greater ability to design how your trading front-end
`With
`system looks and the leveling of functionality across vendors
`the battle over trading front-ends may be fought over what is
`behind the screens By Daniel
`Collins
`
`PLAINTIFFS
`TRIAL EXHIBIT
`
`WHAT IS BEHIND1
`YOUR FRONT-END
`
`COUPLE WEEKS AbE an e-mail was received
`from an individual who was researching
`futures markets He wanted
`to know
`electronic
`on when
`if Futures had or knew of any projections
`markets would overtake
`and eventually
`electronic
`the
`eliminate open outcry markets Coincidentally
`answer was provided almost
`year ago by an officer of
`electronic trading firm who suggested
`the
`Chicago Board of Trade CBOT floors would be closed
`by the end of 2000 see Going Electronic
`Futures
`2000 Now we know of course that
`November
`and
`as the floors still
`are active
`answer was premature
`some electronic
`
`trading start-ups are shutting
`
`their doors
`
`large
`
`and slashing
`
`staff
`
`services
`
`they
`
`it is ironic
`
`trading
`
`systems
`
`that several of the front-end
`Beyond
`trading systems
`who were
`on the death of open outcry are
`banking
`now figuring out ways
`to take advantage of the value-
`added
`can provide clients by also porting
`clerks ECs
`their system to outcry pits via electronic
`While open outcry may not
`last forever
`that
`the competition among front-end
`spurred on by the belief
`that Chicagos
`open outcry
`pits would bow to the electronic
`revolution may now
`be won by whoever
`can offer
`the most efficient
`access
`to those pits in the meantime
`Tom Theys
`chairman
`of Patsystems an order
`trading system is one who
`routing and front-end
`readily admits his firm was banking
`on the death of
`now sees
`open outcry However Theys
`significant
`in providing European customers
`business
`potential
`to U.S grain markets
`linked
`through
`routed to ECs in the Chicago
`Patsystems software and
`Board of Trades
`floor
`agricultural
`The
`onset of ECs and its effects
`on front-end
`fluid nature of the
`
`access
`
`business models demonstrates
`
`the
`
`business
`
`customer
`
`and the need for agility and flexibility to meet
`needs One difficulty
`the
`in understanding
`is grasping exactly what
`business
`of trading front-ends
`those firms do There is always
`reference
`to
`vague
`Some folks arent
`providing solutions
`
`sure if they
`
`are
`
`independent
`
`software vendors
`
`direct
`
`risk
`
`ISVs routing systems
`or all of the
`brokers trading front-ends
`access
`above The vendors combine
`software back office
`even clearing
`
`management
`brokerage
`and have
`entered the fray from each of these different
`
`capabilities
`
`and
`
`perspectives Perhaps their claim of offering
`is because
`the problems keep
`It is not
`evolving
`talking to the top 15 widget
`of
`simple question
`and finding out who makes
`the best
`widgets at the cheapest price
`
`manufacturers
`
`solutions
`
`BEHIND
`
`ThE SCREEN ISVs not
`
`offer
`
`traders front-end
`
`to
`
`number of
`
`clients
`
`to think
`
`of us
`
`as Intel
`
`inside
`
`says
`
`compares
`
`it
`
`flexibility
`
`clients
`
`the competition
`
`quality control
`themselves
`
`Theys
`
`points
`
`involved
`
`it
`
`is important
`
`for
`
`provider
`
`of
`
`directly
`
`to their application
`
`processing
`
`their front-end
`
`screen
`
`bypassing
`
`We want
`
`distribute
`
`Trading Technologies
`
`front-end
`
`screens themselves
`
`are
`
`to be the technology
`they
`vice president of
`says Steve Monieson
`In the same light we feel
`that our
`very powerful tool
`
`behind what
`
`(cid:224)nly
`trading systems but also order routing
`For many providers that
`different
`electronic
`exchanges
`they are selling
`
`connectivity
`
`is the heart of what
`
`We want
`Scott Shellady COO of Patsystems Shellady
`to the gold rush of 1849 We arent mining the gold we
`are selling the shovels
`While most
`front-end providers claim tremendous
`with most allowing
`in their built-in functions
`to greatly customize their screens
`systems is turning into one
`among ISVs and -routing
`on market
`based
`risk management
`access pre-trade
`and the viability
`of the companies
`out that with the commitment
`futures commission
`merchant FCM to know that their technology
`is going to be around for
`long time
`The front-end
`is important but even more
`important
`is the backbone
`and the possibility to
`the architecture
`systems to our clients says Jeff Patrick
`deliver open
`of GL Trade
`marketing manager
`to write
`they allow people
`Several
`ISVs note that
`interface API
