Controlling implied markets during a stop loss trigger

• US 20080010187A1
• Filed: 09/13/2007
• Published: 01/10/2008
• Est. Priority Date: 07/25/2003
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Farrell, James, Krause, James
• Granted Patent: US 8,112,347 B2
• Time in Patent Office: Days
• US Class Current: 705/037
• 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

A system mitigates the effects of a market spike caused by the triggering and the election of a conditional order in an automated matching system. Conditional orders submitted to a trading engine are evaluated to compare a price of an order to a predetermined price range. Matching of the orders may be delayed when the price of the orders lies outside of the predetermined price range. An opening price to be used by the trading engine is derived and a time interval is used to delay a matching of the orders until the opening price is within a predetermined price range up to a maximum delay time set by a control center. Implied spreads are also removed until other instruments within a trading unit are verified open.

Claims

1. A stop-loss system that mitigates the effects of a market spike caused by the triggering of conditional orders for products within a trading unit comprising:

an evaluation logic that monitors orders submitted to an automated trading engine in an automated matching system, the evaluation logic configured to compare an execution price of a conditional order to a predetermined price range;

a delay logic that delays a matching of the orders submitted to the automated trading engine when a price of a transaction lies outside of the predetermined price range;

a pricing logic that derives an opening price to be used by the automated trading engine;

a timing logic that measures a time interval used to delay a matching of the orders until the opening price is within a second predetermined price range; and

a verification logic that verifies that legs of an implied order are not in reserve, the verification logic configured to delay a matching of implied orders until all legs of the implied order are verified as not in reserve.

2. The system of claim 1 wherein the predetermined price range is based on a no-bust range.

3. The system of claim 1 wherein the predetermined price ranges comprise a varying price range and the time interval comprises a varying time interval, the varying price range and the varying time interval based on a time of day and a market volatility.

4. The system of claim 1 wherein the second predetermined price range comprises a multiple of a no-bust range.

5. The system of claim 1 wherein the opening price comprises an equilibrium price that falls substantially between the prices of the pending bids and the prices of the pending offers.

6. The system of claim 1 wherein the timing logic delays a matching of the orders until the opening price is within a second predetermined price range or a period of time lapses.

7. The system of claim 1 further comprising a matching system coupled to the evaluation logic, the matching system comprising one or more matching systems selected from the group comprising a first in, first out system, an allocation system, and a hybrid of a price and time priority.

8. The system of claim 1 wherein the time interval varies with a product.

9. The system of claim 1 wherein the legs of the implied order comprise orders for related products within the trading unit.

10. The system of claim 1 wherein the conditional order comprises a stop order.

11. A system that mitigates the effects of rises or falls in market prices caused by the execution of a conditional order for products within a trading unit comprising:

an order book manager that receives orders;

an order processor that compares an execution price of the conditional order to a predetermined price threshold;

a spike control processor that delays the matching of orders received by the order book manager when an execution price of the conditional order lies outside of the predetermined price threshold, the spike control processor compares an indicative opening price to the predetermined price threshold;

an open market processor that opens a market when the indicative opening price lies within the predetermined price threshold; and

an open implied market processor that opens an implied order market when all products within the trading unit are not in reserve.

12. The system of claim 11 wherein the open market processor is configured to open the market to trading when the indicative opening price lies within the predetermined price threshold, a timed period lapses, or a manual intervention occurs.

13. The system of claim 11 further comprising a memory configured to retain a time parameter used to determine a maximum period of time that a matching of implied orders may be reserved.

14. The system of claim 11 wherein the order processor is configured to compare an execution price of the conditional order to the predetermined price threshold in real time.

15. The system of claim 11 wherein all products within the trading unit are not in reserve when the spike control processor no longer delays the matching of orders for products within the trading unit.

16. A method of mitigating the effect of a market spike caused by the triggering of conditional orders for products within a trading unit, comprising:

monitoring orders submitted to an automated trading engine in an automated matching system;

comparing the price of a conditional order to a predetermined price range;

delaying a matching of orders submitted to the automated trading engine when an execution price of the conditional order lies outside of the predetermined price range;

deriving an opening price to be used by the automated trading engine;

delaying a matching of the orders until the opening price lies within a second predetermined price range or a time period lapses;

verifying that legs of an implied order are not in reserve; and

delaying a matching of implied orders until all legs of the implied order are verified as not in reserve.

17. The method of claim 16 further comprising delaying the matching of the orders until the opening price lies within the second predetermined price range, the time period lapses, or a manual intervention occurs.

18. The method of claim 16 wherein the predetermined price range is based on a no-bust range and the second predetermined price range comprises a multiple of a no-bust range.

19. The method of claim 16 wherein the predetermined price range comprises a varying price range that changes with a time of day or a market volatility.

20. The method of claim 16 wherein the opening price comprises an equilibrium price that falls substantially between the prices of the pending bids and the prices of the pending offers.

21. The method of claim 16 wherein the opening price is derived to fall substantially within an overlap of pending bid and offer prices.

22. The method of claim 16 wherein the conditional order comprises a stop order.