Trading Technologies (TT) announced this morning the release of its connection to eSpeed’s central limit order book for treasury securities. The move not only benefits all parties, but also closes out a particularly contentious chapter in eSpeed’s history.
When BGC Partners sold its eSpeed bond platform last year to Nasdaq OMX Group in a deal worth $1.23 billion in stock and cash, it became the latest in a series of signs that Nasdaq is pursuing an aggressive global strategy that extends well beyond its current product mix. The price tag was steep, especially considering eSpeed carried with it plenty of baggage in the form of legal disputes and the accompanying bad blood. Now, less than a year later, eSpeed will soon link up to CME Group and now Trading Technologies – two firms with which it has sparred vigorously in the courtroom.
While TT has a history of aggressively enforcing its patents, its dispute with eSpeed was particularly nasty and protracted. The issue boiled down to prior art, the definition of “static” in TT’s price-centering technology, and whether clarifications made to TT’s initial patents negated patent protections held by eSpeed. These are the types of questions that can keep lawyers busy for years, and they have.
The bottom line is that, until last year’s Nasdaq acquisition, it seemed unlikely there would ever be a deal to connect eSpeed with TT. It would be like having a Pepsi machine in the Coca-Cola company cafeteria. Yet, here we are: new owner, new deal, new day.
The TT connection will allow more dealers to take advantage of the full U.S. Treasury markets and the NASDAQ OMX/CME Group microwave link between CME’s Aurora, IL data center and Nasdaq’s Carteret, NJ facility. NASDAQ OMX has also reduced eSpeed latency by 35 percent. Ironically, the new link-up furthers eSpeed’s ties to CME Group, which eSpeed’s parent BGC had previously sued for infringement of the Wagner trade-matching engine patent. This, combined with BGC’s launch of ELX, which attempted a frontal assault on CME’s treasury product suite, solidified the rivalry between eSpeed and Chicago.
The Nasdaq deal served as a sort of “reset button” which has led to a series of deals in which all parties had a vested interest in putting the legal disputes and product rivalries behind them.
For Nasdaq’s part, the move allows it to “expand its treasury footprint into the things that are most logical,” according to Joe Noviello, senior managing director at Nasdaq OMX eSpeed. “Step one is to make certain that the foundation of current offerings is rock solid – through additional technology efforts, bringing distribution out to clients, and further growing our market position.”
The next step, according to Noviello, will be to move into “immediate adjacent” products that flow from current offerings. Though Nasdaq’s U.S. futures exchange is currently dormant, a futures platform is forthcoming. Still undecided is whether there will be synergies with London’s NLX, Nasdaq’s European interest-rate derivatives platform which clears through LCH.Clearnet and currently lists futures on EURIBOR, Sterling Gilts and German interest rate contracts. It would, however, seem the next logical step, as it would act as a bridge to eSpeed’s cash products.
The final component to the plan, then, would be to extend eSpeed into Europe, especially considering OMX has long offered the full suite of fixed income securities in the Nordic world and could easily expand its reach.
“Think about European government bonds, corporates and repos – all the products eSpeed actually supported – we would look to re-engage only if there is demand from the global dealer community,” Noviello said. “But that is farther out for us, to reach beyond the domestic-based products.”
For now, though, the first hurdle has been cleared, with eSpeed and TT singing in harmony.