HARRIS BRUMFIELD:
`HARRIS BRUMFIELD:
`Pit trader gets wired
`
`72
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`www.activetradermag.com • December 2003 • ACTIVE TRADER
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`TRADING TECH EXHIBIT 2217
`TRADESTATION v. TRADING TECH
` CBM2015-00161
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`

`
`Active TRADER Interview
`
`Harris Brumfield, a pit trader turned screen
`t rader turned technology entrepreneur,
`talks about pushing the volume envelope
`and the future of electronic trading.
`
`BY MARK ETZKORN
`
`In some ways, Harris Brumfield
`
`embodies the popular perception
`of a futures floor trader — he’s
`won big and lost big, taking huge
`chances and relying in part on his “gut”
`while frenetically trading thousands of
`contracts per day.
`But that was then and this is now.
`Brumfield retired from the pits a few
`years ago, and although he still trades
`regularly from his office, his main job
`these days is as CEO of Chicago-based
`Trading
`Technologies
`(www. t r a d-
`ingtechnologies.com), a firm that makes
`a high-end electronic futures trading
`platform. To borrow a line from former
`Remington CEO Victor Kiam, Brumfield
`liked the company so much, he bought it
`— which he was able to do having made
`millions as a trader.
`It may sound incongruous for a for-
`mer floor trader to champion electronic
`trading technology, but Brumfield, 39,
`was an early backer of scre e n - b a s e d
`trading in the futures markets — even
`when he was arguably the biggest trader
`in the Chicago Board of Trade’s (CBOT)
`10-year T-note pit. (His two brothers,
`Hardy and Frank, are successful T-note
`
`and yield curve traders, respectively.)
`He says it wasn’t easy to leave the floor
`behind.
`“I loved it,” Brumfield says. “[When I
`left], I pretty much had to go cold turkey
`— almost like quitting drinking. I could-
`n’t even get near it.”
`As Brumfield sees it, the future of
`futures is electronic — an inevitable real-
`ity because of the larger volume and bot-
`tom-line efficiencies offered by comput-
`er networks that trading floors cannot
`match. Nonetheless, he first made a
`name for himself in what might be
`known someday as the last great age of
`floor trading.
`Brumfield, who is married and has
`three daughters, grew up in Inverness,
`Miss., a couple of hours south of
`Memphis and 30 minutes east of the big
`r i v e r. A finance major at Mississippi
`State University, he was first tipped off
`to the presence of the futures markets by
`a friend who was trying to launch a
`career on the Chicago trading floors.
`“He was a phone clerk at the Chicago
`Mercantile Exchange,” Brumfield says.
`“He was a little older than me, and he’d
`come back to Mississippi — where I was
`still in school — to go to a football game.
`He didn’t know what kind of job I’d be
`able to get, but he said I’d be able to get
`something — there was a lot of opportu-
`nity. He thought the business would fit
`my personality.”
`By that, one assumes his friend meant
`Brumfield’s friendly nature and break-
`neck energy (he can talk a mile a minute,
`
`even with his down-home Mississippi
`accent) would serve him well in the face-
`to-face, think-on-your-feet environment
`of the trading floor.
`After graduating, Brumfield drove up
`to Chicago and embarked upon the
`career path tread by many hopeful souls
`who for years have gravitated to the
`trading floors in search of success: He
`started out as a “runner” — carrying
`orders from trading desks to pit brokers
`— and tried to move his way up the lad-
`der to broker or trader.
`His first job was with Paine Webber in
`the CBOT’s grain room. But he frequent-
`ly walked past the financial room (where
`the exchange’s popular T-bond and T-
`note contracts, among others, are traded)
`and knew that was where the action
`was. It wasn’t long before he made the
`switch to the financial markets.
`“In early 1987, after about thre e
`months I got a job as a broker assistant in
`the financial room, in the Municipal
`bond pit,” he says. [The broker I worked
`for] would also trade some MOB spreads
`(municipal bonds/T- b o n d s) and T- n o t e
`spreads.”
`Many runners and clerks leave after a
`few months, if not weeks, of experienc-
`ing the barely controlled mayhem of the
`floor. Others linger for years, waiting for
`a shot at a better job. Things got rolling
`for Brumfield in short order.
