Page 1 of 17
`
`TRADING TECH EXHIBIT 2205
`IBG ET AL. v. TRADING TECH
`CBM2015-00181
`
`

`
`IPE sees off first
`Nymex assault
`
`Buoyant trading on floor and screen
`Volumes at
`IPE were
`Elliott Aykr-oyd
`and 80,000 for the correspon-
`strong in the first three days of
`ding days. In addition, volume
`competition, with Nymex yet
`for
`the overnight
`session
`to make a serious dent
`in
`between 2am and 10am has
`market share. IPE’s morning
`also picked up to aroimd the
`electronic-only session saw
`7-8,000 mark, compared with
`around 14,000, 20,000 and
`previous volume of around
`half that amount.
`29,000 trades on the first three
`By contrast, volumes in
`days respectively. Floor vol-
`umes in the afternoons were
`Dublin began modestly and
`also healthy at 94,000, 73,000
`declined
`page E D
`
`International Petroleum Exch-
`ange ([PE)’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-
`launched Dublin trading floor.
`
`SGX fires salvo in Asian e-war
`
`Brokers ask if system can take the strain
`“the contract has been a
`Fluper-I: Lee
`competing products, into the ‘e-
`success and more of our cus-
`war’ that has been raging in the
`US and Europe.
`tomers are now planning to
`November
`SGX’s
`1
`move to electronic trading."
`A source close to the
`launch saw more than 2,500 e-
`Nikkei lots traded during the
`exchange said, “broker sup-
`day session, equivalent to15%
`port is there and more firms
`of total SGX Nikkei (pit and
`are enquiring about joining as
`electronic) day volumes. By
`market makers.” SGX already
`has several but has declined
`day four, the percentage had
`risen to 25%.
`to name the firms. “Rival
`Robert Tan, Head of
`exchanges might put pressure
`Refco Asia,
`told F0 Week,
`on the market page 4 D
`
`Exchange
`ingapore
`(SGX)’s early success in
`its e-Nikkei contract could see
`the electronic rollout of SGX’s
`Taiwan index and Euroyen con-
`tracts by the first quarter of
`next year. The move will
`draw Taiwan Futures Exchange
`(Taifex)
`and Tokyo
`Inter-
`national
`Financial
`Futures
`Exchange (Tiife), which offers
`
`‘
`rId's first web-based
`Multi-asset clearing solutions
`to suit any financial institution
`‘In calculator
`indpepetid nt-
`raz tc;LrP’"s
`'i_Av:l_V TOOLKIT
`
`0
`
`Post trade risk management solutions
`for the market professional
`
`TT0103980
`
`
`
`Page 2 of 17
`
`

`
`Election over, eyes turn to CFTC
`
`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 ofthe five commission-
`ers can be from the same political
`party. Brown-Hruska and Lukkeu
`are both Republicans.
`hi the meantime, a subcom-
`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-
`man Jerry Moran, head of the
`Subcommittee on General Farm
`Commodities and Risk Man-
`agement,
`told F0 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-
`essional hearings in Washington
`
`legislators and
`regulators,
`for
`futures participants.
`“The CMFA [Commodity
`Futures Modernisation Act] cur-
`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
`CFI‘C’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-
`dent of FLA. “My members have
`long felt that firms who have
`been competitive with open out-
`cry have been fined for rules
`passed by guys with a floor men-
`tality for the expressed purpose
`of punishing them.”
`Single stock futures also
`continue to draw some attention.
`OneChicago executives advo-
`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 confin-
`ne 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-
`tives said opening the CFMA for
`minor changes can give an open-
`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 Davisan
`exchange. Extending the imple-
`mentation date will give us
`additional opportunity to incor-
`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.
`time-
`The most important
`tionality included in Denali
`will be a trade matching appli-
`cation to link trades entered
`into the hand-held devices used
`by floor traders.
`
`hicago 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 F0 Week,
`“CBoT is committed to deliver-
`ing enhanced technology to its
`open auction trading floors in
`order to further improve upon
`the high quality trading envi-
`ronment
`offered
`by
`the
`
`TT0103981
`
`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-
`lation during the commission’s
`reauthorisation.
