`UNITED STATES PATENT AND TRADEMARK OFFICE
`
`————————————————
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`————————————————
`
`GAIN CAPITAL HOLDINGS, INC.,
`Petitioner,
`
`v.
`
`OANDA CORPORATION,
`Patent Owner.
`
`————————————————
`Case No. CBM2020-00021
`Patent No. 8,392,311
`————————————————
`
`PETITION FOR COVERED BUSINESS METHOD REVIEW
`
`
`
`
`
`
`

`

`
`
`TABLE OF CONTENTS
`
`INTRODUCTION ........................................................................................... 1 
`I. 
`II.  MANDATORY NOTICES UNDER 37 C.F.R. § 42.8 ................................... 2 
`III. 
`IDENTIFICATION OF CHALLENGE; STATEMENT OF PRECISE
`RELIEF REQUESTED ................................................................................... 4 
`IV.  THE ’311 PATENT ......................................................................................... 4 
`A. 
`Claims .................................................................................................. 10 
`B. 
`Prosecution History ............................................................................. 12 
`LEVEL OF ORDINARY SKILL .................................................................. 17 
`V. 
`VI.  THE STATE OF THE ART .......................................................................... 18 
`A.  History of Currency Trading ............................................................... 18 
`B. 
`Currency Trading Markets and Practices ............................................ 18 
`1. 
`Currency Trading Roles and Parties ......................................... 20 
`2. 
`Communications Between Parties ............................................ 23 
`3. 
`Placing Orders and Executing Trades ....................................... 24 
`Electronic Trading Systems ................................................................ 26 
`C. 
`VII.  CLAIM CONSTRUCTION .......................................................................... 33 
`VIII.  PETITIONER HAS STANDING TO FILE THIS CBM PETITION ........... 33 
`A. 
`Petitioner Has Been Charged with and Sued for
`Infringement, and Is Not Estopped ..................................................... 33 
`The ’311 Patent Is a CBM Patent ........................................................ 35 
`1. 
`The ’311 Claims are Fundamentally Financial in Nature ......... 36 
`2. 
`The ’311 Claims Are Not Directed to a Technological
`Invention ................................................................................... 37 
`IX.  CLAIMS 1-7 ARE NOT PATENT-ELIGIBLE UNDER §101 .................... 49 
`A. 
`The Claims Are Directed to the Abstract Idea of
`Currency Trading. ............................................................................... 50 
`1. 
`The Claims Describe the Fundamental Economic
`Practice of Currency Trading .................................................... 50 
`
`B. 
`
`-i-
`
`

`

`
`
`X. 
`
`
`
`
`2. 
`
`B. 
`
`The Claims Do Not Improve the Operation of a
`Computer or Solve a Problem Unique to Computers or
`the Internet ................................................................................ 55 
`The Claims’ Recitation of a Conventional Computer
`Implementation of Currency Trading Does Not
`Transform the Abstract Idea into a Patent-Eligible
`Application .......................................................................................... 59 
`1. 
`Independent Claim 1 Does Not Include an Inventive
`Concept ..................................................................................... 60 
`Independent Claim 7 Does Not Include an Inventive
`Concept ..................................................................................... 73 
`Dependent Claims 2-6 Do Not Include an Inventive
`Concept ..................................................................................... 74 
`CONCLUSION .............................................................................................. 81 
`
`2. 
`
`3. 
`
`
`
`-ii-
`
`

