Source: Finextra Research
Trading Technologies, a provider of software for dealing on multiple futures and options exchanges, envisages a screen-based market in which everyone is on the top step. There's only one catch. If you want the clear view promised by that top step position you're going to have pay Trading Technologies for the privilege.
That’s the position staked out by TT’s plain-speaking CEO Harris Brumfield, the brains behind a deceptively simple GUI for at-a-glance showing of market depth across multiple exchanges. Thirty-nine year old Brumfield is no innocent abroad. An open outcry trader in Chicago, he clambered out of the pits in 1997 to make millions punting German government bonds on TT screens.
Like Remington Razor’s Victor Kiam before him, Brumfield like the TT product so much he eventually bought the company – running through a succession of CEOs before installing himself in the top seat. Unlike other independent software vendors working the market, TT is profitable with a wealthy backer and clearly capable of sustaining a costly legal offensive to protect its intellectual property (IP).
The MD Trader interface was first developed by TT in early 2000, but patent protection was only awarded in July and August this year. In the interim, this innovative method for displaying market liquidity on-screen has been widely imitated by broker-dealers and other ISVs operating in the futures and options markets. TT believes that in time it will come to be used across other asset classes, extending the range and value of the MD patent.
Since filing its first lawsuit against fixed income network eSpeed in August, TT has since agreed patent licensing deals with Chicago brokers Goldenberg, Hehmeyer and Kingstree Trading. The fear in the industry is that TT could use its financial muscle and patented technology to extend its actions to rival ISVs, forcing a wave of consolidation as smaller vendors sell up, and stifling innovation.
Veteran trader Brumfield is playing his cards close to his chest, although a more direct and profitable course of action would be for TT to cut a lucrative licensing deal with the exchanges themselves. Brumfield is understood to have advanced proposals to charge the exchanges an electronic toll of 2.5 cents per trade on all contracts executed on TT screens. Such a move would cost the four largest futures and options markets hundreds of millions of dollars a year.
ISV's wary of Brumfield's next move might follow the defensive strategy adopted by London’s Patsystems which earlier this week moved to patent a new trading methodology which is being bolted on to its existing J-Trader program ahead of deployment in the next generation TradeMark platform. Announcing the plans, Patsystems' acknowledged the concerns of customers about the possible effect of TT's actions on the independent software vendor community and the financial industry as a whole. Kevin Ashby, Patsystems’ CEO says that the patent protection programme "will put our customers and others in the industry at ease".
The issue has spooked the industry sufficiently for the Futures Industry Association to add a last minute session on intellectual property rights at its annual expo in Chicago this week. It promises to be a lively debate.