UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF ILLINOIS
`EASTERN DIVISION
`
`Trading Technologies
`International, Inc.,
`
`Plaintiff,
`
`v.
`
`eSpeed, Inc., eSpeed International, Ltd.,
`Ecco LLC, and EccoWare Ltd.,
`
`Defendant.
`
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`
`Civil Action No. 04 C 5312
`
`Judge James B. Moran
`
`EXPERT REPORT OF DAVID L. SILVERMAN
`
`TTX02036703
`
`IBG 1076
`IBG v. TT
`CBM2016-00054
`
`

`

`1.
`
`My name is David L. Silverman. I understand that Trading Technologies
`
`International, Inc. ("TT") has filed a lawsuit against eSpeed, Inc., eSpeed International,
`
`Ltd., Ecco LLC, and EccoWare Ltd. (collectively "eSpeed") for infringement of various
`
`claims of U.S. Patent Nos. 6,772,132 ("the '132 patent"), and 6,766,304 ("the '304
`
`patent"). I understand that TT has asserted claims 1, 2, 3, 7, 8, 9, 10, 14, 15, 16, 20, 22,
`
`23,24,25,26,27,28,29, 30,32, 33,34,35, 36,37, 38,39,40,42,43,44,45,46,47,48,
`
`49, 50, 51, 52, 53, and 54 of the '132 patent and claims 1, 2, 3, 5, 6, 7, 8, 9, 11, 12, 13,
`
`14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36 and
`
`37 of the '304 patent.
`
`I have been retained by eSpeed as a consultant and testifying
`
`expert to offer my expert opinion regarding the invalidity of the asserted claims in the
`
`'132 and '304 patents.
`
`In my opinion and as discussed in this Report, each of these
`
`claims is invalid in light of the prior art.
`
`I.
`
`BACKGROUND AND QUALIFICATIONS
`
`2.
`
`A copy of my curriculum vitae is attached as Exhibit 1.
`
`I obtained my
`
`bachelor's degree in mathematics from Amherst College (Amherst, MA) in 1971. I have
`
`spent most of my professional career working in information technology, and have spent
`
`the majority of that time focused on the specification, design, development and
`
`implementation of electronic trading systems for the financial markets.
`
`3.
`
`I have been involved with the development of electronic trading systems
`
`since the early years of electronic trading. I joined Reuters in June, 1983. From 1986-87,
`
`I coordinated the development of the Reuters Dealer Trading System (RDTS) strategy
`
`and technology platform, which was a generic architecture for electronic trading in the
`
`wholesale financial markets. Subsequently, my team developed a prototype based on the
`
`2
`
`TTX02036704
`
`

`

`RDTS architecture for an electronic exchange designed for trading financial futures,
`
`which we presented to the Chicago Mercantile Exchange (CME) in 1987. Reuters
`
`entered into an agreement with the CME in 1987 to provide technology for a post-market
`
`In 1988, the MATIF
`trading system, which was initially known as the PMT system.
`(Marche a Terme Internationale de France) agreed with CME and Reuters to participate
`
`in this international financial futures market. The name was changed from PMT to
`
`GLOBEX® in 1988.
`
`In 1990, the Chicago Board of Trade (CBOT) joined the
`
`GLOBEX® partnership, which ultimately launched in 1992. GLOBEX® was the first
`
`fully electronic multi-exchange global market for financial futures. GLOBEX® was
`
`initially used for after hours trading at the CME, MATIF, and the CBOT.
`
`4.
`
`I was involved in all aspects of specifying, designing, creating, and testing
`
`all components of GLOBEX® including the order matching system, the network, the
`
`control center, and the user interfaces for the GLOBEX® system. One focal point of the
`
`work was to create an interface that would make electronic trading acceptable to all users
`
`of the trading system,
`
`including proprietary traders, market makers, and other
`
`intermediaries who were accustomed to trading by open outcry in a pit or placing orders
`
`with brokers. During the course of this work, and throughout most of my career at
`
`Reuters, I became very familiar with graphical user interfaces for trading systems, and
`
`the needs of the traders, the exchange, and other participants in an electronic trading
`
`system. I continued to work on GLOBEX through the mid-1990s.
`
`5.
`
`In addition to my work with GLOBEX, while I was at Reuters, I designed
`
`some of the core news and real-time data components ofiDN, which was at that time was
`
`the world's highest performance stock market quote distribution network.
`
`I also
`
`3
`
`TTX02036705
`
`