`“ We got along pretty good, and I
`guess I did a decent job for him,”
`Brumfield says of his relationship with
`his boss. “He was running around a lot
`to do trades in different markets, so he
`gave me his garbage business — orders
`of 10 or fewer contracts — in the middle
`of 1987, after I’d worked for him three or
`four months. That was a huge break for
`me, because he had a huge business —
`he filled orders for all the big [clearing]
`houses. I leased a badge (a seat on the
`exchange) and started using those com-
`missions to fund my trading. I was mak-
`ing as much as 10 times what I was mak-
`ing as an assistant.”
`
`continued on p. 74
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`But the income was coming from fill-
`ing orders, not from trading.
`“Working as a broker really helped
`me during that period, because the com-
`missions were pretty steady and I was
`able to lean on that income as I learned
`how to trade,” Brumfield explains. “It
`allowed me to try different things and
`
`b e h a v i o r, even jotting down observa-
`tions while in the pit. He would periodi-
`cally review his notes, sifting through
`them for trading ideas, 95 percent of
`which he’d toss in the garbage. Three or
`four might be useful in the future.
`As his career progressed, one factor
`that made many of his trading ideas
`obsolete was the increased size he trad-
`ed. Brumfield says he has old trading
`techniques that might still work if traded
`on, say, a 50-contract basis, but which
`
`HB: I’m much more a fundamental trad-
`er than a technical one. I liked to record
`the markets — I’ve watched the markets
`for 15 years — and I’d just observe the
`interaction of everything that was going
`on in the world. A large part of what I
`accomplished was that I was just able to
`react really fast. And there was a lot of
`discretion in what I did.
`
`AT: You weren’t just shooting from
`the hip each day, were you?
`
`Combining some kind of systematic
`foundation with the ability to change
`things on the fly probably gives you the
`best of both worlds.
`
`could not be executed efficiently when
`applied to large (e.g., 1,000-contract)
`position sizes.
`Brumfield is a unique case, because
`while the risks he took could not be rec-
`ommended as a prudent example for the
`vast majority of aspiring traders, those
`risks have paid off handsomely for him.
`As a trader, he operates outside the
`norm, like a baseball player who consis-
`tently bats over .300 using an unconven-
`tional stance that would sabotage any
`other batter.
`
`AT: What kind of trading were you
`doing when you started on the floor?
`HB: A combination of scalping and posi-
`tion trading. I would always have an
`idea — a basic position — and then I’d
`trade around it. I still trade like that,
`even though I don’t have quite as much
`time as I used for scalping.
`
`AT: Did your trading style change over
`the 10 years you were on the floor?
`HB: Well, I changed stuff all the time, but
`the style itself — being very active, put-
`ting on position trades and scalping
`around them — never has changed.
`Trying to come up with techniques —
`that’s a full-time job, even today.
`
`AT: What did you base your trading on?
`
`HB: You need to have some kind of game
`plan. But things evolve so quickly in the
`market you have to be able to adapt.
`Combining some kind of systematic
`foundation with the ability to change
`things on the fly probably gives you the
`best of both worlds.
`I would read a lot before the trading
`day, and even during the day, to find a
`theme, have a direction and develop a
`trading bias. No market pattern repeats
`exactly the same, but you can see a lot of
`things developing [like they did in] the
`past if your memory is good enough and
`you remember things that have hap-
`pened repeatedly.
`But you have to mix things up and
`adjust for the time. One of the problems
`I saw is that technical ideas eventually
`get caught and you have to be able to
`shift real fast. Approaching things the
`way I did, I figured if I ever found any-
`thing [that was really good], it would be
`harder for people to discover and copy.
`Also, my trading approach played to
`my strengths, as far as experimenting
`and trying different things. On the floor,
`I was exposed to many different things
`— different from the things an [online]
`trader would be exposed to. I actually
`developed a lot of ideas on the floor and
`was able to bring them over to the elec-
`tronic trading environment. And I could
`
`make mistakes. I really wasn’t making
`money as a trader, but the key was that
`my brokerage commissions paid my
`way. I was basically spending my com-
`missions learning how to trade.”
`After six months or so, he felt he was
`ready to trade for himself full time, so he
`gave back the brokerage business to his
`old boss and took the plunge. He started
`out in the municipal bond pit, but quick-
`ly switched over to the 10-year T-note,
`occasionally trading bonds.
