Leg pricer

• US 8,229,838 B2
• Filed: 10/14/2009
• Issued: 07/24/2012
• Est. Priority Date: 10/14/2009
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Milne, Andrew, Sedlin, Aleksandr
• Primary Examiner(s): Shrestha, Bijendra K
• Application Number:
  US12/579,118
• Publication Number:
  US 20110087579A1
• Time in Patent Office: 1,014 Days
• Field of Search: 705/37
• 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

An electronic trading system utilizes a Match Engine that receives orders, stores them internally, calculates tradable combinations and advertises the availability of real and implied orders in the form of market data. The tradable combinations may include spread orders where one leg of the spread has a different tick size than the other or where the tick of the spread contract is different from the tick size in one or both legs. A method and system for calculating on-tick leg prices in an equitable and predictable manner is provided.

Claims

1. A leg pricer comprising:

an input operable to receive a tradable combination of orders among which there are two or more roundable spread orders, each comprising at least two or more leg orders wherein one of the at least two or more leg orders of at least one of the two or more roundable spread orders is characterized by a minimum price increment different from a minimum price increment of another of the at least two or more leg orders; and

a processor coupled with the input, the processor being operable to calculate leg prices for each of the at least two or more leg orders of each of the two or more roundable spread orders in the tradable combination such that the leg prices are multiples of the minimum price increment of one of the at least two or more leg orders of the associated roundable spread order and that the gains and losses of the two or more roundable spread orders are optimally distributed to fairly distribute any gains or losses among each trader associated with the two or more roundable spread orders resulting from the leg price calculations by

at least one of;

minimization of a sum of squares of differences between leg prices;

minimization of a loss experienced by a trader, such loss being calculated using differences between leg prices;

or

determination of an anchor leg and an anchor price from which other leg prices are calculated by addition and subtraction of the prices of the other orders in the tradable combination; and

wherein the processor is further operative to calculate the leg prices for each of the at least two or more leg orders of each of the two or more roundable spread orders in the tradable combination according to an optimal rounding scenario which includes at least one of;

generation of a tree that represents one or more rounding scenarios to be compared, the tree including a vertex for each of the rounding scenarios to be compared;

identification of the rounding scenario with the smallest total variance and determining, by the processor, that the identified rounding scenario is the optimal rounding scenario;

or

determination of a weight vector for each vertex associated with the rounding scenario; and

further wherein the leg pricer further comprises;

an output coupled with the processor, the processor being operable to provide the output with the calculated leg prices.

2. The leg pricer of claim 1, wherein, when the optimal distribution includes determining an anchor leg and an anchor price from which the other leg prices are calculated by adding and subtracting the prices of the other orders in the tradable combination, the anchor leg and anchor price are determined as a function of recorded times and prices of trades in outright contracts.

3. The leg pricer of claim 2, wherein the processor is operable to use an initial price and time priority for each outright contract to determine the anchor leg and anchor price for tradable combinations in which not every leg has a recorded trade in an associated outright contract.

4. The leg pricer of claim 1, wherein leg prices are calculated by simple addition and subtraction of spread prices relative to an anchor price and the corresponding reported leg prices that are constrained to be multiples of the minimum price increments defined for each leg.

5. A leg pricer comprising:

an input operable to receive one or more roundable spread orders, each roundable spread order having one or more roundable legorders, each characterized by a roundable tick price having a minimum price increment different from at least one other of the one or more roundable leg orders of the one or more roundable spread orders;

a processor operable to round the roundable tick prices of the one or more roundable legorders of each of the one or more roundable spread orders and minimize fractional gains and losses by distribution of the fractional gains and losses among each trader associated with the one or more roundable spread orders;

wherein the processor is further operative to round the roundable tick prices for each of the at least one or more roundable leg orders of each of the one or more roundable spread orders according to an optimal rounding scenario which includes at least one of;

generation of a tree that represents one or more rounding scenarios to be compared, the tree including a vertex for each of the rounding scenarios to be compared;

identification of the rounding scenario with the smallest total variance and determining, by the processor, that the identified rounding scenario is the optimal rounding scenario;

or

determination of a weight vector for each vertex associated with the rounding scenario; and

further wherein the leg pricer further comprises;

an output that is operable to output the rounded tick prices as market data.

6. The leg pricer of claim 5, wherein the processor is operable to round tick prices using an optimal rounding scenario, the optimal rounding scenario being determined using graph theory.

7. The leg pricer of claim 5, wherein the processor is operable to reposition an implied chain having a matching input order.

8. The leg pricer of claim 6, wherein the processor is operable to identify the one or more roundable spread orders in the implied chain.

9. The leg pricer of claim 6, wherein the processor is operable to identify one or more rounding scenarios based on the roundable spread orders.

10. The leg pricer of claim 6, wherein the processor is operable to determine a total variance for each of the rounding scenarios.

11. The leg pricer of claim 6, wherein the processor is operable to identify the optimal rounding scenario by comparing the total variance for each of the rounding scenarios.

12. The leg pricer of claim 5, wherein the processor is operable to calculate a weight vector for each roundable spread order.