`

`designed, developed and launched Dealing 2000-2, the first successful electronic
`
`matching system for the spot foreign exchange market. Dealing 2000-2 was launched in
`
`1992. I was responsible for the architecture, design and launch of Dealing 2000-3, an
`
`electronic soft matching system for the inter-bank FX forward market, which was
`
`launched in 1997.
`
`6.
`
`In addition to GLOBEX (for the financial futures markets) and Dealing
`
`2002 (for the Foreign Exchange market), I have designed trading systems for the fixed
`
`income market, and for a number of domestic money markets (including Mexico and
`
`Brazil).
`
`7.
`
`One of the key responsibilities of my role in Reuters was to understand the
`
`needs of participants in the professional financial markets, including traders, brokers,
`
`exchanges, risk managers, and institutional end users. In order to accomplish this role I
`
`spent time observing the trading behavior of system users, interviewing them regarding
`
`trading practices, building prototypes to match their needs, and monitoring trends and
`
`patterns in end user adoption of computer technology for trading.
`
`8.
`
`In the latter half of the 1990's I continued to work with electronic trading
`
`systems, and was particularly involved in the use of Internet technologies to extend
`
`trading access to classes of users which previously could not afford connection to
`
`proprietary trading networks.
`
`9.
`
`I have continued to be employed by Reuters to the present day. I continue
`
`to be involved in business and technical strategy for trading systems, and as recently as
`
`2005 was instrumental in defining a business opportunity and executing a joint venture
`
`4
`
`TTX02036706
`
`

`

`agreement between Reuters and the Chicago Mercantile Exchange for the next generation
`
`trading model for Foreign Exchange.
`
`10.
`
`I am a named inventor or co-inventor on several Unites States Patents that
`
`relate to fundamental technologies for electronic trading. These include:
`
`• Distributed Matching System, No. 5,077,665 (Dec. 31, 1991), which
`discloses a matching system for financial instruments, involving a host
`system, a keystation, and a dynamically variable book of bids and offers;
`
`• Anonymous Matching System, No. 5,136,501 (Aug. 4, 1992), which
`discloses a matching system that effects anonymous transactions in a
`credit sensitive market by ensuring that matches are only executing within
`pre-specified counterparty credit limits;
`
`• Negotiated Matching System, No. 5,924,082 (July 13, 1999), which
`discloses a negotiated matching system that first matches counterparties
`who are acceptable to each other based on trading and ranking
`information, and then enables the two counterparties to negotiate and
`finalize the terms of a transaction;
`
`• Distributed Matching System for Displaying a Book of Credit Filtered
`Bids and Offers, No. 5,924,083 (July 13, 1999), which discloses a
`matching system proving real-time credit filtered market information
`consisting of unilaterally and/or bilaterally credit filtered orders and
`available quantities;
`
`• Electronic Trading System Featuring Arbitrage and Third-party Credit
`Opportunities, No. 6,519,574 (Feb. 11, 2003), which discloses a trading
`system
`that effects credit arbitrage and/or name-switching by
`automatically detecting and executing transactions based on credit
`parameter data, name switch parameter data, and trading data.
`
`My '665 patent was discussed during the prosecution of the TT patents in suit.
`
`11.
`
`I am being compensated at a rate of $750 per hour, not to exceed $10,000
`
`per day. No part of my compensation is conditioned upon the outcome of this litigation.
`
`II.
`
`BASIS FOR OPINIONS AND MATERIALS REVIEWED
`
`12.
`
`The basis for my opinions are the patents, manuals, software systems,
`
`marketing materials, and other materials identified throughout this Report, as well as my
`
`5
`
`TTX02036707
`
`

