COMPUTER-IMPLEMENTED SYSTEM AND METHOD FOR CLEARING A DERIVATIVE TRADE INVOLVING MULTIPLE TRADING EXCHANGES

• US 20140172663A1
• Filed: 12/19/2012
• Published: 06/19/2014
• Est. Priority Date: 12/19/2012
• Status: Active Grant

• Current Assignee: Nasdaq Technology AB (Nasdaq, Inc.)
• Original Assignee: OMX Technology AB
• Inventors: Josefsson, Magnus, KRONWALL, Mattias, Stahl, Cecilia
• Granted Patent: US 9,396,497 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 30/0601 Electronic shopping [e-shopping]
• 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

A derivative trade order at a home marketplace is routed to an away market place having a better price for a counter position to the order where it is executed. The executed order triggers creation of a “balance derivative trade” at the home marketplace to balance at a home clearing house the away trade. The home clearing house uses the balance derivative trade to create derivative positions of the balance derivative trade and informs a balancing clearing entity which manages the balance derivative trade obligations. The balance derivative trade order account permits netting and reduced margin benefits for the trading participant. A dual derivative exercise operation allows balance derivative positions to be performed in one day to reduce overnight risk for the clearing entity.

Claims

1. A computer-implemented method performed by a data processing node associated with a first trading exchange, comprising the steps of:

determining, by the data processing node, that a trade order for a derivative contract from a first trading participant associated with the first trading exchange is routed to and matched at a second, different trading exchange with a counter order from a second trading participant at the second trading exchange;

generating, by the data processing node, a balance derivative trade, separate from but with obligations corresponding to the matched trade, between the first trading participant and a balancing clearing entity affiliated with a clearing house associated with the first trading exchange; and

sending, by the data processing node, an electronic message to a clearing house computer of the clearing house associated with the first trading exchange that includes the balance derivative trade for clearing.

2. The computer implemented method in claim 1, wherein the balance derivative trade mirrors the obligations of the matched trade at the second trading exchange stemming from the routed order.

3. The computer implemented method in claim 1, wherein the balance derivative trade reflects the balancing clearing entity assuming responsibility to fulfill the first trading participant'"'"'s contract obligations for the executed trade with respect to the second trading exchange.

4. The computer implemented method in claim 1, wherein the first balancing clearing entity includes the data processing node.

5. The computer implemented method in claim 1, wherein the data processing node is an order router in communication with the first trading exchange.

6. The computer implemented method in claim 1, wherein the balance derivative trade is sent via the first trading exchange to the clearing house associated with the first trading exchange for clearing.

7. The computer implemented method in claim 1, wherein the determining step comprises:

detecting, by the data processing node, a data message comprising trade confirmation data related to the trade order routed to the second trading exchange.

8. The computer implemented method in claim 1, further comprising:

routing, by the data processing node, the trade order to the second different exchange system if the second different exchange system offers a better counter order price to the trade order placed by the first trading participant.

9. A data processing node associated with a first trading exchange, comprising:

memory configured to store instructions and data for performing exchange operations;

one or more data processors, coupled to the memory, configured to;

determine that a trade order for a derivative contract from a first trading participant to the first trading exchange is routed to and matched at a second, different trading exchange with a counter order from a second trading participant at the second, different trading exchange;

generate a balance derivative trade, separate from but with obligations corresponding to the matched trade, between the first trading participant and a balancing clearing entity affiliated with a clearing house associated with the first trading exchange; and

send an electronic message to a clearing house computer of the clearing house associated with the first trading exchange that includes the balance derivative trade for clearing.

10. The data processing node in claim 9, wherein the balance derivative trade mirrors the obligations of the matched trade at the second trading exchange stemming from the routed order.

11. The data processing node in claim 9, wherein the first exchange includes a first clearing entity affiliated with a first clearing house that is associated with a first trading exchange, and wherein the balance derivative contract trade reflects the first clearing entity assuming responsibility to fulfill the first trading participant'"'"'s responsibilities for the executed away trade with respect to the second trading entity.

12. The data processing node in claim 9, wherein the first balancing clearing entity includes the data processing node.

13. The data processing node in claim 9, wherein the data processing node is an order router in communication with the first trading exchange.

14. The data processing node in claim 9, wherein the one or more data processors is configured to send the balance derivative trade via the first trading exchange to the clearing house associated with the first trading exchange for clearing.

15. The data processing node in claim 9, wherein the one or more data processors is configured to detect a data message comprising trade confirmation data related to the trade order routed to the second trading exchange.

16. The data processing node in claim 9 further configured to route the trade order to the second different exchange system if the second different exchange system offers a better counter order price to the trade order placed by the first trading participant.

17. A computer-implemented method performed by a clearing house that is associated with a first trading exchange, the clearing house including at least a clearing computer server comprising at least one processor for receiving and transmitting data messages, the method comprising the steps of:

receiving, by the clearing computer server, a data message comprising information relating to a balance derivative trade between a first trading participant and a balancing clearing entity associated with the clearing house and including at least one computer, the data message having been generated in response to detecting trade confirmation data related to an order submitted by the first trading participant to the first trading exchange and routed by an order router to a second trading exchange where the order was executed;

clearing, by the at least one processor, the balance derivative trade;

updating, by the at least one processor, an account associated with the first trading participant with a balance derivative contract position and a balance clearing account managed by the balancing clearing entity with a counter balance derivative contract position, in accordance with the cleared balance derivative trade; and

transmitting a confirmation data message, by the clearing computer server, to the balancing clearing entity computer, the confirmation data message comprising information relating to updated positions in the balance clearing account managed by the balancing clearing entity.

