Software exec demands futures exchanges pay up
December 16, 2004
BY DAVID ROEDER Business Reporter
Imagine the uproar if Microsoft demanded payments from Internet retailers, arguing that since most connect to their sites through its software, it should be paid as a "distributor" of their goods.
But no, that tactic comes from the playbook of Harris Brumfield, chief executive of Chicago-based Trading Technologies International Inc. Brumfield, whose firm controls software that connects trading firms to the exchanges, has provided gossip and food for thought to the computer-dependent world of futures trading by demanding about $130 million a year from the four top exchanges.
The exchanges involved include the Chicago Mercantile Exchange and the Chicago Board of Trade. In a widely circulated "open letter to the futures industry" dated Tuesday, Brumfield argued that his software has encouraged the spread of futures trading, so his firm should get 5 cents per contract dealt.
In return, Trading Technologies would improve its products and agree to end all patent infringement suits against brokerages it believes have modified its software without paying for its continued use. The company in recent months settled suits against two trading firms -- Goldenberg, Hehmeyer & Co. and Kingstree Trading LLC -- that admitted patent infringement.
Brumfield alleged that more than half the trades at the four top exchanges are handled through his software. Other traders regard that figure as impossibly high, but acknowledge his software is a leading choice in a field where dozens of companies compete.
Many firms use his software for a monthly fee, but then develop their own systems for special needs. That's where some run the risk of patent infringement.
Brumfield's goal with the letter was to get those firms to lobby the Merc, Board of Trade, Frankfurt-based Eurex and London-based Euronext.liffe, to agree to the payments as indemnity from the patent suits.
But the strategy brought more derision than support. No one required him to go into a business in which it's tough to make money, said the chairman of an electronic trading firm who requested anonymity for fear of patent suits.
While praising Brumfield's honesty and skills as a trader, the chairman said the real issue is competition that holds down the price of software. "If Trading Technologies' product is so great, they should double their price and see what business they maintain," he said.
Merc and Board of Trade executives said they do not infringe on Trading Technologies' patents and provide electronic trading access to multiple software providers. Board of Trade President Bernard Dan noted that as a neutral marketplace, the exchange "would be ill-advised to establish preferential treatment for any software vendor."
Brumfield did not return calls Wednesday.
In his letter, he said his firm has sustained a cumulative loss of $32 million over the last six years, but has been profitable the last two years. Since 2002, it has grown to 280 from 110 employees, he said.
Calling his firm a "volume catalyst," Brumfield asked traders to pressure the exchanges on his behalf. "Every voice matters -- assume that yours will be the one that tips the scales," he wrote. |
