Patent Application
20050165670
The present invention relates to systems and methods for linking orders in electronic trading systems. More particularly, the present invention relates to systems and methods which enable traders to link trading of goods, services, financial instruments, and commodities in electronic trading systems.
In recent years, electronic trading systems have gained wide spread acceptance for trading of a wide variety of goods, services, financial instruments, and commodities. For example, electronic trading systems have been created which facilitate the trading of financial instruments and commodities such as stocks, bonds, currency, futures, oil, gold, pork bellies, etc. As another example, online auctions on the Internet have become popular markets for the exchange of services and both new and used goods. In one embodiment of systems for electronic trading of financial instruments, for example, a first trader may submit a “bid” to buy a particular number of 30 Year U.S. Treasury bonds at a given price. In response to such a bid, a second trader may submit a “hit” in response to the bid in order to indicate a willingness to sell bonds to the first trader at the given price. Alternatively, the second trader may submit an “offer” to sell the particular number of the bonds at the given price, and then the first trader may submit a “take” or “lift” in response to the offer to indicate a willingness to buy bonds from the second trader at the given price. In such trading systems, the bid, the offer, the hit, and the take (or lift) are collectively know as “orders”. Thus, when a trader submits a bid, the trader is said to be submitting an order.
Modern day trading includes not only the buying and selling of a single type of item, but also more complex transactions involving exchanges of a combination of the same or different types of items. For example, in a typical spread transaction, one bond may be sold and another bond may be purchased as part of a single transaction. The trading of combinations of items in this way facilitates arbitrage, hedging, and speculation.
However, because such combinations of items may have very complex relationships, there is a need to automate the trading of combinations of items. Thus, it is an object of the present invention to provide systems and methods for linking orders in electronic trading systems.
In accordance with this and other objects of the invention, systems and methods for linking orders in electronic trading systems are provided. Preferred systems and methods in accordance with the present invention enable a trader to select two or more items that are to be linked and specify linking parameters for those items. Any desired set of items may be linked, and the linking parameters may include price adjustments, order sequencing instructions, automatic/manual execution controls, execution delays commands, and update frequency limits. Upon detecting a bid or offer for a linked item, the systems and methods may then determine a size and a price for each linked item based upon the size and the price of the bid or offer for the first linked item. In this way, the sizes and the prices for the other linked items may be propagated from the size and the price for the first item. Once the size and the price for each item is determined, the systems and methods may submit orders for the items in accordance with the linking parameters. In the case where orders for linked items may only be submitted in designated lot sizes, the systems and methods may round the sizes of the orders to the designated lot sizes, and then submit remainder orders to make up for the rounding.
Further features of the invention, its nature and various advantages will become more apparent from the following detailed description of the invention, taken in conjunction with the accompanying drawings, in which like reference characters refer to like parts throughout, and in which:
As stated above, the present invention provides systems and methods for linking orders in electronic trading systems. More particularly, the present invention provides systems and methods that enable traders to link two or more items for trading and specify parameters for controlling placement of orders for those items, and that automatically monitor bids and offers placed for those items, generate sizes and prices for orders related to those items, and place the corresponding orders for those items.
Although the present invention is described herein as being used by “traders,” it should be apparent that the term “trader” is meant to broadly apply to any user of a trading system, whether that user is an agent acting on behalf of a principal, a principal, an individual, a legal entity (such as a corporation), etc., or any machine or mechanism that is capable of placing and/or responding to orders in a trading system.
Preferred embodiments of the systems and methods of the present invention are now described in greater detail in connection with
Notwithstanding that the present invention is illustrated with respect to trading of bonds, notes, and bond futures, and their derivatives, it should be noted that the systems and methods of the present invention are equally applicable to the trading of any type of goods, services, financial instruments, commodities, etc.