`

`
`
`I.
`
`INTRODUCTION
`
`Petitioner, GAIN Capital Holdings, Inc. (“GAIN”), seeks covered business
`
`method (“CBM”) review of claims 1-7 of U.S. Patent 8,392,311 (“the ’311 patent”;
`
`EX1001), owned by OANDA Corporation (“OANDA”).
`
`Currency trading is an age-old business practice stretching back generations.
`
`While the platform for currency trading has shifted over time—from physical
`
`markets, to phones, to computers—the fundamental aspects of the trading process
`
`have endured. Regardless of the underlying platform, traders have long been able
`
`to interact with currency dealers to receive price quotes, negotiate rates, and make
`
`trades, much like any other financial transaction.
`
`The claims of the ’311 patent merely describe a standard currency trade
`
`being performed by computers. A generic server sets and maintains exchange rates
`
`and then communicates those rates to a client, just as currency dealers and brokers
`
`have done for generations. The trader then submits a standard order—identifying
`
`the currency, the amount to be traded, and a requested price—using a generic client
`
`system. The server then accepts or rejects the order, checking the request price
`
`against the currently available price, and informs the trader if the trade is accepted.
`
`The claims thus broadly describe a conventional order-based currency trade
`
`performed on a computer. Yet the mere use of a generic computer to replicate a
`
`longstanding business practice does not render an abstract idea eligible for a patent.
`
`-1-
`
`

`

`
`
`Alice Corp. Pty. Ltd. v. CLS Bank Intern., 573 U.S. 208, 218-24 (2014); see also
`
`Bilski v. Kappos, 561 U.S. 593, 609-12 (2010) (fundamental economic practices
`
`are patent-ineligible abstract ideas). Notably, these claims issued before the
`
`Supreme Court issued its landmark Alice decision. Evaluating the claims with the
`
`benefit of the Supreme Court’s decision, as well as subsequent Federal Circuit
`
`decisions addressing strikingly similar trading practices, the abstract nature of the
`
`’311 claims is unmistakable.
`
`Accordingly, this petition demonstrates a reasonable likelihood that claims
`
`1-7 are not directed to patent-eligible subject matter under 35 U.S.C. §101, and
`
`GAIN respectfully requests institution of CBM review and cancellation of the
`
`challenged claims.
`
`II. MANDATORY NOTICES UNDER 37 C.F.R. § 42.8
`
`Real Party-in-Interest (37 C.F.R. § 42.8(b)(1)): Petitioner GAIN Capital
`
`Holdings, Inc. and GAIN Capital Group, LLC are the real parties-in-interest.
`
`StoneX Group Inc. is the ultimate parent of GAIN Capital Holdings, Inc. and
`
`GAIN Capital Group, LLC.
`
`Related Matters (37 C.F.R. § 42.8(b)(2)): The ’311 patent is currently
`
`involved in OANDA Corp. v. GAIN Capital Holdings, Inc., et al., No. 2:20-cv-
`
`5784 (D.N.J. May 11, 2020). EX1006. Petitioner is also concurrently filing a
`
`petition for CBM review in CBM2020-00022 against related U.S. Patent No.
`
`-2-
`
`

`

`
`
`7,146,336, which OANDA is also asserting in the identified district court litigation.
`
`Additionally, Petitioner is concurrently filing a petition for CBM review in
`
`CBM2020-00023 against U.S. Patent No. 7,496,534, which has overlapping
`
`subject matter and named inventors with the ’311 patent. Prior to initiating the
`
`above litigation, OANDA sent GAIN a letter alleging infringement of the ’311,
`
`’336, and ’534 patents. EX1007.
`
`Lead and Back-Up Counsel (37 C.F.R. § 42.8(b)(3)):
`
`Lead Counsel: Michael T. Rosato (Reg. No. 52,182)
`
`Back-Up Counsel: Matthew A. Argenti (Reg. No. 61.836)
`
`Wesley E. Derryberry (Reg. No. 71,594)
`
`Service Information – 37 C.F.R. § 42.8(b)(4): GAIN hereby consents to
`
`electronic service. Please direct all correspondence to lead and back-up counsel at
`
`the contact information below. A power of attorney accompanies this petition.
`
`E-mail: mrosato@wsgr.com; margenti@wsgr.com; wderryberry@wsgr.com
`
`Post: WILSON SONSINI GOODRICH & ROSATI, 701 Fifth Avenue, Suite 5100,
`
`
`
` Seattle, WA 98104-7036
`
`Tel.: 206-883-2529
`
`
`
`Fax: 206-883-2699
`
`-3-
`
`

