Method and apparatus for stock and index option price improvement, participation, and internalization

• US 6,829,589 B1
• Filed: 07/21/2000
• Issued: 12/07/2004
• Est. Priority Date: 07/21/2000
• Status: Expired due to Term

• Current Assignee: Dash Financial Technologies LLC (ION Investment Group Ltd.)
• Original Assignee: UNM Rainforest Innovations (f/k/a STC.UNM) (The University of New Mexico)
• Inventors: Saliba, Anthony J.
• Primary Examiner(s): PATEL, JAGDISH
• Application Number:
  US09/621,769
• Time in Patent Office: 1,600 Days
• Field of Search: 705/35, 705/37, 705/36
• 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 method for stock and index option trading includes the steps of receiving an option order copy from an order flow provider. The option order is contemporaneously submitted to a market. The option order identifies, as examples, contract elements including a contract identifier, underlying security, strike price, expiry, and option quantity. The method then determines a potential cross quantity and price based on the option order. Subsequently, the method submits a contra-order (with respect to the originally received option order) specifying contract elements including the contract identifier, underlying security, strike price, and expiry, as well as the potential cross quantity and price to the market for fulfillment.

Claims

1. A method for stock option trading comprising:

receiving an option order at a market;

contemporaneously receiving a copy of the option order at an electronic drop (EDrop) system, which is separate and distinct from the market;

identifying contract elements in the option order including a contract identifier, underlying security, strike price, and expiry;

obtaining a potential cross quantity and a potential cross price based on the option order at the EDrop system; and

submitting, through the EDrop system, a contra-order, with respect to the option order, to the market, wherein the contra-order specifies contract elements including the contract identifier, expiry, underlying security potential cross quantity, and the potential cross price to the market for fulfillment.

2. The method of claim 1, wherein receiving comprises receiving an option order selected from the group of option orders consisting of buy calls, sell calls, buy puts, and sell puts.

3. The method of claim 2, wherein submitting comprises submitting a sell call when the option order is a buy call option order, and submitting a buy call when the option order is a sell call option order.

4. The method of claim 3, wherein submitting comprises submitting a sell put when the option order is a buy put option order, and submitting a buy put when the option order is a sell put option order.

5. The method of claim 1, wherein receiving comprises receiving the option order from an order flow provider that contemporaneously submits the copy of the option order to the EDrop system.

6. The method of claim 1, further comprising the step of translating the option order from an order flow provider format into an internal trading system format, and wherein submitting comprises submitting the contra-order in a market format.

7. The method of claim 6, wherein receiving further comprises receiving an additional option order from an additional order flow provider, and further comprising translating the additional option order from an additional order flow provider format into the internal trading system format.

8. The method of claim 1, further comprising displaying at least the underlying security, the option quantity, at least one of an option bid price and option ask price, and an ask price at a trader terminal, and monitoring the trader terminal for a submit indicator.

9. The method of claim 8, wherein displaying further comprises displaying underlying security bid and ask prices at the market.

10. The method of claim 9, wherein displaying further comprises displaying risk management variable based on the contract elements.

11. The method of claim 1, further comprising the step of applying a filter to the option order before determining the potential cross quantity.

12. The method of claim 11, further comprising storing the option order in a filtered database when the option order passes the filter.

13. The method of claim 1, further comprising storing the option order in an unfiltered database.

14. An electronic drop server for stock option trading, the drop server comprising:

a processing circuit;

an order flow network connection coupled to the processing circuit;

an contra-order network connection coupled to the processing circuit; and

a memory coupled to the processing circuit, the memory storing for execution by the processing circuit;

instructions for receiving an option order copy over the order flow network connection, the option order contemporaneously submitted to a market;

instructions for identifying in the option order contract elements including a contract identifier, underlying security, strike price, and expiry;

instructions for obtaining a potential cross quantity and a potential cross price based on the option order; and

instructions for submitting a contra-order, with respect to the option order, over the contra-order network connection to the market for fulfillment, the contra-order specifying contract elements including the contract identifier, expiry, underlying security potential cross quantity, and the potential cross price.

15. The electronic drop server of claim 14, wherein the instructions for submitting a contra-order comprise instructions for:

submitting a sell call when the option order is a buy call option order, submitting a buy call when the option order is a sell call option order, submitting a sell put when the option order is a buy put option order, and submitting a buy put when the option order is a sell put option order.

16. The electronic drop server of claim 14, wherein the memory further stores:

instructions for translating the option order from an order flow provider format into an internal trading system format.

17. The electronic drop server of claim 14, wherein the memory further comprises:

instructions for displaying at least the underlying security, the option quantity, a bid price, and an ask price at a trader terminal, and monitoring the trader terminal for a submit indicator.

18. The electronic drop server of claim 14, wherein the memory further comprises:

instructions for applying a filter to the option order before determining the potential cross quantity.

19. A computer program product for stock option trading, the product comprising:

a storage medium readable by a processing circuit and storing for execution by the processing circuit;

instructions for submitting a copy of an option order by an order flow provider over an order flow network connection to an EDrop system, the option order contemporaneously submitted to a market;

instructions for identifying, in the option order, contract elements including a contract identifier, underlying security, strike price, and expiry;

instructions for obtaining a potential cross quantity and a potential cross price based on the option order; and

instructions for submitting a contra-order, with respect to the option order, from the EDrop server over a contra-order network connection to the market for fulfillment, the contra-order specifying contract elements including the contract identifier, expiry, underlying security potential cross quantity, and the potential cross price.

20. The computer program product of claim 19, further comprising instructions for submitting a sell call when the option order is a buy call option order, submitting a buy call when the option order is a sell call option order, submitting a sell put when the option order is a buy put option order, and submitting a buy put when the option order is a sell put option order.

21. The computer program product of claim 19, further comprising instructions for translating the option order from an order flow provider format into an internal trading system format.

22. The computer program product of claim 19, further comprising instructions for displaying at least the underlying security, the option quantity, a bid price, and an ask price at a trader terminal, and monitoring the trader terminal for a submit indicator.

23. The computer program product of claim 19, further comprising instructions for applying a filter to the option order before determining the potential cross quantity.