`The imminent change expect-
`ed is the appoinuznent of a Dem-
`ocrat to a commissioner's post at
`CFTC. Fred Hatfield, who served
`as chief of stafi'to Louisiana Sen-
`ator John Breaux, is widely exp-
`ected to gain Congressional appr-
`oval, having been named by Bush
`last month (see F0 WeekVol 9 No
`41). Acting chairman Sharon
`Brown-Hruska is expected to be
`given a hill term as chairman.
`Along with current commis-
`sioner Walt Lukken, that would
`
`a§“ul
`
`45
`
`char‘
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`
`
`Page 3 of 17
`
`

`
`IPE moves to block latest
`
`Nymex Brent ploy
`
`Elliott Aykr-oyd
`
`International Petroleum Exch-
`ange (IPE) has moved to block
`a plan by New York Mercantile
`Exchange
`(Nymex)
`to offer
`exchanges of futures for fiitures
`(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.
`IPE informed
`However,
`taking advan-
`members that
`tage of such a scheme would
`breach exchange rules. A cir-
`cular stated, "we understand
`that another exchange is pro-
`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-
`negotiation involving such a
`facility may result in members
`being in breach of their exist-
`ing
`obligations
`under
`exchange regulations."
`A spokesperson for Nymex
`told F0 Week, "EFF would be
`something we'd like toido, but
`we are still reviewing regulato-
`ry issues."
`IPE head of compliance
`Mike Sayers told F0 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
`shifis of Eurodollar open inter-
`est to Euronext Liffe (see F0
`Week Vol 9 No 27).
`Separately, IPE has defend-
`ed its market against Nymex
`by introducing fee waivers on
`its own Brent contract for the
`morning electronic trading ses-
`sion and the aften1oon‘s open
`outcry. Exchange transaction
`fees have been waived for elec-
`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-
`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-
`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 NO.LX Eurodollar
`Laurence Davison
`Liffe's Eurodollar
`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-
`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
`transactions
`page 4 D
`
`Gradually increasing trad-
`ing volume and open
`interest, combined with an
`increase in participation from
`US traders, could tip the bal-
`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
`
`3.00%
`2.50% 1 Monthly market share
`--30-day average volume
`
`40000.0
`- 35000.0
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`FD WEEK 8 l\lCJ\/El\/IBEP EDD4
`
`TT0103982
`
`
`
`Page 4 of 17
`
`

`
`
`
`Fimat Sydney powers up
`
`Rupert Lee
`
`Fimat Sydney has launched
`a brokerage service for
`Australia’s annual 218 ter-
`awatt hour (TWh) electricity
`derivatives market.
`The firm has hired a three-
`person Melboume—based elec-
`tricity broking team that was
`previously with Next Gen-
`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
`F0 Week the team will broker
`all
`types of OTC electricity
`derivatives, renewable energy
`certificates,
`green
`power
`rights, gas certificates, carbon
`based products, weather deriv-
`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-
`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
`participants,
`90
`only 30 or so are active deriv-
`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-
`cal market and the derivatives
`market has room to grow with
`the market considered “still in
`a growth phase”.
`
`NQLX Eurodollar
`hints as to when a decision
`4 page 3
`in the
`could be made.
`following six months,
`the
`exchange will be considered
`One of the potential advan-
`dormant
`and have
`to
`be
`tages of an NQLX Eurodollar
`re—examined by Commodity
`listing would be the possible
`introduction of 60/40 tax status
`Trading Futures Commission
`prior
`to
`future
`product
`to Liffe’s contracts; US partici-
`launches.
`pants trading Eurodollars on
`it
`said that
`Liffe has
`Chicago Mercantile Exchange
`plans to retain NQLX — the
`currently
`receive
`the
`favourable tax treatment.
