Concern over trading fee plan
By Jeremy Grant in Chicago
Published: January 17 2005 02:00 | Last updated: January 17 2005 02:00
The US futures and hedge fund industries have signalled mounting concern over attempts by a derivatives trading software developer, to levy a fee on the world's four largest futures exchanges in return for promising not to sue them for allegedly infringing a software patent.
The Futures Industry Association (FIA) and Managed Funds Association (MFA) said they had asked a US court to unseal documents in a lawsuit issued by Trading Technologies (TT) against eSpeed, the bond trading arm of Cantor Fitzgerald.
The suit alleges that eSpeed infringed a patent covering trading software developed by TT. The Chicago-based firm is one of a new breed of independent software vendors whose software provides the connection between exchanges and traders globally.
The move is a sign that the futures industry is worried about the lawsuit, which is central to TT's demand that the exchanges pay TT a fee of 2.5 cents per trade carried out on their exchanges.
The industry fears that the fee would amount to a tax on derivatives trading, while the exchanges oppose the payment of any such fee, which would cost them about $130m annually. TT says the exchanges should pay the fee because its trading software has been a driving force behind record growth in the futures industry.
TT claims that at least half of all electronic trading volume at the four futures exchanges - the Chicago Board of Trade, Chicago Mercantile Exchange, Eurex and Euronext-Liffe - goes through its software.
The firm has backed up its claim by with a thinly veiled threat of enforcing its patent through legal action.
Harris Brumfield, TT chief executive, wrote to the FIA last month offering to "forfeit the right to be the aggressor in any patent infringement lawsuit, permanently", in exchange for receiving - permanently - the 2.5 cents per trade fee.
The FIA and MFA's move to have the TT-eSpeed case documents unsealed are an attempt to examine the basis on which TT alleges its patent is being infringed. That could help establish the likelihood of the case being successful, and whether others could then be vulnerable.
The FIA said: "The purpose of the motion [to unseal] is to give the industry as a whole more information about the issue and claims made by the two sides in this dispute, which . . . has great import for our members."
Mr Brumfield denied that the proposed levy represented a tax. "I don't look at it as a tax at all. It's going to cost [the industry] more if you remove us from the equation. We are causing competition. If you bring value to an industry, you should get paid."
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