13. A computer implemented method of rounding tick prices, the method comprising:

identifying, by a processor, one or more roundable spread orders in an implied chain having a matching order, each of the one or more roundable spread orders comprising at least two leg orders each having a leg price associated therewith, at least one of the one or more roundable spread orders comprising at least two or more leg orders wherein one of the at least two or more leg orders is characterized by a minimum price increment different from a minimum price increment of anther of the at least two or more leg orders;

determining, by the processor, an optimal rounding scenario for rounding the leg prices of the at least two leg orders of the identified one or more roundable spread orders, the optimal rounding scenario ensuring that the leg prices of the identified one or more roundable spread orders are on-tick and that the fractional gains and losses to each trader associated with the one or more roundable spread orders are minimized; and

wherein determining the optimal rounding scenario includes at least one of;

determining, by the processor, the number of possible rounding scenarios based on the number of roundable spread orders identified;

generating, by the processor, a tree that represents one or more rounding scenarios to be compared, the tree including a vertex for each of the rounding scenarios to be compared;

identifying, by the processor, the rounding scenario with the smallest total variance and determining, by the processor, that the identified rounding scenario is the optimal rounding scenario;

or

determining, by the processor, a weight vector for each vertex associated with the rounding scenario; and

rounding, by the processor, the leg prices of the roundable spread orders using the optimal rounding scenario.

14. The computer implemented method as claimed in claim 13, wherein determining the optimal rounding scenario by generating a tree that represents one or more rounding scenarios to be compared, the tree including a vertex for each of the rounding scenarios to be compared further includes determining a partial variance one or more vertices in the tree.

15. The computer implemented method as claimed in claim 14, wherein determining the optimal rounding scenario includes determining a total variance for one or more rounding scenarios.

16. The computer implemented method as claimed in claim 15, wherein the total variance of a rounding scenario is a summation of the partial variances of each vertex associated with that rounding scenario.

17. The computer implemented method as claimed in claim 13, wherein rounding the leg prices includes rounding prices using an optimal rounding scenario, the optimal rounding scenario being determined using graph theory.

18. An apparatus for pricing legs of tradable spreads, the apparatus including:

a means for identifying one or more roundable spread orders in an implied chain having a matching order, each of the one or more roundable spread orders comprising at least two leg orders each having a leg price associated therewith, at least one of the one or more roundable spread orders comprising at least two or more leg orders wherein one of the at least two or more leg orders is characterized by a minimum price increment different from a minimum price increment of anther of the at least two or more leg orders;

a means for determining a optimal rounding scenario for rounding the leg prices of the at least two leg orders of the identified one or more roundable spread orders, the optimal rounding scenario ensuring that the leg prices of the identified one or more roundable spread orders are on-tick and that the fractional gains and losses to each traderassociated with the one or more roundable spread orders are minimized; and

wherein the optimal rounding scenario includes a determination of the possible rounding scenarios based on the number of roundable spread orders identified and an optimality metric and at least one of;

generation of a tree that represents one or more rounding scenarios to be compared, the tree including a vertex for each of the rounding scenarios to be compared;

identification of the rounding scenario with the smallest total variance and determination that the identified rounding scenario is the optimal rounding scenario;

or

determination of a weight vector for each vertex associated with the rounding scenario; and

a means for rounding the leg prices of the roundable spread orders using the optimal rounding scenario.

19. A computer implemented method of rounding tick prices, the method comprising:

identifying, by a processor, one or more roundable spread orders in an implied chain having a matching order, each of the one or more roundable spread orders comprising at least two leg orders each having a leg price associated therewith, at least one of the one or more roundable spread orders comprising at least two or more leg orders wherein one of the at least two or more leg orders is characterized by a minimum price increment different from a minimum price increment of anther of the at least two or more leg orders;

determining, by the processor, an optimal rounding scenario for rounding the leg prices of the at least two leg orders of the identified one or more roundable spread orders, the optimal rounding scenario ensuring that the leg prices of the identified one or more roundable spread orders are on-tick and that the fractional gains and losses to each trader associated with the one or more roundable spread orders are minimized; and

wherein determining the optimal rounding scenario includes generating, by the processor, a tree that represents one or more rounding scenarios to be compared, the tree including a vertex for each of the rounding scenarios to be compared; and

rounding, by the processor, the leg prices of the roundable spread orders using the optimal rounding scenario.

20. A computer implemented method of rounding tick prices, the method comprising:

identifying, by a processor, one or more roundable spread orders in an implied chain having a matching order, each of the one or more roundable spread orders comprising at least two leg orders each having a leg price associated therewith, at least one of the one or more roundable spread orders comprising at least two or more leg orders wherein one of the at least two or more leg orders is characterized by a minimum price increment different from a minimum price increment of anther of the at least two or more leg orders;

determining, by the processor, an optimal rounding scenario for rounding the leg prices of the at least two leg orders of the identified one or more roundable spread orders, the optimal rounding scenario ensuring that the leg prices of the identified one or more roundable spread orders are on-tick and that the fractional gains and losses to each trader associated with the one or more roundable spread orders are minimized; and

wherein determining the optimal rounding scenario includes identifying, by the processor, the rounding scenario with the smallest total variance and determining, by the processor, that the identified rounding scenario is the optimal rounding scenario; and

rounding, by the processor, the leg prices of the roundable spread orders using the optimal rounding scenario.

21. A computer implemented method of rounding tick prices, the method comprising:

identifying, by a processor, one or more roundable spread orders in an implied chain having a matching order, each of the one or more roundable spread orders comprising at least two leg orders each having a leg price associated therewith, at least one of the one or more roundable spread orders comprising at least two or more leg orders wherein one of the at least two or more leg orders is characterized by a minimum price increment different from a minimum price increment of anther of the at least two or more leg orders;

determining, by the processor, an optimal rounding scenario for rounding the leg prices of the at least two leg orders of the identified one or more roundable spread orders, the optimal rounding scenario ensuring that the leg prices of the identified one or more roundable spread orders are on-tick and that the fractional gains and losses to each trader associated with the one or more roundable spread orders are minimized; and

wherein determining the optimal rounding scenario includes determining, by the processor, a weight vector for each vertex associated with the rounding scenario; and

rounding, by the processor, the leg prices of the roundable spread orders using the optimal rounding scenario.