`

`
`
`III.
`
`IDENTIFICATION OF CHALLENGE; STATEMENT OF PRECISE
`RELIEF REQUESTED
`
`GAIN seeks cancellation of the challenged claims. This petition presents a
`
`single ground demonstrating that claims 1-7 are directed to patent-ineligible
`
`subject matter under pre-AIA 35 U.S.C. §101.
`
`IV. THE ’311 PATENT
`
`The claims of the ’311 patent describe a generic computer implementation of
`
`a longstanding economic practice: currency trading. According to the
`
`specification, the “present invention is related to currency trading; more
`
`particularly, the invention is related to trading currency over a computer network.”
`
`EX1001, 1:12-18.
`
`The specification then describes various conventional currency trading
`
`practices implemented using basic computer functions. “[U]sing ordinary Web
`
`browsers running feature-rich Java applets,” traders “obtain real-time data feeds of
`
`current exchange rates, they can analyze past exchange rates using graphical tools,
`
`they can review their current portfolio and past trades, and they can place buy and
`
`sell orders in the real-time market.” Id., 3:10-22. Obtaining current exchange
`
`rates, reviewing historical rates, reviewing portfolios and past trades, and placing
`
`orders are functions that traders had performed for decades, if not centuries.
`
`EX1008, ¶¶14-20. And virtually any generic computer implementation of these
`
`-4-
`
`

`

`
`
`old practices would of course provide “real-time” data communication and
`
`graphical displays.
`
`The system architecture also reflects longstanding business relationships in
`
`the currency trading field. The patent’s trading system involves a server situated
`
`between clients and a partner bank, much like human brokers mediated trades
`
`between their clients and dealer banks:
`
`
`
`EX1001, FIG. 1; see also id., 3:49-56 (acknowledging similarity to human broker
`
`relationship); EX1008, ¶16.
`
`
`
`The specification describes the process of making a trade on its system in
`
`terms that mirror conventional currency trading practices. EX1008, ¶17. Traders
`
`fill out a trading request form to submit various well-known types of orders. Id.;
`
`EX1001, 4:24-35; infra, §VI.B.3 (discussing conventional orders). To the extent
`
`computer functions are involved, they are merely routine aspects of conventional
`-5-
`
`

`

`
`
`computer systems such as clickable buttons, input fields, order processing, and
`
`data communication. EX1001, 4:24-5:30, FIGS. 5, 13-16; EX1008, ¶17. The
`
`figures showing the user interface confirm its conventional nature, as they provide
`
`data and functionality similar to many previous electronic trading systems.
`
`EX1008, ¶17; infra, §VI.C. For example, the following figures depict standard
`
`market data (FIG. 5) and order entry/confirmation windows (FIGS. 13-15):
`
`
`
`-6-
`
`

`

`
`
`
`
`
`
`The description of this interface is similarly limited to conventional features of
`
`electronic trading systems, presenting straightforward computer implementations
`
`of standard currency trading practices. EX1008, ¶17; EX1001, 11:8-17:51, FIGS.
`
`6-12. For example, the specification describes this interface as allowing
`
`submission of well-known, commonly used types of orders such as market orders
`
`and limit orders (referred to here as “entry” orders). EX1001, 5:2-23, 12:20-21,
`
`15:54-16:49; infra, §VI.B.3.
`
`
`
`With respect to the inner workings of the server, the specification provides
`
`high-level descriptions of generic computer modules that perform common
`
`currency trading functions. EX1001, 6:15-9:38. These include a database, a server
`
`front-end, a rate server/pricing engine, a value at risk (VAR) server, a transaction
`
`server, an interest rate manager, a trade manager, and margin control manager, a
`-7-
`
`

