MULTIPLE QUOTE RISK MANAGEMENT

• US 20100205113A1
• Filed: 04/21/2010
• Published: 08/12/2010
• Est. Priority Date: 11/18/2005
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Farrell, James W., Callaway, Paul J., Bauerschmidt, Paul Andrew, Thiruthuvadoss, A. Shanthi, Flemm, Lori, Studnitzer, Ari L., Albert, William J.
• Granted Patent: US 10,719,874 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 10/10 Office automation; Time management
• CPC Class Codes: G06Q 20/381 Currency conversion
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

The disclosed systems and methods relate to allowing trading of over the counter (“OTC”) foreign exchange (“FX”) contracts on a centralized matching and clearing mechanism, such as that of the Chicago Mercantile Exchange'"'"'s (“CME”'"'"'s) futures exchange system (the “Exchange”). The disclosed systems and methods allow for anonymous transactions, centralized clearing, efficient settlement and the provision of risk management/credit screening mechanisms to lower risk, reduce transaction costs and improve the liquidity in the FX market place. In particular, the disclosed embodiments increase speed of execution facilitating growing demand for algorithmic trading, increased price transparency, lower cost of trading, customer to customer trading, and automated asset allocations, recurring trades as well as clearing and settlement efficiencies.

Claims

1. A computer implemented method of protecting a market participant participating in a market, the method comprising:

reducing, by a processor, an allocated amount of risk based on a first transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto;

receiving, by the processor, a second transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, the second proposed transaction having been proposed prior to the conclusion of the first proposed transaction; and

prior to the conclusion of the first and second proposed transactions, determining, by the processor, if the allocated amount of risk has been depleted by the reduction based on the first proposed transaction and acting, by the processor, on the second transaction in accordance therewith.

2. The computer implemented method of claim 1 further comprising allocating the amount of risk based on a credit rating of the market participant.

3. The computer implemented method of claim 1 further comprising estimating a maximum liability of the market participant, allocating the amount of risk based thereon.

4. The computer implemented method of claim 1, wherein the reducing further comprises determining a first amount of risk associated with the first proposed transaction and reducing the allocated amount of risk in accordance therewith.

5. The computer implemented method of claim 4, wherein the first amount is fixed.

6. The computer implemented method of claim 4, wherein the first amount is computed based on the first proposed transaction.

7. The computer implemented method of claim 1, further comprising transmitting a warning message to the market participant that the allocated amount of risk is nearing depletion when the allocated amount of risk falls below a threshold amount of risk.

8. The computer implemented method of claim 1, further comprising transmitting a message to the market participant when the allocated amount of risk has been depleted.

9. The computer implemented method of claim 1, wherein the acting further comprises blocking the second proposed transaction when the allocated amount of risk has been depleted.

10. The computer implemented method of claim 1 further comprising:

determining that the first proposed transaction has been concluded and increasing the allocated amount risk based thereon.

11. The computer implemented method of claim 1 further comprising:

increasing the allocated amount of risk after an elapse of a period of time.

12. The computer implemented method of claim 1 wherein the first proposed transaction may be concluded by at least partially matching with another proposed transaction at least partially counter thereto, or by being canceled.

13. The computer implemented method of claim 1 further comprising monitoring for fluctuations of the stored allocated amount of risk and acting, by the processor, on the second transaction in accordance therewith when the magnitude of the fluctuations exceeds a threshold.

14. A system for protecting a market participant participating in a market, the system comprising:

a transaction processor operative to reduce an allocated amount of risk based on a first transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, wherein the transaction processor is further operative to receive a second transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, the second proposed transaction having been proposed prior to the conclusion of the first proposed transaction;

a monitor processor operative to, prior to the conclusion of the first and second proposed transactions, determine if the allocated amount of risk has been depleted by the reduction based on the first proposed transaction; and

a transaction handling processor coupled with the monitor processor and operative to act on the second transaction in accordance with the determination made by the monitor processor as to the depletion of the allocated amount of risk.

15. The system of claim 14 further comprising a risk allocation processor operative to allocate the amount of risk based on a credit rating of the market participant.

16. The system of claim 14 further comprising a risk allocation processor operative to estimate a maximum liability of the market participant and allocate the amount of risk based thereon.

17. The system of claim 14, wherein the transaction processor is further operative to determine a first amount of risk associated with the first proposed transaction and reduce the allocated amount of risk in accordance therewith.

18. The system of claim 17, wherein the first amount is fixed.

19. The system of claim 17, wherein the first amount is computed based on the first proposed transaction.

20. The system of claim 14, wherein the monitor processor is further operative to generate a warning message to the market participant that the allocated amount of risk is nearing depletion when the allocated amount of risk falls below a threshold amount of risk.

21. The system of claim 14, wherein the transaction processor is further operative to alert the market participant when the allocated amount of risk has been depleted.

22. The system of claim 14, wherein the transaction handling processor is further operative to block the second proposed transaction when the allocated amount of risk has been depleted.

23. The system of claim 14, wherein the transaction processor is further operative to determine that the first proposed transaction has been concluded and increase the allocated amount risk based thereon.

24. The system of claim 14 further comprising a risk allocation processor operative to increase the allocated amount of risk after an elapse of a period of time.

25. The system of claim 14 wherein the first proposed transaction may be concluded by at least partially matching with another proposed transaction at least partially counter thereto, or by being canceled.

26. The system of claim 14 wherein the monitor processor is further operative to monitor for fluctuations of the stored allocated amount of risk, the transaction handling processor being further operative to act on the second transaction when the magnitude of the fluctuations exceeds a threshold.

27. A system protecting a market participant participating in a market, the method comprising:

means for reducing an allocated amount of risk based on a first transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto;

means for receiving a second transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, the second proposed transaction having been proposed prior to the conclusion of the first proposed transaction; and

means for determining, prior to the conclusion of the first and second proposed transactions, if the allocated amount of risk has been depleted by the reduction based on the first proposed transaction and acting on the second transaction in accordance therewith.

28. A system for protecting a market participant participating in a market, the system comprising a processor and a memory coupled with the processor, the system further comprising:

first logic stored in the memory and executable by the processor to reduce an allocated amount of risk based on a first transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, wherein the first logic is further executable by the processor to receive a second transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, the second proposed transaction having been proposed prior to the conclusion of the first proposed transaction;

second logic stored in the memory and executable by the processor to, prior to the conclusion of the first and second proposed transactions, determine if the allocated amount of risk has been depleted by the reduction based on the first proposed transaction; and

third logic stored in the memory and executable by the processor to act on the second transaction in accordance with the determination made by the second logic as to the depletion of the allocated amount of risk.