Automated system for aggregated price discovery and electronic trading of linked cash/cash equivalent and their derivative asset packages
First Claim
1. A method for trading one or more instruments comprising:
- combining a plurality of existing bids and offers for an asset with a plurality of bids and offers for a related derivative instrument, into a single bid price and a single offer price for a combined instrument, which includes the asset and the related derivative instrument;
disseminating the single bid price and the single offer price as a quote for the combined instrument;
receiving a linked order to trade a linked instrument, which linked order includes a cash or cash equivalent instrument combined with a derivative instrument;
converting automatically the linked order to an order to trade the cash or cash equivalent instrument and an order to trade the derivative instrument;
attempting to match the order to trade the cash or cash equivalent instrument with a market maker in the cash or cash equivalent instrument;
obtaining a commitment from a market maker in the derivative instrument market to match the derivative instrument as a part of, and in connection with, the trading of the cash or cash equivalent instrument; and
crossing the order to trade cash or cash equivalent instrument on an exchange, if a successful match is identified.
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Accused Products
Abstract
An electronic system for aggregated pricing of linked multi-leg (e.g., equity/option and option/option) asset packages with an additional link to an automated broker system for trading the linked asset packages are disclosed. The invention provides methodology and apparatus to electronically produce aggregated price quotes for packages of instruments designed to represent traditional trading strategies involving cash and their derivatives (e.g., stock and equity options). The system develops packages according to specified strategies, and prices the packages based on the national best bid and offer (NBBO) or direct input from participating market makers and investors. The packages are designed for easy understanding by traditional investors and designed for trading through a single order. These packages are desirable over separately trading the asset and its derivative (e.g., equity and option) instruments because they transfer market volatility risk from the investor to the institution by requiring market makers to agree to the aggregated price of the package prior to executing any trades. Certain linked packages, such as most stocks and options, cannot be traded together on a single floor of an exchange due to restrictions by the Securities and Exchange Commission (SEC) regarding side-by-side trading and integrated market making of most stocks and options. This invention provides an electronic process for synthetic side-by-side trading across separate trading locations (e.g., equity and option exchanges and within the existing rules of the SEC). The electronic process follows traditional rules regarding the manual handling of combination orders involving multiple asset types. The process significantly improves efficiency over manual handling resulting in a system that is scalable to high trade volumes.
185 Citations
28 Claims
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1. A method for trading one or more instruments comprising:
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combining a plurality of existing bids and offers for an asset with a plurality of bids and offers for a related derivative instrument, into a single bid price and a single offer price for a combined instrument, which includes the asset and the related derivative instrument;
disseminating the single bid price and the single offer price as a quote for the combined instrument;
receiving a linked order to trade a linked instrument, which linked order includes a cash or cash equivalent instrument combined with a derivative instrument;
converting automatically the linked order to an order to trade the cash or cash equivalent instrument and an order to trade the derivative instrument;
attempting to match the order to trade the cash or cash equivalent instrument with a market maker in the cash or cash equivalent instrument;
obtaining a commitment from a market maker in the derivative instrument market to match the derivative instrument as a part of, and in connection with, the trading of the cash or cash equivalent instrument; and
crossing the order to trade cash or cash equivalent instrument on an exchange, if a successful match is identified. - View Dependent Claims (2, 3, 4, 5)
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6. A method for creating a market in one or more linked instruments, each of which includes an equity based instrument and an option based instrument, which option based instrument is derived from said equity based instrument, said method comprising:
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creating at a predetermined time at least two linked instruments for each equity based instrument, wherein a first linked instrument represents a first out-of-the-money option series whose premium is less than a predetermined percentage of a price of the equity based instrument, and the second package represents a next out-of-the-money option series after the first out-of-the-money options series selected for the first linked instrument;
assigning to each linked instrument created a trading symbol that is a combination of a trading symbol for the equity based instrument and one or more additional characters indicative of a relationship of the option based instrument to the equity based instrument;
maintaining each of the at least two linked instruments until expiration of the option based instrument in said each of the at least two linked instruments. - View Dependent Claims (7, 8, 9)
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10. A method for distributing quotes for linked instruments, which include an asset and a derivative instrument related to the asset, said method comprising:
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disseminating a quote stream that includes real-time market data regarding the linked instruments; and
including in each quote a symbol comprised of elements of a trading strategy, the asset, the derivative instrument and a price for the linked instrument. - View Dependent Claims (11)
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12. An electronic trading method comprising:
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combining a plurality of existing bids and offers for an asset with a plurality of bids and offers for a related derivative instrument, into a single bid price and a single offer price for a combined instrument, which includes the asset and the related derivative instrument;
assigning a quote symbol to the combined instrument; and
disseminating the single bid price and the single offer price for the combined instrument as a quote to an electronic quote dissemination service for distributing quotes to the public. - View Dependent Claims (13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23)
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24. A method for replacing an option series in a linked asset package that includes an underlying equity and an option series on the underlying equity, said method comprising:
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selecting a new option series from one or more available option series represented by one or more existing linked asset packages for the underlying equity;
placing a linked order for a desired spread, which linked order includes an order to close the expiring option and an order to open the new option series.
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25. A method for creating a market in one or more linked instruments, each of which includes a cash or cash equivalent instrument and a derivative instrument, which derivative instrument is derived from said cash or cash equivalent instrument, said method comprising:
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creating a linked instrument for each of a predetermined group of cash or cash equivalent instruments; and
assigning to each linked instrument created a trading symbol that is a combination of a trading symbol for the cash or cash equivalent instrument and one or more additional characters indicative of a strategy of the linked instrument. - View Dependent Claims (26, 27, 28)
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Specification