Patent Application
20140372272
The present invention relates to financial product trading systems and, in particular, to methods and systems that process orders for financial instruments.
Financial instruments, such as equity securities and derivative contracts, are typically traded by traders submitting orders to a central limit order book. It is common for market makers to contribute liquidity to markets for less frequently traded financial instruments so that traders always have an opportunity to buy and sell financial instruments. Less liquid markets subject traders to various risks. Risk may include various execution risks such as partial execution and slippage.
Request for quote systems are commonly used for trading option and options on futures contracts when liquid markets are not available. Option contracts are based on underlying financial instruments. For each underlying financial instrument, there may be numerous put and call option contracts available with a variety of expiration months and a variety of strike prices. Option trading strategies many times include combining numerous option contracts. Because of the number of combinations available, it becomes impractical for market makers or others to create continuously-quoted markets for all of the different types of option strategies. It is common for option traders to create request for quote messages that identify option contracts that a trader desires to trade and requests that market makers or other entities provide a quote or price. Option traders review quotes that they receive and then decide whether to trade and with whom to trade. Request for quote systems are considered a component of central limit order book trading by U.S. regulators, and thereby encouraged versus other means of off exchange trading. There are concerns that alternatives to request for quote systems, such as off-exchange trades or block trades, are not transparent and divert liquidity from central limit order books.
Therefore, there is a need in the art for improved request for quote systems and methods for trading financial products allow traders to trade financial instruments when liquid markets are not available.
Embodiments of the present invention overcomes problems and limitations of the prior art by providing systems and methods for matching orders that include a central limit order book system and an enhanced request for quote system. In one embodiment, orders are initially received at a central limit order book system. The central limit order book system attempts to match the order and if the order remains unmatched after a predetermined time period, order information is automatically sent to a request for quote system. The request for quote system distributes a request for quote and provides any quotes supplied back to the original trading entity. An order may be matched at the central limit order book system or the request for quote system.
In other embodiments, embodiments of the present invention can be partially or wholly implemented on a computer-readable medium, for example, by storing computer-executable instructions or modules, or by utilizing computer-readable data structures.
Of course, the methods and systems of the above-referenced embodiments may also include other additional elements, steps, computer-executable instructions, or computer-readable data structures. In this regard, other embodiments are disclosed and claimed herein as well.
The details of these and other embodiments of the present invention are set forth in the accompanying drawings and the description below. Other features and advantages of the invention will be apparent from the description and drawings, and from the claims. Brief
The present invention may take physical form in certain parts and steps, embodiments of which will be described in detail in the following description and illustrated in the accompanying drawings that form a part hereof, wherein:
Aspects of the present invention may be implemented with computer devices and computer networks that allow users to exchange trading information. An exemplary trading network environment for implementing trading systems and methods is shown in
The trading network environment shown in
Computer device 114 is shown directly connected to exchange computer system 100. Exchange computer system 100 and computer device 114 may be connected via a T1 line, a common local area network (LAN) or other mechanism for connecting computer devices. Computer device 114 is shown connected to a radio 132. The user of radio 132 may be a trader or exchange employee. The radio user may transmit orders or other information to a user of computer device 114. The user of computer device 114 may then transmit the trade or other information to exchange computer system 100.
Computer devices 116 and 118 are coupled to a LAN 124. LAN 124 may have one or more of the well-known LAN topologies and may use a variety of different protocols, such as Ethernet. Computers 116 and 118 may communicate with each other and other computers and devices connected to LAN 124. Computers and other devices may be connected to LAN 124 via twisted pair wires, coaxial cable, fiber optics or other media. Alternatively, a wireless personal digital assistant device (PDA) 122 may communicate with LAN 124 or the Internet 126 via radio waves. PDA 122 may also communicate with exchange computer system 100 via a conventional wireless hub 128. As used herein, a PDA includes mobile telephones and other wireless devices that communicate with a network via radio waves.
One or more market makers 130 may maintain a market by providing bid and offer prices for a derivative or security to exchange computer system 100. Exchange computer system 100 may also exchange information with other trade engines, such as trade engine 138. One skilled in the art will appreciate that numerous additional computers and systems may be coupled to exchange computer system 100. Such computers and systems may include clearing, regulatory and fee systems. Coupling can be direct as described or any other method described herein.
The operations of computer devices and systems shown in
Of course, numerous additional servers, computers, handheld devices, personal digital assistants, telephones and other devices may also be connected to exchange computer system 100. Moreover, one skilled in the art will appreciate that the topology shown in
Central limit order book system 208 may receive and orders, such as orders 212 and 214 from trader systems 216 and 218 and match orders. For example, order 204 may be an order to buy a financial instrument at a specific price and order 212 may be an order to sell the financial instrument at the same price. In this example, central limit order book 208 may be programmed to match orders 204 and 212.
Request for quote system 210 may receive requests for quotes, publish or otherwise distribute the requests and provide any quotes to a trading entity. In one implementation trader system 202 submits a request for quote 220 to request for quote system 210. The request may be for an option strategy that includes a plurality of options contracts or for some other financial instrument. The request may also include buying some financial instruments and selling other financial instruments. Request for quote system 210 may publish the request and receive quotes 222 and 224 from trader systems 226 and 228, respectively. Quotes 222 and 224 include price levels at which traders 226 and 228 are willing to enter into the transaction identified in request for quote 220. Request for quote system 210 provides quotes 230 to trader system 202. Trader system 202 may determine if any of the quotes are priced at a level at which it is desirable to enter into the transaction.
Match system 206 may be configured or programmed to link central limit order book system 208 and request for quote system 210. In one embodiment match system 206 may identify one or more orders that have remained pending at central limit order book system 208 for a predetermined period of time and provide an identification of the financial instruments to request for quote system 210. Request for quote system 210 may publish or otherwise distribute a corresponding request for quote to trading entities. In some embodiments match system 206 may cancel the original order pending at central limit order book system 208 as soon as request for quote system 210 publishes the corresponding request for quote. In other embodiments, central limit order book system 208 and request for quote system 210 may be configured to cancel orders and requests at the other system as soon as one of the systems executes an order. Match system 206 may also be programmed or configured to monitor central limit order book system 208 and request for quote system 210 and cancel orders and requests when appropriate.
When the order has not remained unmatched, in step 306 the process waits a predetermined period before returning to step 304. When the order has remained unmatched, the order is sent to a request for quote system, such as request for quote system 210, in step 308. Step 308 may include sending the actual order or any amount of information necessary to create a request for quote.
While
The present invention has been described herein with reference to specific exemplary embodiments thereof. It will be apparent to those skilled in the art, that a person understanding this invention may conceive of changes or other embodiments or variations, which utilize the principles of this invention without departing from the broader spirit and scope of the invention as set forth in the appended claims. All are considered within the sphere, spirit, and scope of the invention.
