Futures exchanges face trade off
Payment to software vendor would avoid lawsuits
(Reuters) - Trading Technologies, a software vendor for futures and options, Tuesday asked the world's four major futures marts for a slice of their revenues in return for protection from patent lawsuits.
The firm proposed in an open letter to the futures industry that it receive 2.5 cents per side for every futures transaction and options transaction on the Chicago Mercantile Exchange, the Chicago Board of Trade, pan-European Euronext.Liffe and Frankfurt-based Eurex AG.
In return, TT said it would forfeit the right to bring patent infringement lawsuits against the exchanges and other futures industry participants such as traders and futures commission merchants.
TT was awarded U.S. and UK patents this year for its MD Trader product, an electronic display of futures bids and offers. A European patent is likely in 2005.
Other independent software vendors offer similar systems and could risk patent infringement suits.
Chicago-based TT said its advances in order entry software has helped build revenues for the exchanges by improving liquidity in screen-traded contracts.
Harris Brumfield, TT's chief executive officer, estimates that over 50 percent of electronic volume on the world's top four futures exchanges goes through the company's X-Trader order-entry platform.
Had the ``2.5 cent solution'' been in place, TT said it would have received $130 million over the past 12 months, its share of some 5.2 billion contracts traded on the top exchanges.
TT said that without a revenue guarantee, the company could be sold to a company ``who might not be aligned with the overall (futures) industry's health.''
``Some global firms are interested in buying TT, and if the right offer surfaced, TT would be sold without notice,'' the company's letter said.
The CME, the world's largest futures exchange, did not directly address TT's ``solution'' in an e-mailed response.
``CME itself does not use front-end software interfaces and does not infringe on any patents owned by Trading Technologies,'' the CME said.
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