Controlling markets during a stop loss trigger

• US 8,103,576 B2
• Filed: 09/13/2007
• Issued: 01/24/2012
• Est. Priority Date: 07/25/2003
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Farrell, James, Krause, James
• Primary Examiner(s): Lemieux, Jessica
• Application Number:
  US11/900,810
• Publication Number:
  US 20080046356A1
• Time in Patent Office: 1,594 Days
• Field of Search: 705 35- 38
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A system mitigates the effects of a market spike caused by the triggering and election of conditional orders in an automated matching system. The system monitors trading that takes place as a result of the cascading triggering of conditional orders. When an order is executed beyond a predetermined price threshold, an instrument may be flagged, allowing matching to take place only at or within the predetermined price threshold. Orders within the price threshold are matched at the price threshold against orders beyond the price threshold, in order to dampen any instantaneous damaging effects of the price spike. The system may adjust the price threshold when market appropriate, allowing the order flow to bring the market back to whatever is the true price level. The system mitigates price fluctuations that are purely conditional order cascade driven, but allows the market to continuously trade in controlled price and time intervals to ensure that a true market move can still occur and not have price control mechanisms hinder trade matching and true price discovery.

Claims

1. A computer readable medium storing instructions which when executed mitigate the effects of a market spike caused by the triggering and election of a stop order, the instructions operable to:

monitor orders received at an automated trading engine in an automated trade matching system;

compare an execution price of the stop order to a predetermined price threshold;

flag a market for an instrument when the execution price of the stop order lies beyond the predetermined price threshold; and

match orders for the instrument in the flagged market, which are priced at the predetermined price threshold, against orders which are priced at a price beyond the predetermined price threshold by aggregating the orders which are priced at a price beyond the predetermined price threshold, the aggregated order being priced at the predetermined price threshold, where the orders for the instrument in the flagged market comprise orders received at the automated trading engine having a price within the predetermined price threshold.

2. The computer readable medium of claim 1 wherein the predetermined price threshold is associated with a no-bust range.

3. The computer readable medium of claim 1 wherein the predetermined price threshold comprises a variable price threshold that varies with any of a market volatility, time of day, and combinations thereof.

4. The computer readable medium of claim 1 wherein orders for the instrument are matched in the flagged market at the predetermined price threshold against orders beyond the predetermined price threshold prioritized based on price, order arrival, or a combination thereof.

5. The computer readable medium of claim 1 further comprising instructions operable to:

adjust the predetermined price threshold when orders received at the automated trading engine for the instrument in the flagged market have a price beyond the predetermined price threshold, a predetermined time interval is exceeded, a predetermined quantity is exceeded, or a combination thereof.

6. The computer readable medium of claim 5 wherein the orders received at the automated trading engine for the instrument in the flagged market that have a price beyond the predetermined price threshold are matched at the adjusted price threshold against orders beyond the predetermined price threshold.

7. The computer readable medium of claim 1, wherein when at least one of the orders beyond the predetermined price threshold aggregated at the predetermined price threshold remains and has not been matched, the predetermined price threshold is adjusted according to market volatility, time of day, or a combination thereof.

8. The computer readable medium of claim 7, wherein the price threshold is stepped higher for orders on the bid side of the market and the price threshold is stepped lower for orders on the offer side of the market.