Liquidity PanelCADC – August 18, 2005

Joseph P. PerryManaging MemberRedSky Financial, LLCSpeed Trading Partners, LLC

“The Relationship Between a Broker/Dealer and Proprietary Trading

Groups”

• 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

Speed Trading Partners

• Minimizing market data and order routing latencies

• Minimizing costs• Accessing multiple asset classes• Directly accessing exchange matching

engines

Challenges for Speed Trading Partners

• 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

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

RedSky Financial

• 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

RedSky Technology

• Stocks– ARCA – AMEX– INET– NYSE– NYFIX– BRUT– NASDA

Q– BTRD– TRAC

• FX– espeed– HOTSPO

T– EBS**

• Futures – GLOBE

X– ECBOT– XEUS– ONE– CFE– EUREX– LIFFE– MX– IPE**

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

• Bonds – espeed– BTEC

RedSky Market AccessAccess to 24 exchanges/ECNs

• Hedge Funds• Institutions• Proprietary Trading Groups (liquidity

providers)• Professional Traders• Family Offices

RedSky Clients

• Facilitate clients’ trading – Continuously improve software – Establish additional clearing

relationships – Join additional exchanges

• Compliance • Risk Management

Role of 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

Challenges for RedSky

• Identifying new trading opportunities• Creating profitable trading strategies and

algorithms• Driving direction of technology

development for the broker/dealer

Role of Proprietary Trading Groups

• Risk Management• Costs

– Commissions

• Technology

Challenges for Proprietary Trading Groups

The successes of both a broker/dealer that provides technology and a

proprietary trading group are very much tied to each other.

Conclusion