Network and method for trading derivatives by providing enhanced RFQ visibility

• US 7,197,483 B2
• Filed: 10/15/2003
• Issued: 03/27/2007
• Est. Priority Date: 10/15/2002
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Thornburgh, Mark, Brady, Neal, Stone, Frank, Gilmore, John, Carey, Noah, Quattrocki, Michael, Erwin, William
• Primary Examiner(s): Colbert; Ella
• Assistant Examiner(s): BORLINGHAUS, JASON M
• Application Number:
  US10/685,907
• Publication Number:
  US 20040199453A1
• Time in Patent Office: 1,259 Days
• Field of Search: 705/35
• US Class Current: 705/37
• CPC Class Codes: G06Q 30/08 Auctions
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A computer network and method for electronically trading derivatives. One preferred method of trading includes providing indicative quotes to market participants (which typically includes subscribers, but may also include market makers) to provide a non-binding indication of how the market makers are likely to price the particular derivative. A participant may then submit an RFQ, which is a request for a binding quote for the derivative. The RFQ preferably causes the current order book to be displayed on all subscribers'"'"' terminals, typically in the form of a row indicating the derivative of interest along with the current binding bid and binding ask prices. The indicative bid and ask prices may also be displayed, as well as the quantity (if any) requested in the RFQ. Market participants may then elect to submit an order for the corresponding derivative. Typically, the market participants will await an indication that a market maker has submitted a binding quote.

Claims

1. A method for electronically trading derivatives comprising:

(a) providing a computer network of electronic communication between market makers, subscribers, a network managing station and at least one exchange;

(b) making queries to at least one of the market makers by at least one of the subscribers by way of the computer network regarding a;

(1) valuation, and computation of such valuation, for derivatives contracts;

(2) valuation, and computation of such valuation, for buy, sell combinations of derivative contracts; and

(3) quantity of a bid and an offer for (1) and (2).

(c) initiating a query to at least one of the market makers, the query comprising an indication to trade by one of the subscribers;

(d) receiving responses by the subscriber from the market maker to the indication to trade;

(e) displaying the responses at a plurality of subscriber stations;

(f) accepting one of the responses to the indication to trade by the subscriber thereby agreeing that the acceptance of the response to the indication to trade will be forwarded to the exchange as an order by the subscriber and a binding quote by the market maker;

(g) submitting the binding quote to the exchange;

(h) matching and clearing the orders and the binding quote at the exchange;

(i) confirming a trade to the subscriber and the market maker.

2. The method of claim 1 wherein the derivatives contracts comprise commodity contracts.

3. The method of claim 1 wherein the query is made to a plurality of market makers.

4. The method of claim 1 where the binding quote and orders are sent to the network managing station by way of the computer network for matching and the network managing station sends the matched binding quote and order to the exchange for clearance.

5. A method for electronically trading derivative instruments comprising the steps of:

receiving, in response to a request, at least one non binding quote, wherein the at least one non binding quote provides an indication of a willingness to trade a corresponding derivative instrument;

transmitting a best of the at least one non binding quote to a plurality of market participants over a communication network;

receiving a request for binding quote for the corresponding derivative instrument from at least one of the plurality of market participants over a communication network;

transmitting the request for binding quote over a communication network to at least one market maker and to a plurality of subscriber terminals;

receiving at least one binding quote in response to the transmitted request for binding quote; and

,

transmitting the at least one binding quote to the plurality of market participants.

6. The method of claim 5, wherein the request for binding quote includes information identifying the derivative of interest, and a requested quantity.

7. The method of claim 5, wherein the non binding quotes are obtained from a matrix of bid and ask prices at different volatilities and different underlying prices.

8. The method of claim 5, wherein the step of transmitting the best of the at least one non binding quote comprises aggregating the volume associated with the non-binding quotes having best bid and ask prices and transmitting the aggregate as the best non-binding quote.

9. The method of claim 5, further comprising the step of matching binding quotes and orders.

10. The method of claim 9, wherein the matching is performed on a price time priority basis.

11. A method for electronically trading derivative instruments comprising the steps of:

receiving and displaying, at one of a plurality of subscriber stations, real-time indicative quote information for at least one derivative, wherein the real-time indicative quote information comprises at least the best bid and ask non binding prices for the at least one derivative instrument;

transmitting, from the one of the plurality of subscriber stations, a request for binding quote for one of the at least one derivative instrument; and

receiving, by all of the plurality of subscriber stations, a binding quote for the one of the at least one derivative instrument in response to the request for quote.

12. The method of claim 11 wherein the indicative quote information further comprises an associated quantity.

13. The method of claim 11 wherein the step of transmitting a request for quote is performed by selecting the indicative quote on a display.

14. The method of claim 11 wherein the step of receiving a binding quote for the at least one derivative instrument comprises receiving the binding quote via an intermediate exchange.

15. The method of claim 11 further comprising the step of displaying the binding quote.

16. The method of claim 11 further comprising the step of transmitting an order in response to receiving the binding quote.