Order risk management for derivative products

• US 10,147,139 B2
• Filed: 03/27/2017
• Issued: 12/04/2018
• Est. Priority Date: 03/10/2003
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Salvadori, David, Falck, John, Troxel, Charlie, Farrell, James, Thiruthuvadoss, Agnes Shanthi, Ariathurai, Arjuna, Johnston, Scott
• Primary Examiner(s): Hamilton, Lalita M
• Application Number:
  US15/469,685
• Publication Number:
  US 20170200231A1
• Time in Patent Office: 617 Days
• CPC Class Codes: G06Q 30/0283 Price estimation or determination
• CPC Class Codes: G06Q 30/0601 Electronic shopping [e-shopping]
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

Systems and methods are provided for processing derivative product orders at an exchange. Traders provide derivative product order risk data to the exchange. The order risk data may include maximum delta, gamma and/or vega utilization values for derivative product contracts based on the same underlying product. Before executing a trade, a match system analyzes the trader'"'"'s current utilization state and the utilization that would result after the trade. The match system may then execute all or a portion of the trade.

Claims

1. A method of protecting against in-flight fills at an exchange, the method comprising:

(a) receiving, at a processor of an order risk management module, order data including at least one threshold value corresponding to at least one order parameter;

(b) receiving, at the processor of the order risk management module from a computing device of a trader, an order for a product;

(c) at the processor of the order risk management module, utilizing the product order and a trader'"'"'s current order risk utilization state to calculate utilization data, wherein the utilization data is calculated using the product order and the trader'"'"'s current order risk utilization state; and

(d) processing the product order at the processor of the order risk management module in a manner that is a function of the product order risk data and the utilization data, wherein the processing comprises determining that the trader'"'"'s current order risk utilization state exceeds a threshold value, and then cancelling all of the trader'"'"'s resting orders at the exchange to protect against in-flight fills;

wherein the variable defined order price of the product is a function of an original order price, an updated price of an underlying product and at least one price determination variable value based on a predetermined formula.

2. The method of claim 1, wherein (d) comprises executing a portion of the product order.

3. The method of claim 2, wherein the portion of the product order includes the maximum number of contracts that do not cause the utilization data to exceed the threshold value.

4. The method of claim 2, wherein the portion of the product order includes the minimum number of contracts that cause the utilization data to exceed the threshold value.

5. The method of claim 2, wherein the portion of the product order includes the maximum number of trading units that do not cause the utilization data to exceed the threshold value.

6. The method of claim 2, wherein the portion of the product order includes the minimum number of trading units that cause the utilization data to exceed the threshold value.

7. The method of claim 2, wherein the at least one order risk parameter comprises delta.

8. The method of claim 2, wherein the product order risk data received in (a) includes at least two threshold values corresponding to at least two order risk parameters.

9. The method of claim 8, wherein the at least two order risk parameters comprise delta and gamma.

10. The method of claim 1, wherein (d) comprises canceling the order if the trader'"'"'s order risk utilization state after executing the entire order would cause the threshold value to be exceeded.

11. The method of claim 1, wherein the product order risk data received in (a) includes at least three threshold values corresponding to at least three order risk parameters.

12. The method of claim 11, wherein the at least three order risk parameters comprise delta, gamma and vega.

13. The method of claim 1, further including comparing the order risk data to maximum and minimum rules set by the exchange.

14. The method of claim 1, further including receiving from the trader offset data for the product order risk data and (d) comprises processing the product order in a manner that is a function of the at least one threshold value, the utilization data and the offset data.