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 CME Launches Side-By-Side for approximately $512 million in cash. That makes ICE the single Trading for Listed and OTC Markets largest shareholder in Cetip, which was established in 1988 and CME Group on May 22 announced the launch of CME Direct, demutualized in 2008. an online application that offers side-by-side access to CME listed ICE officials said the strategy behind this deal is similar to the futures and over-the-counter markets. CME said the new service will plans for its BRIX platform, which was developed in partnership with aggregate bids and offers into a single book, eliminating the need for a local company that is a large player in Brazil’s energy markets. multiple trading screens. CME also said the service is fully integrated According to Sprecher, the BRIX platform has 100 firms enrolled with ConfirmHub and ClearPort and offers electronic processing of less than a year after launch. “We went into a market that was not and straight-through submission to CME Clearing. developed at all and helped to organize standard contracts, stan- The service, which is designed to operate directly from an dard trading agreements, and now electronic transparency,” said internet browser, initially will target energy markets, namely the Sprecher. “It gives us some confidence as we work with Cetip on a exchange’s benchmark futures on crude oil, natural gas and refined similar vein in the fixed income and bond markets that we, hope- products as well as certain OTC oil swaps. Quotes for the OTC fully, will see similar success, particularly given that Cetip was a fixed products will be provided by inter-dealer brokers and can be traded income bank and dealer consortium.” via electronic and voice. As of the launch date, three firms had For Cetip, ICE’s experience with operating a trading platform in signed up to provide liquidity to CME Direct users—Marex Spec- the credit default swaps market was attractive because Brazil’s fixed tron, Tradition and Tullett Prebon—and CME said income markets have similar liquidity characteristics. “A major rea- several other brokers are testing the system. son for this partnership is ICE’s demonstrated ability to successfully “By combining brokered OTC markets with CME Group’s clearing deliver liquidity and pricing transparency in other less liquid markets, and STP platforms—ClearPort and ConfirmHub—CME Direct offers similar to the scenario we currently have with our local corporate the first global, fully automated front-to-back-office platform for trad- debt,” Louis Fernando Fleury, chief executive officer of Cetip, said in ing CME listed and OTC energy products,” Michel Everaert, CME’s an April 26 statement announcing the partnership. 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, auto- mated trading, data reporting and clearing in OTC markets.” Griffin Markets to Launch European OTC Energy Trading Platform Using ICE Technology Griffin Markets Group, a newly formed -based energy trading platform provider, announced on April 25 that it plans to launch a multi-lateral trading facility for the European over-the- counter 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- counterparty credit manage- ICE Signs Second Brazilian Deal ment and post-trade processing and settlement for both bilat- IntercontinentalExchange is expanding its presence in Brazil with eral and centrally cleared transactions. The platform will rely on plans to launch a bond platform in partnership with Cetip S.A., a Bra- technology from IntercontinentalExchange but will be “agnostic” on zilian central depository and custody provider. The partnership, which connectivity to clearinghouses, said Nick Jackson, a spokesman is slated for launch in the second half of this year, comes less than a for the new platform. year after ICE launched its BRIX platform for trading Brazilian electric The platform is intended for larger institutional customer and end- power. “We have high hopes for Brazil, and it’s been a very good users such as commodity-based utilities, banks and hedge funds. emerging market for us,” said Jeff Sprecher, chief executive officer of Prices and quotes will be posted electronically, while traditional voice ICE, during a May 2 conference call with investors and analysts. broking will be available for less liquid markets such as gas, power, Under the terms of the partnership, ICE will provide the expertise coal and emissions options.

Futures Industry | June 2012 45 ICE officials said they view this partnership as having the potential to follow the same track as the European Climate Ex- change. 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 technol- ogy under terms that are consistent with our long-term goals and our long-term revenue model,” Jeffrey Sprecher, ICE’s chief execu- ISE Introduces Implied Order Functionality tive officer, explained in a May 2 conference call with investors and International Securities Exchange on May 3 introduced implied analysts. “This idea of providing entrepreneurs with technology for order functionality, making it the first U.S. equity options exchange start-up initiatives follows, for example, the successful use of this to offer this technology for multi-legged orders. The new functionality strategy providing technology for the European Climate Exchange, eliminates the manual process for executing the stock legs of stock- which we acquired in 2010, and which for years has been one of orders and will enhance the execution of multi-legged strategy our fastest growing businesses.” orders by enabling greater interaction of the complex order book Griffin’s chief executive officer, Andrew Stephens, was the former with the regular order book. The result will be an increased fill rate for chief executive officer of energy trading firm Spectron Group, which multi-legged strategy orders as well as tighter spreads and increased was merged into Marex Financial in 2011. Partnering with Stephens liquidity on the regular order book, according to the exchange. on the new platform are Simon Davidson, who was formerly the “The launch of implied orders is a milestone accomplishment for chief information officer at Spectron, and Andrew Strickland, who ISE and will deliver measurable improvements in the execution qual- introduced ICAP’s electronic trading in the European power markets. ity of both our complex and regular order books,” said Gary Katz,

