Inter-market smart-routing for combination spread order trading

• US 8,024,253 B2
• Filed: 08/21/2006
• Issued: 09/20/2011
• Est. Priority Date: 08/19/2005
• Status: Active Grant

• Current Assignee: Interactive Brokers LLC (Interactive Brokers Group, Inc.)
• Original Assignee: Interactive Brokers LLC (Interactive Brokers Group, Inc.)
• Inventors: Galik, Milan, Peterffy, Thomas Pechy
• Primary Examiner(s): Subramanian; Narayanswamy
• Assistant Examiner(s): Donlon; Ryan D.
• Application Number:
  US11/507,807
• Publication Number:
  US 20070118457A1
• Time in Patent Office: 1,856 Days
• Field of Search: 705/37, 705/36.R
• US Class Current: 705/37
• 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

Techniques for creating a complex order and routing the complex order to one or more exchanges to achieve optimal pricing without exposing the customer to the conventional legging risks associated with the trading of complex orders are provided. The trading system of the present disclosure provides this mechanism by routing the order to obtain the best possible price (see FIG. 4) and by accepting the risk of a partially executed order where one leg is executed and the other is not (see FIG. 5).

Claims

1. A computer-implemented method for routing combination orders, the method comprising:

receiving by a computer, from a user, a combination order having at least first and second legs;

receiving by the computer, from the user, order specifications;

determining by the computer whether the combination order is marketable;

determining by the computer whether the combination order can be traded on a native exchange or whether on several exchanges;

if the combination order can be traded on the native exchange, routing by the computer the first leg and the second leg to the native exchange;

if the combination order can not be traded on the native exchange, routing by the computer the first leg to a first exchange and routing the second leg to a second exchange;

determining by the computer whether the first leg and the second leg execute on user'"'"'s terms, and determining that the combination order is a partially executed order where one of the first and second legs is executed and the other leg is not executed; and

sending by the computer the partially executed order to an error account, the error account having no detrimental effect to an account of the user such that the user is not charged for the executed leg.

2. The method of claim 1, wherein the first exchange and the second exchange represent different exchanges.

3. The method of claim 1, wherein the method further comprises:

assigning a multiplier reflecting a risk to the combination order based on the first leg and the second leg.

4. The method of claim 1, wherein the order specifications include at least one of:

a type of order, an underlying asset, an amount, a price (the spread/the ratio), a strike or a exercise, a term, and a type of trading order.

5. The method of claim 1, wherein the first leg is a stock, option, ETF, or future and the second leg is a stock, option, ETF, or future.

6. The method of claim 1, wherein determining whether the first and the second leg execute comprises:

calculating the native spread with respect to orders submitted to a native exchange or implied spread with respect to orders submitted to other than native exchanges; and

evaluating whether the combination order has been fully or partially filled.

7. The method of claim 1, wherein determining whether the combination order is marketable comprises:

sending at least one of the first and the second leg of the combination order to a native exchange if the combination order is non-marketable and if such order continues to be non-marketable, sending for legging-in; and

if the combination order is non-marketable, sending the order to the error account.

8. The method of claim 1, wherein determining whether the combination order did not execute fully comprises:

sending at least one of the first and the second leg of the combination order to a native exchange if the combination order is non-marketable and if such order continues to be non-marketable, sending for legging-in; and

if the combination order cannot be executed fully, sending the partially executed order to the error account.

9. The method of claim 1, further comprising:

accounting for the combination order, in an account of the user, as a single trade.

10. The method of claim 7, wherein further comprising when the combination order is sent for legging-in, starting with one of the first and second legs that has the highest delta.

11. The method of claim 8, wherein further comprising when the combination order is sent for legging-in, starting with one of the first and second legs that has the highest delta.

12. The method of claim 1, further comprising:

generating by the computer a report for the combination order, and outputting the report to an output device.

13. The method of claim 1, further comprising:

determining a best native combo price for the first leg and second leg;

determining a best implied combo price for the first leg and second leg;

determining which of the best native combo price and the best implied combo price is a better price; and

routing the combination order based on the better price.

