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Liquidity Panel CADC – August 18, 2005

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. Speed Trading Partners. Proprietary trading group founded in 2000

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Liquidity Panel CADC – August 18, 2005

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  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 system’s API for programmed order routing and then used that system’s 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 system’s 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 • Futures • GLOBEX • ECBOT • XEUS • ONE • CFE • EUREX • LIFFE • MX • IPE** • Options • BOX • ISE • CBOE • AMEX • PHLX • PSE • Bonds • espeed • BTEC • FX • espeed • HOTSPOT • EBS**

  8. RedSky Clients • Hedge Funds • Institutions • Proprietary Trading Groups (liquidity providers) • Professional Traders • Family Offices

  9. Role of RedSky • Facilitate clients’ trading • Continuously improve software • Establish additional clearing relationships • Join additional exchanges • Compliance • Risk Management

  10. 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

  11. 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

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

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