Half of OTC Interest Rate Trades Are Cleared

DTCC Hits Key Milestones 49.8% in OTC Derivatives Reporting Dealer vs. CCP As new reporting requirements for over-the-counter deriva- 29.2% tives are set to be implemented by U.S. and global regulators, the Dealer vs. Non-Dealer 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 21.0% Traders. The repository accepts a full range of commodity swaps, Dealer vs. Dealer both physical and financial, and will be ready for Dodd-Frank Act reporting prior to Oct. 14, when all OTC commodity derivatives must Swaps Account for the Bulk be reported to a trade repository if they are subject to the Commod- of the OTC Interest Rate Market ity Futures Trading Commission’s jurisdiction. In May DTCC began testing on its new global trade reposi- tory 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 81.5% Swaps 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 10.9% Forwards transparency into that market. In May DTCC began publishing 5.4% Swaptions weekly reports on interest rate swaps that include aggregated, anonymous positions data for all interest rate products, with break- 2.2% Options downs by currency, maturity, sub-product and an indicator identify- Source: DTCC Weekly Snapshot as of May 11, 2012 ing whether the product is cleared or uncleared. in notional amounts of aggregate positions reported to repository 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 HKEX Invests USD $380 Million or quote. For the system to generate an implied order, the net price in Technology Initiatives of the multi-legged order must be satisfied when both legs are filled Hong Kong Exchanges and Clearing Limited in late March an- on the regular book. nounced its new technology program called “HKEX Orion.” The Separately, in April ISE launched a fully managed historical tick program includes a series of technology initiatives that will be imple- database that offers full OPRA data including all quotes and trades mented over the next three years at a total cost of HKD $3 billion for all exchanges, U.S. equities level one data, pre-computed (USD $380 million). implied volatilities and Greeks, full corporate action histories and Among the first scheduled upgrades is a HKD $750 million (USD ISE open/close trade data. ISE said this hosted solution is ideal for, $97 million) hosting service to be launched at the end of this year among other things, full tick or time interval back-testing, validating that will allow participants to co-locate their systems next to HKEX’s algorithms and pre/post-trade analysis. core platforms to provide low-latency access. The network latency target through the hosting service network is below 50 microsec- onds compared to the current 1.5 milliseconds (1,500 microsec- onds). Other initiatives include a 2012 upgrade to the exchange’s SDNet network to improve its capacity and performance and the Deutsche Börse Launches Algo Trading Tool introduction in 2013 of new market data services. Deutsche Börse in May launched AlphaFlash Traders, an So far, 22 firms have signed up as “founding members” for automated event-driven trading application building upon the the hosting facility at its new data center, including ABN Amro machine-readable news feed service that it launched in 2010. The Clearing, BT Radianz, Fixnetix, KVH, RTS Realtime Systems and new application will allow market participants to configure trading Thomson Reuters. 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 RTS Targets Chinese Traders machine-readable news from 300 global macroeconomic indica- RTS Realtime Systems Group, a provider of trading technology, tors as well as U.S. and international treasury auction data. “We’ve announced on May 28 that it has established connectivity to the created this program to allow individual professional traders to trade China Financial , the Dalian Commodities Ex- around economic events, when in the past they might not have change, the Shanghai Futures Exchange and the Zhengzhou Com- been able to do so,” said Clint Rhea, chief operating officer of Need modities Exchange, allowing clients in China to deploy its Tango to Know News, a division of the exchange operator’s market data algorithmic trading technology for trading on these four exchanges. and analytics business unit that is involved in the new service. “There is a growing demand throughout the Chinese institutional Currently this program is available to customers using Trading investor and trading community to provide traders with customized Technologies’ X_Trader Pro platform, but it is being adapted for algorithmic strategies,” Andy Woodhouse, the company’s managing other execution platforms. “We are working with some other provid- director for Asia Pacific, said in a statement. “RTD Tango will let sell- ers,” said Rhea, adding that it will not be a long turnaround time to side firms build customizable algorithms for their buy-side clients, expand the offering to other platforms. which will operate on domestic markets and manage high volumes Deutsche Börse first launched its algo news feed in of order flow.” April 2010. It was the first joint product of the exchange opera- tor’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 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. SGX Offers Straight-Through Mexico’s BMV Rolls out New Trading Engine Link for OTC Trades Mexico’s Bolsa Mexicana de Valores has been testing a new ’s AsiaClear announced in April that it is system that will bring all of its asset classes into the same trading now able to link over-the-counter brokerage systems directly to its engine. The new technology will be launched in stages, beginning OTC trade registration system. SGX said the OTC brokerage com- with equities in June. Futures and options listed on the Mexican De- munity will benefit from the link, which allows trades matched in a rivatives Exchange are set to come onto the new engine in October, broker’s system to flow straight through to the exchange’s trade according to Jorge Alegria, chief executive officer of Mexder and registration system. “Customers will gain from an improvement in senior vice president of markets and information at BMV. operational efficiency and a reduction in errors,” SGX said in an “Testing is going very well. As you may imagine, there are several April 18 press release. So far three brokers—Mercari, Tradex and stages in the project that are all equally important,” Alegria said. The Trayport—have linked their systems to the trade registration sys- new platform will include some order functionalities that are tailored tem, and two others—Baltex and Cleartrade—are in the process of for algorithmic trading such as immediate or cancel order func- establishing connectivity. tionality. 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 Exchange Builds New trading engine. We have three trading engines today, one for equi- Functionalities for Strategy Trades ties, one for futures and one for options,” Alegria said. The Montreal Exchange on May 14 launched new functionalities Once everything is on the same trading engine, market partici- for its futures market. Approved participants will be able to create pants will be able to buy a stock and sell a call option against the customized strategies such as spread trades and submit them to stock in the same order with minimum latency and safer execution, the market. In addition, implied pricing was activated on inter-group he added. strategies, allowing the strategy order books to interact with liquidity Since March the exchange operator has been testing the new in the underlying legs of the strategy. “These functionalities provide technology in the equities market with the broker-dealer community. market participants with a new price discovery mechanism as well “So far the results are very encouraging,” said Alegria. “So far we are as reduced execution risk for multi-legged strategies, enhancing around 100 microseconds roundtrip,” he said, adding that capacity MX’s service offering for the futures trading community,” the com- testing is around 200,000 messages, but the platform can handle pany said in a May 14 notice. even more than that.

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 Min- neapolis 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.

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