CME Launches Side-By-Side Trading for Listed and OTC Markets

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1 CME Launches Side-By-Side Trading for Listed and OTC Markets CME Group on May 22 announced the launch of CME Direct, an online application that offers side-by-side access to CME listed futures and over-the-counter markets. CME said the new service will aggregate bids and offers into a single book, eliminating the need for multiple trading screens. CME also said the service is fully integrated with ConfirmHub and ClearPort and offers electronic processing of trades and straight-through submission to CME Clearing. The service, which is designed to operate directly from an internet browser, initially will target energy markets, namely the exchange s benchmark futures on crude oil, natural gas and refined products as well as certain OTC oil swaps. Quotes for the OTC products will be provided by inter-dealer brokers and can be traded via electronic and voice. As of the launch date, three firms had signed up to provide liquidity to CME Direct users Marex Spectron, Tradition Financial Services and Tullett Prebon and CME said several other brokers are testing the system. By combining brokered OTC markets with CME Group s clearing and STP platforms ClearPort and ConfirmHub CME Direct offers the first global, fully automated front-to-back-office platform for trading CME listed and OTC energy products, Michel Everaert, CME s managing director of OTC solutions, said in a statement. CME Direct is a big step forward for markets to comply with current and anticipated market regulations, including those proposed under the Dodd-Frank Act and MiFID that call for more transparency, automated trading, data reporting and clearing in OTC markets. ICE Signs Second Brazilian Deal IntercontinentalExchange is expanding its presence in Brazil with plans to launch a bond platform in partnership with Cetip S.A., a Brazilian central depository and custody provider. The partnership, which is slated for launch in the second half of this year, comes less than a year after ICE launched its BRIX platform for trading Brazilian electric power. We have high hopes for Brazil, and it s been a very good emerging market for us, said Jeff Sprecher, chief executive officer of ICE, during a May 2 conference call with investors and analysts. Under the terms of the partnership, ICE will provide the expertise in trading technology and Cetip will be responsible for developing the product strategy and promoting the new platform. To cement the deal, ICE acquired 31.6 million shares of Cetip common stock for approximately $512 million in cash. That makes ICE the single largest shareholder in Cetip, which was established in 1988 and demutualized in ICE officials said the strategy behind this deal is similar to the plans for its BRIX platform, which was developed in partnership with a local company that is a large player in Brazil s energy markets. According to Sprecher, the BRIX platform has 100 firms enrolled less than a year after launch. We went into a market that was not developed at all and helped to organize standard contracts, standard trading agreements, and now electronic transparency, said Sprecher. It gives us some confidence as we work with Cetip on a similar vein in the fixed income and bond markets that we, hopefully, will see similar success, particularly given that Cetip was a fixed income bank and dealer consortium. For Cetip, ICE s experience with operating a trading platform in the credit default swaps market was attractive because Brazil s fixed income markets have similar liquidity characteristics. A major reason for this partnership is ICE s demonstrated ability to successfully deliver liquidity and pricing transparency in other less liquid markets, similar to the scenario we currently have with our local corporate debt, Louis Fernando Fleury, chief executive officer of Cetip, said in an April 26 statement announcing the partnership. Griffin Markets to Launch European OTC Energy Trading Platform Using ICE Technology Griffin Markets Group, a newly formed London-based energy trading platform provider, announced on April 25 that it plans to launch a multi-lateral trading facility for the European over-thecounter energy markets. The platform will launch with OTC gas, electronic and coal contracts, pending approval by the Financial Services Authority. The platform will offer pre-trade counterparty credit management and post-trade processing and settlement for both bilateral and centrally cleared transactions. The platform will rely on technology from IntercontinentalExchange but will be agnostic on connectivity to clearinghouses, said Nick Jackson, a spokesman for the new platform. The platform is intended for larger institutional customer and endusers such as commodity-based utilities, banks and hedge funds. Prices and quotes will be posted electronically, while traditional voice broking will be available for less liquid markets such as gas, power, coal and emissions options. Futures Industry June

2 ICE officials said they view this partnership as having the potential to follow the same track as the European Climate Exchange. ECX relied on ICE s technology platform and ultimately was acquired by ICE. If we can find entrepreneurs that are more likely to be successful building a business than ICE alone, we back them with our technology under terms that are consistent with our long-term goals and our long-term revenue model, Jeffrey Sprecher, ICE s chief executive officer, explained in a May 2 conference call with investors and analysts. This idea of providing entrepreneurs with technology for start-up initiatives follows, for example, the successful use of this strategy providing technology for the European Climate Exchange, which we acquired in 2010, and which for years has been one of our fastest growing businesses. Griffin s chief executive officer, Andrew Stephens, was the former