Cross-currency implied spreads

• US 7,809,631 B2
• Filed: 11/17/2006
• Issued: 10/05/2010
• 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: Farrell, James W., Callaway, Paul J., Bauerschmidt, Paul Andrew, Thiruthuvadoss, A. Shanthi, Studnitzer, Ari L., Albert, William J., Flemm, legal representative
• Primary Examiner(s): Patel; Jagdish N
• Assistant Examiner(s): BARTLEY, KENNETH
• Application Number:
  US11/600,993
• Publication Number:
  US 20070118454A1
• Time in Patent Office: 1,418 Days
• Field of Search: 705/35, 705/37
• US Class Current: 705/37
• 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 determining a market for a new product, the method comprising:

receiving, by an identification processor, identification of a new product for which a market does not exist on an exchange, the new product comprising a relationship between first and second components, the relationship between the first and second components being undetermined at least in part at a time of receipt of the identification;

identifying, by the identification processor in response to the receiving, a first existing market for a first existing product listed on the exchange, the first existing product comprising a market determined relationship between the first component and a third component;

identifying, by the identification processor in response to the receiving, a second existing market for a second existing product listed on the exchange, the second existing product comprising a market determined relationship between the second component and a fourth component;

correlating, by a correlation processor coupled with the identification processor, the first and second existing markets to determine at least the undetermined part of the relationship between the first and second components; and

generating, by a market generator coupled with the identification processor and the correlation processor, the market for the new product by creating a new order book therefore and causing the new product to be listed on the exchange, the new product being characterized by an initial relationship between the first and second components based initially at least on the correlation between the first and second existing markets and a market determined relationship thereafter; and

allowing market participants to engage in transactions for the new product based on the new order book.

2. The method of claim 1 wherein the first, second, third and fourth components each comprise a currency, each of the market determined relationships comprising a price spread between the associated currencies.

3. The method of claim 1, wherein the correlating further comprises determining that the third and fourth components are the same.

4. The method of claim 1, wherein the correlating further comprises identifying a third existing market for a third existing product, the third existing product comprising a market determined relationship between the third and fourth components.

5. The method of claim 1, wherein the first existing market comprises at least one buy price and at least one sell price for the first existing product, the second existing market comprises at least one buy price and at least one sell price for the second existing product, and wherein the generating further comprises:

determining at least one buy price for the new product based on the at least one buy price of the first existing product and the at least one buy price of the second existing product and determining at least one sell price for the new product based on the at least one sell price of the first existing product and the at least one sell price of the second existing product, the market for the new product comprising the determined at least one buy and sell prices.

6. The method of claim 5 wherein the determining comprises implying the at least one buy price for the new product from the at least one buy prices of the first and second existing products and implying the at least one sell price for the new product from the at least one sell prices of the first and second existing products.

7. The method of claim 1, further comprising:

receiving a request to transact in the new product; and

completing the transaction by matching the request to suitable counter-requests in the first and second existing markets for the first and second existing products.

8. A system for determining a market for a new product, the system comprising:

an identification processor operative to receive identification of a new product not listed on an exchange, the new product comprising a relationship between first and second components, the relationship between the first and second components being undetermined at least in part at a time of receipt of the identification, and in response thereto to identify a first existing market for a first existing product listed on the exchange, the first existing product comprising a market determined relationship between the first component and a third component, the identification processor being further operative in response to the receipt of identification of the new product to identify a second existing market for a second existing product listed on the exchange, the second existing product comprising a market determined relationship between the second component and a fourth component;

a correlation processor coupled with the identification processor and operative to correlate the first and second existing markets to determine at least the undetermined part of the relationship between the first and second components; and

a market generator coupled with the identification processor and the correlation processor and operative to generate the market for the new product via creation of a new order book therefore and cause the new product to be listed on the exchange, the new product being characterized by an initial relationship between the first and second components based initially at least on the correlation between the first and second existing markets and a market determined relationship thereafter; and

wherein market participants are allowed to engage in transactions for the new product based on the new order book.

9. The system of claim 8 wherein the first, second, third and fourth components each comprise a currency, each of the market determined relationships comprising a price spread between the associated currencies.

10. The system of claim 8, wherein the correlation processor is further operative to determine that the third and fourth components are the same.

11. The system of claim 8, wherein the correlation processor is further operative to identify a third existing market for a third product, the third product comprising a market determined relationship between the third and fourth components.

12. The system of claim 8, wherein the first existing market comprises at least one buy price and at least one sell price for the first existing product, the second existing market comprises at least one buy price and at least one sell price for the second existing product, and wherein the market generator is further operative to:

determine at least one buy price for the new product based on the at least one buy price of the first existing product and the at least one buy price of the second existing product and determining at least one sell price for the new product based on the at least one sell price of the first existing product and the at least one sell price of the second existing product, the market for the new product comprising the determined at least one buy and sell prices.

13. The system of claim 12 wherein the market generator is further operative to imply the at least one buy price for the new product from the at least one buy prices of the first and second existing products and imply the at least one sell price for the new product from the at least one sell prices of the first and second existing products.

14. The system of claim 8, further comprising:

a request receiver operative to receive a request to transact in the new product; and

a transaction processor coupled with the request receiver and the market generator and operative to complete the transaction by matching the request to suitable counter-requests in the first and second existing markets.

15. A system for determining a market for a new product, the system comprising:

a processor; and

a computer readable storage media coupled with the processor, the computer readable storage media further comprising;

first logic stored in the computer readable storage media and executable by the processor to receive identification of a new product not listed on an exchange, the new product comprising a relationship between first and second components, the relationship between the first and second components being undetermined at least in part at a time of receipt of the identification, and, in response thereto, identify a first existing market for a first existing product listed on the exchange, the first existing product comprising a market determined relationship between the first component and a third component, and identify a second existing market for a second existing product listed on the exchange, the second existing product comprising a market determined relationship between the second component and a fourth component;

second logic stored in the computer readable storage media and executable by the processor to correlate the first and second existing markets to determine at least the undetermined part of the relationship between the first and second components; and

third logic stored in the readable storage media and executable by the processor to generate the market for the new product coupled with the first and second logic, the third logic being further executable to create a new order book therefore and cause the new product to be listed on the exchange, the new product being characterized by an initial relationship between the first and second components based initially at least on the correlation between the first and second existing markets and a market determined relationship thereafter, and allow market participants to engage in transactions for the new product based on the new order book.

16. The system of claim 15, wherein the first existing market comprises at least one buy price and at least one sell price for the first existing product, the second existing market comprises at least one buy price and at least one sell price for the second existing product, and wherein the third logic is further executable by the processor to:

determine at least one buy price for the new product based on the at least one buy price of the first existing product and the at least one buy price of the second existing product and determining the at least sell price of for the new product based on the at least one sell price of the first existing product and the at least one sell price of the second existing product, the market for the new product comprising the determined at least one buy and sell prices.