`

`
`
`trading system monitor, a hedging engine, a partner bank interface, and a computer
`
`systems monitor. Id.
`
`The specification repeatedly confirms the conventional nature of these
`
`computer modules and the currency trading steps they perform. EX1008, ¶18.
`
`The database is a “a standard commercially-available SQL database,” and the
`
`server front-end is a “standard Web server (a la Apache).” EX1001, 6:19-7:6.
`
`With respect to the rate server/pricing engine, the VAR server, and hedging engine,
`
`the specification acknowledges that various methods of calculating rates,
`
`calculating VAR, and performing hedging functions “are known to those skilled in
`
`the art.” Id., 7:7-34, 9:9-18. Similarly, with respect to the interest rate manager,
`
`the specification describes the well-known compound interest formula and
`
`acknowledges that “[i]nterest calculation formulas are known to those skilled in the
`
`art, and any appropriate formula can be used in the Interest Rate Manager without
`
`departing from the scope of the invention.” Id., 7:44-8:30; EX1008, ¶19.
`
`Likewise, the margin control manager performs basic margin functions commonly
`
`performed in all sorts trading contexts. EX1001, 8:52-59; EX1008, ¶19.
`
`The remaining modules are similarly described at a high level of generality
`
`as performing basic computer functions. EX1008, ¶19. The transaction server
`
`simply “encapsulates all transaction functionality” and communicates transaction
`
`information to the database, other modules, and traders. Id., 7:35-43. The trade
`
`-8-
`
`

`

`
`
`manager monitors the standing orders to determine whether they should be
`
`executed, much like a broker or any individual managing an order book. EX1001,
`
`8:32-51; EX1008, ¶19; see also EX1033, 238 (describing background processes
`
`that monitor and execute time-dependent activities); EX1034, 415. The trading
`
`system monitor and computer systems monitor do just that—monitor the state of
`
`the system—while the partner bank interface communicates with the partner bank.
`
`EX1001, 8:60-9:8, 9:19-38.
`
`The specification alleges that the described system provides several
`
`innovations, when in fact the supposed innovations had long been part of the
`
`currency trading field. Most notably, the specification touts its system as solving a
`
`problem with existing currency trading systems, which allegedly could only make
`
`trades using a “three-way handshake” in which (1) the trader requests a quote
`
`(without specifying an intent to buy or sell), (2) the dealer responds with a quote
`
`(including a bid and an offer) along with a time limit to respond, and (3) the trader
`
`accepts the bid or offer, or rejects the trade. EX1001, 1:20-39, 3:65-4:10. The
`
`specification claims to have overcome this problem by inventing a “two-way
`
`handshake” in which (1) the trader submits an order to buy or sell a currency and
`
`(2) the dealer executes the trade at the current market rate. Id., 4:11-23. Far from
`
`being an innovative solution to a problem with existing trading systems, this “two-
`
`way handshake” was in fact already a conventional trading method in existing
`
`-9-
`
`

`

`
`
`electronic trading systems and in telephone-mediated currency trading before that.
`
`EX1008, ¶¶20, 72-82; infra, §§VI.B.2-3, VI.C. The specification also touts
`
`alleged innovations such as low spreads, the ability to trade in small amounts, and
`
`24/7 availability. EX1001, 3:23-33. However, these features were neither
`
`technological nor new. EX1008, ¶20.
`
`A. Claims
`Independent claim 1 recites a series of conventional steps that describe a
`
`simple currency trade. Claim 1 recites:
`
`A method of trading currencies over a computer network
`connecting a trading system server and at least one trading client
`system, comprising the steps of:
`(i) at the trading system server, determining and dynamically
`maintaining a plurality of current exchange rates, each current
`exchange rate relating to a pair of currencies and including a first
`price to buy a first currency of the pair with respect to a second
`currency of the pair and a second price to sell the first currency of the
`pair with respect to the second currency of the pair;
`(ii) transmitting data from the trading system server to a trading
`client system, the transmitted data representing at least one current
`exchange rate at the time of the transmission;
`(iii) at the trading client system, displaying the first and second
`prices for each received current exchange rate to a user;
`(iv) at the trading client system, accepting input from the user
`identifying a pair of currencies the user desires to trade, an amount of
`
`-10-
`
`