chief executive officer of energy trading firm Spectron Group, which was merged into Marex Financial in Partnering with Stephens on the new platform are Simon Davidson, who was formerly the chief information officer at Spectron, and Andrew Strickland, who introduced ICAP s electronic trading in the European power markets. ISE Introduces Implied Order Functionality International Securities Exchange on May 3 introduced implied order functionality, making it the first U.S. equity options exchange to offer this technology for multi-legged orders. The new functionality eliminates the manual process for executing the stock legs of stockoption orders and will enhance the execution of multi-legged strategy orders by enabling greater interaction of the complex order book with the regular order book. The result will be an increased fill rate for multi-legged strategy orders as well as tighter spreads and increased liquidity on the regular order book, according to the exchange. The launch of implied orders is a milestone accomplishment for ISE and will deliver measurable improvements in the execution quality of both our complex and regular order books, said Gary Katz, Half of OTC Interest Rate Trades Are Cleared DTCC Hits Key Milestones in OTC Derivatives Reporting As new reporting requirements for over-the-counter derivatives are set to be implemented by U.S. and global regulators, the Depository Trust and Clearing Corporation has launched swap data repositories in two additional asset classes. In April DTCC began accepting trades submitted to its trade repository for commodity derivatives in partnership with the European Federation of Energy Traders. The repository accepts a full range of commodity swaps, both physical and financial, and will be ready for Dodd-Frank Act reporting prior to Oct. 14, when all OTC commodity derivatives must be reported to a trade repository if they are subject to the Commodity Futures Trading Commission s jurisdiction. In May DTCC began testing on its new global trade repository for foreign exchange transactions, which is expected to be in full production by the fourth quarter of this year. The first phase of operation included testing for data submission of primary economic terms, confirmation data and snapshot reporting of FX forwards, swaps and derivatives by firms. DTCC plans to publish aggregated data on OTC FX trades. DTCC also has begun publishing data from its repository for interest rate derivatives, meeting the regulatory demand for greater transparency into that market. In May DTCC began publishing weekly reports on interest rate swaps that include aggregated, anonymous positions data for all interest rate products, with breakdowns by currency, maturity, sub-product and an indicator identifying whether the product is cleared or uncleared. Swaps Account for the Bulk of the OTC Interest Rate Market 49.8% Dealer vs. CCP 29.2% Dealer vs. Non-Dealer 21.0% Dealer vs. Dealer 81.5% Swaps 10.9% Forwards 5.4% Swaptions 2.2% Options Source: DTCC Weekly Snapshot as of May 11, 2012 in notional amounts of aggregate positions reported to repository

3 ISE s president and chief executive officer. The new functionality displays liquidity from ISE s complex order book on the regular order book published to the Options Price Reporting Authority. An implied order is automatically created if the limit price of a multi-legged order can match or improve the ISE bid or offer when each leg of the order is paired against a resting order or quote. For the system to generate an implied order, the net price of the multi-legged order must be satisfied when both legs are filled on the regular book. Separately, in April ISE launched a fully managed historical tick database that offers full OPRA data including all quotes and trades for all exchanges, U.S. equities level one data, pre-computed implied volatilities and Greeks, full corporate action histories and ISE open/close trade data. ISE said this hosted solution is ideal for, among other things, full tick or time interval back-testing, validating algorithms and pre/post-trade analysis. Deutsche Börse Launches Algo Trading Tool Deutsche Börse in May launched AlphaFlash Traders, an automated event-driven trading application building upon the machine-readable news feed service that it launched in The new application will allow market participants to configure trading parameters and set up automatic trading strategies based on a range of macroeconomic information available from the AlphaFlash news feed. The drag-and-drop system is intended for a broader range of users than those who subscribe to the algo news feed. It will allow traders to establish multiple automated trading strategies based on machine-readable news from 300 global macroeconomic indicators as well as U.S. and international treasury auction data. We ve created this program to allow individual professional traders to trade around economic events, when in the past they might not have been able to do so, said Clint Rhea, chief operating officer of Need to Know News, a division of the exchange operator s market data and analytics business unit that is involved in the new service. Currently this program is available to customers using Trading Technologies X_Trader Pro platform, but it is being adapted for other execution platforms. We are working with some other providers, said Rhea, adding that it will not be a long turnaround time to expand the offering to other platforms. Deutsche Börse first launched its algo news feed in April It was the first joint product of the exchange operator s market data and analytics segment in partnership with its two wholly-owned news services, Need to Know News and Market News International. In May, Deutsche Börse announced that its algo news feed is available in CME Group s co-location facility located in the Chicago suburbs, providing traders with machine-readable trading signals for integration into their algorithms. The