`only US futures exchange
`However, Lilfe has so far
`wholly-owned by a non-US
`held back on the
`listing
`exchange — for new product
`because it would require trad-
`listings. It has also said repeat-
`edly that
`it
`is considering
`ing to be handed over from
`launching Eurodollars
`on
`Liffe to NQLX on a daily
`NQLX, but has given few
`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-
`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-
`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.
`
`I Additional
`Mike Topping.
`
`reporting by
`
`SGX fires salvo in Asian e-war
`periods of SGX lines being
`are only now connecting while a
`1 page ‘I
`makers
`to
`down since the launch of the
`few vendors have only recently
`quit SGX,” said the source.
`connected to the overhauled
`However, some market par-
`new system in August. In addi-
`SGX back—end, so one would
`ticipants have expressed concern
`tion, “some of the testing done
`that SGX does not have the
`by the exchange had been under
`expect some teething problems.”
`sterile
`conditions with
`no
`Another
`dealer
`said,
`required trading infrastructure in
`considerations
`to bandwidth
`place to cope with the expected
`“Logically, the next step for the
`utilisation under
`real market
`exchange is to rollout electronic
`volume. A Singapore based bro-
`ker
`told F0 Week that
`the
`conditions,” he said.
`day trading for the Taiwan index
`However, others were more
`exchange needs to quickly lift
`and the Euroyen. So increasing
`capacity and iron out bugs before
`capacity and improving the sys-
`sanguine. A proprietary trader
`volumes increase.
`said,
`“people
`forget
`that
`tem would already be a high
`“SGX is faced with prob-
`Singapore’s fixtures community
`priority for SG ."
`lems that I believe to be structur-
`has so little exposure to electron-
`Brokers say the rollout could
`al
`in their race to meet
`the
`ic trading. Events of the past few
`be as early as Q1 2005 for the
`months with Globex and Lifi’e
`[launch] dateline. Should [elec-
`Taiwan index. As a result, Taifex,
`Connect are still reverberating.
`and eventually Tiffe when SGX’s
`tronic] volumes pick up, we may
`see further stress on the infra-
`This is the first time members
`Euroyen is ‘e-launched,’ will be
`structure," he said, adding that
`have had any significant demand
`drawn into
`an
`increasingly
`there has been a total of three
`global electronic war.
`for an electronic product. Some
`
`Meanwhile, Osaka Sec-
`urities Exchange (OSE), which
`also offers the Nikkei 225 con-
`nact, has implemented moves
`to protect its turf. The exchange
`will extend its trading hours
`next month to start at
`the
`same
`time
`as SGX. OSE
`announced last week that it was
`widening its price limits (see
`F0 Week Vol
`9 No 43).
`Recently it updated its order
`processing capacity by 44% for
`Nikkei 225 futures. An OSE
`spokesperson told F0 Week that
`“the trading system in Nikkei
`225 Options
`[developed by
`Hitachi and designed by OSE]
`will be enhanced by the end of
`November.”
`
`FDWEEK 8 NDVEIVIBER 2004
`
`"" ' ""
`
`TT0103983
`
`
`
`Page 5 of 17
`
`

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

`
`October volume round-up
`
`Elllati: Aykrayd
`
`ie world’s big four major
`derivatives exchanges con-
`tinued to post strong growth
`through October as they head
`into t.l1e 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-
`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 nad-
`ing platform was approximately
`2.2m contracts,
`a
`103%
`increase over October 2003.
`
`Electronic trading represented a
`record 68% of total CME vol-
`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-
`tracts per day.
`Meanwhile, total exchange
`volume continued to grow
`across town at Chicago Board
`of Trade (CBoT),
`reaching
`47.3m 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-
`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-
`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-
`date, are up 19%. Over 7m
`commodity contracts have trad-
`ed this year, breaking last year’s
`record and casting doubt over
`some market feeling that com-
`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-
`tracts traded, the Bund retained
`its position as the most success-
`ful product while the Bobl
`accounted for
`l2.3m contracts
`and the Schatz clocked up 8.8m.
`
`IPE sees off first Nymex assault
`the
`and the rest were Finex Locals.
