Routing of orders in equity options by means of a parameterized rules-based routing table

• US 20090070250A1
• Filed: 07/24/2007
• Published: 03/12/2009
• Est. Priority Date: 07/28/2006
• Status: Active Grant

• Current Assignee: NYSE Group, Inc. (Intercontinental Exchange, Inc.)
• Original Assignee: NYSE Group, Inc. (Intercontinental Exchange, Inc.)
• Inventors: Adcock, Paul, Haller, Thomas
• Granted Patent: US 8,195,557 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 30/06 Buying, selling or leasing transactions
• 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

An enhanced system and method for the “smart” routing of orders in an electronic options environment is disclosed. The method of routing includes different rules and protocols for orders that are allowed to route using a traditional intermarket linkage than for orders that are allowed to route using an alternative private direct connection or third-party service provider. The system and method of routing has at its basis a configurable, rules-based routing table that allows orders to be routed using different protocols based on the account type of the incoming order.

Claims

1. A method for options order routing, comprising:

providing a market center which lists a plurality of options series, wherein the market center has an order book for each option series and a market maker quote book for each option series, and wherein the market center has intermarket linkages and direct connections to a plurality of away market centers and receives a top-of-book best bid and offer disseminated quotation from the plurality of away market centers for each option series and wherein the market center has at least one configurable routing table including a set of routing rules that specify intermarket linkage and direct connection parameters for each away market center;

receiving an incoming order, and determining if the order can execute at the NBBO or better;

wherein if the order can execute at the NBBO or better, retrieving the best bid and offer disseminated quotation from each away market center;

determining if a disseminated quotation of any away market center is superior to the orders and market maker quotes resident on the market center;

wherein if the disseminated quotation of any away market center is superior, retrieving the set of routing rules from the routing table for the away market center having the superior disseminated quotation;

determining if the incoming order can be routed to the away market center having the superior disseminated quotation; and

wherein if the incoming order can be routed to the away market center having the superior disseminated quotation, determining an appropriate routing protocol and generating an outbound order based on the routing rules for the specified away market center; and

routing the generated outbound order to the away market center having the superior disseminated quotation over the selected routing protocol.

2. The options order routing method of claim 1, wherein the incoming order is a buy order.

3. The options order routing method of claim 1, wherein the incoming order is a sell order.

4. The options order routing method of claim 1, wherein the routing protocol specifies an intermarket linkage.

5. The options order routing method of claim 4, further comprising determining if the market center can override the intermarket linkage designation and route the order to the away market center using a direct network connection.

6. The options order routing method of claim 1, wherein the routing protocol specifies a direct network connection.

7. The options order routing method of claim 6, wherein a set of intermarket linkage routing rules govern intermarket linkage routing between the market center and the plurality of away market centers and wherein orders routed over a direct network connection are routed so as not to violate the intermarket linkage rules.

8. The options order routing method of claim 7, further comprising, routing the generated outbound order to the away market center having the superior disseminated quotation, but not allowing the routed order to trade through a better priced away market center so as not to violate the intermarket linkage rules.

9. The options order routing method of claim 7, further comprising, routing the generated outbound order to the away market center having the superior disseminated quotation, but not allowing the routed order to lock or cross the NBBO so as not to violate the intermarket linkage rules.

10. The options order routing method of claim 1, further comprising:

determining if only options series with assigned market makers are allowed to route using the intermarket linkage;

determining if the incoming order is in an option series with an assigned market maker; and

wherein if it is determined that the incoming order is in an option series with an assigned market maker, routing the incoming order to the away market center using the intermarket linkage routing protocol.

11. The options order routing method of claim 1, wherein the incoming order has a specified account capacity and wherein, in determining if the incoming order can be routed to the away market center having the superior disseminated quotation:

determining the account capacity of the incoming order; and

determining if the away market center can accept an order with the specified account capacity.

12. The options order routing method of claim 11, further comprising determining if prior routed orders fully satisfied the obligation to route the incoming order to the away market center having the superior disseminated quotation.

13. The options order routing method of claim 11, wherein the user specified that the order is on behalf of a customer account, then setting the outbound order capacity to “

C” and

electing to route the order using a direct network connection.