`

`
`
`at least one currency of the pair desired to be traded and a requested
`trade price at which it is desired to effect the trade;
`(v) transmitting the accepted input from the trading client
`system to the trading system server;
`(vi) at the trading system server, comparing the requested trade
`price to the respective first price or second price of the corresponding
`current exchange rate at that time and, if the respective first price or
`second price of the corresponding current exchange rate at that time is
`equal to or better than the requested trade price, effecting the trade at
`the corresponding respective current exchange rate first price or
`second price and if the corresponding current exchange rate is worse
`than the requested trade price, refusing the trade; and
`(vii) transmitting from the trading system server to the trading
`client system an indication of whether the trade was refused or
`transacted and, if transacted, an indication of the price the trade was
`transacted at.
`
`As explained in more detail below, each of these steps reflects a
`
`longstanding currency trading practice that was commonly performed well before
`
`the introduction of electronic trading systems. EX1008, ¶¶28-36. In steps (i)-(ii),
`
`exchange rates are determined and maintained and then communicated to a client.
`
`In steps (iii)-(v), the rate is displayed, and the user enters an order, and the order is
`
`submitted. In steps (vi)-(vii), the order is accepted or refused, and the client is
`
`notified. The claim thus describes a standard currency trade in broad terms—
`
`-11-
`
`

`

`
`
`prices are quoted, and orders are submitted and accepted (or not)—that encompass
`
`the core idea underlying the currency trading field.
`
`Independent claim 7 is nearly identical to claim 1 but presents the entire
`
`process from only the server’s perspective (whereas claim 1 captures both the
`
`server’s and the client’s activities). EX1008, ¶22. Dependent claims 2-6 depend
`
`directly or indirectly from claim 1 and further recite routine aspects of
`
`conventional orders. Id., ¶22.
`
`B. Prosecution History
`The ’311 patent issued from U.S. Application No. 11/634,014 (“the ’014
`
`application”), which was filed December 4, 2006. That application was a
`
`continuation of U.S. Application No. 09/858,610 (“the ’610 application”), which
`
`was filed May 16, 2001, and issued as U.S. Patent No. 7,146,336 (“the ’336
`
`patent”; submitted as EX1002). The ’311 patent claims priority to U.S. Provisional
`
`Application No. 60/274,174 (“the ’174 provisional”; submitted as EX1003), filed
`
`March 8, 2001. Accordingly, the effective filing date of the ’311 patent is no
`
`earlier than March 8, 2001.
`
`Claims 1-7 of the ’311 patent (claims 35-41 of the ’014 application) issued
`
`before the Supreme Court issued its decision in Alice, and the issued claims were
`
`never subject to a §101 rejection. Before OANDA added these claims, however,
`
`original claims 13-16 of the ’014 application did face a §101 rejection, and the way
`
`-12-
`
`

`

`
`
`that OANDA secured a withdrawal of those rejections is telling. Original claims
`
`13-16 recited trading steps that were similar to those of the claims that ultimately
`
`issued, but without specifying what was performing each step. Id., 161 (8/31/2010
`
`response). After receiving §101 rejections for those claims referencing the then-
`
`applicable “machine-or-transformation test,” OANDA amended those claims to
`
`recite that “receiving” and “calculating” steps were performed “at a trading system
`
`server.” Id., 161 (8/31/2010 response), 180-81 (3/31/2010 rejection). OANDA
`
`then successfully argued that:
`
`Claims 13 and 15 have been amended to specify that the steps of
`receiving and calculating are performed at a trading system server.
`With these amendments the methods recited in claims 13-16 are
`limited to methods performed on apparatus. Accordingly, claims 13-
`16 are believed to be patentable subject matter.
`
`Id., 166. The §101 rejections were then withdrawn. Like the amended claims 13-
`
`16, the newly added claims 35-41 (i.e. the issued claims) tied each step to a generic
`
`computer and thus avoided a similar §101 rejection.
`
`
`
`After an additional art-based rejection, a response (cancelling all but claims
`
`35-41), a non-final rejection, and a notice of appeal, OANDA eventually submitted
`
`a request for continued examination along with a supplemental response
`
`accompanied by a Rule 131 affidavit attempting to swear behind a November 28,
`
`2000 reference. Id., 40-87. The examiner then apparently contacted OANDA by
`
`-13-
`
`