`Steinhause
`said
`that
`4 page ‘I slightly, Nymex
`exchange had received “tremen-
`Brent crude trading 5,726, 4,891
`Firms present
`included PVM,
`dous” feedback from traders
`BN1’ Paribas, Rand Financial,
`and 3,938 contracts on 1, 2 and
`3 November. However, Nymex
`Man, Calyon, CIS, Amarex and
`that morning.
`claimed there are more traders
`Refco.
`Jim
`Exchange president
`One Local who had made
`Newsome told reporters that one
`yet to move across to Dublin,
`both from London and the US,
`ofthe keys to attracting the mar-
`the trip from London to Dublin
`so there may be strides in
`told F0 Week in the morning,
`ket is to offer spreading oppor-
`trading yet to be made.
`tunities with other open-outcry
`“it’s a good market... spreads
`contracts:
`The market in Dublin fared
`and arbs are trading well.”
`“were committed to this
`Across the water in London,
`well in the moming of its first
`contract and this marketplace.
`day but trading tailed off in the
`IPE volumes represented a fair-
`ly normal day for the exchange,
`It's not cost prohibitive for us
`afternoon as the pits opened
`over at IPE.
`which
`averaged just
`over
`to stay here, we’re already
`100,000 Brent crude futures
`looking at what other synergies
`the
`A spokesperson for
`we can create, whether that be
`exchange told F0 Week during
`daily in September. According
`to IPE, 40 firms and 500 traders
`the day that 4,500 trades had
`Brent options or gas oil. When
`been executed by approximately
`took part in electronic trading
`you’re trading open outcry, the
`on the first day.
`synergies are very important,”
`1.40pm; IPE opened its floor at
`he said.
`2pm, afier which fewer than
`A spokesperson for IPE told
`1,500
`additional
`contracts
`F0 Week that it was a good start
`a 12-month
`Nymex has
`traded in Dublin.
`for screen trading and that while
`lease on its space at New York
`Board of 'l‘rade’s Finex estab-
`clearly some pit
`traders had
`Approximately 40 traders
`lislnnent but has not decided
`gone over to Dublin it “wasn‘t a
`were present in Dublin on day
`one, with a similar number
`massive departure”.
`how long it will actually remain
`waiting for clearance to trade,
`However, at a press confer-
`there, preferring to leave it up to
`the market
`to decide whether
`ence iu Dublin last Monday,
`according
`to
`an
`exchange
`Nymex was bullish about
`its
`Dublin is a viable option or if it
`spokesperson. Of those present,
`around
`15-20 were
`from
`own first moming’s work.
`will be necessary for Nymex to
`London, five from New York
`establish a London facility.
`Exchange chairman Mitchell
`
`the
`Newsome confirmed that
`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-
`ate the deepest, highest-value
`marketplace,
`they’ll come to
`us
`regardless of what other
`partnerships are involved.”
`However, one broker told
`F0 Week that whilst he was
`impressed Nymex had managed
`to set up so quickly in Dublin,
`there were some inherent prob-
`lems with opening an exchange
`so
`fast. One
`example he
`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 F0 Week that “cameras and
`taped phone
`lines will be
`installed in the next couple of
`months”.
`
`F0WEEK 8 NOVEMBER 20134
`
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`Page 8 of 17
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`
`—. SNTEFIVIEW
`
`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 F0 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, |SVs,
`market makers and specialists about the
`evolution of electronic trading. We've dis-
`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 how are you finding the
`futures markets versus the
`cash equities markets in terms
`of their technological develop-
`ment?
`
`Chicago-based futures exchanges have
`transitioned more quickly than US equity
`exchanges. A lot of things the Merc and
`Board of Trade have done are things the
`equity exchanges are just starting to do
`today. Most of the CME and CBoT finan-
`cial futures are predominantly electroni-
`cally traded. Customers who trade equi-
`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 world?
`
`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-
`ing and technology.
`
`What do you make of CME’s
`success and what are the keys
`to it over the past two years,
`since it went 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-
`tomers along and built a system that was
`scalable. Today's success is the culmina-
`tion of years of work.
