TRANSFORMATION OF A MULTI-LEG SECURITY DEFINITION FOR CALCULATION OF IMPLIED ORDERS IN AN ELECTRONIC TRADING SYSTEM

• US 20110066568A1
• Filed: 09/15/2009
• Published: 03/17/2011
• Est. Priority Date: 09/15/2009
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Milne, Andrew, Sedlin, Aleksandr
• Granted Patent: US 8,266,030 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• 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 electronic trading system utilizes a Match Engine that receives orders, stores them internally, calculates tradable combinations and advertises the availability of real and implied orders in the form of market data. New tradable items defined as combinations of other tradable items may be included in the calculation of tradable combinations. A technique is disclosed for transforming a combination or strategy contract with an arbitrary number of buy and sell legs with an arbitrary volume ratio for each leg into a form that can be used for rapid implied order calculations.

Claims

1. A method of transforming a set of orders comprising at least one buy order and at least one sell order, each being for a quantity of one or more units of an item tradeable on an exchange, into at least one minimal set of at least one order subset, each order subset comprising one buy order for one unit and one sell order for one unit, the method comprising:

converting the set of orders into a unit order set comprising separate buy and sell orders for each unit of the respective quantity of the corresponding at least one buy order and at least one sell order of the set of orders; and

identifying each of the at least one minimal set as a unique set of order subsets of the unit order set.

2. The method of claim 1 wherein the converting further comprises:

for each of the at least one buy order of the set of orders for a quantity of more than one unit, converting the at least one buy order into a separate buy order for each unit of the quantity, the unit order set comprising the remaining of the at least one buy order of the set of orders for a quantity of only one unit and the separate buy orders; and

for each of the at least one sell order of the set of orders for a quantity of more than one unit, converting the at least one sell order into a separate sell order for each unit of the quantity, the unit order set further comprising the remaining of the at least one sell orders of the set of orders for a quantity of only one unit and the separate sell orders.

3. The method of claim 1 wherein the identifying further comprises:

ordering the sell orders of the unit order set in a first sequence;

selecting, one at a time, each of the buy orders of the buy orders in the unit order set, ordering the buy orders of the unit order set in a second sequence beginning with the selected buy order, and, for one of the at least one minimal set for which order subsets have not yet been generated, generating, for each buy order in order of the second sequence for which an order subset of the one of the at least one minimal set does not already include a pairing thereof, an order subset comprising a pairing of the buy order with an unpaired sell order in order of the first sequence, and wherein for each remaining unpaired buy order, generating an order subset comprising a pairing thereof with a virtual sell order and for each remaining unpaired sell order, generating an order subset comprising a pairing thereof with a virtual buy order; and

comparing each of the at least one minimal sets to another of the at least one minimal set and removing the other of the at least one minimal set if the other of the at least one minimal set is substantially equivalent thereto, each of the remaining at least one minimal set being unique.

4. The method of claim 3 wherein, for the purpose of determining equivalence among minimal order sets, separate buy orders converted from one of the at least one buy order are considered equivalent to each other, separate sell orders converted from one of the at least one sell order are considered equivalent to each other, virtual sell orders are considered equivalent to each other and virtual buy orders are considered equivalent to each other.

5. The method of claim 1 further comprising computing at least one implied order based on at least one of the at least one minimal set.

6. The method of claim 1 wherein each order subset comprises a spread.

7. The method of claim 1 wherein the tradeable item comprises a futures contract, an order to buy a futures contract, an order to sell a futures contract, a combination contract, or a combination thereof.

8. The method of claim 1 wherein the set of orders comprises a strategy, each of the at least one buy order and at least one sell order comprising a leg of the strategy.

9. The method of claim 8 wherein the strategy comprises one of a butterfly or condor.

10. The method of claim 1 wherein the set of orders comprises a combination contract.

11. The method of claim 1 wherein the set of orders is specified using the FIX protocol.

12. The method of claim 1 wherein the tradeable item is characterized by a price, a quantity, a delivery month or combinations thereof.

13. The method of claim 1 wherein the set of orders comprises a maximal form.

14. The method of claim 1 further comprising representing each of the at least one minimal set as a graph having edges and nodes defined by the order subsets thereof.

15. A system for transforming a set of orders comprising at least one buy order and at least one sell order, each being for a quantity of one or more units of an item tradeable on an exchange, into at least one minimal set of at least one order subset, each order subset comprising one buy order for one unit and one sell order for one unit, the system comprising:

an order receiver operative to receive the set of orders;

a unit order set converter coupled with the order receiver and operative to convert the set of orders into a unit order set comprising separate buy and sell orders for each unit of the respective quantity of the corresponding at least one buy order and at least one sell order of the set of orders; and

a minimal set identifier coupled with the unit order set converter and operative to identify each of the at least one minimal set as a unique set of order subsets of the unit order set.

