Controlling markets during a stop loss trigger

• US 20080046356A1
• Filed: 09/13/2007
• Published: 02/21/2008
• 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 8,103,576 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A system mitigates the effects of a market spike caused by the triggering and election of conditional orders in an automated matching system. The system monitors trading that takes place as a result of the cascading triggering of conditional orders. When an order is executed beyond a predetermined price threshold, an instrument may be flagged, allowing matching to take place only at or within the predetermined price threshold. Orders within the price threshold are matched at the price threshold against orders beyond the price threshold, in order to dampen any instantaneous damaging effects of the price spike. The system may adjust the price threshold when market appropriate, allowing the order flow to bring the market back to whatever is the true price level. The system mitigates price fluctuations that are purely conditional order cascade driven, but allows the market to continuously trade in controlled price and time intervals to ensure that a true market move can still occur and not have price control mechanisms hinder trade matching and true price discovery.

Claims

1. A stop-loss system that mitigates the effects of a market spike caused by the triggering and election of a stop order, comprising:

evaluation logic that monitors orders received at an automated trading engine in an automated trade matching system, the evaluation logic configured to compare an execution price of the stop order to a predetermined price threshold;

stop-loss trigger logic that flags a market for an instrument when the execution price of the stop order lies beyond the predetermined price threshold; and

matching logic that matches orders for the instrument in the flagged market at the predetermined price threshold against orders beyond the predetermined price threshold, where the orders for the instrument in the flagged market comprise orders received at the automated trading engine having a price within the predetermined price threshold.

2. The system of claim 1 wherein the predetermined price threshold is associated with a no-bust range.

3. The system of claim 1 wherein the predetermined price threshold comprises a variable price threshold that varies with any of a market volatility, time of day, and combinations thereof.

4. The system of claim 1 wherein the matching logic is further configured to match orders for the instrument in the flagged market at the predetermined price threshold against orders beyond the predetermined price threshold, and prioritize the matching of orders based on price, order arrival, or a combination thereof.

5. The system of claim 1 further comprising step price logic that adjusts the predetermined price threshold when orders received at the automated trading engine for the instrument in the flagged market have a price beyond the predetermined price threshold, a predetermined time interval is exceeded, a predetermined quantity is exceeded, or a combination thereof.

6. The system of claim 6 wherein the orders received at the automated trading engine for the instrument in the flagged market that have a price beyond the predetermined price threshold are matched at the adjusted price threshold against orders beyond the predetermined price threshold.

7. A system that mitigates the effects of rises or falls in market prices caused by the execution of a conditional order, 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; and

a spike control processor that controls the matching of at least one order received by the order book manager when the price of the conditional order lies beyond the predetermined price threshold, orders received by the order book manager within the predetermined price threshold being matched at the predetermined price threshold against orders beyond the predetermined price threshold.

8. The system of claim 7 wherein the predetermined price threshold is associated with a no-bust range.

9. The system of claim 7 wherein the predetermined price threshold comprises a variable price threshold that varies with any of a market volatility, time of day, and combinations thereof.

10. The system of claim 7 wherein the spike control processor is further configured to control the matching of orders such that the orders are matched at the predetermined price threshold against orders beyond the predetermined price threshold, and are prioritized based on price, order arrival, or a combination thereof.

11. The system of claim 7 further comprising a step price processor that adjusts the predetermined price threshold when orders received at the order book manager have a price beyond the predetermined price threshold, a predetermined time interval is exceeded, a predetermined quantity is exceeded, or a combination thereof.

12. The system of claim 11 wherein the orders received at the order book manager that have a price beyond the predetermined price threshold are matched at the adjusted price threshold against orders beyond the predetermined price threshold.

13. A method of mitigating the effect of a market spike caused by the triggering and election of a conditional order, comprising:

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

comparing the execution price of the conditional order to a predetermined price threshold;

flagging a market for an instrument when the execution price of the stop order lies beyond the predetermined price threshold;

matching orders for the instrument in the flagged market at the predetermined price threshold against orders beyond the predetermined price threshold, where the orders for the instrument in the flagged market comprise orders received at the automated trading engine having a price within the predetermined price threshold.

14. The method of claim 13 wherein the predetermined price threshold is associated with a no-bust range.

15. The method of claim 13 wherein the predetermined price threshold comprises a variable price threshold that varies with any of a market volatility, time of day, and combinations thereof.

16. The method of claim 13 wherein matching orders further comprises matching orders for the instrument in the flagged market at the predetermined price threshold against orders beyond the predetermined price threshold, in a priority order based on price, order arrival, or a combination thereof.

17. The method of claim 13 further comprising adjusting the predetermined price threshold when orders received at the automated trading engine for the instrument in the flagged market have a price beyond the predetermined price threshold, a predetermined time interval is exceeded, a predetermined quantity is exceeded, or a combination thereof.

18. The method of claim 17 wherein matching orders further comprises matching orders for the instrument in the flagged market at the adjusted price threshold against orders beyond the predetermined price threshold.