14. The options order routing method of claim 11, wherein the user specified that the order is on behalf of a market maker account, then setting the outbound order capacity to “

MM” and

electing to route the order using a direct network connection.

15. The options order routing method of claim 11, wherein the user specified that the order is on behalf of a broker/dealer account, then setting the outbound order capacity to “

BD” and

electing to route the order using a direct network connection.

16. The options order routing method of claim 11, wherein the user specified that the order is on behalf of a firm account, then setting the outbound order capacity to “

F” and

electing to route the order using a direct network connection.

17. The options order routing method of claim 11, wherein the user specified that the order is on behalf of a specialist or market maker on an away market center, then setting the outbound order capacity to “

FARM” and

electing to route the order using a direct network connection.

18. The options order routing method of claim 11, further comprising, determining if there is more than one away market center quoting at the NBBO.

19. The options order routing method of claim 18, wherein if there is more than one away market center quoting at the NBBO:

ranking the away market centers from best to worst;

retrieving the disseminated quotation from the highest-ranked away market center,

retrieving the routing rule for the highest-ranked away market center; and

based on the retrieved routing rule, determining if this away market center is eligible to receive an order routed with the specified account capacity.

20. The options order routing method of claim 19, wherein the retrieved routing rule specifies a start and stop time for when the rule is active and further comprising, determining whether the routing rule for the highest-ranked away market is currently active as determined by specified by the specified start and stop time of the routing rule.

21. The options order routing method of claim 19, wherein if it is determined that the highest-ranked away market center is not eligible to receive an order routed with the specified account capacity, further comprising, determining if the next highest-ranked away market center is eligible to receive an order routed with the specified account capacity;

and

if the next highest-ranked away market center is eligible to receive an order routed with the specified account capacity, routing the order to the next highest-ranked away market center.

22. The options order routing method of claim 18, wherein, if after routing to all eligible away market centers at the NBBO, if the incoming order still has quantity remaining, determining how to process the excess quantity.

23. The options order routing method of claim 22, further comprising:

determining if the excess quantity should be canceled;

wherein if the excess quantity should be canceled, canceling the excess quantity.

24. The options order routing method of claim 23, wherein if the excess quantity should not be canceled:

determining if the order has a limit price;

wherein if the order does have a limit price, determining if the limit price is superior to the opposite side of the NBBO;

wherein if the limit price is superior, capping the limit price at the opposite side of the NBBO;

determining if the order is allowed to lock the NBBO according to the rules for a direct network connection; and

wherein if the order is allowed to lock the NBBO, displaying the order to the marketplace.

25. The options order routing method of claim 24, wherein if the order is not allowed to lock the NBBO, maintaining the order as a dark order on the market center order book by not displaying the order to the marketplace.

26. The options order routing method of claim 25, wherein the market center has a display order process and further comprising, ranking the dark order according to price/time priority in the display order process, wherein the dark order executes against marketable incoming contra-side orders and market maker quotes in the display order process.

27. The options order routing method of claim 25, wherein if the NBBO has moved away so that it no longer touches the price of a dark order, displaying the dark order to the marketplace.

28. The options order routing method of claim 24, wherein if the order does not have a limit price and is an unpriced market order:

pricing the order at the opposite side of the NBBO;

determining if the now priced market order should be publicly displayed; and

wherein if the now priced market order should be displayed, displaying the order to the marketplace.

29. The options order routing method of claim 28, wherein if the now priced market order should not be displayed, maintaining the order on the market center order book in price/time priority but not displaying the order to the marketplace.

30. The options order routing method of claim 19, wherein the routing rule has a maximum route size parameter and a maximum route style parameter and further comprising,

retrieving the maximum route size parameter and the maximum route style parameter;

and

generating an outbound order for the highest-ranked away market center using the retrieved maximum route size parameter and a maximum route style parameter.

31. The options order routing method of claim 30, wherein the incoming order has a leaves quantity and wherein the maximum route style parameter is a defined parameter that requires that the quantity of the generated outbound order be set to the lesser of the maximum route size parameter and the leaves quantity of the incoming order.

