HYBRID TRADING SYSTEM FOR CONCURRENTLY TRADING SECURITIES OR DERIVATIVES THROUGH BOTH ELECTRONIC AND OPEN-OUTCRY TRADING MECHANISMS

• US 20100082473A1
• Filed: 09/16/2009
• Published: 04/01/2010
• Est. Priority Date: 04/24/2003
• Status: Active Grant

• Current Assignee: Cboe Exchange, Inc. (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: Esposito, Mark A., Tilly, Edward T., Smith, Eileen C., Montesano, Anthony, Kipnes, Stuart J., Carone, Anthony J.
• Granted Patent: US 8,346,652 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• 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

Abstract

A system and method of allocating orders in an exchange configured for trading by a combination of electronic and open-outcry trading mechanisms is provided. One method includes permitting multiple quotes to be disseminated to the market, but limiting market making to only those entities having a physical presence on the floor of the exchange. Methods of enhancing the hybrid electronic and open-outcry exchange also include automatically eliminating crossed quotes and locked quotes while permitting certain orders to trade against locked quotes.

Claims

1. A method of trading derivatives in an exchange comprising:

collecting orders for derivatives and placing them in an electronic database;

identifying at a trade engine a new quote from a first in-crowd market participant, wherein one of a bid or an offer price in the new quote matches a respective price in an order in the electronic database from a public customer;

removing at least a portion of the order in the electronic database, delaying automatic execution of the new quote and the order, and starting a timer;

reporting a market quote indicative of execution of the at least a portion of the order while delaying automatic execution;

receiving at the trade engine a second quote from a second in-crowd market participant after receiving the new quote from the first in-crowd market participant and before an expiration of the timer, wherein the second quote matches the respective price of the public customer order in the electronic database; and

allocating the order between the first and second in-crowd market participants at the trade engine, wherein the order is not executed until expiration of the timer.

2. The method of claim 1, wherein the timer expires in a fixed period of time.

3. The method of claim 2, wherein delaying automatic execution comprises delaying allocation of the portion of the order.

4. The method of claim 2, wherein the fixed period of time is one second.

5. The method of claim 1, wherein a quantity of the order is less than a sum of the quantities of the new quote from the first market participant and the second quote from the second market participant, whereby each of the first and second market participants execute only a portion of their respective quote quantities.

6. The method of claim 1, wherein the first market participant and the second market participant are in-crowd market participants, wherein each in-crowd market participant is a person physically present on a trading floor of the exchange.

7. A method of trading derivatives in an exchange comprising:

detecting a locked quote of a first market maker and a second market maker at an electronic trade engine;

delaying automatic execution of the locked quote and initiating a delay timer;

disseminating the locked quote to the exchange and permitting execution of orders against the locked quote; and

notifying the first and second market makers of the locked quote after a notification period.

8. The method of claim 7, wherein permitting execution of orders against the locked quote comprises permitting only non-ICM orders to trade against the locked quote.

9. The method of claim 8, wherein the non-ICM orders comprise public customer orders.

10. The method of claim 7, wherein the first and second market makers comprise in-crowd market participants having a physical presence on a floor of the exchange.

11. The method of claim 7, further comprising detecting a crossed quote between the first and second market makers and widening a quote spread of one of the first and second market makers to lock with a quote of the other of the first and the second market makers.

12. The method of claim 11, wherein widening a quote of one of the first and second market makers comprises widening a later of two quotes to arrive at the electronic trade engine.