Wolfgang Eholzer: The History of Financial Futures

John Lothian

John Lothian

Executive Chairman and CEO

Eurex’s Chief Technology Officer Tells His Story From the Battle of the Bund to Present Day

In 1997, Wolfgang Eholzer decided there were not enough students studying physics and mathematics in Germany to make a career in academia and that maybe finding a job would be a good thing. The question was where was there enough going on. That question led him to Deutsche Boerse, which was starting a new electronic derivatives exchange and hiring like mad. He has been there since.

Today, Eholzer is the chief technology officer of Eurex. JLN interviewed Eholzer for The History of Financial Futures video series from John Lothian News and MarketsWiki Education.

To prepare himself for an interview with Deutsche Boerse, Eholzer bought a copy of Options and Futures at Cambridge University Press. He had three hours of reading time before the interview to learn about derivatives.

One of his first projects was being involved with the “Battle of the Bund.” Eholzer was involved in delivering two of the first green screens to London as part of a free screen promotion deal for six months. He delivered the screens from Germany to London in the back of a VW Passat, which he said was not the best choice, as the screens, which had worked in Frankfurt, did not work in London when set up.

After a long night, it was discovered that one of the network cards had come loose, he said. Also, Eholzer had to buy some electrical adapters to make the German technology work with English electricity.

An issue that came up in the early days of Eurex was problems with expiry dates. In 2001, there was an expert issue that occurred amid a triple witching stock index expiration Friday that coincided with a big party involving large quantities of beer being consumed by some of the people who needed to fix the issue. After trying to resolve the issue, it became obvious that sleeping it off and coming in the next day to fix it was the best solution to avoid a larger mishap, he admitted.

There were valuable lessons learned from these early missteps, and today no parties are planned for key expiries, and no alcohol.

Eholzer talked about the transition of the markets from point and click to algorithmic trading from 2005 to 2007 and how that impacted the exchange technology. After 2007, ninety percent of the trading on Eurex was computer to computer trading, Eholzer said.

The speed at which computer orders take place greatly exceeds that of point and click traders, requiring larger capacity of the exchange to handle higher levels of data.

This changed the relationship between the exchange and the member firms, as instead of talking to traders, the exchange was now talking to people who wrote the trading system code, Eholzer said.

As the exchange dealt with the increase in data volumes, it was important to understand where their bottlenecks were, Eholzer said. With data lines initially of only 64 kilobytes, data compression was a big issue too, he said.

Everything had to be measured so it could be improved, he said.

One way Eurex learned a lot about its technology was its alliance with the Chicago Board of Trade to share the Eurex trading platform. After the CBOT exited the deal, Eurex tried to leverage the CBOT’s customers’ familiarity with the technology by opening its own U.S. domiciled exchange, Eurex U.S. That exchange failed and showed Eurex the difficulty of stealing products from established players, their own success against LIFFE notwithstanding.

The next challenge for Eurex would be building a new trading system to replace the DTB trading system that went live in 1990. Eurex built a new trading system from scratch for the International Securities Exchange. Optimize, the name of the platform, used some of the ideas Eurex had come up with over time to improve performance. Optimize was the predecessor of the T7 trading platform, Eurex’s current trading platform written in C++, which offers more throughput, lower latency and higher capacity than the 1990 DTB trading system referred to as Eurex Classic.

One of the things Eholzer said Eurex learned was that one size does not fit all, but that two sizes fits most for interfaces. There is one interface for people who don’t care about latency and throughput, and another for people who do. Sometimes there is a third choice, he said.

The Eurex Classic system was not only a trading platform (matching system and gateways, and data distribution), it was a trading system, clearing, risk, and data management all in one, Eholzer said. When building T7, Eurex decided that was not the right approach for the new system, he said.

Tomorrow we will publish Part Two of The Path to Electronic Trading interview with Wolfgang Eholzer.


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