System and Method for Risk Management Using Average Expiration Times

• US 20100211523A1
• Filed: 04/12/2010
• Published: 08/19/2010
• Est. Priority Date: 11/26/2002
• Status: Active Grant

• Current Assignee: Trading Technologies International, Inc.
• Original Assignee: Trading Technologies International, Inc.
• Inventors: Schluetter, Jens-Uwe
• Granted Patent: US 8,676,693 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A margin requirement is computed while trading. The margin requirement may be calculated while trading because the preferred system takes into account working orders to generate the margin requirement. The on the fly possibility allows the preferred system to provide pre-trade risk calculations, but can also be used to provide post-trade calculations. A generic spread number and the maximum number of outright positions are determined. Average expirations for the generic spread are computed. Using the spread positions, the average expirations and the maximum number of outright positions, a spread margin and an outright margin are calculated, which when summed provide a total margin requirement. Limits based in part on the total margin requirement may be imposed on one or more traders.

Claims

1. A method for computing margin requirement during the trading day in an electronic trading system, the method comprising:

determining a worst case number of spreads based on working orders and the filled positions;

determining a first average expiration time of working buy orders and filled long positions used in determining the worst case number of spreads;

determining a second average expiration time of working sell orders and filled short positions used in determining the worst case number of spreads; and

computing a spread margin requirement using the first average expiration time, the second average expiration time and the worst case number of spreads.

2. A computer readable medium having stored therein instructions for causing a processor to execute the method of claim 1.

3. The method of claim 1, further comprising:

determining a worst case number of outright positions based on working orders and filled positions

determining an outright margin requirement based on the worst case number of outright positions; and

determining a total margin requirement based on the spread margin requirement and the outright margin requirement.

4. The method of claim 1, further comprising determining whether to send an order for a tradeable object to an exchange based on the total margin requirement and an available margin balance.

5. The method of claim 4, further comprising sending the order to the exchange when the available margin balance is greater than the total margin requirement.

6. The method of claim 4, further comprising refraining from sending the order to the exchange when the available margin balance is less than the total margin requirement.

7. The method of claim 1, wherein the working orders include working orders in a spread market.

8. The method of claim 1, wherein the filled positions include filled positions in an outright market and filled positions in a spread market.

9. The method of claim 1, wherein the total margin requirement is computed for one trader.

10. The method of claim 1, wherein the total margin requirement is computed for a plurality of traders.

11. The method of claim 1, wherein the total margin requirement is computed at a client device used by a trader to place orders with an exchange.

12. A method for computing a total margin requirement in an electronic trading system in real-time, the method comprising:

determining a worst case number of spreads based on filled outright positions, filled spread positions and working spread positions;

determining a first average expiration time of filled outright long positions, filled spread long positions and working spread long positions that are used in determining the worst case number of spreads;

determining a second average expiration time of filled outright short positions, filled spread short positions and working spread short positions that are used in determining the worst case number of spreads; and

computing a spread margin requirement using the first average expiration time, the second average expiration time and the worst case number of spreads.

13. A computer readable medium having stored therein instructions for causing a processor to execute the method of claim 12.

14. The method of claim 12, further comprising displaying the spread margin requirement on a graphical user interface of a device.

15. The method of claim 12, wherein computing the spread margin requirement comprises:

determining an absolute value of a difference between the first average expiration time and the second average expiration time; and

multiplying the absolute value of the difference by the worst case number of spreads and also by a time-based spread margin value.

16. The method of claim 12, further comprising:

determining a worst case number of outright positions based on filled outright positions and working outright positions;

determining an outright margin requirement for the worst case number of outright positions; and

computing a total margin requirement based on the spread margin requirement and the outright margin requirement.

17. The method of claim 16, wherein computing the total margin requirement comprising summing the spread margin requirement and the outright margin requirement.

18. The method of claim 16, further comprising displaying the spread margin requirement, the outright margin requirement and the total margin requirement on a graphical user interface of device.

19. The method of claim 16, further comprising determining whether to send an order for a tradeable object to an exchange based on the total margin requirement and an available margin balance.

20. The method of claim 16, further comprising sending the order to the exchange when the available margin balance is greater than the total margin requirement.

21. The method of claim 16, further comprising refraining from sending the order to the exchange when the available margin balance is less than the total margin requirement.

22. A method for computing a total margin requirement in an electronic trading system in real-time, the method comprising:

receiving an indication of an order to be submitted for execution by an exchange;

in response to receiving the indication of the order, determining a worst case number of spreads based on filled outright positions, filled spread positions and working spread positions;

determining a first average expiration time of filled outright long positions, filled spread long positions and working spread long positions that are used in determining the worst case number of spreads;

determining a second average expiration time of filled outright short positions, filled spread short positions and working spread short positions that are used in determining the worst case number of spreads; and

computing a spread margin requirement using the first average expiration time, the second average expiration time and the worst case number of spreads.

23. A computer readable medium having stored therein instructions for causing a processor to execute the method of claim 22.

24. The method of claim 22, further comprising determining a total margin requirement based on the spread margin requirement and also based on an outright margin requirement for outright filled positions and outright working positions.

25. The method of claim 24, further comprising:

comparing the total margin requirement to an available margin balance; and

if the total margin requirement is less than the available margin balance, submitting the order to the exchange for execution.

26. The method of claim 22, wherein the indication of the order is inputted by a trader and received at a client device.

27. The method of claim 22, wherein the indication is received at the exchange.

28. The method of claim 22, wherein the indication is received at a trading house or clearing house prior to submission to the exchange.