`
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`

`
`they prefer
`
`as well
`
`Xpresstrade
`
`has as an online
`
`trading
`
`service
`
`for self-
`
`traders
`directed
`retail
`than we do
`Nobody knows our customers
`Principal Dan ONeil So whos in
`says Xpresstrade
`to design and build the system that we
`to our clients
`
`better position
`make available
`
`better
`
`An example of this is how data service provider CQG
`and has arrangements
`has developed its own front-end
`ISVs that connect CQG screens
`to the
`with numerous
`ISVs routing software This allows FCMs and their
`and
`the data provider
`customers to select
`routing system
`desktop real estate
`as conserving
`the amount of bells and whistles
`
`an
`
`At some point
`is going to level off Everyone is going to
`ISV can offer
`level of service
`from front-
`be able to offer
`the same
`trading perspective What
`is going to differentiate
`end
`them is support and the number of exchanges
`that
`they
`on board says Fimatrade Managing Director
`have
`Christian Akmayer Those
`ISVs that
`can provide the
`up with competition
`to keep
`and products
`are going to
`
`best support
`
`continue
`
`and add
`
`Interactive
`
`Brokers
`
`places
`
`itself
`
`that developed
`
`institutional
`
`traders
`
`their systems
`and electronic
`
`between
`those ISVs
`to FCMs and
`
`to market
`
`firms It
`brokerage
`clients and now
`
`developed its systems for institutional
`
`is marketing
`
`that
`
`upgrades
`
`itto retail customers
`that many large FCMs started out
`Theys says
`their own systems and found out there was
`developing
`He
`lot more involved than they originally thought
`the process is lengthy and expensive and the
`notes
`expenses dont stop once
`the system is in place
`There
`are two to three
`year Multiply
`says To support
`it
`real big business Our
`else who
`
`Theys
`
`it is
`
`that by 10 exchanges
`maintain it and distribute
`to do that
`approach
`for everybody
`to write their own front-ends
`wants
`our API risk systems
`back office interfaces
`
`and
`
`exchange
`
`gateways
`
`they can use
`and all our
`
`SPECIALIZATION With so many markets
`faced by many is whether
`trade
`certain niche where
`whole market or find
`there wont
`thrive One aspect where
`in markets served Every
`routing system provider
`as many markets
`to access
`emphasizes the necessity
`they are marketing to FCMs
`possible whether
`traders The only exceptions
`institutional
`traders or retail
`are those that
`to electronic markets
`question faced by electronic
`markets -both
`
`question
`
`limit themselves
`
`and ways
`to serve the
`
`to
`
`they can
`be specialization
`
`is
`
`as
`
`as many exchanges
`be the most successful
`While much commonality
`has grown among
`there will be
`end systems
`some providers believe
`second
`generation of front-end technology
`from
`can choose
`users
`The market at
`the beginning of the year was
`and stabilize
`vendors
`the primary
`to refine
`among
`in order execution and
`components
`management Monieson says
`Trading Technologies
`function
`that allows traders
`
`front-
`
`that end-
`
`race
`
`involved
`
`is developing
`
`an Auto
`nine
`
`to create
`
`Spreader
`spread For example this will allow traders
`legged
`the Nasdaq SP Dow and FTSE
`spread between
`Vice President of Operations
`best
`notes that her firm offers
`
`to
`
`Interactive
`
`Brokers
`Laura Schueneman
`
`execution feature
`
`that offers
`
`to its customers Best execution
`the best price on
`picks the exchange
`commonly traded contract While that has mainly been
`for equity option traders Schueneman
`notes
`tool
`and multiple-listed
`that with the onset of BrokerTec
`futures contracts that will become more important
`Brokers
`is not alone in that capability
`Interactive
`common
`theme among ISVs is
`the ability to
`connect
`to every market out
`there and provide
`tools to spread across
`customers
`and different markets
`
`different
`
`exchanges
`
`is
`
`routing
`
`is
`
`expense
`and
`
`ISV VS BROKER/FCM
`For some order
`business
`and for others it
`business
`Patsystems GL Trade
`Trading
`Technologies
`others market their
`front-ends
`and connectivity
`to
`FCMs and institutional
`traders On the other hand
`and to
`certain
`extent
`Fimatrade Xpresstrade
`Brokers
`are primarily in the brokerage
`Interactive
`There are advantages
`and disadvantages
`each business model
`firms and FCMs offering their own
`Brokerage
`networks
`note that
`complete trading solution
`Our core business
`be clearing
`is and will always
`and execution
`says Fimatrades
`Aitmayer
