System and method for risk management

• US 7,991,667 B2
• Filed: 09/14/2009
• Issued: 08/02/2011
• Est. Priority Date: 11/26/2002
• Status: Active Grant

• Current Assignee: Trading Technologies International, Inc.
• Original Assignee: Trading Technologies International, Inc.
• Inventors: Kraus, Henrik, Schluetter, Jens-Uwe, Owens, Farley
• Primary Examiner(s): Trammell; James P
• Assistant Examiner(s): Nguyen; Tien C
• Application Number:
  US12/559,480
• Publication Number:
  US 20100005036A1
• Time in Patent Office: 687 Days
• Field of Search: 705/1, 705/10, 705/14, 705/19, 705 35- 45, 370/342, 375/222, 703/2
• 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 non-transitory computer readable medium having stored therein instructions executable by a processor, wherein the instructions are executable to:

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

(total maximum leg position−

outrights)/2;

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

compute by the spread risk calculator a total margin requirement using the first margin requirement and the second margin requirement;

determine by 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

send 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 computer readable medium 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 computer readable medium 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 non-transitory computer readable medium having stored therein instructions executable by a processor, wherein the instructions are executable to:

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

determine by 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)));

compute by the spread risk calculator a total margin requirement using the first margin requirement and the second margin requirement;

determine by 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

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

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

a spread risk calculator stored in a memory of the system adapted to determine a first margin requirement using a first base margin and a genetic 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−

outfights)/2, the spread risk calculator further adapted to determine a second margin requirement using a second base margin and a number of outfights, where the number of outfights is associated with working outfight orders and filled positions, the spread risk calculator further adapted to compute a total margin requirement using the first margin requirement and the second margin requirement; and

a limit module adapted to determine 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, the limit module further adapted to send the order to buy or sell the tradeable object to the exchange when the available margin balance is greater than the total margin requirement.

6. The system of claim 5 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))).

7. The system of claim 5 wherein the outfights is found using the following relationship:

absolute value of (Total Filled Net Long Position−

Total Filled Net Short Position).