`

`education, training, and expenence m designing and developing electronic trading
`
`systems and user interfaces for computer-based trading, and my professional interactions
`
`with traders and other participants in the wholesale financial markets.
`
`13.
`
`In addition to the materials cited in this report, the materials I principally
`
`reviewed in connection with the preparation of this Report include:
`
`•
`
`•
`
`•
`
`•
`
`•
`
`•
`
`•
`
`•
`
`•
`
`The specification, disclosure, portions ofthe file history, claims of the
`'132 and '304 patents, and art cited therein;
`
`The patents, manuals, systems, articles, marketing materials, and other
`materials that were part of the state of the art before March 2, 1999, which
`are discussed below.
`
`Portions of the source code for versions of GL Win software.
`
`Videotaped demonstration of GL Win software with Trading Pad.
`
`Computer provided by GL Trade containing GL Win with Trading Pad
`executable software.
`
`Portions of Expert Report of Bruce Webster.
`
`The depositions cited in this report, including H. Kida, L. Havard, B.
`Spada, P. MacGregor, N. Garrow, C. Dobson, A Kawashima
`
`The Supreme Court's decision in KSR v. Teleflex.
`
`Translations of prior art references.
`
`14.
`
`I may be asked to provide background information in these proceedings
`
`that will assist the Court or jury to understand the technology relevant to the patents-in-
`
`suit. At hearings and/or trial, I may rely on materials and documents publicly available
`
`or produced in this litigation by any party, as well as documents that the parties have
`
`exchanged in the course of discovery. Some of this material had been redacted. I also
`
`may rely on visual aids and demonstrative exhibits to illuminate my opinion.
`
`6
`
`TTX02036708
`
`

`

`15.
`
`The opinions stated in this report are based on information that I have
`
`reviewed and that is currently available to me.
`
`16.
`
`I reserve the right to continue my investigation and study, which may
`
`include a review of documents and information that may yet be produced, as well as
`
`deposition testimony from depositions that may yet be taken in this case. Therefore, I
`
`reserve the right to expand or modify my opinions as my investigation and study
`
`continue, and to supplement my opinions in response to any additional information that
`
`becomes available to me, to any matters raised by the parties, and/or other opinions
`
`provided by the parties' expert(s).
`
`III.
`
`DEFINITION OF THE SKILLED ARTISAN
`
`17.
`
`Generally speaking, the '132 and
`
`'304 patents relate to a field of
`
`technology in which invention, design and development is typically conducted by skilled
`
`software engineers with at least a college and often post-graduate degree, plus 3-5 years
`
`experience in the design and coding of commercial software systems. The software
`
`engineers would be experienced in the development of systems involving real time
`
`processing and graphical user interfaces and have knowledge either themselves, or from
`
`communications or interactions with others, about the work-flow of professional traders.
`
`In the course of developing the systems discussed in paragraphs 3 through 9 above, I
`
`interviewed and recommended for hire individuals with the skills enumerated above.
`
`IV. HISTORY OF ELECTRONIC TRADING USER INTERFACES
`
`18.
`
`At trial, I expect to provide a general overview of the history of electronic
`
`trading and graphical user interfaces (GUis) for trading systems, including important
`
`considerations known to persons of skill in the art in developing trading GUis. As part of
`
`7
`
`TTX02036709
`
`

