The Chicago Mercantile Exchange and Chicago Board of Trade are to pay a total of $30 million to bond trading platform eSpeed to settle a long-running dispute related to the so-called Wagner patent on automated futures trading systems.
Cantor Fitzgerald subsidiary eSpeed had alleged that CME's Globex and CBOT's a/c/e electronic platform violated the Wagner patent. A trial date had been set for 9 September.
Under terms of the settlement agreement, CME and CBOT will each pay $15 million to eSpeed over a five-year period. As part of the agreement, all companies will be released from the legal claims brought against each other without admitting liability.
The settlement agreement also covers futures and options on futures on individual stocks and narrow-based stock indexes offered by OneChicago, a joint venture of CME, CBOT and the Chicago Board Options Exchange.
The Wagner Patent deals with automated futures trading systems in which transactions are completed by a computerised matching of bids and offers of futures contracts on an electronic platform. ESpeed recently signed a deal with the Intercontinental Exchange for use of the patent for trading in energy futures and options. ICE has paid a licensing fee of $2 million per year for five years, and has agreed to pay eSpeed 20 cents per transaction.
ESpeed believes the patent, which it acquired for $3 million from ETS Group in 2001, will become the cornerstone for the development of any electronic futures market in the US.
CME chairman Terry Duffy says the exchange made a business decision to settle case with eSpeed and move on. "We are now moving forward with our plans for CME and for investing in improvements to the speed, reliability and functionality of our Globex electronic trading platform."
CBOT Chairman Nickolas Neubauer adds: "Litigation is time-consuming, expensive and uncertain. It was in the best interests of the parties to reach a reasonable settlement, and that is what we accomplished."
An outstanding suit against the New York Mercantile Exchange is scheduled for a hearing early next year. Other exchanges in eSpeed's sights include Nasdaq Liffe Markets, BrokerTec Futures, the Chicago Board Options Exchange and Eurex.