`Early on, Brumfield swung for the
`fences, and experienced the financial
`ro l l e rcoaster that goes hand in hand
`with aggressive scalping. (“I went up
`and down quite a bit — I’d make a lot of
`money and go back to zero,” he says.)
`Interestingly, though, he seems not to
`have suffered much from the emotional
`rollercoaster that usually attends repeat-
`edly seeing your account equity soar to
`new heights and fall to the depths in
`short order.
`Brumfield claims the overwhelming
`majority of trading strategies or ideas he
`has conceived haven’t work. He used to
`compile extensive notes about market
`
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`trade them to an even greater degree,
`because I didn’t have to spend time
`doing things like carding up orders.
`I was basically trading as big as you
`can trade on the floor, but I was still lim-
`ited. When you trade large, there can be
`20 people on the other side when you
`take out a bid or offer, and you have to
`write up all those orders and have them
`checked.
`On the computer, you can just keep
`hitting bid after bid after bid. You don’t
`have to slacken your pace.
`
`AT: Would you say your returns were
`volatile?
`H B : Oh yeah — extre m e l y. I kept
`expanding my knowledge by pushing
`the envelope pretty hard in terms of the
`volume I was trading. It’s much harder
`to trade larger, so any kinks in your sys-
`tem or approach are exposed that much
`faster. If I was doing well, I would just
`keep trading larger and larger.
`Doing that is controversial. From a
`money point of view sometimes it was-
`n’t very smart, because sooner or later
`the market would crack me. But from a
`knowledge point of view, I accumulated
`a great deal. It’s like anything: You lose
`and you learn a little bit more.
`But the goal was to keep learning. I
`really enjoyed the [challenge of trading]. I
`was trying to see how good I could get at
`it, and the best way to do that is to push
`the volume envelope. I wanted to see if I
`could trade unlimited size and still make
`it. I knew then I’d have something amaz-
`ing. I probably was fortunate to develop a
`couple of things along the way, and it def-
`initely took years to do this.
`The clearing people would sometimes
`tell me, “Are you nuts? Don’t you know
`what you could make if you just limited
`yourself to trading 1,000 contracts or so
`at a time?” But they could see I could
`handle what I was doing.
`
`AT: Do any trades stick out in your
`mind?
`HB: On one unemployment number day,
`I went into the release long a couple
`hundred T-notes. Right before the num-
`ber came out the market was trading 12
`bid at 13. The number came out moder-
`ately to seriously bearish.
`A few small sales stops were triggered
`and several brokers were peppering
`
`another broker who was bidding at even
`(the whole number — i.e., 98.00).The even-
`bid broker looked like he had size (a
`l a rge order), and I started howling
`“Sold!” over and over. He was across the
`pit, but my voice was fairly loud and he
`recognized it. He immediately started
`yelling “Balance!” at me, which meant
`once he figured out how many contracts
`he had left to fill, he would tell me the
`exact number.
`Yelling “Sold!” like that means you
`want the entire order and you’re stuck
`with it all. But I didn’t have a clue how
`many contracts he had, except I could
`tell by his eyes that it was large. The
`whole time he was trying to figure out
`his balance, the market was sheer pan-
`demonium.
`Usually the broker will give you a
`ballpark figure of how many contracts
`he has left. In this case, though, he didn’t
`give me an indication. By the time he
`gave me the number, around 90 seconds
`had passed and the market was 20 ticks
`lower. He had 2,200 contracts and, well,
`you can do the math. (Each tick in the T-
`note was worth $31.25.)
`On the flip side, one day I was bullish
`and the Notes rallied about three-quar-
`ters of a point. I was long 1,300 to 1,400
`contracts the whole way. I cut my posi-
`tion down to 800 contracts and went out
`to lunch. At the time, I was up right
`around seven digits.
`By the time I got back to the pit, the
`market had fallen to unchanged on the
`day and was dropping fast. I jumped
`into the pit and immediately doubled-
`up my position. Eventually, I tripled up
`when the market dropped further.
`It wasn’t until near the end of the day
`— after the market had dropped even
`more — I decided I was wrong. Let me
`tell you, it was u-g-l-y, you ain’t got no
`alibi. By the time I had wiggled out of
`most of my position, the loss was double
`the size of my profit from earlier in the
`day.