`

`this general overview, I expect to discuss: (1) the development and design of the various
`
`user interface displays for market data and their order entry processes; (2) the reasons for
`
`the various designs of the various user interfaces including how user types and work-
`
`flow, technology constraints, market constraints, and user experience impacted design
`
`and development of user interfaces; and (3) the impact that Trading API' s contributed to
`
`the design of electronic user interfaces.
`
`19.
`
`In my opinion, by no later than March 1, 1999, 1 which is one year before
`
`the filing of the provisional patent application No. 60/186,322, the user interfaces for
`
`electronic trading had been well established and known to those of ordinary skill in the
`
`art, including the display of prices, bids and asks in a vertical format (INTEX, SPATS,
`
`SWX, TSE); a display of prices in a vertical format that did not change when the inside
`
`market changed (TSE, GL Win 4.31, Midas Kapiti); a display of prices in a vertical
`
`format in which the inside market is always centered on the screen (SWX, INTEX, IPE,
`
`MEFF); the display of the best bid and best ask in two columns with the best bid and best
`
`ask aligned side by side (DTB, GLOBEX); and this two column display that showed
`
`market depth with the bids in the left hand column under the best bid and the offers in the
`
`right hand column under the best ask (Patsystems, GLOBEX).
`
`20.
`
`In my opinion, by no later than March 1, 1999, single action order entry
`
`had been well established in the industry on a variety of trading screens including: the
`
`vertical display of prices (SWX, LIFFE APT, GL Win 4.31, Midas Kapiti); the static
`
`vertical display of prices (GL Win 4.31, Midas Kapiti); a display of prices in a vertical
`
`format in which the inside market is always centered on the screen (SWX, LIFFE APT);
`
`1 My understanding is that what was known in the art more than one year prior to the effective date of TT' s
`patent filings is relevant in these discussions. I also understand that date to be either March 2, 1999 or June 9,
`1999.
`
`8
`
`TTX02036710
`
`

`

`the display of the best bid and best ask in two columns aligned side by side (X_Trader,
`
`Globex); and this two column display that showed market depth (Globex2, Patsystems).
`
`A.
`
`DIFFERENT DESIGNS OF DISPLAY ORDER BOOKS (1980-1998)2
`
`i.
`
`INTEX (1984)
`
`21.
`
`The INTEX system was developed in the early 1980s and launched in
`
`1984.
`
`INTEX was described in the Wall Street Journal as a "completely automated
`
`financial futures exchange."
`
`Bermuda Financial Futures Exchange Would Be
`
`Automated, Wall Street Journal, April 27, 1981. INTEX appears to be the first electronic
`
`futures trading system to utilize a single vertical display of prices for screen-based
`
`representation of order book information, as shown below. DX 1 0; McCausland
`
`Deposition, 4/7/05, at40-42.
`
`TRADING SCREEN
`
`HlTEXtOQ·JM15li9: 17
`
`Y.SOIIO
`
`LAST· 8& 19
`OFFER SIZE
`182
`192
`IC6
`213
`221
`317
`250
`"L~ST"
`
`LAST. 6730 JU'I83
`OFFER SIZE 8'1 s l[
`192
`t4G
`273
`22 1
`117
`118
`115
`" LAST"
`
`I,
`I
`:
`I!
`
`~· AR 83
`811 SIZE
`
`PiiiCE
`88 OS
`ee o~
`88.03
`8902
`68 .01
`88 00
`87.31
`••Lt.ST••
`81.30
`87.29
`170
`87.28
`173
`190
`8727
`87.26
`142
`81.25
`176
`81.2G
`193
`l0:87.23
`0: BI2S
`Hl:88 03
`.LIMIT
`ORDER TYPE
`:OUV
`BUY/SEll
`QUANTITY
`:25
`CC\TRACT 10 IM~MVVI MAR 83
`
`PRICE
`es 26
`R6.25
`86 24
`86 23
`86.22
`86 21
`86.2C
`es. 15
`~·L~Sr"
`I 210
`85.16
`86 17
`32~
`86 16
`273
`86.15
`298
`86 14
`142
`86.13
`176
`HI 86 lS
`0. Bfo IS
`87.29
`LIMIT PRICE
`PRI~CIPHIA~Er;:y PRtriCIPAL
`CTC
`TIME IPI FORCE
`C ~CCO~NT 110 l
`MEt~O
`
`V: 99J i
`
`LO 66 IS
`
`V: 1466
`
`22.
`
`The user interface was a character-based 80x24 line display which was
`
`designed to display one or two contracts on a single screen. The order book was
`
`displayed using a vertical price axis with bids on the left and offers on the right. The
`
`2
`
`In this report, I have included various diagrams and illustrations for illustrative purposes. At trial in this
`case I may rely on other diagrams, illustrations or demonstratives that are not expressly shown in my
`report.
`
`9
`
`TTX02036711
`
`