18. The computer implemented method in claim 17, wherein the balance derivative contract positions in the balance clearing account reflect that the balancing clearing entity assumes responsibility to fulfill the first trading participant'"'"'s responsibilities for the executed trade at a second clearing house associated with the second trading exchange.

19. The computer implemented method in claim 17, wherein the balance derivative trade mirrors the executed trade of the routed order at the second trading exchange.

20. The computer implemented method in claim 17, further comprising netting a position for the first trading participant when calculating a margin required for the first trading participant to reduce a margin required from the first trading participant as a result of the balance derivative contract position.

21. The computer implemented method in claim 17, further comprising:

receiving, by the clearing computer server, prior to a first predetermined time, exercise requests relating to derivative contract positions;

initiating, by the at least one processor, a daily exercise run subsequent to the first predetermined time, the daily exercise run including performing for each received exercise request at least one exercise operation and creating at least one exercise operation message; and

transmitting, for each received exercise request, the at least one exercise operation message at a second predetermined time.

22. The computer implemented method in claim 21, further comprising:

receiving, by the clearing computer server, after the first predetermined time, an exercise request associated with one of the balance derivative contract positions in a balance account;

initiating, by the at least one processor, a second exercise run at a third predetermined time subsequent to the second predetermined time, the second exercise run including performing for each received exercise request associated with a balance clearing account at least one exercise operation and creating at least one exercise operation message; and

transmitting, for each received exercise operation, the at least one exercise operation message to the balancing clearing entity computer.

23. A computer-implemented clearing house associated with a first trading exchange, the clearing house comprising:

memory configured to store instructions and data for performing trade clearing operations, and

one or more data processors, coupled to the memory, configured to;

receive a data message comprising information relating to a balance derivative trade between a first trading participant and a balancing clearing entity associated with the clearing house and including at least one computer, the data message having been generated in response to detecting trade confirmation data related to an order submitted by the first trading participant to the first trading exchange and routed by an order router to a second trading exchange where the order was executed;

clear the balance derivative trade;

update an account associated with the first trading participant with a balance derivative contract position corresponding to the balance derivative trade and a balance clearing account managed by the balancing clearing entity with a counter balance derivative contract position; and

transmit a confirmation data message to the balancing clearing entity computer, the confirmation data message comprising information relating to updated positions in the balance clearing account managed by the balancing clearing entity.

24. The computer-implemented clearing house in claim 23, wherein the balance derivative contract positions in the balance clearing account reflect that the balancing clearing entity assumes responsibility to fulfill the first trading participant'"'"'s responsibilities for the executed trade at a second clearing house associated with the second trading exchange.

25. The computer-implemented clearing house in claim 23, wherein the balance derivative trade mirrors the executed trade of the routed order at the second trading exchange.

26. The computer-implemented clearing house in claim 23, wherein the one or more data processors are configured to net a position for the first trading participant when calculating a margin required for the first trading participant for the trade order to reduce a margin required from the first trading participant as a result of the balance derivative contract position.

27. The computer-implemented clearing house in claim 23, wherein the one or more data processors are configured to:

receive, prior to a first predetermined time, exercise requests relating to derivative contract positions;

initiate a daily exercise run subsequent to the first predetermined time, the daily exercise run including performing for each received exercise request at least one exercise operation and creating at least one exercise operation message; and

transmit, for each received exercise request, the at least one exercise operation message at a second predetermined time.

28. The computer-implemented clearing house in claim 27, wherein the one or more data processors are configured to:

receive, after the first predetermined time, an exercise request associated with one of the balance derivative contract positions in a balance account;

initiate a second exercise run at a third predetermined time subsequent to the second predetermined time, the second exercise run including performing for each received exercise request associated with a balance clearing account at least one exercise operation and create at least one exercise operation message; and

transmit, for each received exercise operation, the at least one exercise operation message to the balancing clearing entity computer.

29. An exchange system comprising:

an order router configured to;

receive a data message including a trade order for a derivative contract from a first trading participant at the exchange system;

route the trade order to a different second exchange system if the second exchange system offers a better counter order price to the trade order to be matched with the better counter order to generate a trade at the second exchange system;

detect a trade confirmation data message with information for the trade executed at the second exchange system;

generate a balance derivative trade separate from, but associated with, the trade executed at the second exchange system; and

send an electronic data message to a clearing house computer associated with the exchange that includes the balance derivative trade,

the clearing house computer configured to;

detect the electronic data message;

clear the balance derivative trade to create cleared balance derivative positions corresponding to the balance derivative trade;

update an account associated with the first trading participant and a balance clearing account managed by a balancing clearing entity with the cleared balance derivative positions; and

send clearing information relating to the updated balance derivative positions to the balancing clearing entity,

the balancing clearing entity including a computer configured to;

receive the clearing information; and

transmit to the clearing house computer an exercise request related to balance derivative positions in the balance clearing account.

30. The exchange system in claim 29, wherein the clearing information indicates that the balancing clearing entity has assumed responsibility to fulfill the first trading participant'"'"'s contract obligations for the trade executed at the second exchange system.