CME buys Liquidity Direct

The Chicago Mercantile Exchange (CME) has acquired Chicago-based Liquidity Direct Technology, a private company that owns a patent-pending system for trading complex options.

The terms of the agreement were not disclosed, but the CME said it will purchase “substantially all of the assets of Liquidity Direct, including its operating assets and intellectual property”. It added that the technology will complement the existing Globex trading platform.

“In contrast to the European ‘call-around’ markets, which tend to be fragmented and opaque, Liquidity Direct facilitates a unified liquidity pool that offers participants more efficient executions for their complex options combination trades,” said the CME’s chairman, Terry Duffy.

The CME intends to start using the platform in the second half of the year, initially for wholesale trading of its eurodollar options contracts. Other options products will then follow. It also intends to use the system to provide transaction processing services to third parties.

Liquidity Direct’s system is designed to allow the trading of complex combinations and spreads that are typically used with options, said the CME. Its chief executive, Neal Brady, will retain his position as part of the deal. Brady co-founded Liquidity Direct in 2000 with a group of market makers. He was previously managing director of e-business strategy at the CME’s rival, the Chicago Board of Trade.

“Our company was created by some of the leading options and spread market-makers who recognised a pent-up demand in the end-user community for a fully automated, electronic trading solution for complex, institutional products,” said Brady.