OnExchange to Offer Web-Based Futures and Derivative Trading; Brown Brothers Harriman & Co. Signs on As Custodian

November 17, 2000 ( Richard Jaycobs, the former chief technology officer for Paul Tudor Jones trading firm, is gearing up to launch of a Web-based futures-and-derivatives platform called OnExchange.

The company was formed earlier this year after receiving a $10 million infusion of venture capital from an investor that included Matrix Partners, Sigma Partners and OneLibertyVentures.

Pending approval from the Commodity Futures Trading Commission, Mr. Jaycob’s Waltham, Mass.-based futures firm plans to go live with is electronic platform in early 2001.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

And, those plans seem to be rolling ahead. On Thursday, the OnExchange group announced that investment-banking giant Brown Brothers Harriman had signed up to provide custody and settlement services for the Web-based exchange.

The terms of the agreement call for the exchange to establish custodial accounts at the bank, which would hold margin assets from participants on the electronic futures and derivatives platform, according to Peter Burton, head of business development at OnExchange.

Having an established partner like Brown Brothers Harriman & Co.—a familiar name to nearly everyone in the industry—also adds credibility to the emerging electronic platform, he said.

“There a great deal of opportunity and benefit for hedge funds, futures traders and banks desks and others participating in an electronic marketplace that offers futures and other-the-counter derivatives,?EMr. Burton said.

“We see ourselves fitting in the business-to-business space between commercial and institutional cash markets. And, in addition, to the platform we are also in a position to license components of our risk management system to participants in these markets,?Ehe said.

The platform’s open architecture is built is a series of modules. For instance, the trading-and-clearing component consists of a real-time trade-matching module, a risk-management module and an account-management administration module. An “authoring?Emodule also is included, providing a tool that allows market participants to craft their own futures contract or derivative product.

The system is available as a whole or can be licensed in individual modules for trading operations that want to integrate a particular functionality into their proprietary system.

In terms of the platform’s success as an exchange, building volume and liquidity will be essential.

But the accessibility of the platform may provide an edge. Mr. Burton says the barriers of entry are minimal because OnExchange is fully Web-enabled. That means buying proprietary terminals or software won’t be unnecessary.

“All you really need is Internet access,?Ehe said. “OnExchange’s platform is browser based. The technology offers a low-cost and flexible approach to the markets over the centralized monlithic structure you have at traditional exchanges,?Ehe said.

A number of European futures exchanges have already fully embraced electronic trading and U.S. counterparts have inched in that direction a bit more slowly and grudgingly as interests seek to protect jobs dependent on traditional outcry.

“But even in Europe, you haven’t had exchanges take advantage of the reach of the Internet, which is what we’re doing,?EMr. Burton said.

OnExchange has plenty of cash on hand from its first round of fundraising, but Mr. Burton would not rule out another round of financing down the road to expand the business.

By Pete Gallo, Editor


Story Copyright