Risk mitigation in an electronic trading system

• US 10,002,388 B2
• Filed: 12/15/2014
• Issued: 06/19/2018
• Est. Priority Date: 12/31/2013
• Status: Active Grant

• Current Assignee: NYSE Group, Inc. (Intercontinental Exchange, Inc.)
• Original Assignee: NYSE Group, Inc. (Intercontinental Exchange, Inc.)
• Inventors: Farnstrom, Amy Joy
• Primary Examiner(s): Baird, Edward J
• Application Number:
  US14/570,778
• Publication Number:
  US 20150106251A1
• Time in Patent Office: 1,282 Days
• Field of Search: 705 35- 40
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

An electronic trading system (ETS) implements risk mitigation methods for orders and quotes associated with a market participant on the ETS. The methods determine a measure of risk associated with one or more trading positions. One of the methods globally counts the number of breaches of risk thresholds associated with a trading symbol and market participant across all matching engines on the ETS over a rolling time period, and if this global risk counter exceeds a maximum, disables all further trades by the market participant on the ETS. Another method limits the number of automatic re-enablements that a market participant can request in response to prior breaches of risk thresholds that resulted in disabling any further trading by the market participant on the ETS.

Claims

1. A computer-implemented method comprising:

receiving, by an electronic trading system, a plurality of orders or quotes associated with a trading symbol and with a market participant, said electronic trading system comprising one or more specialized computers comprising a risk manager (RM) module embodied therein, said RM module comprising computer-readable instructions stored on a non-transitory computer readable storage medium and executed by at least one processor;

continuously monitoring, by the RM module, electronic trades associate with the market participant;

determining, by the RM module based on said continuous monitoring, that at least one from among the plurality of orders or quotes breaches a first threshold;

automatically disabling, by the RM module, execution of any further trades associated with the trading symbol and the market participant on the electronic trading system;

determining, by the RM module based on said continuous monitoring, that at least one other from among the plurality of orders or quotes does not breach said first threshold but breaches a secondary threshold;

incrementing, by the RM module, a breach count associated with the secondary threshold;

automatically disabling, by the RM module, execution of any further trades associated with the trading symbol and the market participant on the electronic trading system when the breach count of the secondary threshold exceeds a predetermined maximum; and

generating and transmitting, by the RM module, a system alert immediately upon determining that at least one of the first and secondary thresholds is breached.

2. The method of claim 1, wherein the breach count comprises a total count of breaches of the secondary threshold, as determined by:

evaluating, by the RM module, other orders or quotes received within a rolling time period;

determining, by the RM module, whether said other orders or quotes breach said secondary threshold; and

incrementing the breach count of the secondary threshold for each breach of the secondary threshold by said other orders or quotes.

3. The method of claim 1, wherein the breach count comprises a total count of breaches of the secondary threshold, as determined by:

evaluating, by the RM module, other orders or quotes received within a rolling time period;

determining, by the RM module, whether said other orders or quotes breach said secondary threshold; and

incrementing the breach count of the secondary threshold for each breach of the secondary threshold by said other orders or quotes.

4. The method of claim 1, further comprising:

resetting, by the RM module, the breach count of the secondary threshold if the predetermined maximum is not exceeded within a predetermined rolling time period.

5. The method of claim 1, wherein determining that the at least one from among the plurality orders or quotes breaches a first threshold comprises:

determining a first measure associated with the order or quote, said first measure being based on one or more of;

a number of transactions associated with the market participant and the trading symbol,

a number of contracts associated with the market participant and the trading symbol,

and an aggregate of all series percentages associated with the market participant and the trading symbol during a rolling time period, wherein each particular series percentage comprises a number of executed contracts in said particular series over a total order or quote size; and

comparing the first measure to the first threshold.

6. The method of claim 1,

wherein the system alert notifies the market participant that the at least one order or quote breaches the first threshold.

7. The method of claim 1, wherein the disabling execution of any further trades is imposed for a predetermined period of time or until an electronic re-enable requested is received and accepted by the RM module, after which execution of further trades is re-enabled.

8. The method of claim 1, wherein the market participant comprises at least one of an agency broker, a market maker, and a proprietary trader.

9. A system comprising:

one or more specialized computers comprising a risk manager (RM) module embodied therein, said RM module comprising computer-readable instructions stored on a non-transitory computer readable storage medium and executed by at least one processor, said computer-readable instructions causing the RM module to;

receive a plurality of orders or quotes associated with a trading symbol and with a market participant;

continuously monitor electronic trades associated with the market participant;

determine, based on said continuous monitoring, that at least one from among the plurality of orders or quotes breaches a first threshold;

automatically disable execution of any further trades associated with the trading symbol and the market participant on an electronic trading system;

determine, based on said continuous monitoring, that at least one other from among the plurality of orders or quotes breaches a secondary threshold;

increment a breach count of the secondary threshold;

automatically disable execution of any further trades associated with the trading symbol and the market participant on the electronic trading system if the breach count of the secondary threshold exceeds a predetermined maximum; and

generate and transmit a system alert immediately upon determining that at least one of the first and secondary thresholds is breached.

10. The system of claim 9, wherein the breach count comprises a total count of breaches of the secondary threshold, said RM module further configured to:

evaluate other orders or quotes received within a rolling time period;

determine whether said other orders or quotes breach said secondary threshold; and

increment the breach count of the secondary threshold for each breach of the secondary threshold by said other orders or quotes.

11. The system of claim 9, wherein the breach count comprises a total count of breaches of the secondary threshold, said RM module further configured to:

evaluate other orders or quotes received within a rolling time period and after said order or quote;

determine whether said other orders or quotes breach said secondary threshold; and

increment the breach count of the secondary threshold for each breach of the secondary threshold by said other orders or quotes.

12. The system of claim 9, wherein the RM module is further configured to:

reset the breach count of the secondary threshold if the predetermined maximum is not exceeded within a predetermined rolling time period.

13. The system of claim 9, wherein the RM module is configured to determine whether the order or quote breaches the first threshold by:

determining a first measure associated with the order or quote, said first measure being based on one or more of;

a number of transactions associated with the market participant and the trading symbol,

a number of contracts associated with the market participant and the trading symbol,

and an aggregate of all series percentages associated with the market participant and the trading symbol during a rolling time period, wherein each particular series percentage comprises a number of executed contracts in said particular series over a total order or quote size; and

comparing the first measure to the first threshold.

14. The system of claim 9, wherein

the system alert notifies the market participant that the order or quote breaches the first threshold.

15. The system of claim 9, wherein the RM module is configured to disable execution of any further trades for a predetermined period of time or until an electronic re-enable requested is received and accepted by the RM module, after which execution of further trades is re-enabled.

16. The system of claim 9, wherein the market participant comprises at least one of an agency broker, a market maker, and a proprietary trader.