Futures Vet Sees Homogenized Order-Entry and Execution in Crystal Ball

In the not-too-distant future, investors in the securities and derivatives markets are going to have the ability to seamlessly trade stocks, bonds, futures and foreign exchange instruments online, via a single, homogenized trade order-entry and execution system. Internet-trading tools will become pass. And brokers who serve as middlemen in the futures community will be in danger of being disintermediated by exchanges.

So says Gene Donney, a futures industry veteran who in 1993 founded U.S. Virtual, the first Internet-driven software vendor in the American derivatives market. Donney, who earlier this year sold the assets of U.S. Virtual to SunGard Futures Systems, says that derivatives markets like the Chicago Mercantile Exchange could "emerge as kings"-and potentially disintermediate some futures commission merchants (FCMs)-if they transform themselves into "financial aggregators" and consolidators.

"If the exchanges viewed themselves in a non-traditional way ... that would open the door for them to all sorts of over-the-counter things," says Donney, the former chief executive officer of the FCM Elder Futures who now works as a consultant for SunGard. "But, unfortunately, what you see in the U.S. is that there needs to be an excruciating level of pain before cultural changes take place."One dramatic change that may occur is the evolution of a single order-entry and execution platform for seamlessly trading a variety of financial instruments. Donney says that things like demutualization and cross-listing represent "little, incremental" steps the financial services industry is taking toward creating a generic transaction environment. "We're talking about a process of homogenizing the entire transactional continuum," he says. "If we were able to fast forward ourselves a dozen years into the future, I think that ... just by entering a single environment, you'll be able to do any kind of transaction that you wish to do."

That said, there is no guarantee that the Internet will be the driver of that homogenized trading platform. Donney-who developed U.S. Virtual's Auditrade, the first Web-based order-entry application in the U.S. futures market-believes that the trading technologies of tomorrow will make the Internet look dated.

"In time, the Internet technology today, as its used for trading, will kind of resemble broadcast television .... There will be everything from laser to microwave to authentication technologies, and all kinds of things that have not even been alpha tested yet ... that will make the Internet technology of today look relatively crude," he predicts.