Delta Neutral Futures Allocation

• US 20120054084A1
• Filed: 07/18/2011
• Published: 03/01/2012
• Est. Priority Date: 08/27/2010
• Status: Abandoned Application

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Wolf, Brian M., Galster, Barry Lee, Kane, Troy C., Al-Saadi, Mina, Czupek, Andrew P., Banke, Scott D.
• Application Number:
  US13/185,344
• Publication Number:
  US 20120054084A1
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06F 3/00 Input arrangements for transferring data to be processed into a form capable of being handled by the computer; Output arrangements for transferring data from processing unit to output unit, e.g. interface arrangements
• 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

In an Exchange which assigns only a whole number/integer representation of a computed number of futures contracts to a covered order for one or more option contracts, a method allocates quantities of an underlying financial product in connection with a plurality of orders, each being for a quantity of a derivative financial product derived from the underlying financial product and each being counter to a previously received order for a quantity of the derivative financial product, the previously received order being further characterized by a specified ratio of the quantity of the derivative financial product thereof to a quantity of the underlying financial product. The method includes receiving first and second orders for quantities of the derivative financial product, computing first and second quantities of the underlying financial product, based on the quantity of the derivative financial product of the first and second orders, respectively, to substantially achieve the specified ratio, rounding the first quantity of the underlying financial product to determine a first whole number quantity of the underlying financial product for the first order, generating a composite quantity of the underlying financial product based on the first and second quantities of the derivative financial product, generating a rounded representation of the composite quantity, and determining a second whole number quantity of the underlying financial product based on the rounded representation of the composite quantity and the first whole number quantity.

Claims

1. A computer implemented method of allocating quantities of an underlying financial product in connection with a plurality of orders, each being for a quantity of a derivative financial product derived from the underlying financial product and each being counter to a previously received order for a quantity of the derivative financial product, the previously received order being further characterized by a specified ratio of the quantity of the derivative financial product thereof to a quantity of the underlying financial product, the method comprising:

receiving, by an allocation processor, a first order of the plurality of orders, the first order being for a quantity of the derivative financial product less than the quantity of the derivative financial product of the previously received order;

computing, by the allocation processor, a first quantity of the underlying financial product, based on the quantity of the derivative financial product of the first order, to substantially achieve the specified ratio;

rounding, by the allocation processor, the first quantity of the underlying financial product to determine a first whole number quantity of the underlying financial product and assigning the first whole number quantity of the underlying financial product to the first order when the first order is fulfilled;

receiving, by the allocation processor, a second order of the plurality of orders subsequent to the first order, the second order being for a quantity of the derivative financial product not exceeding the quantity of the derivative financial product of the previous order remaining after fulfillment of the first order;

computing, by the allocation processor, a second quantity of the underlying financial product based on the quantity of the derivative financial product of the second order to substantially achieve the specified ratio;

generating, by the allocation processor, a composite quantity of the underlying financial product based on the first and second quantities of the derivative financial product;

storing, by the allocation processor in a database coupled therewith, the composite quantity;

generating, by the allocation processor, a rounded representation of the composite quantity;

determining, by the allocation processor, a second whole number quantity of the underlying financial product based on the rounded representation of the composite quantity and the first whole number quantity; and

assigning the second whole number quantity of the underlying financial product to the second order when the second order is fulfilled.

2. The computer implemented method of claim 1, wherein the underlying financial product comprises a futures contract and the derivative financial product comprises an option contract based on the futures contract.

3. The computer implemented method of claim 1, wherein the specified ratio comprises a delta value.

4. The computer implemented method of claim 1 further comprising modifying a processing rule determinative of when subsequent orders are processed by the computer implemented method.

5. The computer implemented method of claim 4, wherein modifying the processing rule scheme includes randomizing an order in which subsequent orders are processed.

6. The computer implemented method of claim 1, wherein the composite quantity is a fractional quantity.

7. The computer implemented method of claim 1, wherein the first quantity of the underlying financial product is computed as the quantity of the derivative financial product of the first order multiplied by the specified ratio.

8. The computer implemented method of claim 1, further comprising rejecting one of the plurality of orders that does not meet a minimum clip size requirement.

9. The computer implemented method of claim 1, further comprising rejecting one of the plurality of orders that does not meet a minimum quantity requirement.

