Liquidity engine for futures trading exchange

• US 7,752,116 B2
• Filed: 10/30/2002
• Issued: 07/06/2010
• Est. Priority Date: 10/30/2002
• Status: Active Grant

• Current Assignee: Intercontinental Exchange, Inc.
• Original Assignee: Nasdaq Liffe Markets LLC
• Inventors: Ascher, Thomas, Harris, David F.
• Primary Examiner(s): Kazimi; Hani
• Assistant Examiner(s): ALI, HATEM M
• Application Number:
  US10/283,558
• Publication Number:
  US 20040088242A1
• Time in Patent Office: 2,806 Days
• Field of Search: 705/36.R, 705/37, 705/38, 705/39, 705/40
• US Class Current: 705/37
• 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

Abstract

An automated futures trading exchange is provided that rewards market participants that provide liquidity to a central processing system and charges a fee to market participants that remove liquidity from the central processing system. The liquidity maker and the liquidity taker in each transaction is identified, and it is further determined whether the liquidity maker and/or the liquidity taker is a member of a market making class. By assigning a credit or a debit to the accounts of each market participant based upon whether a market participant to a transaction is a liquidity maker or liquidity taker or based upon whether the market participant is a market maker, a multi-factored and dynamic system is provided for promoting and controlling market liquidity. Additionally, different rates of debits and credits may be applied, using volume-tiered rates and the trading status of the trader.

Claims

1. A screen-based electronic system used for trading futures commodity contracts in varying volumes or lot sizes by futures market makers or other market participants using a plurality of remote futures trading terminals, said system comprising:

a centralized futures trading host server communicatively coupled to the remote trading terminals for imposing futures margin limit requirements on each bid and offer received from the remote terminals prior to storing the bid or offer in a consolidated limit order book, comprising;

a matching engine for automatically matching bids and offers using a price/time priority;

a matched trade database containing trading data for matched bids and offers, including a bid time value and an offer time value; and

a fee calculator for periodically determining a fee to be charged for each bid and offer that is matched, where the fee includes a first rebate credit for the bid or offer that has the earlier time value, and includes a second rebate credit if the bid or offer having the earlier time value was submitted by a futures market maker, and where the fee includes a first surcharge for the bid or offer that has the later time value, and includes a second surcharge if the bid or offer having the later time value was submitted by a futures market maker.

2. The system for trading futures commodity contracts of claim 1, wherein the first rebate credit is smaller than the second rebate credit.

3. The system for trading futures commodity contracts of claim 1, wherein either the first rebate credit or the second rebate credit is calculated using volume-tiered rebate rates.

4. The system for trading futures commodity contracts of claim 1, wherein the fee calculator generates a monthly report for a particular market participant by aggregating all rebate credits that apply to the matched bids or offers for the market participant and applying the aggregated rebate credits against any other fees assessed against the market participant.

5. The system for trading futures commodity contracts of claim 1, wherein the fee surcharge is calculated using volume-tiered charge rates.

6. An automated system for transacting a sale of a single stock futures commodity contract using a plurality of trading terminals wherein bids or offers for a particular single stock futures commodity contract are made through remote terminals, said system comprising:

a trading repository for receiving and storing bids and offers from the remote terminals in a consolidated limit order book, imposing futures margin limit requirements on each bid and offer in the consolidated limit order book, and assembling for each bid and offer trading data identifying a time value and a trading entity identification,

a processor for automatically matching bids and offers using one of a plurality of predetermined matching prioritizations, including a price/time matching prioritization, and generating a matched trade report; and

a fee calculator for promoting market liquidity for the single stock futures contracts by extracting time value data for each matched bid and offer from the matched trade report and assigning a first rebated fee to the bid or offer having the earliest time value.

7. The automated system of claim 6, wherein the fee calculator further comprises a processor for extracting the trading entity identification for each matched bid and offer from the matched trade report and assigning a second rebated fee to the bid or offer if the trading entity identification corresponds to a market maker.

8. The automated system of claim 6, wherein the fee calculator further comprises a processor for extracting trading volume data for each matched bid and offer from the matched trade report and assigning the first rebated fee if the trading volume data exceeds a predetermined minimum requirement.

9. The automated system of claim 6, wherein the fee calculator further comprises a processor for extracting trading volume data for each matched bid and offer from the matched trade report and assigning the first rebated fee if the trading volume data is below a predetermined minimum requirement, and assigning a second rebated fee if the trading volume data is at or above the predetermined minimum requirement.

10. The automated system of claim 6, wherein the fee calculator further comprises a processor for assigning a first charged fee to the bid or offer having the later time value.

11. The automated system of claim 10, wherein the fee calculator periodically generates a statement for each market participant including an accumulated total of rebated fees and charged fees for all matched bids and offers submitted by the market participant.

12. A protocol for transacting a sale of a particular derivatives contract by market participants, including at least one derivative market maker, the protocol comprising:

receiving at a central processor bids and offers on a particular derivative contract from remote terminals, storing the bids and offers along with associated time value data for each received bid and offer, determining margin limit requirements on each stored bid and offer;

automatically matching equal bids and offers using one of a plurality of predetermined prioritization schemes, including at least a first come, first served prioritization scheme, for each matched bid and offer, determining from the associated time value data which bid or offer occurred first in time to identify a liquidity maker, calculating a rebated fee to be assessed to the liquidity maker.

13. The protocol of claim 12, wherein the derivatives contract comprises an interest rates contract, a swap, equities, futures interest in an exchange traded funds, indices, futures or a single stock futures contract.

14. The protocol of claim 12, further comprising identifying for each matched bid and offer a liquidity taker from the associated time value data and calculating a debited fee to be assessed against the liquidity taker.

15. The protocol of claim 12, further comprising calculating a preferred rebated fee for any bid or offer submitted by a derivative market maker.

16. The protocol of claim 12, wherein the rebated fee is calculated using a first rebate rate for a bid or offer having a size that is below a predetermined threshold, and using a second rebate rate for a bid or offer having a size that is above the predetermined threshold.

17. The protocol of claim 12, wherein the storing of bids and offers stores only bids and offers meeting predetermined margin requirements.

18. The protocol of claim 12, wherein the rebated fee is calculated using volume-tiered rebate rates.

19. A computerized futures contract trading exchange used for transacting sales of a particular futures commodity contract using a plurality of remote client trading machines, each of which contains a client trading application, where the client trading machines are configured to submit bids and offers and pre-negotiated trades, said exchange comprising:

a trading host for automatically determining price limits and/or margin limits for each futures commodity contract and matching bids and offers on either a price/time priority or a price/pro-rata priority, comprising a central order book;

a trade registration system for automatically assembling trading data on matched and pre-negotiated trades during the trading day, for generating an audit trail report after the close of trading, and for generating a matched trade report after the close of trading;

a fee system for calculating fees associated with each trade by providing a rebate for any bid or offer that qualifies as a liquidity maker;

a clearing house for clearing and settling matched trades after the close of the trading day, based on information contained in the matched trade report;

a regulator for performing audit-trail and compliance monitoring on executed trades after the close of the trading day, based on information contained in the audit trail report.

20. In a computerized derivatives contract trading exchange used for transacting sales of a derivatives contract using a plurality of remote trading machines, a fee calculation processor for calculating a fee associated with a trade by providing a preferential fee for any bid or offer that qualifies as a liquidity maker.