`I knew I’d missed something, so later I
`scrolled through all the news for that
`day, and sure enough, there was a seri-
`ous tax-cut comment around noon that I
`didn’t hear.
`
`AT: Was that typical size for you?
`HB: In the 10-year T-note pit, I probably
`participated in about 20 percent of the
`
`volume, on average. With the Bund (the
`German bond contract), I would trade as
`many as 130,000 sides in four hours.
`
`AT: So, if I may ask, what were you
`making as a floor trader?
`HB: Well, as much as eight digits in a
`good year. But of course, you have years
`when you lose a bunch, too. As I
`explained, I went down to zero at least
`two, maybe three times — and from very
`high equity points, too.
`But it didn’t really bother me. I can’t
`describe it. It hurts your feelings for a
`day, but once you sleep on it, you’re OK.
`
`AT: I don’t think most people would
`react that way.
`HB: As long as I thought I could make a
`living for my family, I was like, “So
`what?” I was driven more by the chal-
`lenge of doing it at an extreme level.
`You’re just pushing your brain, and it
`can be very fun — and yes, chasing solu-
`tions can be very addictive. Don’t get me
`wrong, I will fight to the death to get a
`“W,” its just that my approach is differ-
`ent than most.
`
`AT: Have you ever thought much
`about the personality traits or char -
`acteristics that make traders suc -
`cessful — even traders who don’t
`share your style?
`H B : One way to look at it is, if you were
`doing the kinds of things I was doing —
`experimenting and knowing you were
`going to get your butt kicked from time
`to time — you better be able to [put it
`behind you] and not let it worry you.
`That’s an ability I luckily have. And I
`don’t think you can train yourself for
`that. I was more into trying to figure out
`the problem than worrying about how
`sad it was I got my butt kicked.
`Of course, at some point you have to
`stop. But the thing is, if you’re develop-
`ing an extreme style and pushing the
`volume you trade, you have to cut that
`size way down [when you have a big
`equity reversal]. But it re q u i res less
`knowledge to trade smaller, because it is
`much more efficient than trading larger,
`so you’re able to march back up the
`mountain pretty quickly
`if your
`approach is good.
`I guess I just had the confidence I
`continued on p. 76
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`could do that, so I didn’t worry. That
`helps.
`
`AT: Do you think, then, it really boils
`down to basic confidence?
`HB: Confidence is a huge part of it —
`and you need to have that confidence all
`the time. Extremely smart people have a
`very tough time unless they trade tech-
`nically. They can’t do it fundamentally
`
`inside me, it’s time to bail.
`I think the hardest thing about trad-
`ing, by the way, is where to take profits.
`You got in because your expertise told
`you it made sense to buy or sell — you
`believe in that direction, so what’s going
`to make you go the other direction and
`flatten out?
`
`AT: So how did you do it?
`
`Part of confidence comes from developing
`your own trading ideas, rather than using
`someone else’s approach or acting
`randomly on tips.
`
`because none of this stuff is factual. It’s
`just opinion, and from what I’ve seen,
`the smartest people deal in factual, sta-
`tistical terms. It’s not in their nature to
`go with something calculated on the fly
`and think, “My gut tells me that’s a win-
`ner.” It’s really hard for extremely bright
`people to do that. They’re so smart
`they’re thinking about all the things that
`are wrong with [the trade]. Some of the
`smartest people I’ve seen have never
`made it scalping or position trading —
`you know, pit-style trading, or even just
`very active day trading.
`Another part of confidence comes
`f rom developing your own trading
`ideas, rather than using someone else’s
`approach or acting randomly on tips and
`things like that. You’ve got to do the
`work yourself. It may mean banging
`your head against the wall a thousand
`times to do it, but that’s what it takes.
`
`AT: Did you use any risk-control meas -
`ures? Did you ever use traditional
`stop points, for example?
`HB: I mostly did things by instinct. But I
`do think, subconsciously, I had spots
`where I’d get out because the reason I
`put on the trade in the first place no
`longer existed. When that bell goes off
`
`HB: I don’t have a great answer — I’m
`still working on it. One way to approach
`it is that at some point, maybe you think,
`“It’s getting to fair value. I did believe in
`this [move], but I think it’s come far
`enough. I was long, I’m not really bear-
`ish, I’ve just lost my bullishness.”
