Speed Trading Partners

1
Liquidity Panel CADC August 18, 2005
The Relationship Between a Broker/Dealer and
Proprietary Trading Groups
Joseph P. Perry Managing Member RedSky Financial,
LLC Speed Trading Partners, LLC
2
Speed Trading Partners

• Proprietary trading group founded in 2000
• Initially traded equities and equity options but
  quickly moved into futures
• Employed black box type strategies including
  arbitrage and hedging
• Wrote to a systems API for programmed order
  routing and then used that systems front-end for
  order management

3
Challenges for Speed Trading Partners

• Minimizing market data and order routing
  latencies
• Minimizing costs
• Accessing multiple asset classes
• Directly accessing exchange matching engines

4
RedSky Financial

• Created Broker/Dealer and FCM in 2001
• Achieved cost savings
• Lowered clearing fees
• Lowered execution fees
• Joined exchanges thereby gaining direct market
  access
• Improved systems performance

5
RedSky Financial

• Built own technology
• Additional streams of revenue
• Flexible clearing solutions
• Currently interface with the clearing systems of
  6 global clearers and 4 domestic-oriented
  clearing firms

6
RedSky Technology

• Proprietary trading platform - R3
• Provides direct market access to multiple asset
  classes
• Offers a FIX API and a proprietary API
• Supports special order types such as VWAP,
  reserve (hidden quantity) and pegging
• Seamlessly integrates with leading third-party
  software vendors

7
RedSky Market Access
Access to 24 exchanges/ECNs

• Stocks
• ARCA
• AMEX
• INET
• NYSE
• NYFIX
• BRUT
• NASDAQ
• BTRD
• TRAC

• FX
• espeed
• HOTSPOT
• EBS

• Futures
• GLOBEX
• ECBOT
• XEUS
• ONE
• CFE
• EUREX
• LIFFE
• MX
• IPE

• Options
• BOX
• ISE
• CBOE
• AMEX
• PHLX
• PSE

• Bonds
• espeed
• BTEC

8
RedSky Clients

• Hedge Funds
• Institutions
• Proprietary Trading Groups (liquidity providers)
• Professional Traders
• Family Offices

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Role of RedSky

• Facilitate clients trading
• Continuously improve software
• Establish additional clearing relationships
• Join additional exchanges
• Compliance
• Risk Management

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Challenges for RedSky

• Establishing a clear distinction between B/D and
  proprietary trading group (client)
• No selling or internalization of order flow
• Orders sent directly to exchanges/ECNs
• Technology
• Maintaining existing infrastructure
• Creating new infrastructure
• Pricing (costs)
• Negotiating rates

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Role of Proprietary Trading Groups

• Identifying new trading opportunities
• Creating profitable trading strategies and
  algorithms
• Driving direction of technology development for
  the broker/dealer

12
Challenges for Proprietary Trading Groups

• Risk Management
• Costs
• Commissions
• Technology

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Conclusion

• The successes of both a broker/dealer
• that provides technology and a
• proprietary trading group
• are very much tied to each other.