System and method for risk management

• US 7,603,303 B1
• Filed: 01/10/2003
• Issued: 10/13/2009
• Est. Priority Date: 11/26/2002
• Status: Active Grant

• Current Assignee: Trading Technologies International, Inc.
• Original Assignee: Trading Technologies International, Inc.
• Inventors: Schluetter, Jens-Uwe, Owens, Farley, Kraus, Henrik
• Primary Examiner(s): Cheung; Mary
• Assistant Examiner(s): Nguyen; Tien C
• Application Number:
  US10/339,947
• Time in Patent Office: 2,468 Days
• Field of Search: 705 1- 45, 703/2, 370/342, 375/222
• US Class Current: 705/35
• 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 margin requirement is computed while trading. The margin requirement may be calculated while trading because the preferred system takes into account working orders to generate the margin requirement. The on the fly possibility allows the preferred system to provide pre-trade risk calculations, but can also be used to provide post-trade calculations. A generic spread number and the maximum number of outright positions are determined. Using the spread positions and the maximum number of outright positions, a spread margin and an outright margin are calculated, which when summed provide a total margin requirement. Limits based in part on the total margin requirement may be imposed on one or more traders.

Claims

1. A method for computing a margin requirement during the trading day in an electronic trading system, the method comprising:

determining at a spread risk calculator a first margin requirement using a first base margin and a generic spread number, where the generic spread number is associated with working spread orders and filled positions, and wherein the generic spread number represents a number of spreads, wherein the generic spread number is found using the following relationship;

(total maximum leg position−

outrights)/2;

determining at the spread risk calculator a second margin requirement using a second base margin and a number of outrights, where the number of outrights is associated with working outright orders and filled positions;

computing at the spread risk calculator a total margin requirement using the first margin requirement and the second margin requirement;

determining at a limit module whether to send an order to buy or sell a tradeable object to an electronic exchange based on the total margin requirement and an available margin requirement; and

sending the order to buy or sell the tradeable object to the exchange when the available margin balance is greater than the total margin requirement.

2. The method of claim 1 wherein the total maximum leg position is a summation of each maximum leg position for each tradeable object where maximum leg position for each tradeable object is found using the following relationship:

maximum of (absolute value of (Filled Net Long Position−

Filled Net Short Position+W Buy(Positions Based on Spreads))), (absolute value of (Filled Net Long Position−

Filled Net Short Position−

W Sell(Positions Based on Spreads))).

3. The method of claim 1 wherein the outrights is found using the following relationship:

absolute value of (Total Filled Net Long Position−

Total Filled Net Short Position).

4. A method for computing a margin requirement during the trading day in an electronic trading system, the method comprising:

determining at a spread risk calculator a first margin requirement using a first base margin and a generic spread number, where the generic spread number is associated with working spread orders and filled positions, and wherein the generic spread number represents a number of spreads;

determining at the spread risk calculator a second margin requirement using a second base margin and a number of outrights, where the number of outrights is associated with working outright orders and filled positions, wherein the second margin requirement is found using the following relationship;

maximum of (absolute value of (Total Filled Net Long Position−

Total Filled Net Short Position+Total Working Buy Outright Orders), absolute value of (Total Filled Net Long Position−

Total Filled Net Short Position−

Total Working Sell Outrights)));

computing at the spread risk calculator a total margin requirement using the first margin requirement and the second margin requirement;

determining at a limit module whether to send an order to buy or sell a tradeable object to an electronic exchange based on the total margin requirement and an available margin requirement; and

sending the order to buy or sell the tradeable object to the exchange when the available margin balance is greater than the total margin requirement.