32. The options order routing method of claim 30, wherein the incoming order has a leaves quantity and wherein an away market center has an unsatisfied quotation size and the maximum route style parameter is a defined parameter that requires that the quantity of the generated outbound order be set to the lesser of the leaves quantity of the incoming order and the unsatisfied quotation size of the away market center, but only if the maximum route size parameter is greater than or equal to the unsatisfied quotation size of the away market center.

33. The options order routing method of claim 30, wherein the incoming order has a leaves quantity and wherein an away market center has an unsatisfied quotation size and the maximum route style parameter is a defined parameter that requires that the quantity of the generated outbound order be set to the lesser of the leaves quantity of the incoming order and the maximum route size parameter, but only if the maximum route size parameter is less than the unsatisfied quotation size of the away market center.

34. The options order routing method of claim 30, wherein the incoming order has a leaves quantity and wherein an away market center has an unsatisfied quotation size and the maximum route style parameter is a defined parameter that requires that the quantity of the generated outbound order be set to the lesser of the leaves quantity of the incoming order and the unsatisfied quotation size of the away market center, but only if the maximum route size parameter is less than or equal to the unsatisfied quotation size of the away market center.

35. The options order routing method of claim 30, wherein the incoming order has a leaves quantity and wherein an away market has an unsatisfied quotation size and the maximum route style parameter is a defined parameter that requires that the quantity of the generated outbound order be set to the lesser of the leaves quantity of the incoming order and the maximum route size parameter, but only if the maximum route size parameter is greater than the unsatisfied quotation size of the away market center.

36. The options order routing method of claim 30, wherein the routing rule has an oversize weight parameter and the highest-ranked away market center has a disseminated quote size and wherein no value is set for either the maximum route size parameter or the maximum route style parameter, further comprising:

retrieving the oversize weight parameter; and

generating an outbound order for the highest-ranked away market center using the retrieved oversize weight parameter, wherein the quantity of the outbound order is determined by multiplying the disseminated quote size of the away market center by the value of the oversize weight parameter to determine the maximum size of the outbound order and setting the size of the quantity of the outbound order to the lesser of the calculated maximum size of the outbound order and the leaves quantity of the incoming order.

37. The options order routing method of claim 36, wherein the routing rule has a routing behavior parameter and no value is set for the maximum route size parameter, the maximum route style parameter or the oversize weight parameter, further comprising:

generating an outbound order for the highest-ranked away market center using the retrieved routing behavior parameter.

38. The options order routing method of claim 37, wherein the retrieved routing behavior parameter requires that the quantity of the generated outbound order be set to the unsatisfied quantity of the disseminated quotation of the away market center.

39. The options order routing method of claim 37, wherein the retrieved routing behavior parameter requires that the quantity of the generated outbound order be set to the full size of the disseminated quotation of the away market center.

40. The options order routing method of claim 37, wherein the retrieved routing behavior parameter requires that the outbound order reduce the obligation to satisfy the disseminated quotation of the away market center.

41. The options order routing method of claim 6, wherein the market center includes business rules that determine how to process any portion of a routed order that is declined by an away market center.

42. The options order routing method of claim 41, wherein the business rules of the market center specify that the declined portion of a routed order is to be canceled, further comprising, canceling the declined portion of the routed order.

43. The options order routing method of claim 41, wherein the business rules of the market center specify that the declined portion of a routed order is to be returned to the underlying incoming order, further comprising:

returning the declined portion of the routed order to the underlying incoming order; and

determining if the declined portion of the routed order is to be posted, hidden, queued, or routed.

44. The options order routing method of claim 41, wherein the business rules of the market center allow the underlying incoming order to lock the NBBO, further comprising, returning the declined portion of the routed order to the underlying incoming order, thereby increasing the lock.

45. The options order routing method of claim 41, wherein the underlying incoming order is a dark order, further comprising, returning the declined portion of the routed order to the dark order, which is still not displayed to the marketplace.

46. The options order routing method of claim 41, wherein the underlying incoming order is a queued market order, further comprising:

returning the declined portion of the routed order to the queued market order;

evaluating if any other away market centers are be eligible to receive an order with the specified account capacity and using a direct network connection; and

if an away market center is eligible to receive an order with the specified account capacity and using a direct network connection, routing the order to the eligible away market center.