`

`price at which the last trade took place was indicated by an on-screen indicator next to the
`
`relevant price in the price axis. As a nascent futures exchange, with only a small number
`
`of listed contracts, the users of the system did not need to concurrently view a large
`
`number of instruments on the screen. Furthermore, due to the limitations of the available
`
`telecommunications local line bandwidth in 1981, it would not have been feasible to keep
`
`a large number of instruments concurrently updated with the current market state. The
`
`design of the INTEX trading screen reflects all of those concerns regarding minimizing
`
`the required update bandwidth and providing fairly complete visibility into the exchange
`
`order book for a trader into two instruments at a time.
`
`23.
`
`The INTEX client system included a customized keyboard with "special
`
`function keys on the keyboard which designated what type of order ... a buy, a sell, a
`
`cancel, a replace" the user wishes to enter. Mr. McCausland testified that "you would,
`
`by a selection process, designate which contract it was that you were either bidding or
`
`offering." Finally, the user would type in at the bottom of the screen in the trade order
`
`zone, the quantity and the price. R. McCausland Deposition, 4/7/05, at 78-79.
`
`24.
`
`In a marketing brochure contemporaneous with the launch of INTEX, the
`
`characteristics of the INTEX system were described to prospective members of the
`
`exchange. This brochure was entitled "INTEX the Fastest, the Most Accurate, the Only
`
`Automated Futures Exchange in the World." DX 122.
`
`It is clear that INTEX was
`
`appealing to the sensitivities of prospective users of the system for speed and accuracy.
`
`25.
`
`The Wall Street J oumal, in April 1981, made the following observations
`
`regarding INTEX:
`
`Jay Peake (INTEX founder) terms automated trading "an idea whose time has
`come" and says professional market makers "can do everything on the screen"
`
`10
`
`TTX02036712
`
`

`

`that they now do in the pits. But they will lose "a certain time and space
`advantage" over outside customers because all members would have the same
`access to INTEX' s Bermuda computer, no matter were they are, he adds. George
`Lamborn, a senior managing director of Shearson Hayden Stone Inc. who has
`been critical of floor traders' advantages, terms the exchange "a very interesting
`idea," though he notes "it may be a few years too early.
`
`Bermuda Financial Futures Exchange Would Be Automated, Wall Street Journal, April
`
`27, 1981. It is clear from these contemporaneous quotes that the objective of INTEX was
`
`to provide all users with equal access to trading information and to make that information
`
`as complete as a floor trader would see in a trading pit. Since INTEX was a startup
`
`exchange, there were no vested interests of floor traders to contend with, and the best
`
`solution was to provide high transparency for all participants.
`
`u.
`
`SPATS (1987)
`
`26.
`
`The software which had been developed by INTEX was subsequently
`
`licensed to Security Pacific Bank and formed the basis for the Security Pacific
`
`Automated Trading System also known as SPATS. See "Automated Trading: CBOT
`
`Approves EJV Deal, But Board Gives Thumbs Down To Non-Member Use of System,"
`
`Investment Management Technology (Waters Information Services, Inc., October 2,
`
`1992). An illustration of the SPATS order book display is shown below. This display is
`
`based on a vertical price axis with bids on the left and offers on the right. DX 446, § 3.3.
`
`11
`
`TTX02036713
`
`