`You end up leaving a lot of money on
`the table sometimes, but that’s how it
`goes.
`
`AT: How did you start trading elec -
`tronically?
`H B : E u rex (the German all-electro n i c
`futures exchange) put a screen in front of
`me in ’97. I’d played around with Globex
`and Project A (the electronic trading plat -
`forms of the Chicago Mercantile Exchange
`and Chicago Board of Trade, respectively),
`but it was immediately obvious to me
`that Eurex had done it right with their
`FIFO (first in, first out) mechanism. It
`was simple, fast and anonymous.
`I wanted to be the best in the world,
`and to do that, you have to go where the
`most volume is. And I could see, no mat-
`ter what, the Bund was going to have the
`most volume shortly. I was probably a
`big part of how fast that market went all
`e l e c t ronic, because when I started trad-
`ing it, it was traded maybe only 40-per-
`
`cent electro n i c a l l y. I was the first larg e
`local (market maker) to say, “Listen, I’ll
`just trade it all electro n i c a l l y.” The other
`locals were arbing it between the LIFFE
`pit and Eurex, so the contract was re c e i v-
`ing equal volume between the pit and
`the electronic market.
`AT: Were you still on the floor at this
`point, working at a terminal?
`HB: No, I left the floor to trade on the
`screen. I only did it because I tried the
`equipment and saw that it was going to
`blow out Project A and Globex.
`Prior to that, I never saw Project A and
`Globex ever being able to beat the floor,
`which was a better mechanism at the
`time. When I saw Eurex, I knew they
`were going to beat the trading floor.
`Electronic was just faster, and you don’t
`have to worry about anything except
`your trades.
`Also, the funds could be anonymous
`on the system, which allowed them to
`sell 30,000 and buy 20,000 instead of just
`selling 10,000 — they could bluff and get
`away with it. They can’t do that through
`the phone clerks and the pits — you can
`pick them off all day long.
`
`AT: Did it take you a while to adjust
`to trading electronically?
`HB: It probably took a few months. I lost
`at first — pretty big, too. I’ve had worse
`periods, though, because the risk man-
`agement is so much easier electronically.
`When I was trading a lot on the floor
`sometimes I wouldn’t know within a
`thousand contracts what my position
`was. It was pandemonium during fast
`markets — I don’t have the words to
`describe it to you. Electronically, you
`don’t end up taking a 30-minute timeout
`to sort out your position. You can just go
`to war the whole day.
`
`AT: Does the fundamental element of
`your trading include things like study -
`ing what happens around report
`releases and trading around those
`kinds of events?
`HB: Yes, and I kept up with the numbers.
`You would see an article in the newspa-
`per about this or that number and how it
`impacts the market. And I always
`watched treasury auctions.
`
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`I think being on the floor, and even
`trading electronically, helps you better
`understand the real impact of every
`number. Reports would make a lot of
`difference even a day before they came
`out because people would start jockey-
`ing for position. I acted on numbers var-
`ious ways, one of which was subcon-
`sciously processing results from the past
`and doing what my instincts told me.
`
`AT: How long did you trade electroni -
`cally full time?
`HB: Five years, up until last year some
`time.
`
`AT: How did you get involved in
`Trading Technologies?
`
`AT: It’s a futures-only platform, right?
`HB: So far our main focus has been the
`big four futures exchanges — Eurex,
`Liffe, the Chicago Board of Trade and the
`Chicago Mercantile Exchange. The com-
`pany had been working on a bunch of
`gateways (to be able to interact with addi -
`tional exchanges), and I said, “Let’s just
`stick to the big four, because the func-
`tionality, speed, reliability and usability
`of the platform are so important that, if
`we get involved in doing lots of addi-
`tional gateways, we’ll dilute ourselves.”
`This is a guess, but I would estimate
`we account for close to half the electron-
`ic volume on the four exchanges I men-
`tioned. We have a niche on the very high
`
`If Eurex comes in and goes first class,
`I think the floors are probably going to
`shut down fairly quickly because of the
`bottom-line economics of the situation.
`
`HB: I was initially a customer in ’97
`when I started trading electro n i c a l l y.
`Eurex actually steered me to them as a
`front end. I was impressed with the plat-
`form right off the bat because it was real-
`ly fast — I was able to stand my own
`ground and compete with [traders] in
`Europe. If I got beat on a given day, it
`was just because I was wrong.