Turning first to
To orchestrate trading between traders using workstations 102 and 104, the workstations preferably submit commands to, and receive data to be displayed from, a processor 106. In alternative embodiments, however, workstations may communicate with additional processors, or include processors to orchestrate trading in a distributed fashion without requiring processor 106. Processor 106, and any additional processors, may be any suitable circuitry or devices capable of processing data such as microprocessors, personal computers, network servers, mainframe computers, dedicated computer systems, etc.
As shown, processor 106 may be connected to workstations 102 and 104 by networks 108 and 110, respectively. Each of networks 108 and 110 may be any suitable data network for communicating data between workstations 102 and 104 and processor 106, such as a local area network, a wide area network, the Internet, an Intranet, a wireless network, a hard wired connection, a dial-up network, etc., or any combination of the same. In an arrangement of hardware 100 without processor 106, workstations 102 and 104 may be linked together by networks 108 and 110 directly.
As also shown in
In order to communicate with external trading systems 130, hardware 100 may include a network interface 128 that connects processor 106 to external trading systems 130. Network-interface 128 may be any suitable interface and/or computer network that facilitates communication between processor 106 and external trading systems 130.
When used to implement a bid/offer, hit/take trading system as described above, hardware 100 may enable a trader to submit a bid to buy, or an offer to sell, an item at one of workstations 102 and 104. This bid or offer may then be communicated to processor 106, where the bid or offer can be ranked and stored in a bid-offer queue. The ranking may be based upon time of submission, price, or any other suitable criterion. The bid or offer may then be presented to other traders via other workstations 102 and 104 dependent upon its ranking in the bid-offer queue. Once displayed, the bid or offer can then be hit or taken by one or more of the other traders so that a trade of the item can proceed to execution. Alternatively, hardware 100 may be configured so that it does not operate as a trading system, but instead facilitates communication between traders and external trading systems 103, and performs the order linking functions described herein.
Turning to
One embodiment of an instrument linking process 300 that may be executed at step 202 in accordance with the present invention is illustrated in
Next, at step 304, process 300 determines the identity of other instruments to which the first item identified at step 302 can be linked. This determination may be made by searching a database of items that are related to the first item, or in any other suitable manner. In the case where a trader has selected to link a 10-year treasury bond, for example, such a search may reveal that there are three different types of related futures contracts which are traded in two different markets (e.g., an 8% notional bond contract that is traded on the Chicago Board of Trade, an 8% notional bond contract that is traded on the Cantor Exchange, and a 6% notional bond contract that is traded on the Cantor Exchange). A possible linked trade involving such items could include buying the basis of the bond, that is, buying the bond on the cash market and selling an equivalent amount of futures contracts.
Once process 300 has identified other items that can be linked to the first item at step 304, process 300 creates a display listing the related instruments at step 306. An example of such a display 400 is illustrated in
As shown, display 400 contains five columns 402, 404, 406, 408, and 410 identifying the different items that can be linked. In the case of the exemplary 10-year treasury bond, this bond is available on the cash market as indicated by column 404, and three corresponding future contracts are available on the Chicago Board of Trade (CBOT 8%) and on the Cantor Exchange (CX 8% and CX 6%) as indicated by columns 406, 408, and 410. Because display 400 indicates that the bond can be linked for basis trades and spread trades, the display also indicates that the basis and the spread for this bond can be purchased on the direct market by column 402.
Referring back to
Because the trader in this case has linked the direct market for the basis of the bond with the cash market for the bond and has linked the direct market for the spread of the bond with the cash market for the bond, preferred embodiments of the invention also transitively link the direct market for the basis of the bond to the direct market for the spread of the bond through the cash market for the bond.
Alternatively to determining items that can be linked to a first item and to displaying and selecting items that can be linked to the first item through an interface, as shown in steps 304, 306, and 308 of
Referring back to
An example of an interface 500 for enabling a trader to make these settings is illustrated in
Price adjustments may be configured in interface 500 by specifying a number in fields 516, 518, or 520 that is to be added to the price of the corresponding item that may otherwise be determined by the linking engine as explained below. For example, if the trader is linking a bond and a futures contract for a basis trade, the trader may want to offer the futures contract at a higher price than the market value for that futures contract as calculated from the market value for the bond. In this case, the trader would indicate the increase in the offer price of the futures contract over market in the corresponding one of fields 516, 518, and 520.
