1. ORC CONNECT – Fixed Income Overview
Trading Fixed Income on Orc
FIXED INCOME OVERVIEW
TRADING FIXED INCOME ON ORC
Orc Software now provides connectivity to the largest cash fixed income venues
in North America – eSpeed and BrokerTec. The addition of these market
connections presents opportunities to market our products to a new customer
segment. Customers have the ability to trade cash, futures, and options
instruments against one another in many new relative value and hedging plays.
Matching algorithms in cash fixed income markets are different from those of the
derivatives exchanges. The trade matches take longer to perform and can
appear to be very latent to customer unfamiliar with cash bond trading.
Customers should be aware of this market characteristic and its potential effects
on trading algorithms.
The relevant markets, trading opportunities, and terminology are explained
below. Details of available instruments for each platform are contained in the
accompanying spreadsheet.

2. ORC CONNECT – FIXED INCOME OVERVIEW
Trading Fixed Income on Orc
Markets:
eSpeed
The electronic cash fixed income platform owned and operated by BGC partners (formerly
Cantor). On eSpeed, customers can trade on-the-run, and some off-the-run cash US
Treasuries, as well as cash Canadian Treasuries. eSpeed also lists what they term basis (cash
vs. futures) and swap (cash yield curve spread) instruments. The eSpeed matching engine and
hosting facilities are located in New Jersey.
BrokerTec
The electronic cash fixed income platform owned and operated by ICAP in New Jersey. The
BrokerTec platform that Orc and its competitors support lists cash US Treasuries and Canadian
Treasuries. BrokerTec also lists the ‘when issued’ or ‘WI’ treasuries (next in line for the
auction), but doesn’t list any off-the-run bonds on combos.
ELX
The electronic futures exchange is owned by BGC partners and conglomeration of banks and
trading firms. The exchange was created to compete with CBOT (now CME Group) and its
suite of treasury futures products. ELX lists futures on US Treasury notes and bonds. The ELX
matching engine utilizes eSpeed’s trading technology, and is located right next to the Speed
engine in New Jersey.
CME Group
CME lists futures on US Treasuries and options on those same futures. CME also lists yield
curve swaps (spreads) and interest rate swaps of various terms (fixed vs. floating), as well as
futures and options on other short term interest rate products.
Montreal Exchange
The Montreal Exchanges lists futures on Canadian Treasury notes and bonds, as well as
options on the 10 Treasury futures contract. In addition to the longer term treasury futures, MX
lists short-term interest rate futures, and options on those futures contracts.
Eurex
Eurex lists futures contracts on German government issued bonds, and options on those futures
contracts. These products are tradable in the US and may be of interest to customers looking
for international spreading plays.
NYSE LIFFE
NYSE LIFFE lists futures on UK government issued bonds (Gilts), and options on those futures
contracts. These products are tradable in the US and may be of interest to customers looking
for international spreading plays.

3. ORC CONNECT – FIXED INCOME OVERVIEW
Trading Fixed Income on Orc
Trades of Interest:
Basis Trade – Cash vs. Futures
A basis trade, as explained below, is a cash vs. futures relative value play. This trade can be
executed in a number of different ways. For US Treasuries, the cash leg can be executed on
either eSpeed or BrokerTec, while the futures leg can be done on wither ELX or CME. CME still
has much more liquidity the ELX, but the relative proximity of the ELX matching engine to both
eSpeed and BrokerTec (New Jersey) plays well for our customers who won’t have to deal with
the distance-related latency between Chicago (CME) and New Jersey.
The Canadian Basis trade can be executed between the Montreal Exchange and either eSpeed
or BrokerTec, both of whom list cash Canadian treasuries.
Yield curve swap (spread) – Cash vs. Cash or Futures vs. Futures
A Yield curve swap is also a relative value play whereby trades take a view on the steepness of
the yield curve and take a long position on one part of the yield curve and short position on
another part of the curve. These traders believe the yields between these instruments will either
widen (steeper curve) or narrow (flatter curve), and attempt to profit from the move.
Inter-market arbitrage – Cash vs. Cash or Futures vs. Futures
This is a relative value play whereby traders attempt to profit from short-term pricing
discrepancies on similar instruments trading on different exchanges.
Inter-product arbitrage – Cash vs. Cash or Futures vs. Futures
This is a relative value play whereby traders attempt to profit from perceived value
discrepancies on similar term instruments of different constituencies. For instance, a trader
might believe that the Two Year US Treasury note is out of its expected value range with the
Two Year Canadian Treasury note, based on interest rate regimes and currency conversion
rates.
Calendar Spread – Futures vs. Futures
This is a relative value play were traders believe two futures contracts with the same underling
and different contract maturities are trading out of expected value range with one another.
Hedging – Cash, Futures, Options
Orc’s interest rate options traders now have two hedging options for their options positions.
They can hedge with the futures trade on any number of exchanges, or hedge with a cash
position.

4. ORC CONNECT – FIXED INCOME OVERVIEW
Trading Fixed Income on Orc
Glossary:
Yield Curve
A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but
differing maturity dates. The most frequently reported yield curve compares the three-
month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a
benchmark for other debt in the market, such as mortgage rates or bank lending rates. The
curve is also used to predict changes in economic output and growth.
Futures Basis
The theoretical difference between a cash (underlying) asset and its corresponding futures
contract(s) is called the futures basis. This basis consists mainly of a time value of money
component., but may also contain or be affected by a cost to carry or store a particular asset in
the case of physical commodities.
Basis Trade
A Basis Trade is a cash vs. futures relative value play that can be made with any underlying
asset. It is a particularly popular trade with interest rate and other financial products where
storage costs are not an issue. Whenever an actual futures price implies some difference
between the theoretical futures price and the cash price, an arbitrage opportunity may be
present because the actual and theoretical futures prices will revert as maturity approaches.

5. ORC CONNECT – FIXED INCOME OVERVIEW
Trading Fixed Income on Orc
Swap
A Swap is a transaction where participants trade the return on one instrument for the return on
another. The original swap was executed so that one party paid a fixed interest rate and
received a floating interest rate, and the other party paid/received the opposite.
In the case of our fixed income connections, a swap is basically just a spread of two different
bonds – a long position in one and a short position in the other. Traders take a view and
attempt to profit on a steepening or flattening of the yield curve.
Treasury Bond
A treasury bond is a sovereign government debt instrument that has a fixed interest rate and an
original term to maturity of greater than 10 years.
Treasury Note
A treasury note is a sovereign government debt instrument that has a fixed interest rate and an
original term to maturity between 1 and 10 years.
Treasury Bill
A treasury bill is a sovereign government debt instrument that has a term to maturity of less than
1 year.
Additional Information on the Fixed Income Market and
Trading Strategies:
CME Understanding U.S. Treasury Futures Reference Guide (PDF)
Yield Curve Shifts Create Trading Opportunities Strategy Paper (PDF)
Enhanced Interest Rate Options Trading (Webinar)
Yield curve spread Canada-U.S. (PDF)
Yield curve spread 2-year/10-year Government of Canada (PDF)
Cash and carry trade (PDF)
Credit spread: 2-year Government of Canada bond futures / BAX 2-year strip (PDF)
Yield curve spread 5-year/30-year Government of Canada (PDF)