Controlling Markets During a Stop Loss Trigger

• US 20120084194A1
• Filed: 12/13/2011
• Published: 04/05/2012
• Est. Priority Date: 09/13/2007
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Farrell, James, Krause, James
• Granted Patent: US 8,489,488 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

Abstract

A system mitigates market spike effects caused by conditional ordering triggering and election in an automated matching system. The system monitors trading as a result of cascading triggering of conditional orders. When an order is executed beyond a predetermined price threshold, an instrument may be flagged, allowing matching to occur only at or within the predetermined price threshold. Orders within the price threshold are matched at the price threshold against orders beyond it, dampening any instantaneous damaging effects of the price spike. The system may adjust the price threshold when market appropriate, allowing the order flow to bring the market back to whatever is the true price level. The system mitigates purely conditional order cascade driven price fluctuations, but allows the market to continuously trade in controlled price and time intervals ensuring that true market moves can still occur without price control mechanisms hindering trade matching and true price discovery.

Claims

1. A system that mitigates the effects of rises or falls in market prices caused by the execution of a conditional order, comprising:

an order book manager that receives a plurality of orders;

an order processor that compares an execution price of the conditional order to a predetermined price threshold; and

a spike control processor that controls the matching of at least one order of the plurality of orders received by the order book manager when the price of the conditional order lies beyond the predetermined price threshold, those orders of the plurality of orders received by the order book manager which have a price within the predetermined price threshold being matched at the predetermined price threshold against other orders of the plurality of orders which have a price beyond the predetermined price threshold.

2. The system of claim 1 wherein the predetermined price threshold is associated with a no-bust range.

3. The system of claim 1 wherein the predetermined price threshold comprises a variable price threshold that varies with any of a market volatility, time of day, and combinations thereof.

4. The system of claim 1 wherein the spike control processor is further configured to control the matching of the plurality of orders such that those orders of the plurality of orders which have a price within the predetermined price threshold are matched at the predetermined price threshold against the other orders which have a price beyond the predetermined price threshold, and are prioritized based on price, order arrival, or a combination thereof.

5. The system of claim 1 further comprising a step price processor that adjusts the predetermined price threshold when any orders of the plurality of orders received at the order book manager have a price beyond the predetermined price threshold, a predetermined time interval is exceeded, a predetermined quantity is exceeded, or a combination thereof.

6. The system of claim 5 wherein the orders of plurality of orders received at the order book manager that have a price beyond the predetermined price threshold are matched at the adjusted price threshold against orders beyond the predetermined price threshold.

7. A method of mitigating the effect of a market spike caused by the triggering and election of a conditional order, comprising:

monitoring a plurality of orders submitted to an automated trading engine in an automated matching system;

comparing the execution price of the conditional order to a predetermined price threshold;

flagging a market for an instrument when the execution price of the conditional order lies beyond the predetermined price threshold;

matching those orders of the plurality of orders for the instrument in the flagged market, which have a price within the predetermined price threshold, at the predetermined price threshold against other orders which have a price beyond the predetermined price threshold.

8. The method of claim 7 wherein the predetermined price threshold is associated with a no-bust range.

9. The method of claim 7 wherein the predetermined price threshold comprises a variable price threshold that varies with any of a market volatility, time of day, and combinations thereof.

10. The method of claim 7 wherein the matching further comprises matching those orders of the plurality of orders for the instrument in the flagged market, which have a price within the predetermined price threshold, at the predetermined price threshold against other orders of the plurality of orders having a price beyond the predetermined price threshold, in a priority order based on price, order arrival, or a combination thereof.

11. The method of claim 7 further comprising adjusting the predetermined price threshold when any orders of the plurality of orders received at the automated trading engine for the instrument in the flagged market have a price beyond the predetermined price threshold, a predetermined time interval is exceeded, a predetermined quantity is exceeded, or a combination thereof.

12. The method of claim 11 wherein the matching further comprises matching orders for the instrument in the flagged market at the adjusted price threshold against orders beyond the predetermined price threshold.

13. A computer readable medium storing instructions which when executed mitigate an effect of a market spike caused a trigger and election of a conditional order in an automated matching system, the instructions operable to:

monitor a plurality of trades which occur as a result of the trigger and election of the conditional order;

determine when a trade of the plurality of trades is executed a price beyond a predetermined price threshold;

based on the determination that a trade of the plurality of trades has been executed at a price beyond the predetermined price threshold, other trades of the plurality of trades are allowed to match only at or within the predetermined price threshold, wherein a trade of the plurality of trades, which has a price within the predetermined price threshold, is matched at a price equal to the predetermined price threshold with another trade of the plurality of trades, which has a price beyond the predetermined price threshold.

14. The computer readable medium of claim 13 wherein the instructions are further operable to dampen the effect of the market spike.

15. The computer readable medium of claim 13 wherein instructions are further operable to adjust the predetermined price threshold.

16. The computer readable medium of claim 15 wherein the instructions are further operable to adjust the predetermined price threshold until predetermined price threshold is within a market determined price for an instrument underlying the plurality of trades.

17. The computer readable medium of claim 13 wherein the predetermined price threshold is associated with a no-bust range.

18. The computer readable medium of claim 13 wherein the predetermined price threshold comprises a variable price threshold that varies with any of a market volatility, time of day, and combinations thereof.

19. The computer readable medium of claim 13 wherein the instructions are further operable to control the matching of the plurality of trades such that those trades of the plurality of trades which have a price within the predetermined price threshold are matched at the predetermined price threshold against the other trades which have a price beyond the predetermined price threshold, and are prioritized based on price, order arrival, or a combination thereof.

20. The computer readable medium of claim 13 wherein the instructions are further operable to allow a market for an instrument underlying the plurality of trades to continuously trade in controlled price and time intervals to ensure that a true market move can still occur and not have price control mechanisms hinder trade matching and true price discovery.