Method and system for providing an automated auction for internalization and complex orders in a hybrid trading system

• US 7,676,421 B2
• Filed: 10/11/2005
• Issued: 03/09/2010
• Est. Priority Date: 04/24/2003
• Status: Active Grant

• Current Assignee: Cboe Exchange, Inc. (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: Tilly, Edward T., Smith, Eileen C., Montesano, Anthony, Kipnes, Stuart J., Gazis, James, Carone, Anthony J.
• Primary Examiner(s): Havan; Thu-Thao
• Assistant Examiner(s): Hammond, III; Thomas M
• Application Number:
  US11/249,018
• Publication Number:
  US 20060106713A1
• Time in Patent Office: 1,610 Days
• Field of Search: 705/37
• 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
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method of providing an automated auction for internalization for the purchase or sale of securities or derivatives in an exchange is disclosed. The method may include receiving an order at an electronic trade engine, disseminating a request for price message to at least one user in response to receiving the order, receiving a one-sided response message representative of a participant-type in response to the request for price message, selecting an allocation algorithm from a plurality of allocation algorithms, initiating the selected allocation algorithm and allocating the order according to the participant-type upon termination of the selected auction. The system may include an electronic trading engine configured to disseminate an auction message in response to an order, a database of allocation algorithms, and a trade processor for initiating an auction according the one of the allocation algorithms and terminating the auction upon defined early termination events.

Claims

1. A method of providing an automated auction for internalization for the purchase or sale of securities or derivatives in an exchange configured for trading securities or derivatives, the method comprising:

receiving an order marked for processing in an internalization auction at an electronic trade engine;

the electronic trade engine disseminating a request for price message from the electronic trade engine to at least one user in response to receiving the order;

receiving a one-sided response message representative of a participant-type at the electronic trade engine in response to the request for price message from the at least one user, wherein the electronic trade engine prevents dissemination of the one-sided response message to an external reporting entity and an order routing system for the exchange;

the electronic trade engine selecting an allocation algorithm from a plurality of allocation algorithms, each allocation algorithm representative of an auction-type and having at least one starting price associated therewith;

the electronic trade engine initiating the selected allocation algorithm, wherein the auction occurs for a predetermined period of time; and

the electronic trade engine allocating the order according to the participant-type upon termination of the selected auction.

2. The method according to claim 1, wherein the request for price message includes at least one of a minimum price data, side data, size of the order data or contingency data.

3. The method according to claim 1, wherein the auction type is a complex order auction.

4. The method according to claim 1 wherein the auction commences substantially instantaneously upon receipt of the one-sided response message.

5. The method according to claim 3, wherein the at least one starting price is a price equal to the better of an exchange spread market, a customer limit price or a limit price on any resting spread orders.

6. The method according to claim 4, wherein the at least one starting price is a price equal to the better of the national best bid or offer, a customer limit price or a firm limit price.

7. The method according to claim 4, wherein the at least one starting price is a price equal to the better of one tick better than the national best bid or offer, a customer limit price or a firm limit price.

8. The method according to claim 1 wherein the at least one starting price is a price equal to the better of the best bid or offer or national best bid or offer prevailing across multiple markets for a security or derivative.

9. The method according to claim 1 wherein the one-sided response message comprises multiple prices.

10. The method according to claim 1, wherein the participant-type is selected from the group consisting of customers, market makers, firms and brokers.

11. The method according to claim 1, wherein the order is further allocated based on the number of participants and the size each participant represents.

12. The method according to claim 3, wherein the complex order auction is configurable to allow or disallow at least one spread type.

13. The method according to claim 12, wherein the at least one spread type is selected from the group consisting of vertical spread, calendar spread, diagonal spread, combo spread, butterfly spread, box spread, straddle, strangle, gut strangles, and ratio spread.