`

`
`
`phone requesting a terminal disclaimer over the ’336 patent, which was promptly
`
`filed. Id., 28-30. It is unclear whether the examiner accepted the Rule 131
`
`affidavit as sufficient to swear behind the reference—and GAIN does not concede
`
`that OANDA proved an earlier date of conception or diligence—but in any event,
`
`the Notice of Allowability soon issued. Id., 11-13. In identifying the reason for
`
`allowance, the examiner simply stated that claim 35 as a whole (now claim 1 of the
`
`’311 patent) was not taught by the combination of the two applied references. Id.
`
`The same or substantially the same arguments presented herein were not
`
`previously presented to the Office during prosecution or otherwise. See 35 U.S.C.
`
`325(d). First, as noted above, the only §101 rejection presented during prosecution
`
`applied the now-defunct “machine-or-transformation” test. See, e.g., EX1004,
`
`180-81 (3/31/2010 rejection). The significant impact of applying that defunct test
`
`is clear from how OANDA was able to overcome the rejection: simply amending
`
`the claims so that certain steps were performed by a generic computer. Id., 161,
`
`166 (8/31/2010 response). The Supreme Court’s Alice decision has since
`
`resoundingly rejected the notion that simply performing an abstract idea on a
`
`computer is enough to render a claim patent-eligible, and the examiner did not
`
`have the benefit of this landmark decision. In any event, the §101 rejection was
`
`only applied to subsequently-canceled original claims 13-16, not to claims 35-41
`
`-14-
`
`

`

`
`
`(which issued as claims 1-7 of the ’311 patent), so the challenged claims were
`
`never subject to a rejection under §101.
`
`The examiner also lacked the extensive evidence presented herein showing
`
`that the claims merely describe a conventional currency trade. This evidence
`
`includes expert testimony (EX1008; CV submitted as EX1010), supported by
`
`documentary evidence that was also not before the examiner, explaining that the
`
`recited steps reflect longstanding currency trading practices, as well as
`
`functionality that was already provided by numerous electronic trading platforms.
`
`Had the examiner been presented with this evidence, and arguments applying that
`
`evidence to the legal framework set forth in Alice, the claims would not have
`
`issued.
`
`The Board has instituted CBM or PGR petitions, declining to exercise
`
`discretion under §325(d), even when the Examiner previously raised the issue of
`
`patent-ineligible subject matter during ex parte prosecution. In American Express
`
`Co. v. Signature Systems, LLC, the Board instituted despite the examiner having
`
`expressly confirmed that the claims recited patent-eligible subject matter during an
`
`ex parte reexamination. CBM2018-00035, Paper 11, 37-39. In rejecting the patent
`
`owner’s §325(d) arguments, the Board noted that the examiner had not had the
`
`benefit of expert testimony showing that the claimed computer functions were
`
`-15-
`
`

`

`
`
`conventional, and that subsequent Federal Circuit decisions had clarified the
`
`relevant patent-eligibility law. Id.
`
`The Board similarly instituted AvePoint, Inc. v. OneTrust, LLC and
`
`Supercell Oy v. Gree, Inc. despite the claims having overcome §101 rejections
`
`during prosecution. PGR2018-00056, Paper 9, 17 (examiner did not have benefit
`
`of evidence showing routine, conventional nature of claim limitations); PGR2018-
`
`00061, Paper 7, 16-17 (noting that petitioner cited cases that “were issued after
`
`substantive examination had ended and thus, not considered during prosecution”).
`
`In contrast, when the Board denied institution under §325(d) in RetailMeNot, Inc.
`
`v. Honey Science Corp., it explained that—unlike the present circumstances—the
`
`examiner had already applied the Alice framework and that the petition presented
`
`substantially the same arguments that the examiner had already presented in the
`
`§101 rejection during prosecution. PGR2019-00060, Paper 17, 17-30. The
`
`present petition, however, presents arguments addressing a significantly different
`
`legal framework from that applied during prosecution, supported by vastly
`
`different evidence.
`
`-16-
`
`