47. A market center which lists a plurality of options series and routes orders to away market centers, comprising:

an order book for each option series and a market maker quote book for each option series, intermarket linkages and direct connections to a plurality of away market centers, and at least one configurable routing table including a set of routing rules;

an interface for receiving orders, an interface for receiving quotes and an interface for receiving a top-of-book best bid and offer disseminated quotation from a plurality of away market centers for each option series;

a market center memory for storing code for analyzing and processing orders and quotes;

a processor for interacting with the interfaces and executing the code for analyzing and processing quotes and orders, wherein the code, when executed;

receives an incoming order, and determines if the order can execute at the NBBO or better;

wherein if the order can execute at the NBBO or better, retrieves the best bid and offer disseminated quotation from each away market center;

determines if a disseminated quotation of any away market center is superior to the orders and market maker quotes resident on the market center;

wherein if the disseminated quotation of any away market center is superior, retrieves the set of routing rules from the routing table for the away market center having the superior disseminated quotation;

determines if the incoming order can be routed to the away market center having the superior disseminated quotation;

wherein if the incoming order can be routed to the away market center having the superior disseminated quotation, determines an appropriate routing protocol and generates an outbound order based on the routing rules for the specified away market center; and

routes the generated outbound order to the away market center having the superior disseminated quotation over the selected routing protocol.

48. A market center which lists a plurality of options series and routes orders to away market centers, comprising:

an order book for each option series and a market maker quote book for each option series which are maintained by an order matching engine, intermarket linkages and direct connections to a plurality of away market centers, and at least one configurable routing table including a set of routing rules;

an away market best bid and offer book that is separate from the order book and the market maker quote book and is maintained by an away market quote engine;

an interface for receiving orders, an interface for receiving quotes and an interface for receiving a top-of-book best bid and offer disseminated quotation from a plurality of away market centers for each option series;

a market center memory for storing code for analyzing and processing orders and quotes;

a processor for interacting with the interfaces and the engines and executing the code for analyzing and processing quotes and orders, wherein the code, when executed;

the interface for receiving a top-of-book best bid and offer disseminated quotation receives an away market quote from an away market center for a specified option series on the market center;

the away market quote engine analyzes the received quote to determine if the away market quote has moved away from the price of an order on the opposite side of the order book that it previously touched;

wherein if the away market quote has moved away from the price of an order on the opposite side of the order book that it previously touched, the quote engine notifies the order matching engine; and

the order matching engine then evaluates dark orders on the order book to determine if any of the dark orders can now be displayed;

evaluates whether queued market orders can now be routed; and

evaluates whether the disseminated best contra-side quotation is now eligible to receive additional routed orders.

49. The options market center of claim 48, wherein if the away market quote has not moved away from the price of an order on the opposite side of the order book that it previously touched, the quote engine does not notify the order matching engine.

50. A method for options order routing, comprising:

providing a market center which lists a plurality of options series, wherein the market center has an order book for each option series and wherein the market center has direct connections to a plurality of away market centers and receives a top-of-book best bid and offer disseminated quotation from the plurality of away market centers for each option series and wherein the market center has at least one configurable routing table including a set of routing rules that specify direct connection parameters for each away market;

receiving an incoming order, and determining if the order can execute at the NBBO or better;

wherein if the order can execute at the NBBO or better, retrieving the best bid and offer disseminated quotation from each away market center;

determining if a disseminated quotation of any away market center is superior to the orders resident on the market center;

wherein if the disseminated quotation of any away market center is not superior, then first matching the incoming order with any resident trading interest at the NBBO or better and then evaluating the remaining portion of the incoming order to determine if it is eligible to route to an away market center at the NBBO, now that the resident trading interest at the NBBO has been cleared;

wherein if the remaining portion of the incoming order is eligible to route to the away market center, retrieving the set of routing rules from the routing table for the away market center having the superior disseminated quotation;

determining if the remaining portion of the incoming order can be routed to the away market center having the superior disseminated quotation; and

wherein if the remaining portion of the incoming order can be routed to the away market center having the superior disseminated quotation, selecting a direct connection protocol and generating an outbound order for the remainder of the incoming order based on the routing rules for the specified away market center; and

routing the generated outbound order to the away market center having the superior disseminated quotation over the selected direct connection.