ForecastEx
EP3® Enables ForecastEx's Groundbreaking Predictive Markets Exchange
The Client
ForecastEx, an Interactive Brokers Group, Inc. subsidiary, is a U.S. Regulated predictive markets exchange specializing in event-based derivatives. Their unique trading products are centered around economic, business, and environmental events. At ixfts 2024 launch, ForecastEx aimed to launch a new exchange that would revolutionize the trading landscape.
Connamara Technologies was chosen due to our years of capital markets expertise. Our CEO, Jim Downs, and future ForecastEx CEO, David Downey, got to know each other as market makers on the CBOE floor and later when David was CEO of OneChicago and Jim was CEO of Connamara Systems. When it came time to build ForecastEx’s innovative technology, Downey thought of Connamara.
After extensive research and due diligence on the EP3 platform, ForecastEx committed to partnering with Connamara Technologies to build this groundbreaking platform.
The Challenge
Connamara Technologies put EP3 to work. Like most projects that come into Connamara Technologies, the innovative ideas behind the product had never been executed before.
Building a robust trading and clearing platform for ForecastEx’s innovative products presented Connamara Technologies’ development team unique but exciting challenges that pushed our own innovation in exciting new places. For example, at the time, EP3 did not have the clearing house functionality that ForecastEx required. It needed to be built. Connamara Technologies worked with ForecastEx to design the clearing functionality that was needed.
The platform needed to accommodate the specialized nature of their groundbreaking event-based contracts while adhering to strict regulatory requirements. A completely off-the-shelf solution would have been insufficient, necessitating new development.
How ForecastEx Works
The contracts listed on ForecastEx would be event positions. Each event market would feature “Yes” and “No” event positions for the same event question. There are no sell orders on ForecastEx, only bids for Yes or No event positions. Once the total amount of the Yes and No bids would equal $1.01, then the pair is sent to clearing, and only then is a contract formed. All contracts are fully collateralized with the clearinghouse, and $1.00 per contract is paid out to the Yes or No position at the event resolution.
The Solution
Connamara Tech leveraged its existing EP3 platform, a flexible and scalable architecture, as the foundation for the new exchange. Our team and the highly-capable ForecastEx team worked tirelessly to define the functional gaps between EP3 and the new clearing functionality required by ForecastEx.
This close relationship, utilizing implementation and testing, ensured seamless integration between the trading engine and clearing house, guaranteeing a smooth and efficient workflow.
The Results
In July, 2024, ForecastEx was able to gain regulatory approval for both the Exchange (DCM) and the Clearing House (DCO) and launch the exchange.
EP3 is designed with flexibility in mind to allow new and innovative trading products to be created. But, it took the talented ForecastEx team – a group of proven capital markets professionals who understand regulated exchanges on a deep and technical level – to energize EP3 to its full potential. Without ForecastEx’s business acumen, this wonderful collaboration would never have been possible.
“We’re impressed with Connamara’s ability to meet our exacting requirements with EP3 and deliver exchange and clearinghouse technology for an entirely new market. As ForecastEx grows, we expect to lean on the EP3 platform and team to introduce more innovative features for our customers.”
– David Downey, ForecastEx CEO