New TABB Group Research: Pit Trading Fading Fast as Nearly 50% of 2007 Futures Market Volumes Now Transacted through Automated Trading Strategies, Rising to 90% by 2010

New York, NY - 28 November 2007

With nearly half of all futures markets trades in 2007 currently transacted through automated trading strategies – including market making and quantitative black-box trading activities – a figure estimated to reach 90% of total activity by 2010, the market for automated trading systems capable of managing sophisticated trading demands will continue to grow. According to TABB Group, “the futures markets in 2010 will be dominated completely by automated trading as the few remaining pits finally transition to fully electronic markets and voice trading with clients becomes merely a small minority of total activity.”

In a new TABB Group research report released today, “Futures Trading Platforms: The Evolution of Point-and-Click Trading,” trading-system vendors are delivering innovative technologies and functionalities geared specifically to the needs of the new breed of futures traders to meet this demand. “In today’s futures markets, traders are more likely to have a degree in information engineering from MIT than 10 years of experience in the pits of Chicago,” writes Andy Nybo, senior research analyst and report author. “Demand for sophisticated functionality leveraging the capability of the futures market structure will continue unabated, coming from all sides of the market, from the largest market makers and hedge funds, to the independent trader.”

As the futures markets become increasingly complex, market structure, trading strategies and investor participation are all under radical transformation, explains Nybo, and what was once a regionalized market for locals has evolved into a dynamic trading bazaar worldwide. “Today, a trader in Chicago is as likely to be trading futures on the Dubai Mercantile Exchange as he is on the Intercontinental Exchange in the U.S.”

With the “arms race” to provide new and innovative tools for traders growing more competitive, functionality once the proprietary domain of secretive futures firms and market makers has been adapted for the everyday user. According to TABB Group, which estimates that there are more than 30,000 third-party vendor screens in use today across the future industry and generating $200 million in annual screen revenues for the leading vendors, front-end trading systems from an expanding number of vendors now allow firms to quickly build and implement strategies, essentially acting as “on-demand,” quantitative model-development programs.

Today, multiple vendors offer screens with similar functionality, providing access to a handful of markets for as little as $500 a month. However, says Nybo, who in April of this year wrote the firm’s industry study, “Exchange-Traded Equity Derivatives: the Buy-side’s Increasing Exposure,” “the cost rapidly ratchets up to as much as $3,000 a month once more sophisticated features are added.” But, he adds, “As is typical in the brokerage industry, high-volume accounts pushing significant order flow through the system often qualify for ‘free’ access.”

Based on conversations with professionals representing futures operations at investment banks, hedge funds, investment managers, exchanges and trading platform vendors, the 20-page report with seven exhibits also examines functionalities provided by today’s trading systems and provides insight into spending trends for technology that enables traders to operate in today’s trading environment.

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