next couple of
`months".
`
`TT0103985
`
`Page 7 of 17
`
`

`
`- .• >.'b" .. .;:;
`
`,.-:.-,_ .. ,.
`
`’’I estimate cut least 50%
`
`of the electronic volume
`
`top tour
`on the worl
`futures exchanges goes
`through TT’s X_TRADER®
`order-entry platform.
`From cs trader's viewpoint,
`that speaks for itself.”
`
`Harris Brumtieid, CEO
`Veteran Trader
`
`TT0103986
`TT0103986
`
`Page 8 of 17
`
`

`
`~··-·~:....:: _,: ',
`
`I=MI~ii9=\9H3'?1
`
`CME screen saver
`
`Scott Johnston served as chief information
`officer at Chicago Mercantile Exchange (CME)
`from 2000 until May 2004. During that time he
`oversaw enhancements to the Globex platform that
`boosted electronic volumes on the exchange. He
`spoke to FO Week about his current ambitions,
`CME and where the industry is heading.
`Interview by Jim Kharouf
`
`What have you been doing
`since leaving CME in May?
`
`I've been talking to exchanges. ISVs.
`market makers and specialists about the
`evolution of electronic trading. We've dis(cid:173)
`cussed what to expect as a product goes
`electronic and how to succeed through
`the migration.
`
`Is this more on the options
`side or equities side?
`
`More on the cash equities side.
`
`So hoiN are you finding the
`futures markets versus the
`cash equities markets in terms
`of their technological develop(cid:173)
`ment?
`
`Chicago-based futures exchanges have
`transitioned more quickly than US equity
`exchanges. A lot of things the Mere and
`Board of Trade have done are things the
`equity exchanges are just starting to do
`today. Most of the CME and CBoT finan(cid:173)
`cial futures are predominantly electroni(cid:173)
`cally traded. Customers who trade equi(cid:173)
`ties want that same kind of revolution to
`take place in their markets.
`
`Why leave CME, a company
`that has performed above
`most analysts' expectations on
`Wall Street and is one of the
`top exchanges in the INOrld?
`
`I love both trading and technology. When
`I came to the CME. it was both a start-up
`and a turnaround and required my
`expertise in both disciplines. As CME
`grew. my role became more that of a
`
`pure technology manager rather than
`strategy development and trading. My
`heart really lies with doing both at the
`same time. I think I accomplished my
`mission and it was time for me to find
`something more balanced between trad(cid:173)
`ing and technology.
`
`There is a history of board(cid:173)
`room politics at the CME that
`many people say is alive and
`!Nell. What is your perspective
`on that and hoiN do you think
`it affects the running of the
`business?
`
`What do you make of CME's
`success and INhat are the keys
`to it over the past fiNo years,
`since it INent public?
`
`Before I got there. CME had already
`started the transformation to become a
`public exchange and was starting to
`migrate contracts electronically. I am not
`surprised by the success because you're
`talking about the momentum of the past
`ten years or more. CME did a lot of great
`things to develop markets, bring the cus(cid:173)
`tomers along and built a system that was
`scalable. Today's success is the culmina(cid:173)
`tion of years of work.
`
`You INere there during fiNo dif(cid:173)
`ferent management regimes:
`Jim McNulty and Scott Gordon
`and then Craig Donohue and
`Terry Duffy. What !Nere the
`similarities and differences
`under them?
`
`In my short tenure of four years, there
`were really two different periods. One
`was where we were really growing fast
`and transforming the exchange. There
`was a lot of organisational and cultural
`change that had to happen during the
`first two years or so. The second two
`years were spent dealing with our suc(cid:173)
`cess and issues of being a public
`company.
`
`As a member-owned exchange, in the
`past politics were part of the everyday
`governance of the exchange. That's not
`something that can be transformed
`overnight. It has its downside but it also
`has its upside. There are a lot of very
`experienced people in the exchange in
`positions of authority that have an idea
`of what the exchange should be doing.
`With a large number of people you tend
`to get a very diverse set of ideas, and
`with that you can generate some friction
`as you sort out decisions- that's poli(cid:173)
`tics. It appears that the market believes
`in the direction CME is headed.
`
`One executive I spoke INith
`after your departure said the
`folloiNing: "The real problem is
`all of the people INho have
`moved on INere really the
`visionary people. McNulty,
`Satish [Nandapurkar] and
`Scott Johnston brought all the
`things that helped
`shape CME into a professional,
`corporate, for-profit
`organisation. The question
`noiN is do they really have the
`talent noiN to tell them INhere
`to go and help them get
`there?" So, does the CME have
`the right people in place?
`The three of us were part of a team that
`page 9 ~
`brought out the best in
`
`TT0103987
`
`Page 9 of 17
`
`

`
`~ page 8
`the exchange. In
`many ways, there was an excellent base
`to begin with. Part of our job was to
`build a great team that would last longer
`than any individual person and be able to
`carry out the business plan. I think we
`succeeded in building the teams; we
`have each moved on but the
`exchange is doing very well,
`continuing to execute the plan.
`
`What's the next frontier for
`electronic platforms?
`
`Options trading. If you look at the ratio
`of options trades to futures trades on the
`North American exchanges. it's pretty
`small. Compare that ratio to exchanges
`in Europe and you can see there is much
`more potential for electronic options
`trading. There is a lot of work to be done
`to build the infrastructure so we can
`trade the same kind of ratio. The chal(cid:173)
`lenge for US markets is to c