14. A trading system for routing combination orders, comprising:

a processor; and

to

a memory having a program,

the processer communicating with the memory to execute the program to perform as;

a receiver configured to receive, from a user, a combination order having at least first and second legs, wherein the combination order includes order specifications;

an order analyzer, in communication with the receiver, configured to determine whether the combination order is marketable and whether the combination order can be traded on a native exchange or whether on several exchanges;

an order router configured to, if the combination order can be traded on the native exchange, route the first leg and the second leg to the native exchange, and if the combination order can not be traded on the native exchange, route the first leg to a first exchange and the second leg to a second exchange;

an execution analyzer configured to determine whether the first leg and the second leg execute on user'"'"'s terms, and to determine that the combination order is a partially executed order where one of the first and second legs is executed and the other leg is not executed; and

an error detector, in communication with the execution analyzer, configured to send the partially executed order to an error account, the error account having no detrimental effect to an account of the user such that the user is not charged for the executed leg.

15. The system of claim 14, wherein the first exchange and the second exchange represent different exchanges.

16. The system of claim 14, wherein the processor is further programmed to perform as an assigning module configured to assign a multiplier reflecting a risk to the combination order based on the first leg and the second leg.

17. The system of claim 14, wherein the order specifications include at least one of:

a type of order, an underlying asset, an amount, a price (the spread/the ratio), a strike or a exercise, a term, and a type of trading order.

18. The system of claim 14, wherein the first leg is a stock, option, ETF, or future and the second leg is a stock, option, ETF, or future.

19. The system of claim 14, wherein the execution analyzer is further configured to:

calculate the native spread with respect to orders submitted to a native exchange or implied spread with respect to orders submitted to other than native exchanges; and

evaluate whether the combination order has been fully or partially filled.

20. The system of claim 14, wherein determining whether the order analyzer is further configured to:

send at least one of the first and the second leg of the combination order to a native exchange if the combination order is non-marketable and if such order continues to be non-marketable, send for legging-in; and

if the combination order is non-marketable, send the combination order to the error account.

21. The system of claim 14, wherein determining whether the execution analyzer is further configured to:

send at least one of the first and the second leg of the combination order to a native exchange if the combination order is non-marketable and if such order continues to be non-marketable, send for legging-in; and

if the combination order cannot be executed fully, send the partially executed order to the error account.

22. The system of claim 14, wherein the processor is further programmed to performs as an account database configured to account for the combination order, in an account of the user, as a single trade.

23. The system of claim 14, further comprising:

a price determiner, in communication with the order analyzer, configured to;

determine a best native combo price for the first leg and second leg;

determine a best implied combo price for the first leg and second leg;

determine which of the best native combo price and the best implied combo price is a better price; and

the order router further configured to route the combination order based on the better price.

24. The system of claim 20, wherein further comprising when the order analyzer is further configured to, when sending the combination order for legging-in, starting with one of the first and second legs that has the highest delta.

25. The system of claim 21, wherein further comprising when the order analyzer is further configured to, when sending the combination order for legging-in, starting with one of the first and second legs that has the highest delta.

26. The system of claim 14, further comprising:

a report generator for generating a report for the combination order, and an output device for outputting the report.

27. A non-transitory tangible computer-readable medium with executable instructions stored thereon for routing combination orders, whereupon execution of the instructions causes one or more processors to perform the steps of:

receiving, from a user, a combination order having at least first and second legs;

receiving, from the user, order specifications;

determining whether the combination order is marketable;

determining whether the combination order can be traded on a native exchange or whether on several exchanges;

if the combination order can be traded on the native exchange, routing the first leg and the second leg to the native exchange;

if the combination order can not be traded on the native exchange, routing the first leg to a first exchange and routing the second leg to a second exchange;

determining whether the first leg and the second leg execute on user'"'"'s terms, and determining that the combination order is a partially executed order where one of the first and second legs is executed and the other leg is not executed; and

sending the partially executed order to an error account, the error account having no detrimental effect to an account of the user such that the user is not charged for the executed leg.

28. The computer-readable medium of claim 27, further comprising the steps of:

generating a report for the combination order, and

outputting the report to an output device.