`services
`The success
`of Firnatrades platform as an ISV is not
`
`business
`
`to
`
`it is
`
`direction
`
`to sell screens
`upon our ability
`dependent
`solely
`Because Fimat owns
`the system we control
`and speed of development We are not at
`mercy of
`third party that may not want
`to go
`many of the smaller markets
`
`the
`
`the
`
`to
`
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`

`
`new and old is who will provide liquidity Who
`trader who scalps
`will take the function
`tight bid/ask with reasonable
`turned to market makers to
`have
`
`of
`
`the local
`
`market providing
`markets
`
`Electronic
`
`the
`
`size
`
`Chuck Dolce managing director
`software
`recalculates
`
`of RTS says his
`anytime
`quotes
`RTS also has
`prices change
`developed
`of stocks
`that could allow
`baskets
`to trade
`
`theoretical
`
`functions
`
`fill
`
`that role and several
`
`ISVs have developed software
`
`for
`
`greater
`
`opportunity
`
`for cash arbitrage
`
`in equity
`
`to serve those
`
`traders as well
`ISV that specializes
`in automated
`Actant
`is one
`market making on electronic
`The company
`platforms
`writes software for market makers
`and other liquidity
`General Manager
`
`to Actant
`
`according
`providers
`Joshua Hodge
`Market making is particularly
`options where
`in one
`you are not providing
`on puts calls
`market
`but across several
`strike prices
`and other orders RTS is an order
`routing front-end
`
`difficult while trading
`
`bid/ask
`
`system that specializes
`
`in options pricing
`
`indexes Dolce says
`With the advent
`
`importance
`end-users access
`
`of
`
`of individual equity futures
`front-end
`provider being able
`not only to those markets but also
`
`the
`
`to give
`
`to
`
`cash markets
`intensified
`the underlying
`is greatly
`After all equity futures and narrow-based equity
`the potential
`index futures
`have
`to create
`huge basis
`trade market
`
`exchanges
`
`We want
`
`futures
`
`is linked to all
`
`the
`
`stock
`
`futures
`
`Theys says Patsystems
`market
`because of equity
`to be able
`to execute into single stock
`but we also want
`to make sure we
`the underlying market as well Theys says
`have
`From our screen you will be able to trade
`the future
`and the cash outright
`
`-4
`
`WHO WILL SURVIVE Along with the death of open
`the other assumption many people within the
`outcry
`there would be
`held
`is that
`
`though
`
`it
`
`industry
`year ago
`great deal of consolidation among ISVs and front-end
`settled on the best
`in the field Well
`systems as users
`that hasnt
`yet either
`happened
`undoubtedly will The full
`of what
`ISVs
`these
`scope
`do is not entirely defined yet and the rules are
`changing
`continually
`hint of what the future may look like for ISVs may
`of Refco
`been provided
`by the recent
`and EasyScreen
`see Treridlines-
`2001 The agreement
`institutional and massive retail customer
`
`have
`
`partnership
`
`Futures September
`the door to Refcos
`
`opens
`
`base according
`Stephen Pains Parnis notes
`to EasyScreen Vice President
`into an agreement with fl-Speed
`that
`also
`entered
`cash bond traders
`network
`
`they
`
`enabled
`
`E-Speeds
`
`futures
`
`outlet
`
`through
`
`EasyScreens
`
`Pains
`
`believes
`
`those
`
`partnerships
`
`strengthen
`
`their position among ISVs
`he sees happening is
`the consolidation
`says that
`Theys
`by FCMs choosing their technology providers He notes
`firms with
`to have
`those
`perspective will prefer
`
`global
`
`one solution
`
`While winners
`
`and losers will be determined
`
`to
`
`certain extent
`
`by those with the best
`
`technology
`
`an old-
`
`VU
`
`fashioned
`
`service will also play
`the most
`
`that
`
`can
`
`offer
`
`role
`
`provider
`
`idea like customer
`The front-end
`and
`products
`
`best
`
`will be the dominant
`
`functionality
`cant support their multitude
`them
`as well not offer
`
`if
`
`provider
`
`player
`of products
`they might
`says Traders
`single access
`point
`reliable and supported
`major markets
`is quick
`individuals who can qthcldy
`the problem...
`identify
`you are not flexible you will not succeed
`agrees The casualties will be
`GL Trades Patrick
`those who arent constantly adapting
`themselves
`changing market
`conditions staying
`technologies and keeping close
`ensure they understand
`each
`
`Altrnayer
`
`want
`
`to all
`
`that
`
`by
`
`If
`
`to
`
`abreast
`
`of newer
`
`to their customers
`individual customers
`
`to
`
`business
`
`requirements
`
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`
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