COMPUTER IMPLEMENTED AND/OR ASSISTED METHODS AND SYSTEMS FOR DETECTING, TRACKING AND RESPONDING TO TOXIC, OR LIKELY TOXIC, ORDERS IN AN EQUITIES ORDER FLOW USING TOXICITY AND/OR PROFIT ANALYZERS

• US 20090313179A1
• Filed: 08/25/2009
• Published: 12/17/2009
• Est. Priority Date: 10/19/2004
• Status: Active Grant

• Current Assignee: Citadel Enterprise Americas LLC (GFH HFEVA LLC)
• Original Assignee: Citadel Investment Group LLC
• Inventors: Andresen, Matthew, Griffin, Kenneth C.
• Granted Patent: US 7,987,128 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• 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

Methods and systems are provided which enable equities broker-dealers to execute an equity trade order while simultaneously eliminating (or at least reducing) exposure to the negative consequences associated with toxic (or likely toxic) orders in the equities market. By using toxicity and/or profit analyzers, for example, to detect, track and respond to the level of toxic (or likely toxic) orders present in an equities order flow, a broker dealer can reduce the level of risk inherent in serving as counter-party to order flows, such as anonymous equities order flows. Various alternative embodiments are also disclosed.

Claims

1. A method of executing an equity order by a computer trading system comprising at least one of the sequential, sequence independent and non-sequential steps of:

electronically receiving the order by a toxicity analyzer computer system including order characteristics;

determining at least one toxicity quotient responsive to the order characteristics, the toxicity quotient defining when the order, if executed, comprises one of no profit, reduced profit and a loss when at least one of a wholesaler and a market maker provides market liquidity;

analyzing the order to determine eligibility for execution using the at least one toxicity quotient; and

determining whether the order is eligible for execution; and

electronically transmitting the order by the toxicity analyzer computer system to the computer trading system for execution responsive to the eligibility for execution as determined by analyzing the order using the at least one toxicity quotient.

2. The method of claim 1, further comprising the step of measuring at least one of order, market condition, and execution parameters of at least one order to be executed, and correlating the measured parameters with the outcome of trade to determine the at least one toxicity quotient.

3. The method of claim 1, wherein the step of analyzing further comprises the step of reviewing one or more parameters of the order relating to at least one of size of the order, frequency of order submission, identity of the equity, market source of national-best-bid-or-offer (NBBO), order size relative to NBBO size, liquidity of the equity, current NBBO bid-offer spread, and the equity-market performance correlation of the equity.

4. The method of claim 1, wherein the step of determining at least one toxicity quotient responsive to the order characteristics comprises the step of generating the at least one toxicity quotient by the toxicity analyzer computer system.

5. The method of claim 1, further comprising the step of monitoring the outcome of the trade after it has been executed.

6. The method of claim 5, further comprising the step of implementing corrective action based at least in part on the step of monitoring the outcome of the trade.