`
`You were there during tvvo dif-
`ferent management regimes:
`Jim McNulty and Scott Gordon
`and then Craig Donahue and
`Terry Duffy. What were 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-
`cess and issues of being a public
`company.
`
`There is a history of board-
`room politics at the CME that
`many people say is alive and
`well. What is your perspective
`on that and how do you think
`it affects the running of the
`business?
`
`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-
`tics. It appears that the market believes
`in the direction CME is headed.
`
`One executive I spoke with
`after your departure said the
`following: "The real problem is
`all of the people who have
`moved on were 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
`now is do they really have the
`talent now to tell them where
`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
`brought out the best in
`page 9 D
`
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`Page 9 of 17
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`

`
`the exchange. In
`4 page B
`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-
`lenge for US markets is to create a fair,
`open and transparent market and not
`block—oriented markets as they exist in
`Europe.
`
`Does Liquidity Direct [the
`complex option software firm
`bought by CME in January]
`solve that problem?
`it solves part of the problem, but it's def-
`initely not the whole solution. if you look
`
`at the different customer segments that
`trade options, there are really two dis-
`tinct needs: first, you need a live, exe-
`cutable and fairly simple options market;
`on top of that, you need a facility that
`supports complex and indicative mar-
`kets. The Liquidity Direct technology is
`really suited to that second part — both
`types of facilities must exist in parallel in
`order to provide the optimal solution.
`These are very difficult problems to solve
`— and even more so if solved simultane-
`ously.
`
`We've seen a proliferation of
`patents concerning technology
`and the financial markets of
`late. What is your perspective
`on patents such as those held
`by Trading Technologies and
`Espeed?
`
`I'm surprised it's taken this long to
`become this hot an issue. If you look at
`the software industry, it's been an issue
`for a long time. Calls for patent reform
`centre around quality —that it should be
`harder to get a patent in the first place —
`and the ability to challenge pending
`patents and improve the standard for
`‘non-obvious’ invention. I have seen a
`number of studies looking at
`whether the current process helps or
`hinders innovation — I don't think the
`
`industry has concluded anything yet. I
`certainly believe people who invent gen-
`uinely new and novel things need the
`protection of the patent system. Our
`industry needs to continue to innovate
`and minimise the energy spent on trying
`to tactically change the rules. The sys-
`tem will continue to evolve.
`
`Where do you see the futures
`industry in the next tvvo years?
`
`There are very good and very strong
`reasons electronic trading will grow
`and these are pretty obvious. But in
`addition to organic growth in electronic
`trading. there are other trends that will
`increase volume and could also
`change market dynamics. There is the
`segment of very large institutional
`traders which still has a large
`proportion of users who are not directly
`connected to exchanges where they
`trade. There is a trend towards portfolio
`managers taking direct execution
`responsibility and integrating execution
`capabilities into their infrastructure.
`These trends could have a profound
`effect on exchange volume and provide
`new opportunities for products and serv-
`ices. These trends are also larger than
`just the futures industry — so the pres-
`sure for integration and efficiency will
`continue to intensify.
`
`New Eurex software closes ground on Connect
`Laurence Davison
`orders, and activity between
`products, has more members
`being in close contact with
`connected to its trading system
`pulses.
`our market participants we
`“I
`told F0 Week,
`He
`and its trading engine is faster
`decided to further expand
`than Connect.”
`Eurex
`functionalitics
`in
`believe Eurex 7.0 represents a
`great
`improvement over what
`The
`new functionality
`options trading.”
`Local
`Frankfurt-based
`introduced by Eurex covers
`was there before. The improve-
`ment
`in quote frequency —
`option trader Alexander Sahm
`OTC products but perhaps the
`told F0 Week that while he
`pulse — is a welcome change —,
`most significant additions are
`it brings Eurex more in line
`thought the new functionality
`in options trading. Strategy
`Wizard allows traders to create
`was “a very good idea,” he
`with the Liffe platform....
`belie