LEG PRICER

• US 20110087579A1
• Filed: 10/14/2009
• Published: 04/14/2011
• Est. Priority Date: 10/14/2009
• 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 8,229,838 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• 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. The tradable combinations may include spread orders where one leg of the spread has a different tick size than the other or where the tick of the spread contract is different from the tick size in one or both legs. A method and system for calculating on-tick leg prices in an equitable and predictable manner is provided.

Claims

1. A leg pricer comprising:

an input operable to receive a tradable combination of orders among which there are two or more roundable spreads; and

a processor coupled with the input, the processor being operable to calculate leg prices for the orders in the tradable combination such that the leg prices are multiples of a minimum price increment of the leg prices and that the gains and losses of the roundable spread orders are optimally distributed; and

an output coupled with the processor, the processor being operable to provide the output with the calculated prices.

2. The leg pricer of claim 1, wherein optimal distribution includes minimizing a sum of squares of differences between leg prices.

3. The leg pricer of claim 1, wherein optimal distribution includes minimizing the greatest loss experienced by a trader, such loss being calculated using differences between leg prices.

4. The leg pricer of claim 1, wherein optimal distribution includes determining an anchor leg and an anchor price from which the other leg prices are calculated by adding and subtracting the prices of the other orders in the tradable combination.

5. The leg pricer of claim 4, wherein the anchor leg and anchor price are determined as a function of recorded times and prices of trades in outright contracts.

6. The leg pricer of claim 5, wherein the processor is operable to use an initial price and time priority for each outright contract to determine the anchor leg and anchor price for tradable combinations in which not every leg has a recorded trade in an associated outright contract.

7. The leg pricer of claim 2, wherein leg prices are calculated by simple addition and subtraction of spread prices relative to an anchor price and the corresponding reported leg prices that are constrained to be multiples of the minimum price increments defined for each leg.

8. A leg pricer comprising:

an input operable to receive one or more roundable spread orders, each roundable spread order having one or more roundable legs with roundable tick prices;

a processor operable to round the roundable tick prices of the roundable legs such that fractional gains and losses are minimized by distributing the fractional gains and losses; and

an output that is operable to output the rounded tick prices as market data.

9. The leg pricer of claim 8, wherein the processor is operable to round tick prices using an optimal rounding scenario, the optimal rounding scenario being determined using graph theory.

10. The leg pricer of claim 8, wherein the processor is operable to reposition an implied chain having a matching input order.

11. The leg pricer of claim 9, wherein the processor is operable to identify the one or more roundable spread orders in the implied chain.

12. The leg pricer of claim 9, wherein the processor is operable to identify one or more rounding scenarios based on the roundable spread orders.

13. The leg pricer of claim 8, wherein the processor is operable to determine a total variance for each of the rounding scenarios.

14. The leg pricer of claim 8, wherein the processor is operable to identify the optimal rounding scenario by comparing the total variance for each of the rounding scenarios.

15. The leg pricer of claim 8, wherein the processor is operable to calculate a weight vector for each roundable spread order.

16. A method of rounding tick prices, the method comprising:

identifying one or more roundable spread orders in an implied chain having a matching order;

determining a optimal rounding scenario for rounding the leg prices of the roundable spread orders, the optimal rounding scenario ensuring that the leg prices of the roundable spread orders are on-tick and that the fractional gains and losses to traders are minimized; and

rounding the leg prices of the roundable spread orders using the optimal rounding scenario.

17. The method as claimed in claim 16, wherein determining the optimal rounding scenario includes determining the number of possible rounding scenarios based on the number of roundable spread orders identified.

18. The method as claimed in claim 16, wherein determining the optimal rounding scenario includes generating a tree that represents one or more rounding scenarios to be compared, the tree including a vertex for each of the rounding scenarios to be compared.

19. The method as claimed in claim 18, wherein determining the optimal rounding scenario includes determining a partial variance one or more vertices in the tree.

20. The method as claimed in claim 19, wherein determining the optimal rounding scenario includes determining a total variance for one or more rounding scenarios.

21. The method as claimed in claim 20, wherein the total variance of a rounding scenario is a summation of the partial variances of each vertex associated with that rounding scenario.

22. The method as claimed in claim 16, wherein determining the optimal rounding scenario includes identifying the rounding scenario with the smallest total variance and determining that the identified rounding scenario is the optimal rounding scenario.

23. The method as claimed in claim 16, wherein determining the optimal rounding scenario includes determining a weight vector for each vertex associated with the rounding scenario.

24. The method as claimed in claim 16, wherein rounding the prices includes rounding prices using an optimal rounding scenario, the optimal rounding scenario being determined using graph theory.

25. An apparatus for pricing legs of tradable spreads, the apparatus including:

a means for identifying one or more roundable spread orders in an implied chain having a matching order;

a means for determining a optimal rounding scenario for rounding the leg prices of the roundable spread orders, the optimal rounding scenario ensuring that the leg prices of the roundable spread orders are on-tick and that the fractional gains and losses to traders are minimized; and

a means for rounding the prices of the roundable spread orders using the optimal rounding scenario.