Multiple quote risk management

• US 7,734,538 B2
• Filed: 11/17/2006
• Issued: 06/08/2010
• Est. Priority Date: 11/18/2005
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Thiruthuvadoss, A. Shanthi, Studnitzer, Ari L., Albert, William J., Flemm, legal representative, Farrell, James W., Callaway, Paul J., Bauerschmidt, Paul Andrew
• Primary Examiner(s): Borlinghaus; Jason M
• Application Number:
  US11/600,984
• Publication Number:
  US 20070118453A1
• Time in Patent Office: 1,299 Days
• Field of Search: None
• US Class Current: 705/38
• CPC Class Codes: G06Q 10/10 Office automation; Time management
• CPC Class Codes: G06Q 20/381 Currency conversion
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

The disclosed systems and methods relate to allowing trading of over the counter (“OTC”) foreign exchange (“FX”) contracts on a centralized matching and clearing mechanism, such as that of the Chicago Mercantile Exchange'"'"'s (“CME”'"'"'s) futures exchange system (the “Exchange”). The disclosed systems and methods allow for anonymous transactions, centralized clearing, efficient settlement and the provision of risk management/credit screening mechanisms to lower risk, reduce transaction costs and improve the liquidity in the FX market place. In particular, the disclosed embodiments increase speed of execution facilitating growing demand for algorithmic trading, increased price transparency, lower cost of trading, customer to customer trading, and automated asset allocations, recurring trades as well as clearing and settlement efficiencies.

Claims

1. A computer implemented method of protecting a market participant participating in a market, the method comprising:

allocating, by a processor, an amount of risk to the market participant, the allocated amount of risk being stored in an account;

reducing, by the processor, the stored allocated amount of risk based on a first transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto;

receiving, by the processor, a second transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, the second proposed transaction having been proposed prior to the conclusion of the first proposed transaction;

prior to the conclusion of the first and second proposed transactions,

determining, by the processor, if the stored allocated amount of risk has been depleted by the reduction based on the first proposed transaction and acting, by the processor, in accordance therewith to at least one of block or allow the availability of the second proposed transaction to be matched; and

transmitting a message to the market participant based on the determining.

2. The computer implemented method of claim 1 wherein the allocating further comprises allocating an amount of risk based on a credit rating of the market participant.

3. The computer implemented method of claim 1 wherein the allocating further comprises estimating a maximum liability of the market participant and allocating an amount of risk based thereon.

4. The computer implemented method of claim 1, wherein the reducing further comprises determining a first amount of risk associated with the first proposed transaction and deducting the first amount of risk from the stored allocated amount of risk.

5. The computer implemented method of claim 4, wherein the reducing further comprises storing the reduced allocated amount of risk in the account in place of the stored allocated amount of risk.

6. The computer implemented method of claim 4, wherein the first amount is fixed.

7. The computer implemented method of claim 4, wherein the first amount is based on the first proposed transaction.

8. The computer implemented method of claim 1, wherein the transmitting further comprises transmitting a warning message to the market participant that the stored allocated amount of risk is nearing depletion.

9. The computer implemented method of claim 1, wherein the transmitting further comprises transmitting a message to the market participant when the stored allocated amount of risk has been depleted.

10. The computer implemented method of claim 1, wherein the acting further comprises blocking the second proposed transaction when the stored allocated amount of risk has been depleted.

11. The computer implemented method of claim 1 further comprising:

determining that the first proposed transaction has been concluded and increasing the stored allocated amount risk based thereon.

12. The computer implemented method of claim 1 further comprising:

re-allocating the amount of risk to the account of the market participant after an elapse of a period of time.

13. A system for protecting a market participant participating in a market, the system comprising:

a risk allocation processor operative to allocate an amount of risk to the market participant, the allocated amount of risk being stored in an account;

a transaction processor coupled with the account and operative to reduce the stored allocated amount of risk based on a first transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, wherein the transaction processor is further operative to receive a third transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, the second proposed transaction having been proposed prior to the conclusion of the first proposed transaction;

a monitor processor coupled with the account and operative to, prior to the conclusion of the first and second proposed transactions, determine if the stored allocated amount of risk has been depleted by the reduction based on the first proposed transaction; and

a transaction handling processor coupled with the monitor processor and, prior to the conclusion of the first and second proposed transactions, operative to take an action in accordance with the determination of the monitor processor to at least one of block or allow the availability of the second proposed transaction to be matched.

14. The system of claim 13 wherein the risk allocation processor is further operative to allocate an amount of risk based on a credit rating of the market participant.

15. The system of claim 13 wherein the risk allocation processor is further operative to estimate a maximum liability of the market participant and allocate an amount of risk based thereon.

16. The system of claim 13, wherein the transaction processor is further operative to determine a first amount of risk associated with the first proposed transaction and deduct the first amount of risk from the stored allocated amount of risk.

17. The system of claim 16, wherein the transaction processor is further operative to store the reduced allocated amount of risk in the account in place of the stored allocated amount of risk.

18. The system of claim 16, wherein the first amount is fixed.

19. The system of claim 16, wherein the first amount is based on the first proposed transaction.

20. The system of claim 13, wherein the monitor processor is further operative to generate a warning to the market participant that the stored allocated amount of risk is nearing depletion.

21. The system of claim 13, wherein the transaction handling processor is further operative to alert the market participant when the stored allocated amount of risk has been depleted.

22. The system of claim 13, wherein the transaction handling processor is further operative to block the second proposed transaction when the stored allocated amount of risk has been depleted.

23. The system of claim 13 wherein the transaction processor is further operative to determine that the first proposed transaction has been concluded and, based thereon, increase the stored allocated amount risk.

24. The system of claim 13 wherein the risk allocation processor is further operative to re-allocate the amount of risk to the account of the market participant after an elapse of a period of time.

25. A system for protecting a market participant participating in a market, the system comprising:

means for allocating an amount of risk to the market participant, the allocated amount of risk being stored in an account;

means for reducing the stored allocated amount of risk, coupled with the account, based on a first transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto;

means for receiving a third transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, the second proposed transaction having been proposed prior to the conclusion of the first proposed transaction;

means for determining, prior to the conclusion of the first and second proposed transactions, if the stored allocated amount of risk has been depleted by the reduction based on the first proposed transaction, the means for determining being coupled with the account; and

means for acting, prior to the conclusion of the first and second proposed transactions, in accordance the determination of the means for determining, to at least one of block or allow the availability of the second proposed transaction to be matched.

26. A system for protecting a market participant participating in a market, the system comprising a processor and a memory coupled with the processor, the system further comprising:

first logic stored in the memory and executable by the processor to allocate an amount of risk to the market participant, the allocated amount of risk being stored in an account in the memory;

second logic stored in the memory and executable by the processor to reduce the stored allocated amount of risk based on a first transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, the second logic being further executable to receive a third transaction proposed by the market participant but not yet matched with another proposed transaction counter thereto, the third proposed transaction having been proposed prior to the conclusion of the first proposed transaction; and

third logic stored in the memory and executable by the processor to determine, prior to the conclusion of the first and second proposed transactions, if the stored allocated amount of risk has been depleted by the reduction based on the first transaction and act in accordance with the determination to at least one of block or allow the availability of the second proposed transaction to be matched.