Method and apparatus for automated opening of options exchange

• US 6,016,483 A
• Filed: 09/20/1996
• Issued: 01/18/2000
• Est. Priority Date: 09/20/1996
• Status: Expired due to Term

• Current Assignee: Optimark, Inc. (Optimark Holdings, Inc.)
• Original Assignee: Optimark Technologies Incorporated (Optimark Holdings, Inc.)
• Inventors: Rickard, John T., Lupien, William A.
• Primary Examiner(s): MacDonald, Allen R.
• Assistant Examiner(s): KANOF, PEDRO R
• Application Number:
  US08/717,387
• Time in Patent Office: 1,215 Days
• Field of Search: 705/35, 705/36, 705/37
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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 computer-based system for determining a set of opening prices for a number of series of options traded on an options exchange and for allocating public order imbalances at the opening of trading. Market makers input a current position, a desired target position and market maker orders for options series from market maker terminals. An order entry system receives public orders for options series. A controller determines a set of implied volatilities (prices) for each options series that will maximize a weighted volume of trades across all option series at the opening. Contra orders that can be matched at the opening price are then executed. If there is a residual imbalance of non-executed public orders, the residual imbalance of non-executed public orders is assigned to individual ones of the plurality of market makers so as to minimize a cumulative measure of deviation between the desired target position and the current position of each market maker. The system is applicable to an options exchange, this term including any facility operating an over-the-counter market in options.

Claims

1. A computer-based system for opening trading in options, comprising:

a plurality of input devices to receive from each one of a plurality of market makers a current position, a desired target position and market maker orders for options series;

an order entry system for receiving public orders for options series; and

a controller, coupled to the plurality of input devices and the order entry system, the controller comprising

(a) means for determining a set of prices for each options series that will maximize a weighted volume of trades across all option series at the opening,

(b) means for executing all orders that can occur at the set of prices,

(c) means for determining a residual imbalance of non-executed public orders, and p2 (d) means, utilizing the current position and the desired target position of each one of the plurality of market makers, for assigning the residual imbalance of non-executed public orders to individual ones of the plurality of market makers so as to minimize a cumulative measure of deviation between the desired target position and the current position of each market maker.

2. The system of claim 1 wherein the set of prices comprises a set of implied volatilities.

3. The system of claim 1 wherein the set of prices for each option series is simultaneously determined.

4. The system of claim 1 further comprising a plurality of output devices, coupled to the controller, to output the set of prices to the plurality of marker makers.

5. The system of claim 1 wherein means for determining the set of prices further comprises means for determining a set of opening volatilities for each series that is a reasonable compromise, according to a predetermined parameter, between consistency in pricing across each series and public order demand across each series.

6. The system of claim 5 wherein the parameter is set by an options exchange.

7. The system of claim 5 wherein the parameter is determined on-the-fly at the opening.

8. The system of claim 1 wherein the current position of each one of the plurality of market makers is input as a delta measure and a gamma measure.

9. The system of claim 1 wherein the desired target position of each one of the plurality of market makers is input as a delta measure and a gamma measure.

10. A computer-based system for determining a set of opening prices for a plurality of series of options, comprising:

a plurality of input devices to receive from each one of a plurality of market makers orders for options series;

an order entry system for receiving public orders for options series; and

a controller, coupled to the plurality of input devices and the order entry system, utilizing the market maker orders and public orders to determine a set of prices for each options series that will maximize a weighted volume of trades across all option series at the opening.

11. The system of claim 10 wherein the controller further comprises means for executing all public orders and market maker orders that can occur at the determined set of prices.

12. The system of claim 10 wherein the set of prices for each option series is simultaneously determined.

13. The system of claim 10 further comprising a plurality of output devices, coupled to the controller, to output the set of prices to the plurality of marker makers.

14. The system of claim 10 wherein means for determining the set of prices further comprises means for determining a set of opening volatilities for each series that is a reasonable compromise, according to a predetermined parameter, between consistency in pricing across each series and public order demand across each series.