`By the end of ’98, Gary Kemp, the
`founder of Trading Technologies, was
`starting to look for [additional] funding.
`He talked to venture capital, and to me,
`and he ended up taking the money from
`me.
`One thing led to another, and it was a
`p retty
`long haul
`to get Tr a d i n g
`Technologies profitable, and along the
`road I became the majority owner some-
`time in early 2001.
`
`end of the market, where there are a lot
`of traders who account for a huge per-
`centage of volume.
`
`AT: When single-stock futures came
`around, a few people created plat -
`forms to handle everything — stocks
`and futures — through one interface.
`Are you going in that direction?
`HB: We have a project in the works
`through which we’re going to let other
`exchanges and brokerages write to us —
`they’ll do the gateways. Anything that
`trades in FIFO, including equities, will
`be able to pipe through our system.
`Part of trading in the electronic world
`is getting extreme front ends (order-entry
`s o f t w a re
`interfaces). Order entry
`is
`e x t remely
`important
`in
`the whole
`scheme of trading. It doesn’t matter if
`
`you’re only doing two orders a day.
`People fight over commissions like
`crazy, but when you miss a market turn
`because your software isn’t as good as
`someone’s else’s, that’s a killer.
`
`AT: Isn’t this relevant mostly to very
`active intraday traders — profession -
`al scalpers and such?
`H B : Even if you only make one ro u n d
`trip trade a day of, say, 100 contracts,
`you are crazy not to want the best soft-
`w a re. Take a T-note contract, which
`trades in increments of $15.625. Tw o
`trades a day is 40 per month. All it
`would take is one better fill to make up
`for the price, even if the corre s p o n d i n g
`s o f t w a re was free. As all [trade execu-
`tion] becomes cutting-edge and auto-
`mated, it’s more important not to have
`inferior software that often misses your
`initial tick.
`It helps your confidence to have the
`best platform possible. It makes you feel
`like no one has an advantage over you
`— like you’re on the top step of the pit,
`so to speak.
`
`AT: The Eurex is planning on launch -
`ing a U.S. exchange next year, and
`electronic volume here has already
`eclipsed the pit volume in some mar -
`kets. What do you think the future is
`for the trading floors?
`HB: Well, there are people who prefer
`open outcry. There are some customers
`who like it. It’s romantic — that’s the
`biggest thing it has going for it. But in
`the end, it’s a matter of who can create
`more volume, and really, electronic trad-
`ing makes the whole world a pit. It’s vir-
`tually impossible to compete with.
`If Eurex comes in and goes first class, I
`think the floors are probably going to shut
`down fairly quickly because of the bot-
`tom-line economics of the situation. But
`that will only happen if Eurex does things
`right. If they only go half way, open out-
`cry could survive another hundred years.
`With serious competition, though — if
`someone really wants to come in here and
`c reate a first-class market — it will be very
`d i fficult economically for the exchanges to
`keep their floors open. (cid:221)
`
`ACTIVE TRADER • December 2003 • www.activetradermag.com
`
`77
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`CQG014380177
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`Page 6 of 10
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`AGAINST THE WORLD
`, •..•.....•.....•.•..•............••....••........••.•••...•.......••.•••...••••....••.••..•••..••.•••••••...
`
`HARRIS BRUI'DFIELD controls a commodities-trading
`software empire. Now he's laying it all on the line.
`The stakes? Only the future of electronic trading
`BY IMOGEN ROSE -SMITH /ILLUSTRATION BY JOHN EULAND
`
`CQG014380206
`
`Page 7 of 10
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`CQG014380207
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`Page 8 of 10
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`happily ever after Or else, "if the nght offer surfaced, TT would be
`sold v.~thout notice," presumably to a deep-pocketed company more
`aggressive ahout exploiting the patents and less concerned for the
`futures industry than a tr~der's trader such as Harris Brumfield.