news data feed is also available at another location in Chicago, New Jersey, Washington, D.C., Frankfurt, London, Sydney, London, Tokyo and Singapore. HKEX Invests USD $380 Million in Technology Initiatives Hong Kong Exchanges and Clearing Limited in late March announced its new technology program called HKEX Orion. The program includes a series of technology initiatives that will be implemented over the next three years at a total cost of HKD $3 billion (USD $380 million). Among the first scheduled upgrades is a HKD $750 million (USD $97 million) hosting service to be launched at the end of this year that will allow participants to co-locate their systems next to HKEX s core platforms to provide low-latency access. The network latency target through the hosting service network is below 50 microseconds compared to the current 1.5 milliseconds (1,500 microseconds). Other initiatives include a 2012 upgrade to the exchange s SDNet network to improve its capacity and performance and the introduction in 2013 of new market data services. So far, 22 firms have signed up as founding members for the hosting facility at its new data center, including ABN Amro Clearing, BT Radianz, Fixnetix, KVH, RTS Realtime Systems and Thomson Reuters. RTS Targets Chinese Traders RTS Realtime Systems Group, a provider of trading technology, announced on May 28 that it has established connectivity to the China Financial Futures Exchange, the Dalian Commodities Exchange, the Shanghai Futures Exchange and the Zhengzhou Commodities Exchange, allowing clients in China to deploy its Tango algorithmic trading technology for trading on these four exchanges. There is a growing demand throughout the Chinese institutional investor and trading community to provide traders with customized algorithmic strategies, Andy Woodhouse, the company s managing director for Asia Pacific, said in a statement. RTD Tango will let sellside firms build customizable algorithms for their buy-side clients, which will operate on domestic markets and manage high volumes of order flow.

4 Mexico s BMV Rolls out New Trading Engine Mexico s Bolsa Mexicana de Valores has been testing a new system that will bring all of its asset classes into the same trading engine. The new technology will be launched in stages, beginning with equities in June. Futures and options listed on the Mexican Derivatives Exchange are set to come onto the new engine in October, according to Jorge Alegria, chief executive officer of Mexder and senior vice president of markets and information at BMV. Testing is going very well. As you may imagine, there are several stages in the project that are all equally important, Alegria said. The new platform will include some order functionalities that are tailored for algorithmic trading such as immediate or cancel order functionality. On the other hand, the new technology will also cater to larger institutional traders, allowing institutions to trade large blocks without affecting the price. The most critical aspect of the technology upgrade is that all of the exchange operator s markets will be on the same trading engine. It is going to be very efficient to have everything under the same trading engine. We have three trading engines today, one for equities, one for futures and one for options, Alegria said. Once everything is on the same trading engine, market participants will be able to buy a stock and sell a call option against the stock in the same order with minimum latency and safer execution, he added. Since March the exchange operator has been testing the new technology in the equities market with the broker-dealer community. So far the results are very encouraging, said Alegria. So far we are around 100 microseconds roundtrip, he said, adding that capacity testing is around 200,000 messages, but the platform can handle even more than that. SGX Offers Straight-Through Link for OTC Trades Singapore Exchange s AsiaClear announced in April that it is now able to link over-the-counter brokerage systems directly to its OTC trade registration system. SGX said the OTC brokerage community will benefit from the link, which allows trades matched in a broker s system to flow straight through to the exchange s trade registration system. Customers will gain from an improvement in operational efficiency and a reduction in errors, SGX said in an April 18 press release. So far three brokers Mercari, Tradex and Trayport have linked their systems to the trade registration system, and two others Baltex and Cleartrade are in the process of establishing connectivity. Montreal Exchange Builds New Functionalities for Strategy Trades The Montreal Exchange on May 14 launched new functionalities for its futures market. Approved participants will be able to create customized strategies such as spread trades and submit them to the market. In addition, implied pricing was activated on inter-group strategies, allowing the strategy order books to interact with liquidity in the underlying legs of the strategy. These functionalities provide market participants with a new price discovery mechanism as well as reduced execution risk for multi-legged strategies, enhancing MX s service offering for the futures trading community, the company said in a May 14 notice. MGEX and CME Partner on Wheat Spread Trading MGEX has introduced a single-click functionality for trading spreads between hard red spring wheat futures traded on the Minneapolis Grain Exchange and soft red winter wheat futures contracts traded on the Chicago Board of Trade. Beginning with the May 20 trading session, MGEX and CBOT market participants have had single-click spread trading on the CME Globex trading platform, making it easier for traders to manage the risk of legging the spread. The Globex matching engine will match both of those legs and the transaction will not be executed until both sides of those legs are matched, said Rita Maloney, a spokeswoman for MGEX.