10. A system for allocating quantities of an underlying financial product in connection with a plurality of orders, each being for a quantity of a derivative financial product derived from the underlying financial product and each being counter to a previously received order for a quantity of the derivative financial product, the previously received order being further characterized by a specified ratio of the quantity of the derivative financial product thereof to a quantity of the underlying financial product, the system comprising:

an allocation processor operative to receive first and second orders of the plurality of orders, the first and second orders being for respective quantities of the derivative financial product less than the quantity of the derivative financial product of the previously received order;

an underlier component processor coupled with the allocation processor and operative to compute first and second quantities of the underlying financial product, based on the quantities of the derivative financial product of the first and second orders, respectively, to substantially achieve the specified ratio;

a rounding processor coupled with the underlier component processor and operative to round the first quantity of the underlying financial product to determine a first whole number quantity of the underlying financial product and assign the first whole number quantity of the underlying financial product to the first order when the first order is fulfilled;

a composite quantity processor coupled with the underlier component processor and the rounding processor and operative to compute a composite quantity of the underlying financial product based on the first and second quantities of the derivative financial product;

wherein the rounding processor is further operative to generate a rounded representation of the composite quantity of the underlying financial product;

wherein the rounding processor is further operative to determine a second whole number quantity of the underlying financial product based on the rounded representation of the composite quantity and the first whole number quantity; and

wherein the allocation processor is further operative to assign the second whole number quantity of the underlying financial product to the second order when the second order is fulfilled.

11. The system of claim 11, wherein the underlying financial product comprises a futures contract and the derivative financial product comprises an option contract based on the futures contract.

12. The system of claim 11, wherein the specified ratio comprises a delta value.

13. The system of claim 11, wherein the first quantity of the underlying financial product is computed as the quantity of the derivative financial product of the first order multiplied by the specified ratio.

14. The system of claim 11, wherein the allocation processor is operative to modify a processing rule determinative of when subsequent orders are processed by the computer implemented method.

15. The system of claim 11, wherein the allocation processor is operative to randomize an order in which subsequent orders are processed.

16. The system of claim 11, wherein the allocation processor is operative to reject one of the plurality of orders that does not meet a minimum clip size requirement.

17. The system of claim 11, wherein the allocation processor is operative to reject one of the plurality of orders that does not meet a minimum quantity requirement.

18. A system for allocating quantities of an underlying financial product in connection with a plurality of orders, each being for a quantity of a derivative financial product derived from the underlying financial product and each being counter to a previously received order for a quantity of the derivative financial product, the previously received order being further characterized by a specified ratio of the quantity of the derivative financial product thereof to a quantity of the underlying financial product, 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 receive a first order of the plurality of orders, the first order being for a quantity of the derivative financial product less than the quantity of the derivative financial product of the previously received order;

second logic stored in the memory and executable by the processor to compute a first quantity of the underlying financial product, based on the quantity of the derivative financial product of the first order, to substantially achieve the specified ratio;

third logic stored in the memory and executable by the processor to round the first quantity of the underlying financial product to determine a first whole number quantity of the underlying financial product and assigning the first whole number quantity of the underlying financial product to the first order when the first order is fulfilled;

fourth logic stored in the memory and executable by the processor to receive a second order of the plurality of orders subsequent to the first order, the second order being for a quantity of the derivative financial product not exceeding the quantity of the derivative financial product of the previous order remaining after fulfillment of the first order;

fifth logic stored in the memory and executable by the processor to compute a second quantity of the underlying financial product based on the quantity of the derivative financial product of the second order to substantially achieve the specified ratio;

sixth logic stored in the memory and executable by the processor to generate a composite quantity of the underlying financial product based on the first and second quantities of the derivative financial product;

seventh logic stored in the memory and executable by the processor to store in a database coupled with the processor the composite quantity;

eighth logic stored in the memory and executable by the processor to generate a rounded representation of the composite quantity;

ninth logic stored in the memory and executable by the processor to determine a second whole number quantity of the underlying financial product based on the rounded representation of the composite quantity and the first whole number quantity; and

tenth logic stored in the memory and executable by the processor to assign the second whole number quantity of the underlying financial product to the second order when the second order is fulfilled.

19. The system of claim 18, wherein the underlying financial product comprises a futures contract and the derivative financial product comprises an option contract based on the futures contract.

20. The system of claim 18, wherein the specified ratio comprises a delta value.

21. The system of claim 18, wherein the second logic is configured such that the first quantity of the underlying financial product is computed as the quantity of the derivative financial product of the first order multiplied by the specified ratio.

22. The system of claim 18 further comprising eleventh logic stored in the memory and executable by the processor to modify a processing rule determinative of when subsequent orders are processed by the computer implemented method.

23. The system of claim 22, wherein the eleventh logic is configured to randomize an order in which subsequent orders are processed.

24. The system of claim 18 further comprising further logic stored in the memory and executable by the processor to reject one of the plurality of orders that does not meet a minimum clip size requirement.

25. The system of claim 18 further comprising further logic stored in the memory and executable by the processor to reject one of the plurality of orders that does not meet a minimum quantity requirement.