`

`3.3 BOOK DISPLAY MARKETS
`
`All active issues where the market maker is willing to display continuous two sided
`markets will be displayed in this group. There will be separate pages tor bills. coupons
`and agencies with six issues shown on each page. A sample page is shown below:
`
`The information on a typical book
`display page is:
`1. Designation ot the most recent auc(cid:173)
`tioned issue in that maturity.
`2. Fulf issue description.
`3. Best three bids in the issue with size.
`In this case there are 500 notes bid at
`104.29. Th ere are also 500 notes bid
`at 104.28.
`4 . Best three offers in the issue with size. In this case, there are 500 notes offered
`at 105.01.
`5. Last sale in the issue. If no trade has taken place, this field will be blank.
`6 . Yield to maturity for the issue. The yield is figured to the offered side of the
`market. If there are no offers, it is fig ured to the bid side; and if there are no
`bids or offers, it is figured to the last sale.
`
`27. Whereas INTEX was designed for the trading of financial futures, the
`
`SPATS system was designed to trade so-called "odd lots" of US government bonds.
`
`However, due to lack of liquidity, the SPATS system failed within two years of its
`
`launch. See Susan Kelly, "Chapdelaine Unveils Trading System for Government
`
`Securities," American Banker, March 22, 1989.
`
`28.
`
`The establi shed mechanism for trading of US Government securities was
`
`through the facilities provided by the Inter-Dealer Brokers ("IDB") of the day. Typically,
`
`these IDBs provided a screen whi ch displayed the best bid and best offer price, only
`
`without any visibility into resting orders behind the best bid and best offer. In fact, in
`
`some markets the brokerage convention was that a dealer's bid or offer would
`
`automatically be cancelled by the broker if a better bid or offer was received. This
`
`12
`
`TTX02036714
`
`

`

`convention, known as an "auction market" was the established practice in the inter-dealer
`
`market for US Government bonds. Furthermore, the US Government securities market
`
`was then, and still is, a two-tier market.
`
`In the center of the market sit the Primary
`
`Dealers who are the only entities able to bid directly for the debt obligations of the US
`
`Government. These Primary Dealers then trade anonymously between themselves
`
`through the facilities of the IDBs and make secondary markets in these instruments for all
`
`other buy-side participants such as hedge funds, asset managers, and mutual funds (also
`
`known as the "retail market"). Security Pacific elected not to compete head-to-head with
`
`the IDBs and instead it elected to provide a trading screen which was functionally
`
`different from and whose participation would be broader than that provided by the IDBs.
`
`It targeted its product at the "odd lots" market for government bonds. Consequently, it
`
`made sense to adopt the order book paradigm (different from the auction market
`
`paradigm of the inter-dealer market) and the full vertical order book display pioneered by
`
`INTEX for the futures market, and adapt this for the government securities odd-lot
`
`market.
`
`29.
`
`The SPATS system was designed to allow very rapid entry of "Hit" and
`
`"Take" orders (market sell and market buy). By using a custom keyboard with the
`
`trading keys prominently located, the trader could enter an order with as few as four
`
`keystrokes (Hit/5/Enter/Confirm). The trading keys of the SPATS keyboard are shown
`
`below. DX 446, § 1.3.
`
`13
`
`TTX02036715
`
`

`

`m.
`
`The CME Universal Broker Svstem (CUBS) (1992)
`
`30.
`
`In order to improve the efficiency and reduce the incidence of errors in the
`
`handling of floor orders, the CME developed the CUBS ("CME Universal Broker
`
`System") system in the late 1980s, which was being field tested by 1992. See David
`
`Nusbaum, "Where No Trading System Has Gone Before," Futures, July 1, 1992. This
`
`use of technology was designed to imitate the manual processes of the floor brokers but
`
`to do it in a manner which greatly reduced the use of paper, and thereby reduced the
`
`incidence of errors. CUBS was not a complete electronic exchange inasmuch as order
`
`execution still took place within the pit on the floor of the exchange. However, CUBS
`
`did automate the printing and management of order forms. An added benefit of the
`
`CUBS system was that order information was captured electronically and this allowed the
`
`exchange to create a more efficient and comprehensive capture and dissemination of
`
`market information.
`
`14
`
`TTX02036716
`
`

