Cross-currency implied spreads

• US 20070118454A1
• Filed: 11/17/2006
• Published: 05/24/2007
• Est. Priority Date: 11/18/2005
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Studnitzer, Ari, Callaway, Paul, Farrell, James, Flemm, Lori, Thiruthuvadoss, A., Bauerschmidt, Paul, Albert, William
• Granted Patent: US 7,809,631 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 10/10 Office automation; Time management
• CPC Class Codes: G06Q 20/381 Currency conversion
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

The disclosed systems and methods relate to allowing trading of over the counter (“OTC”) foreign exchange (“FX”) contracts on a centralized matching and clearing mechanism, such as that of the Chicago Mercantile Exchange'"'"'s (“CME”'"'"'s) futures exchange system (the “Exchange”). The disclosed systems and methods allow for anonymous transactions, centralized clearing, efficient settlement and the provision of risk management/credit screening mechanisms to lower risk, reduce transaction costs and improve the liquidity in the FX market place. In particular, the disclosed embodiments increase speed of execution facilitating growing demand for algorithmic trading, increased price transparency, lower cost of trading, customer to customer trading, and automated asset allocations, recurring trades as well as clearing and settlement efficiencies.

Claims

1. A method of determining a market for a new product, the new product comprising a relationship between first and second components, the relationship between the first and second components being undetermined at least in part, the method comprising:

identifying a first existing market for a first existing product comprising a market determined relationship between the first component and a third component;

identifying a second existing market for a second existing product comprising a market determined relationship between the second component and a fourth component;

correlating the third and fourth components; and

generating a market for the new product by determining at least the undetermined part of the relationship between the first and second components based on the first and second existing markets and the correlation between the third and fourth components.

2. The method of claim 1 wherein the first, second, third and fourth components each comprise a currency, each of the relationships comprising a price spread between the associated currencies.

3. The method of claim 1, wherein the correlating further comprises determining that the third and fourth components are the same.

4. The method of claim 1, wherein the correlating further comprises identifying a third existing market for a third existing product comprising a market determined relationship between the third and fourth components.

5. The method of claim 1, wherein the first existing market comprises at least one buy price and at least one sell price for the first product, the second existing market comprises at least one buy price and at least one sell price for the second product, and wherein the generating further comprises determining at least one buy price for the new product based on the at least one buy price of the first product and the at least one buy price of the second product and determining the at least sell price of for the new product based on the at least one sell price of the first product and the at least one sell price of the second product, the market for the new product comprising the determined at least one buy and sell prices.

6. The method of claim 5 wherein the determining comprises implying the at least one buy price for the new product from the at least one buy prices of the first and second products and implying the at least one sell price for the new product from the at least one sell prices of the first and second products.

7. The method of claim 1, wherein the generating further comprises creating an order book for the new product.

8. The method of claim 1, further comprising:

receiving a request to transact in the new product; and

completing the transaction by matching the request to suitable counter-requests in the first and second existing markets for the first and second existing products.

9. A system for determining a market for a new product, the new product comprising a relationship between first and second components, the relationship between the first and second components being undetermined at least in part, the system comprising:

an identification processor operative to identify a first existing market for a first product comprising a market determined relationship between the first component and a third component, the identification processor being further operative to identify a second existing market for a second product comprising a market determined relationship between the second component and a fourth component;

a correlation processor coupled with the identification processor and operative to correlate the third and fourth components; and

a market generator coupled with the identification processor and the correlation processor and operative to generate a market for the new product by determining at least the undetermined part of the relationship between the first and second components based on the first and second existing markets and the correlation between the third and fourth components.

10. The system of claim 9 wherein the first, second, third and fourth components each comprise a currency, each of the relationships comprising a price spread between the associated currencies.

11. The system of claim 9, wherein the correlation processor is further operative to determine that the third and fourth components are the same.

12. The system of claim 9, wherein the correlation processor is further operative to identify a third existing market for a third product comprising a market determined relationship between the third and fourth components.

13. The system of claim 9, wherein the first existing market comprises at least one buy price and at least one sell price for the first product, the second existing market comprises at least one buy price and at least one sell price for the second product, and wherein the market generator is further operative to determine at least one buy price for the new product based on the at least one buy price of the first product and the at least one buy price of the second product and determining the at least sell price of for the new product based on the at least one sell price of the first product and the at least one sell price of the second product, the market for the new product comprising the determined at least one buy and sell prices.

14. The system of claim 13 wherein the market generator is further operative to imply the at least one buy price for the new product from the at least one buy prices of the first and second products and imply the at least one sell price for the new product from the at least one sell prices of the first and second products.

15. The system of claim 9, wherein the market generator is further operative to create an order book for the new product.

16. The system of claim 9, further comprising:

a request receiver operative to receive a request to transact in the new product; and

a transaction processor coupled with the request receiver and the market generator and operative to complete the transaction by matching the request to suitable counter-requests in the first and second existing markets.

17. A system for determining a market for a new product, the new product comprising a relationship between first and second components, the relationship between the first and second components being undetermined at least in part, the system comprising:

means for identifying a first existing market for a first product comprising a market determined relationship between the first component and a third component, and for identifying a second existing market for a second product comprising a market determined relationship between the second component and a fourth component;

means for correlating the third and fourth components, the means for correlating being coupled with the means for identifying; and

means for generating a market for the new product coupled with means for identifying and the means for correlating and comprising means for determining at least the undetermined part of the relationship between the first and second components based on the first and second existing markets and the correlation between the third and fourth components.

18. The system of claim 17, wherein the first existing market comprises at least one buy price and at least one sell price for the first product, the second existing market comprises at least one buy price and at least one sell price for the second product, and wherein the means for generating a market is further operative to determine at least one buy price for the new product based on the at least one buy price of the first product and the at least one buy price of the second product and determining the at least sell price of for the new product based on the at least one sell price of the first product and the at least one sell price of the second product, the market for the new product comprising the determined at least one buy and sell prices.

19. A system for determining a market for a new product, the new product comprising a relationship between first and second components, the relationship between the first and second components being undetermined at least in part, the system comprising a processor and a memory coupled with the processor, the system further comprising:

first logic stored in the memory and executable by the processor to identify a first existing market for a first product comprising a market determined relationship between the first component and a third component, and identify a second existing market for a second product comprising a market determined relationship between the second component and a fourth component;

second logic stored in the memory and executable by the processor to correlate the third and fourth components; and

third logic stored in the memory and executable by the processor to generate a market for the new product coupled with means for identifying and the means for correlating and comprising means for determining at least the undetermined part of the relationship between the first and second components based on the first and second existing markets and the correlation between the third and fourth components.

20. The system of claim 19, wherein the first existing market comprises at least one buy price and at least one sell price for the first product, the second existing market comprises at least one buy price and at least one sell price for the second product, and wherein the third logic is further executable by the processor to determine at least one buy price for the new product based on the at least one buy price of the first product and the at least one buy price of the second product and determining the at least sell price of for the new product based on the at least one sell price of the first product and the at least one sell price of the second product, the market for the new product comprising the determined at least one buy and sell prices.