15. The system of claim 14 wherein the parameter is set by an options exchange.

16. The system of claim 14 wherein the parameter is determined on-the-fly at the opening.

17. A computer-based system for allocating public order imbalances at the opening of trading of in options, comprising:

a memory storing a plurality of orders for options representing a residual imbalance of public orders in each options series that do not match an opening price corresponding to said options series;

a plurality of input devices to receive from each one of a plurality of market makers a current position and a desired target position; and

a controller, coupled to the memory and the plurality of input devices, utilizing the current position and the desired target position of each one of the plurality of market makers to assign each public order in the residual imbalance of public orders to individual ones of the plurality of market makers so as to minimize a cumulative measure of deviation between the desired target position and the current position of each market maker.

18. The system of claim 17 wherein the current position of each one of the plurality of market makers is input as a delta measure and a gamma measure.

19. The system of claim 17 wherein the desired target position of each one of the plurality of market makers is input as a delta measure and a gamma measure.

20. A computer-implemented method for opening trading in options by a plurality of market makers, comprising:

receiving from each one of a plurality of market makers a current position, a desired target position and market maker orders for options series;

receiving public orders for options series; and

determining a set of prices for each options series to maximize a weighted volume of trades across all option series at the opening;

executing all orders that can occur at the set of prices determined in the previous step;

if there is a residual imbalance of non-executed public orders, assigning the residual imbalance of non-executed public orders to individual ones of the plurality of market makers so as to minimize a cumulative measure of deviation between the desired target position and the current position of each market maker.

21. The method of claim 20 wherein the set of prices comprises a set of implied volatilities.

22. The method of claim 20 wherein the set of prices for each option series is simultaneously determined.

23. The method of claim 20 further comprising the step of outputting the determined set of prices.

24. The method of claim 20 wherein the step of determining the set of prices further comprises the step of determining a set of opening volatilities for each series that is a reasonable compromise, according to a compromise parameter, between consistency in pricing across each series and public order demand across each series.

25. The method of claim 24 further comprising the step of setting the compromise parameter in advance by an options exchange.

26. The method of claim 24 further comprising the step of determining the compromise parameter on-the-fly at the opening.

27. The method of claim 20 wherein the step of receiving from each one of a plurality of market makers a current position further comprises receiving from each one of the plurality of market makers a delta measure and a gamma measure corresponding to the current position.

28. The method of claim 20 wherein the step of receiving from each one of a plurality of market makers a desired target position further comprises receiving from each one of the plurality of market makers a delta measure and a gamma measure corresponding to the desired target position.

29. A computer-implemented method for determining a set of opening prices for a plurality of series of traded options, comprising:

receiving orders for options series from a plurality of market makers;

receiving public orders for options series; and

determining a set of prices for each options series, wherein the set of prices maximizes a weighted volume of trades across all option series at the opening.

30. The method of claim 29 further comprising the step of executing all possible public orders and market maker orders at the determined set of prices.

31. The method of claim 29 wherein the step of determining a set of prices for each options series further comprises the step of simultaneously determining a set of prices for each options series.

32. The method of claim 29 wherein the step of determining a set of prices for each options series further comprises the steps of:

providing a parameter; and

determining a set of opening volatilities for each series that is a reasonable compromise, according to the parameter, between consistency in pricing across each series and public order demand across each series.

33. A computer-implemented method for allocating public order imbalances at the opening of trading in options, comprising:

providing a plurality of orders for options representing a residual imbalance of public orders in each options series that do not match an opening price corresponding to said options series;

receiving from each one of a plurality of market makers a current position and a desired target position; and

automatically assigning each public order in the residual imbalance of public orders to individual ones of the plurality of market makers so as to minimize a cumulative measure of deviation between the desired target position and the current position of each market maker.

34. The method of claim 33 wherein the step of receiving from each one of the plurality of market makers a current position further comprises receiving from each one of the plurality of market makers a delta measure and a gamma measure corresponding to the current position.

35. The method of claim 33 wherein the step of receiving from each one of a plurality of market makers a desired target position further comprises receiving from each one of the plurality of market makers a delta measure and a gamma measure corresponding to the desired target position.

36. A computer-implemented method for opening trading in options, comprising:

receiving from each one of a plurality of market makers a current position, a desired target position and market maker orders for options series;

receiving public orders for options series; and

concurrently determining a set of opening prices for each options series;

executing all possible public orders and market maker orders at the set of opening prices determined in the previous step;

if there is a residual imbalance of non-executed public orders, optimally assigning the residual imbalance of non-executed public orders to individual ones of the plurality of market makers taking into account the desired target position and the current position of each market maker.