5 Fixnetix Partners with NovaSparks to Accelerate Market Data Fixnetix, a technology company that provides market data, trading and risk controls, is adding low-latency market data processing to its range of services. The company announced in April that it has formed a partnership with NovaSparks, a company that specializes in ultra-fast feed handlers. Fixnetix clients will now be able to use technology from NovaSparks to process market data at speeds as fast as 740 nanoseconds. Novasparks uses a matrix of FPGA chips to process market data, an approach that the two companies claim is faster than software-based solutions. NovaSparks currently offers feed handlers for CME Group and Eurex as well as a number of equity exchanges, and is rolling out feed handlers for other exchanges in Europe and North America. The partnership allows Fixnetix to combine the NovaSparks feed handlers with its own systems for low-latency execution and risk controls, which also rely on FPGA technology. Fixnetix has established connections to 33 co-location and proximity hosting centers across Europe and the U.S., and recently began extending its network in Asia. Fixnetix says its ix-ecute service can apply 20 customizable pre-trade risk controls in fractions of microseconds, making it one of the fastest trading solutions on offer. We re matching the checks at the same speed at which people want to execute the trades, said Bob Fuller, chief administrative officer at Fixnetix and chairman of the MiFID IT subgroup, a regulatory advisory body that focuses on IT issues. He explained that using a PFGA chip is faster than a software program. You bypass going through the customer s operating system, he said. Fuller added that demand for high-speed risk controls has risen as regulators look more closely at high-frequency trading and apply new risk management requirements to firms that provide direct market access. It s now going out to big broking firms that wish to control the trading of their DMA folks and we can do all of that in nanoseconds. Spain s Meff Cuts Latency by 110 Microseconds Spain s BME, the parent company of Meff, will offer co-location services in the fourth quarter to all of its members after expanding its communications infrastructure and IT systems in its data processing center in Madrid. The co-location service, which will provide access to the group s futures and options markets as well as its cash equities markets, is located within the BME data center. BME officials said the move from the existing proximity data center, which is located 10.5 kilometers away, will reduce latency by about 110 microseconds. ICAP Adds Index Futures Rolls to Electronic Trading Platform ICAP has enhanced its electronic trading system for European equity derivatives, adding the ability to execute rolls in European equity index futures. In a May 28 announcement, the interdealer broker said the new offering covers futures based on several leading European indices, including the Dax, Euro Stoxx and FTSE indices, and plans to add other indices in the future. The recently launched trading system, called ilinked, offers dealers the option of transacting electronically or using a voice broker and was developed in response to the demand for electronic trading in over-the-counter markets. We have seen strong customer demand for ilinked since its launch in March this year and already have 25 participating firms, Garry Steward, ICAP s head of equity derivatives in Europe, said in a statement. The addition of futures rolls to the platform today is the result of customer demand and the continuing need to bring OTC liquidity onto an orderly and transparent electronic platform. Orc Integrates with NYSE Liffe s Cscreen Platform Technology and service provider Orc has integrated its trading products with Cscreen, NYSE Liffe s pre-trading price discovery platform, to give traders a more efficient way to interact with indications of interest for both equity and index derivatives from inter-dealer brokers. The integration provides Orc users with a way to combine their activities in the over-the-counter equity derivatives markets with their screen trading in listed derivatives and benefit from an aggregated view of both markets. The integration with Cscreen is a natural extension of our electronic trading solutions allowing firms to more efficiently manage their OTC trading flows, said Jon Freebody, vice president of sales at Orc. As markets and regulations evolve, providing a tighter integration between OTC trading and electronic trading will allow firms to continue to grow their businesses. Cscreen is an electronic tool for OTC equity derivatives that allows brokers to publish indications of interest for a wide range of equity derivatives based on individual stocks as well as indices. There is no automatic matching and all trades are finalized over the phone, but Cscreen users can submit their trades directly to Bclear for processing and clearing. More than 40 brokers are active on the Cscreen service, including AFS, BGC, Exane, GFI, JB Drax Honore, Link, Mint, Newedge, TFS and Tullet Prebon. During April, the service had an average of 1,314 users per day and an average of 8,671 orders were entered per day.