Sequencing may be configured in interface 500 by first selecting one of a “fixed” radio button 522 and a “variable” radio button 524. Then, if radio button 522 is selected, the sequencing settings may be completed by filling in the numerical sequence of placement of orders in fields 526, 528, and 530. For example, in order to cause orders for item 2 to always be placed before orders for item 1, and orders for item 1 to always be placed before orders for item N, the numbers “1,” “2,” and “3” would be placed in fields 528, 526, and 530, respectively. Alternatively, if radio button 524 is selected, the sequencing settings may be completed by filling in the numerical sequence of priority in sorting that is to be performed in fields 532, 534, 536, 538, 540, and 542. For example, in order to cause placement orders to be based upon priority of age and size, a “1” would be placed in field 534 and a “2” would be placed in field 538. In this way, the items would be sorted first by age and then by size to determine sequence of order placement. By not filling in some of fields 532, 534, 536, 538, 540, and 542, sorting may be reserved to corresponding categories in the completed fields. Although particular categories to control variable sequencing are shown in
In order control whether orders are placed automatically or manually, the trader may select any of check boxes 544, 546, and 548 for the corresponding item 502, 504, and 506. For example, to cause item 502 to be executed automatically and item 504 and item 506 to be executed manually, the trader would select check box 544 and clear check boxes 546 and 548.
To set the delay to be applied to the placement of orders for items 502, 504, and 506, the trader may fill in fields 550, 552, and 554 with the appropriated delay period (e.g., 10 seconds). For example, if the trader wanted to cause the placement of orders for item 504 to be delayed by 1 minute, but orders for items 502 and 506 to be placed without delay, the trader would enter “60” in field 552 and leave fields 550 and 554 blank (or enter “0”).
Finally, in order to indicate the maximum frequency at which updates to orders for items may be placed, a trader may fill in the maximum frequency for order updates in desired ones of fields 556, 558, and 560 for corresponding items 502, 504, and 506. For example, in order to limit order updates to once every ten seconds for item 504, the trader may enter 11611 in field 558 to indicate a maximum of six updates per minute.
Although particular linking parameters are illustrated and discussed in connection with
Turning back to
Next, process 200 determines at step 206 if a trader wants to change or add items to be linked or linking parameters. If so, process 200 loops back to step 202. Otherwise, process 200 determines whether an on-hold order is ready to be submitted at step 208. An order may be on-hold if, for example, a delay was specified for submission of an order through interface 500 (
Turning to
If the bid or offer is determined not to be too old at step 220, however, then process 200 determines at step 223 whether the item corresponding to the bid or offer has priority. Priority may be based on a test of which bid or offer in a set of linked items was bid or offered last, a test of the type of item (e.g., futures contract versus bond), or a test of the activity status of the item (e.g., active or inactive). Which of these tests determines whether an item has priority may be selected by a trader in a manner similar to selecting the sequencing order in interface 500 (
If the bid or offer is determined to have priority at step 223, however, then process 200 determines at step 224 whether the trigger event has occurred for the linked items. As described above, any suitable trigger event may be used in accordance with the present invention. Naturally, process 200 must be able determine whether the trigger event did in fact occur, so suitable data is preferably provided to process 200 for this purpose. If the event is determined not to have occurred, then process 200 loops back to step 206 (
If the trigger event is determined to have occurred at step 224, however, then process 200 selects the next linked item (i.e., the item linked to the item corresponding to the bid or offer) as the current item at step 225 and retrieves formulas for linking the current item with the previous item (i.e., the item corresponding to the bid or offer) at step 228. For many pairs of items, there are known formulas for translating a size and a price of one item to a size and a price of another item. Any suitable formula, relationship, or mechanism for translating size and price of one item into that of another item may be used in accordance with the present invention. For example, when trading basis, the price of a bond may be related to the price of a futures contract using the following formula:
Alternatively, a price of one item may be calculated based upon a yield of another item. Similarly, when trading basis, the size of a bond bid or offer is related to the size of a futures contract bid or offer typically using the following formula:
While conversion factors are published by the exchanges and data vendors, they need to be updated dynamically as issues mature and new contracts become open to trading. Process 200 dynamically updates these conversion factors at step 230 so that any financial instrument, including instruments that are not eligible for delivery, have current conversion factors for generating appropriate market accepted weightings for combination bidding and offering and buying and selling.