16. The system of claim 15 wherein the unit order set converter further comprises:

a conversion processor operative, for each of the at least one buy order of the set of orders for a quantity of more than one unit, to convert the at least one buy order into a separate buy order for each unit of the quantity, the unit order set comprising the remaining of the at least one buy order of the set of orders for a quantity of only one unit and the separate buy orders; and

the conversion processor being further operative, for each of the at least one sell order of the set of orders for a quantity of more than one unit, to convert the at least one sell order into a separate sell order for each unit of the quantity, the unit order set further comprising the remaining of the at least one sell orders of the set of orders for a quantity of only one unit and the separate sell orders.

17. The system of claim 15 wherein the minimal set identifier further comprises:

an order sequencer operative to order the sell orders of the unit order set in a first sequence;

an order selector, coupled with the order sequencer, operative to select, one at a time, each of the buy orders of the buy orders in the unit order set, order the buy orders of the unit order set in a second sequence beginning with the selected buy order, and, for one of the at least one minimal set for which order subsets have not yet been generated, generate, for each buy order in order of the second sequence for which an order subset of the one of the at least one minimal set does not already include a pairing thereof, an order subset comprising a pairing of the buy order with an unpaired sell order in order of the first sequence, and wherein for each remaining unpaired buy order, generate an order subset comprising a pairing thereof with a virtual sell order and for each remaining unpaired sell order, generate an order subset comprising a pairing thereof with a virtual buy order; and

a minimal set comparator coupled with the order selector and operative to compare each of the at least one minimal sets to another of the at least one minimal set and remove the other of the at least one minimal set if the other of the at least one minimal set is substantially equivalent thereto, each of the remaining at least one minimal set being unique.

18. The system of claim 17 wherein, for the purpose of determining equivalence among minimal order sets, separate buy orders converted from one of the at least one buy order are considered equivalent to each other, separate sell orders converted from one of the at least one sell order are considered equivalent to each other, virtual sell orders are considered equivalent to each other and virtual buy orders are considered equivalent to each other.

19. The system of claim 15 further comprising an implied order generator coupled with the minimal set comparator and operative to compute at least one implied order based on at least one of the at least one minimal set.

20. The system of claim 15 wherein each order subset comprises a spread.

21. The system of claim 15 wherein the tradeable item comprises a futures contract, an order to buy a futures contract, an order to sell a futures contract, a combination contract, or a combination thereof.

22. The system of claim 15 wherein the set of orders comprises a strategy, each of the at least one buy order and at least one sell order comprising a leg of the strategy.

23. The system of claim 22 wherein the strategy comprises one of a butterfly or condor.

24. The system of claim 15 wherein the set of orders comprises a combination contract.

25. The system of claim 15 wherein the set of orders is specified using the FIX protocol.

26. The system of claim 15 wherein the tradeable item is characterized by a price, a quantity, a delivery month or combinations thereof.

27. The system of claim 15 wherein the set of orders comprises a maximal form.

28. The system of claim 15 further comprising a display coupled with the minimal set comparator and operative to represent each of the at least one minimal set as a graph having edges and nodes defined by the order subsets thereof.

29. A system for transforming a set of orders comprising at least one buy order and at least one sell order, each being for a quantity of one or more units of an item tradeable on an exchange, into at least one minimal set of at least one order subset, each order subset comprising one buy order for one unit and one sell order for one unit, the system comprising:

means for converting the set of orders into a unit order set comprising separate buy and sell orders for each unit of the respective quantity of the corresponding at least one buy order and at least one sell order of the set of orders; and

means for identifying each of the at least one minimal set as a unique set of order subsets of the unit order set.

30. The system of claim 29 wherein the means for converting further comprises, for each of the at least one buy order of the set of orders for a quantity of more than one unit, means for converting the at least one buy order into a separate buy order for each unit of the quantity, the unit order set comprising the remaining of the at least one buy order of the set of orders for a quantity of only one unit and the separate buy orders;

and

for each of the at least one sell order of the set of orders for a quantity of more than one unit, means for converting the at least one sell order into a separate sell order for each unit of the quantity, the unit order set further comprising the remaining of the at least one sell orders of the set of orders for a quantity of only one unit and the separate sell orders.

31. The system of claim 29 wherein the means for identifying further comprises:

means for ordering the sell orders of the unit order set in a first sequence;

means for selecting, one at a time, each of the buy orders of the buy orders in the unit order set, for ordering the buy orders of the unit order set in a second sequence beginning with the selected buy order, and, for one of the at least one minimal set for which order subsets have not yet been generated, for generating, for each buy order in order of the second sequence for which an order subset of the one of the at least one minimal set does not already include a pairing thereof, an order subset comprising a pairing of the buy order with an unpaired sell order in order of the first sequence, and wherein for each remaining unpaired buy order, for generating an order subset comprising a pairing thereof with a virtual sell order and for each remaining unpaired sell order, generating an order subset comprising a pairing thereof with a virtual buy order; and

means for comparing each of the at least one minimal sets to another of the at least one minimal set and removing the other of the at least one minimal set if the other of the at least one minimal set is substantially equivalent thereto, each of the remaining at least one minimal set being unique.