Trading Technologies awarded patent for DOM (2024)

By John J. Lothian

One of the aspects of electronic trading that helps level the playing field for all traders is the availability and transparency of the depth of market. The popular display of those bids and offers with corresponding volumes in a vertical (or horizontal) static ladder display format on a trading system has been patented in the United States by a leading trader and one-time executives of a Chicago-based Independent Software Vendor. Similar patents have also been applied for around the world.

The sounds you hear in the distance are the howls and cries of competing ISVs who are potential targets of litigation to enforce the patents.

Trading Technologies and its 39-year-old CEO Harris Brumfield, one of the futures market’s biggest traders in the last 10 years, claimed in their patent filing to have developed a fundamental electronic trading system data format and trading processes. They sought to protect these innovations with patents filed back in 2000. Now those patents have been issued in two wide ranging patent awards on specific formats for the display of market depth for electronic trading platforms and the simplified trader interaction with those screens. On Trading Technologies’ X_Trader platform this feature is called MD Trader, which allows a trader to see the market depth in a static price ladder format and buy and sell futures contracts with as little as a single click.

Many other ISVs offer similar functionality on what has become a fundamental and popular way to look at and interact with the depth of today’s electronic markets. Whether these ISVs are infringing on the patents, of which Mr. Brumfield has assigned the intellectual property rights to TT, is the question that will be answered as TT seeks to assert its prerogatives. In a recent interview Mr. Brumfield carefully and purposefully avoided naming any ISVs who may be infringing on TT’s newly awarded patents.

These patents represent a potential power shift of tremendous proportions for the futures industry. The enforcement of these patents could force the closure of some trading system vendors without the financial resources or ownership fortitude to fight TT in court. Independent Software Vendors could well accelerate the consolidation phase already underway, as evidenced by Ffastfill’s recent acquisition of Futures Dynamics and yesterday’s Onexchange acquisition announcement from the Clearing Corp. Trading Technologies could likely be the acquirer in some further consolidation, which could give it an entry into the retail ISV trading screen space.

TT offers high volume professional traders a fast function-rich fixed-cost trading screen solution as opposed to transaction-based formats employed more in the retail sector. TT is an ISV that has been almost exclusively focused on the high end of the trading system market and claims in its advertisements that traders using its X_Trader platform represent over 50% of the volume traded on the top four futures exchanges. Mr. Brumfield has driven much of that focus and that volume, first as a customer of TT, then as an owner. Mr. Brumfield’s influence and stake in TT grew over the years until he held a controlling equity interest and he has exercised his prerogative by hiring and firing his own hand-picked CEO and himself replacing the departed CEO.

Mr. Brumfield was an early advocate for electronic trading and was credited with being a major liquidity provider when Eurex won the battle for the Bund contract from then floor-based London International Financial Futures Exchange. Mr. Brumfield’s brother, Hardy, is also a trader of substantial volumes and a leading user of TT’s X_Trader platform. At various times both Harris and Hardy Brumfield individually have traded as much as 20% of the daily volume in Eurex’s Bund and the CBOT’s 10-Year Note and 30-Year Bond contracts.

One of the intriguing aspects of these patents and corresponding functionality is the integrated functionality of MD Trader with TT’s new Navigator program. Navigator is TT’s tool to aggregate market depth of different exchanges or products into a single market depth window. I have written that I believe Navigator represents a new paradigm for looking at and interacting with the market and is a disruptive technology for established futures exchanges.

Active Treasury futures traders no longer have to look at just the CBOT or Eurex US markets when seeking the most liquidity possible. Rather, they can look at the combined market liquidity of the CBOT/Eurex US Treasury futures markets and interact with it in a single click. The same could be true of Liffe and CME Eurodollars, or single stock futures on NQLX and OneChicago. With TT offering exchanges around the world the opportunity to connect to its pool of active traders via a FIX 4.2 API, there are almost endless possibilities of how Navigator could be used.

TT represents an anomaly of sorts in the ISV world. It is profitable, privately held and has one of the world’s leading futures traders behind it. This latter factor gives TT the resources to enforce its patent rights that other ISVs, many whom are profit-challenged, could not defend. It is often said a patent is really only as good as the resources behind it to enforce it.

With TT’s resources, and Harris Brumfield’s determination to protect the interests of all the equity owners of TT, including many current and former employees, the ISV industry, and implicitly the exchanges, have a problem. How they solve that problem, I am not sure. Mr. Brumfield wants TT to get paid for its patents and noted TT “is not a charity.” It should be noted however that Harris Brumfield could have kept the innovations he patented to himself, giving Harris the trader an advantage over the rest of the market, rather than sharing them with the industry.

Harris Brumfield says he has a strategy worked out, but like the world of trading, you never know how something is going to work out for sure. I asked if I as a broker could license the rights to offer my clients this functionality on whatever systems I offered. He said that is a possibility, though the details have not been worked out.

I asked him if the exchanges might somehow offer a solution on behalf of all the affected ISVs, since the exchanges are the end beneficiaries of the trade volume generated by such trading screen innovations. He told me he could see I was “already thinking about this,” and trying to find a solution.

I have a long history with TT in this newsletter. In 2001 I broke the story of a layoff of 43 TT employees in this newsletter an hour before TT put out a press release about it. They invited me to dinner after that. Later in 2001 I duplicated that scoop when another 43 people were let go during another downsizing. They took me to lunch after the second one. TT’s employee headcount today is 230 employees, which exceeds the 2001 peak. TT also continues to hire aggressively. See Monster.com for details.

I have a good professional relationship with TT, its staff and CEO. TT is a paid enterprise subscriber to this newsletter and an enthusiastic supporter of it. They even have a link on their web site for visitors to sign up for this newsletter.

This is a story with tremendous implications for ISVs, brokers, exchanges and the customers of all of the preceding. But this is just the beginning of t hisstory.