`

`31 .
`
`A diagram illustrating the CME Universal Broker System (CUBS), which
`also shows how bids and offers were arranged along a vertical price axis, is shown below:
`
`NHAT IS THE CUBS ORDER FLOW?
`
`HOW DOES CUBS HANDLE ORDERS?
`
`The CUSS order now is iniri;ucd by J customer's
`·elcphone call ro aCME Cleanng :l.lember Firm's
`order desk. The Accounr Executive or cleric emeu the
`.usromer order into TOPS. TOPS gives the order to
`:UBS where the specific broker is determined for
`outing. The order is delivered to thu broker's CUBS
`ration. The order is exccurcd, in the pit, by the
`')tolcer, viil OPEN OliTCRY. The broker then enters
`the endorsement information into CUBS. A fill report
`.s generated and rransmitted back to TOPS. TOPS
`hen routes the fill report back to the member firm's
`•rdcr desk which initiated the order. The A"ount
`~xecutive telephones rhe customer to report rhe fill.
`
`The CUSS station is comprised of a number of
`windows as depicted in the following diasram. These
`windows functionally dtvidc the broker's acrivitics
`into Order Acceptance, Deck Management, and
`Endorsement.
`
`Broker CUBS Screen
`
`-:uBS Order Flow
`c:u.-r
`
`c.-
`
`Onltr Des&
`
`OnlerOn*
`
`[E ~
`t
`+
`fl] ~
`....
`
`TOPS ~
`
`CUBS
`
`~ TOPS
`a.
`
`Tra.lnc l'tt
`
`1. IIICOmiDI Window
`Ordcu that arc received ar" broker's station u e
`listed in rhe lncom1ng Window waiting for
`acceptance. From rhis window a broker may either
`accepr or reject an order. If the order is rejected, it is
`sent back co TOPS. If the order is accepted, it is
`moved from the Incoming Window to rhe Broker's
`Deck \Vmdow.
`
`Cubs Brochure.
`
`15
`
`TTX02036717
`
`

`

`32.
`
`A similar system is reflected in United States Patent No. 5,297,031 ("the
`
`Gutterman patent"), which issued in 1994. This patent discloses a method for managing
`
`trade orders in a futures market. The system described in the patent would be used by a
`
`broker on an exchange, whose workflow consists of receiving customer orders, accepting
`
`or rejecting those orders, and then executing those orders on the exchange. The system is
`
`not an electronic exchange in that it does not include a means of order execution, per se,
`
`but rather an application for managing orders.
`
`It is similar to the TT patents in this
`
`regard. The illustration below is from the '03 1 patent and depicts many of the significant
`
`elements of this system:
`
`BUY
`t.ArT S/L 00 STP
`
`STP LJ.4T S/L
`
`0
`0
`
`h239-9
`31 ~
`
`30 ~ @
`
`139-8
`
`13.3
`
`120
`
`1S9- s
`
`28
`
`'}j
`
`[!h
`139-7
`l@!
`1.39-1
`139~~
`
`Q1Y FlRt.t
`SPC INST
`TIME
`ACCT
`[]] l122l l1768289ll1445ll1 TIC DISC I
`145
`
`16
`
`TTX02036718
`
`

`

`'031 Patent, Fig. 2d. The different components of this illustration are identified by
`
`numbers connected to the elements of the display (e.g. the 12 in the upper left corner, or
`
`the 120 on the right edge).
`
`In particular, as explained within the specification and
`
`disclosure of the '031 patent, the column of numbers ranging from 26 up to 00 is a
`
`vertical price axis (identified as 136 in the drawing). The numbers on the left (60, 40, 25)
`
`are cumulative bid quantities (identified as 133 in the drawing). The numbers on the
`
`right (40, 70, 100) are cumulative ask quantities (also identified as 133 in the drawing).
`
`The last trade is at 29. The brokers own orders are shown in association with this display
`
`as the squares (20, 5, 15, 20) for bids and the circles (30, 10, 25, 5, 30) for asks
`
`(identified as 139-x in the drawing). See '031 Patent, at 12:25-56. The bar across the
`
`center, identified as 137, indicates the price of the last trade in the market. '031 Patent at
`
`12:7-24.
`
`zv.
`
`GLOBEX (1992)
`
`33.
`
`In 1987, Reuters demonstrated a prototype government securities trading
`
`system to the CME. This system in its prototype utilized a market grid display which
`
`allowed the trader to display up to 24 instruments on the screen at the same time. For
`
`each instrument, the most critical fields including the instrument name, the last sale price,
`
`best bid, best offer, bid and offer size, and yield to maturity of the last sale were
`
`concurrently updated.
`
`This system included state-of-the-art technology for user
`
`interaction, such as a custom designed keyboard for rapid, error-free order entry and
`
`order management and voice-activated input. This prototype, although configured for
`
`trading cash bonds, was based upon the RDTS architecture which was a generic platform
`
`for trading any asset type. As such, it could be easily configured in terms of its display
`
`17
`
`TTX02036719
`
`