In the case where there are no standard formulas for translating the size and the price of an order for one item into a size and a price for order for another item, the trader may be permitted to specify a relationship through a suitable interface, or the trading system may use historical data relating to the items to estimate a relationship.
Next, process 200 determines the price of the order for the current item at step 232 and the size of the order for the current item at step 234 using the retrieved formulas. In addition to calculating the size of the order using a formula, due to restrictions on trading of certain items that require that those items be traded in specified minimum lot sizes (or a multiple thereof), process 200 may also round the size of the order for the item to a corresponding lot size (or a multiple thereof) at step 236. For example, US treasuries are typically traded in sizes that are multiples of one million dollars. In the event that a sizing formula indicates that a bid size for a bond should be $1.1 million based upon another trader's available bid for a linked futures contract, the bid size for the bond may be rounded to $1 million to conform to the lot size requirements. Once step 236 has been performed, process 200 proceeds from step 236 through links 238 and 240 (
Alternatively, a trader may be permitted to specify absolute values for the price and size of an item when linking items rather than specifying a formula or formulas relating the item to another item. In such a case steps 228 and 230 of process 200 may be skipped.
As shown in
If the order is ready to be submitted, however, process 200 then submits the order to a trading system at step 248. As explained above in connection with
In preferred embodiments of the present invention, trading systems may enable process 200 to briefly lock the trading systems so that all of the orders for a set of linked items can be submitted without interference from external sources in response to a new bid or offer.
After process 200 has submitted the order, the process determines at step 249 if there are more linked items in the set of linked items containing the item corresponding to the received bid or offer. If so, then process 200 loops back to step 225 (
Using formulas, relationships, or mechanisms between transitively linked items, sizing and pricing of items can propagate through a chain of linked items in order to price one item from an otherwise un-associated item. For example, assume that an item A is linked to an item B, and the item B is linked to an item Z. If a size and a price are available for item A, that size and that price may be used to determine a size and a price for item B. Then using the determined size and the determined price for item B, a size and a price may be determined for item Z. This chaining of links could be used for any number of linked items.
If process 200 determines that there are no more linked items in a set of linked items at step 249, process 200 then proceeds to step 250 to determine if there is any remainder size from the rounding of the order sizes at step 236 (
If there is remainder size, process 500 then bunches the remainder sizes for separate trading at step 252 and submits the remainder orders to a suitable trading system for trading the remainder size at step 254. Once the remainder orders have been submitted, or if there is no remainder size, then process 200 loops back to step 206 (
Those skilled in the art will appreciate that the present invention can be practiced by other than the described embodiments, which are presented for purposes of illustration and not of limitation, and the present invention is limited only by the claims.
This application claims the benefit of U.S. Provisional Patent Application No. 60/146,971, filed Aug. 3, 1999, entitled AUTOMATED LINKED ORDER PROCESSOR, which is hereby incorporated by reference herein in its entirety.
| Number | Date | Country | |
|---|---|---|---|
| 60146971 | Aug 1999 | US |
| Number | Date | Country | |
|---|---|---|---|
| Parent | 09627705 | Jul 2000 | US |
| Child | 11084547 | Mar 2005 | US |