`"Everyone is waiting to see how thi~ pl~ys out," says one leading
`futures-indu~try executive. "No matter what happens, you have to
`say one thing- the guy's got some halls-
`
`}
`
`BY THE Tif'IIE Brumfield's destiny collided with TT's
`in the late 1990s, he had already come a long way, Those who know
`Brum tleld, e\'en those who like him, describe htm as" "bully" and
`"arrogant" but concede he is brilliant, even charming at times with
`his deep Southern drawL A true self-made man, he was horn to a
`Mississippi farmer in 1964 and majored m finance at Misstssippi
`State. After graduating in 1986, he dreamed of dealing blackjack in
`Lake Tahoe but arrived too late for an annual training course.
`Unemployed an<l nearly broke. he headed for Chicago, where hl'
`crashed on the sofa of a college buddy whu was working for the CM£.
`Havin ~ caught the trading bug, Brumfield first grHbbed a job as a
`nmner in the CBOT's gn1in pits, eventually landing in the fabled
`Treasury pits working with Chuck McElveen (who woultllater start
`Kingstree). McElveen staked him; six months later, Brumfield was
`trading for himself, mostly 10-year notes. establishing himself as
`one oft he best over a decade-long career in the pits
`In 1997, EurPx was looking for some big guns to help capture
`enough market volumE' to create liquidity in the electronic markets.
`The exchan~e approached Rrumfield and suggl.'sted he make the
`transition to screens. He inun ediately took tu the anonymity and
`
`••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
`AS R PIT TRADER atthechicagoBoardonrade,
`Harris HruabfWII~
`~w11 f'nrltta,l~ lf~t.,rl)• lm~t.1 IO-year
`.,,,. nlnl(. ~ l'iUed It ~th •i?~ ll d gusto,
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`Brumfield innately knows how to lew~rage Last summer, he quietly
`acquired the necessary ammunition: TTwas awarded two software
`patents 1t ha<.l applied for in 2000 The patents are very specif1c,
`referrinJl to the Iauder-like gncl that displays market depth - bids,
`offers - along a verttcal axis, the graphical heart of the X_ Trader
`platform. Numerous trading platforms throu~hout the industry use
`a similar design.lf you trade electronically, chances are your screen
`looks like this In theory, TI could wrestle pa:r,nent not just for
`trades made by the scree n-based commoditJes community, hut for
`almost every type of electronically executed tra<.le.
`For a few weeks, Brumfield kept a lid on his good fortune and
`picked hts fights. But on August 12. wilh little warning, he unveiled
`the patents and simultaneously sued his primary riv:~l, e&'peed, the
`electronic tixed-mcome inter-dealer brn ker spun out of Canto•
`Fitzgerald. He then sued two big clients- <loldenbcrg, Jlehmeyer
`and Kingstree Trading- and later ad<.led a third, Refco.
`But nothing could have prepared the trading community for what
`came next. Like a general suwg for peace on favorable terms after a
`particularly successful battle, in December Rrumfield latd his cards
`on the table, offering what some would call >m alternative, others <m
`ultimatum. In a wtdcly circulated open Jetter that he followed with a
`series of full-page ads in the Financial Times and the Wall Street
`Journal, Brumfield issued a public deal to the industry. The
`exchanges could either pay TT 2.5 cents a trade going fonvard,
`whether or not it's execul<..-d via his software- compared to the
`current structure, in which the exchanges generally pay nothing and
`the traders pay a montl1ly hcensing fcc - or the entire industry
`would risk slaughtering (or at least maiming) the golden goose
`Within days of the letter's publication, the industry was bu;r.zin~.
`The letter itself was verbose (2,R36 words) and highly technical. with
`an even-temperctl, almost plaintive tone. It was a gauntlet thrown:
`Take the deal and we'll Jrop the suit.~, share the technology and all ltvc
`
`uwhat n is trying to do is pull off
`THE MOTHER OF ALL DEALS:
`a fee for them off every futures
`contract traded on the planet."
`
`speetl they offered and was ~oun responsible for 20 percent of
`Eurcx's volume in Cerman treasury futu res.
`Eurex would provide Brumfield with another industry-changmg
`suggestion, pointing him to a small software pruvi<.ler called Trading
`Technologies, which had relocated from Germany to .t::vanston,
`Illinois, Founder Gary Kemp, a technology whi7. who had hclpeu
`build the system that would become .t::urcx. needed money, and
`Brumfield had both the cash ancl the guts to Jump in big. By 2000,
`according to pubtishctl reports, he had mvcstcd more than $25 mil(cid:173)
`lion. ln all,