`

`
`
`V. LEVEL OF ORDINARY SKILL
`
`A POSA as of March 20011 would include someone who had, through
`
`education or practical experience, obtained a working knowledge of electronic
`
`trading systems from both the computer science and finance perspectives.
`
`EX1008, ¶25. This would include someone who had, through education or
`
`practical experience, the equivalent of a bachelor’s degree in computer science,
`
`information systems, or a related field, and at least two years of work experience
`
`developing electronic trading systems. This would also include a person who had,
`
`through education or practical experience, the equivalent of a bachelor’s degree in
`
`finance, economics, or a related field, and who had obtained knowledge of
`
`computer systems equivalent to that described above. Regardless, the POSA
`
`would have been familiar with the currency trading practices and the aspects of
`
`electronic currency trading systems described in §§VI.B-C, as well as analogous
`
`practices and electronic systems used for other asset classes. Id.
`
`
`
`1 GAIN’s expert, Bernard Donefer, explains that the state of the art and the level of
`
`ordinary skill would not meaningfully change even if OANDA had proven a late-
`
`2000 conception date during prosecution. EX1003, ¶24.
`
`-17-
`
`

`

`
`
`VI. THE STATE OF THE ART
`A. History of Currency Trading
`Currency trading (or “foreign exchange”) is a fundamental business practice
`
`that has developed alongside and supported global trade for centuries. EX1008,
`
`¶¶28-29 (citing EX1037, 316-19). Exchanging one currency for another began as a
`
`natural accompaniment to trade between societies that had established different
`
`local currencies. Id. This relationship was strengthened by the burgeoning global
`
`finance sector in the 16th and 17th centuries, as the financing of expensive trade
`
`expeditions drew capital from a variety of investors, who purchased shares of these
`
`companies. Id., ¶29 (citing EX1037, 316-19; EX1013, 6). Early stock markets
`
`such as the Amsterdam Exchange arose, bringing together buyers and sellers of
`
`various assets. Id. These marketplaces provided liquidity that reduced risks to
`
`investors, which increased the value of these assets and enticed investors from
`
`other countries. Id. Foreign investment brought with it the need to convert
`
`investors’ currency into that of the local market, and as global trade and global
`
`financing flourished, foreign currency markets developed to support merchants and
`
`investors. Id.
`
`B. Currency Trading Markets and Practices
`Foreign currency trades supported commercial transactions (e.g., importing
`
`goods, purchases while travelling, or foreign investment) but could also be
`
`-18-
`
`

`

`
`
`undertaken as a profit-making endeavor. EX1008, ¶30 (citing EX1011, 9-10). For
`
`example, speculators could purchase currency, hoping to profit from changes in
`
`currency values over time, or dealers could act as “market makers” by both buying
`
`and selling currency to earn the “spread” (i.e., the difference between the current
`
`bid and offer price). EX1008, ¶30 (citing EX1011, 10-11). Markets for different
`
`types of instruments existed, including “spot markets” (where currencies were
`
`traded for immediate value) and “forward markets” (where values were set
`
`immediately, but funds moved at a later period). EX1008, ¶31 (citing EX1011, 9-
`
`10). These markets, which could be physical or electronic, primarily operated
`
`“over the counter” (“OTC”), meaning parties traded without supervision by an
`
`official exchange. EX1008, ¶¶31, 34 (citing EX1011, 21-22).
`
`The currency trade itself involves two parties agreeing to trade a certain
`
`amount of one currency for a certain amount of another. EX1008, ¶32 (citing
`
`EX1011, 9-10). This ratio is referred to as the exchange rate, and a “quote” from a
`
`currency dealer typically included two prices: a buy price and a sell price (also
`
`referred to as the “bid” and “offer” prices, respectively). EX1008, ¶32 (citing
`
`EX1011, 32). Different parties advertised their own rates, and the advertised rates
`
`fluctuated over time based on a variety of factors. EX1008, ¶33 (citing EX1011,
`
`32-34).
`
`-19-
`
`