`

`characteristics, input characteristics, and order processing logic to address the electronic
`
`trading needs of a futures exchange.
`
`34.
`
`In the summer of 1987, Reuters and the CME entered into the Pre and Post
`
`Market Trading ("PMT") Agreement which provided a framework whereby Reuters
`
`would supply technology and operations to the CME for trading the CME futures on
`
`Reuters electronic trading platform. The PMT Agreement subsequently became the
`
`GLOBEX Agreement and the technology provided by Reuters became known as the
`
`GLOBEX system.
`
`35.
`
`From the outset, GLOBEX was envisioned to be a multi exchange trading
`
`system. The CME invited participation from all of the major global financial futures
`
`exchanges including the CBOT, MATIF, LIFFE, SOFFEX, DTB, NYMEX, IPE and
`
`others. Ultimately, the CBOT and MATIF joined as partners in the venture whereas
`
`some of the other exchanges elected to adopt their own electronic trading technologies.
`
`Having multiple exchanges as constituents resulted in a complex and protracted process
`
`for agreeing on system requirements. The most significant and influential participants in
`
`the requirements definition process were the large FCM members and the market
`
`operations and surveillance staff of the exchanges themselves. From an early stage, the
`
`exchanges agreed that a single display format would be used by all users and by all
`
`exchanges. This created the ability to display markets across multiple exchanges on a
`
`single screen. It also meant that the characteristics of that display had to be a common
`
`denominator across all of those exchange products.
`
`36.
`
`The market grid was deemed to be a very useful component inasmuch as it
`
`allowed the display of multiple instruments concurrently. However, it was also viewed
`
`18
`
`TTX02036720
`
`

`

`as desirable to be able to display the order book consisting of those bids and offers below
`
`and above the best bid and the best offer for selected instruments. There were significant
`
`bandwidth considerations in the design of this system, and the available bandwidth was
`
`limited to 9600 bps. Additionally, there were severe constraints relating to provision of a
`
`level playing field that would ensure all market participants would receive the same
`
`information within a narrow time window. In this design, it was viewed that a market
`
`grid was the primary means for monitoring the state of the market which would allow the
`
`brokers (who were also largely responsible for defining the display) to monitor multiple
`
`instruments and be able to rapidly provide best bid and offer information to their
`
`customers on the phone.
`
`37.
`
`However, there was a need particularly for larger customers and for larger
`
`orders to provide visibility into the order book for selected instruments at selected points
`
`in time. The compromise was to provide a function whereby the GLOBEX user could
`
`click on a single instrument and request a pop-up window display of a pre-defined region
`
`of the central limit order book. Due to bandwidth constraints, the number of such
`
`windows that could be concurrently on the screen was limited and the depth of display of
`
`those windows was limited to the best five bids and the best five offers. In order not to
`
`obscure more of the display than absolutely necessary, these pop-up book display
`
`windows were designed to be as compact as possible.
`
`In particular only those price
`
`levels with an active bid or offer were shown and the bids were shown beside the offers
`
`with the best bid and best offer at the top of their respective lists. In this way, the pop-up
`
`book display mimicked the best bid I best offer display in the market grid while providing
`
`information on the depth of the market beneath that best bid and offer. The illustration
`
`19
`
`TTX02036721
`
`

`

`below is a GLOBEX screen from a 1989 brochure, which shows a grid of multiple
`
`futures contracts. The second illustration is a pop-up window with a compressed order
`
`book display for a single instrument, from a GLOBEX manual l