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John Turney
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Foreign Exchange Infrastructure: Yesterday, Today and Tomorrow

In this exclusive to Traders Magazine, John Turney, Global Head of Outsourced FX at Northern Trust, discusses the evolution of the fx infrastructure and what is to come.

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February 1, 2005

An Era of Technology Bells and Whistles

By Mark Longo

It's a great time to be an options technology nerd.

Traders have been searching for a one-stop shop since the earliest days of multi-asset trading. Now numerous firms have developed trading platforms to facilitate this multi-asset trading. However, the flood of technology has many traders looking for the right solution. The current technology king is still regarded by many as SunGard's Microhedge. Developed by market makers on the floor of the CBOE, it has evolved into one of the premier software packages for managing theoreticals and executing trades. This system allows users to stream quotes continuously to any of the electronic exchanges.

Another product is the Orc Trader system from Orc Software. Unlike its Tolkien-inspired name, the software package is quite original. It offers an intuitive drag-and-drop interface that allows you to enter complex spread orders relatively quickly. It also provides connectivity to over 80 worldwide markets, allowing you to stream quotes and make trades across a number of different asset classes.

"You can trade in multiple markets around the world and have the positions converted into a single currency," says Peter Sibirzeff, managing director of Orc Software North America. "We also have a fair risk management suite."

Traders looking for a solid trade execution suite might want to consider REDIPlus Version 5 from Goldman Sachs. This system also offers drag-and-drop execution with an interface that simplifies order entry. "You'll find that our interface is intuitive," says Greg Tusar, managing director of product development for Goldman. "If you're entering a spread order, when you're putting in one side, it's already filling in the other."

Goldman made a big bet in its order routing technology so that that trades are sent rapidly to the exchange posting the best price. The Goldman product has an algorithmic trading feature that lets traders automatically execute complex trading strategies in various asset classes. None of these systems requires you to route orders through a particular broker or exchange, so you don't have to worry about setting up new brokerage accounts when you install the system. In addition, none of these systems requires the purchase of a front-end machine. Instead, these software packages can be downloaded and installed onto an office PC. As with most software, pricing varies depending on the number of users.

The options industry has seen dramatic technological change in the last decade. When I entered the options business in the mid-90s, before I became a financial journalist, it was taken as gospel that everything would be electronic by the turn of the millennium. However, here we are five years later and the floor-based exchanges are still standing. What will the next five years bring? Will the old exchanges finally succumb to the march of technology?

"Some people say that the options industry will be completely electronic in five years," says Ken Leibler, CEO of the electronic Boston Options Exchange. "I don't know if I'd go that far. But, long before five years, the electronic markets will dominate the business." Dale Carlson, a spokesman for the PCX, is blunt. "We don't believe there will be a traditional trading floor anywhere in the country by the end of the decade." One buyside trader agrees. "The options markets will be completely electronic within five years," says Kevin Connellan, director of equity trading at Northern Trust in Chicago.