`

`
`
`Over the course of the 20th century, monetary systems changed and global
`
`trade continued to grow, but the fundamental aspects of a currency trade remained
`
`relatively unchanged. EX1008, ¶36 (citing EX1011, 3-4; EX1014, 475). Using
`
`the technology of the day, dealers provided liquidity, communicating quotes to
`
`customers, who accepted a quoted price or proposed their own. Id. In the second
`
`half of the 20th century, technological developments brought quote displays on
`
`rudimentary market data terminals, online negotiation and trading, and eventually
`
`fully electronic markets with automated trade execution available 24 hours a day.
`
`EX1008, ¶¶35 (citing EX1011, 16-19, 21, 23-24; EX1014, 479; EX1023). Again,
`
`however, the newer systems essentially replicated existing currency trading
`
`practices. See infra, §§VI.B.2-3.
`
`1. Currency Trading Roles and Parties
`
`The key players in the foreign exchange market were dealers (e.g., banks),
`
`customers/traders (who could also be dealers), and intermediaries (e.g., brokers or
`
`electronic trading platforms). EX1008, ¶37 (citing EX1014, 473).
`
`Dealers operated as market makers, regularly updating and communicating
`
`their current quotes and buying/selling currencies (with their own capital) to earn
`
`the spread. EX1008, ¶37 (citing EX1012, 20-21; EX1011, 18-19, 23-24; EX1014,
`
`476-77). Dealers determined their exchange rates and made other trading
`
`decisions using market models, which could be mathematical or based on the
`
`-20-
`
`

`

`
`
`trader’s experience. EX1008, ¶38 (citing EX1011, 74-75; EX1031, 713-16, 716-
`
`28, 728-32; EX1030, 413-15, 428-36). While the low-level details of how these
`
`prices were set varied from dealer to dealer, several factors were routinely
`
`considered, including interest rates, competing dealers’ exchange rates, market
`
`behavior, and the dealer’s own positions. EX1008, ¶38 (citing EX1011, 74-75;
`
`EX1021, 59-62, 65). Dealers typically preferred to keep relatively “flat” positions
`
`(buying and selling in equal quantities), mitigating risk by avoiding significantly
`
`long or short positions that would be subject to market volatility. EX1008, ¶39
`
`(citing EX1036, 327-46); see also EX1018, 31; EX1022, 75. Dealers also
`
`commonly used other risk-mitigating strategies such as hedging. Id. While
`
`computers eventually automated aspects of these activities, dealers performed
`
`these tasks using mental processes, paper order tickets, and telephones long before
`
`the advent of computers.
`
`Global banks were the dominant dealers in the 20th century. For business
`
`reasons, they typically traded large volumes with each other and large institutional
`
`customers. EX1008, ¶40 (citing EX1011, 18-19, 23-25, 67-71; EX1014, 476-77).
`
`Banks effectively set the market prices in competition with each other. EX1008,
`
`¶40 (citing EX1011, 23-24). Non-bank dealers also serviced “retail” customers
`
`(i.e. smaller customers typically trading in sizes less than $1 million USD) such as
`
`-21-
`
`

`

`
`
`small hedge funds, small businesses, and, eventually, individual traders. EX1008,
`
`¶40 (citing EX1011, 23-24; EX1014, 473-74).
`
`Brokers were the key intermediaries bef