Transformation of a multi-leg security definition for calculation of implied orders in an electronic trading system

• US 8,266,030 B2
• Filed: 09/15/2009
• Issued: 09/11/2012
• Est. Priority Date: 09/15/2009
• 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): MILEF, ELDA G
• Application Number:
  US12/560,026
• Publication Number:
  US 20110066568A1
• Time in Patent Office: 1,092 Days
• Field of Search: 705/35, 705/36.R, 705/37
• US Class Current: 705/35
• 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. New tradable items defined as combinations of other tradable items may be included in the calculation of tradable combinations. A technique is disclosed for transforming a combination or strategy contract with an arbitrary number of buy and sell legs with an arbitrary volume ratio for each leg into a form that can be used for rapid implied order calculations.

Claims

1. A computer implemented method of transforming a set of orders comprising at least one buy order and at least one sell order, each being for a quantity of one or more units of an item tradeable on an exchange, into at least one minimal set of at least one order subset, each order subset comprising at least one buy order for one unit and at least one sell order for one unit, the method comprising:

converting, by a processor, each of the at least one buy order of the set of orders into a separate buy order for each unit of the respective quantity of the corresponding at least one buy order and, converting each of the at least one sell order of the set of orders into a separate sell order for each unit of the respective quantity of the corresponding at least one sell order of the set of orders, a unit order set comprising the separate buy and sell orders;

identifying, by the processor, each of the at least one minimal set as a unique set of order subsets of the buy and sell orders of the unit order set; and

computing, by the processor, at least one implied order based on at least one of the at least one minimal set, each of the at least one implied order comprising at least two orders of the unit order set characterized by a 1;

1 volume ratio.

2. The computer implemented method of claim 1 wherein the converting further comprises:

for each of the at least one buy order of the set of orders for a quantity of more than one unit, converting, by the processor, the at least one buy order into a separate buy order for each unit of the quantity, the unit order set comprising the remaining of the at least one buy order of the set of orders for a quantity of only one unit and the separate buy orders; and

for each of the at least one sell order of the set of orders for a quantity of more than one unit, converting, by the processor, the at least one sell order into a separate sell order for each unit of the quantity, the unit order set further comprising the remaining of the at least one sell orders of the set of orders for a quantity of only one unit and the separate sell orders.

3. The computer implemented method of claim 1 wherein the identifying further comprises:

ordering, by the processor, the sell orders of the unit order set in a first sequence;

selecting, by the processor one at a time, each of the buy orders of the buy orders in the unit order set, ordering the buy orders of the unit order set in a second sequence beginning with the selected buy order, and, for one of the at least one minimal set for which order subsets have not yet been generated, generating, by the processor for each buy order in order of the second sequence for which an order subset of the one of the at least one minimal set does not already include a pairing thereof, an order subset comprising a pairing of the buy order with an unpaired sell order in order of the first sequence, and wherein for each remaining unpaired buy order, generating an order subset comprising a pairing thereof with a virtual sell order and for each remaining unpaired sell order, generating, by the processor, an order subset comprising a pairing thereof with a virtual buy order; and

comparing, by the processor, each of the at least one minimal sets to another of the at least one minimal set and removing the other of the at least one minimal set if the other of the at least one minimal set is substantially equivalent thereto, each of the remaining at least one minimal set being unique.

4. The computer implemented method of claim 3 wherein, for the purpose of determining equivalence among minimal order sets, separate buy orders converted from one of the at least one buy order are considered equivalent to each other, separate sell orders converted from one of the at least one sell order are considered equivalent to each other, virtual sell orders are considered equivalent to each other and virtual buy orders are considered equivalent to each other.

5. The computer implemented method of claim 1 wherein each order subset comprises a spread.

6. The computer implemented method of claim 1 wherein the tradeable item comprises a futures contract, an order to buy a futures contract, an order to sell a futures contract, a combination contract, or a combination thereof.

7. The computer implemented method of claim 1 wherein the set of orders comprises a strategy, each of the at least one buy order and at least one sell order comprising a leg of the strategy.

8. The computer implemented method of claim 7 wherein the strategy comprises one of a butterfly or condor.

9. The computer implemented method of claim 1 wherein the set of orders comprises a combination contract.

10. The computer implemented method of claim 1 wherein the set of orders is specified using the FIX protocol.

11. The computer implemented method of claim 1 wherein the tradeable item is characterized by a price, a quantity, a delivery month or combinations thereof.

12. The computer implemented method of claim 1 wherein the set of orders comprises a maximal form.

13. The computer implemented method of claim 1 further comprising representing each of the at least one minimal set as a graph having edges and nodes defined by the order subsets thereof.

14. A system for transforming a set of orders comprising at least one buy order and at least one sell order, each being for a quantity of one or more units of an item tradeable on an exchange, into at least one minimal set of at least one order subset, each order subset comprising at least one buy order for one unit and at least one sell order for one unit, the system comprising a processor and a memory coupled therewith, the system further comprising:

an order receiver computer program stored in the memory and executable by the processor to cause the processor to receive the set of orders;

a unit order set converter computer program stored in the memory and coupled with the order receiver computer program and executable by the processor to cause the processor to convert each of the at least one buy order of the set of orders into a separate buy order for each unit of the respective quantity of the corresponding at least one buy order and convert each of the at least one sell order of the set of orders into a separate sell order for each unit of the respective quantity of the corresponding at least one sell order of the set of orders, a unit order set comprising the separate buy and sell orders;

a minimal set identifier computer program stored in the memory and coupled with the unit order set converter computer program and executable by the processor to cause the processor to identify each of the at least one minimal set as a unique set of order subsets of the buy and sell orders of the unit order set; and

an implied order generator computer program stored in the memory and coupled with the minimal set comparator computer program and executable by the processor to cause the processor to compute at least one implied order based on at least one of the at least one minimal set, each of the at least one implied order comprising at least two orders of the unit order set characterized by a 1;

1 volume ratio.

15. The system of claim 14 wherein the unit order set converter computer program further comprises:

a conversion processor computer program stored in the memory and executable by the processor to cause the processor, for each of the at least one buy order of the set of orders for a quantity of more than one unit, to convert the at least one buy order into a separate buy order for each unit of the quantity, the unit order set comprising the remaining of the at least one buy order of the set of orders for a quantity of only one unit and the separate buy orders; and

the conversion processor computer program being further executable by the processor to cause the processor to, for each of the at least one sell order of the set of orders for a quantity of more than one unit, to convert the at least one sell order into a separate sell order for each unit of the quantity, the unit order set further comprising the remaining of the at least one sell orders of the set of orders for a quantity of only one unit and the separate sell orders.

16. The system of claim 14 wherein the minimal set identifier computer program further comprises:

an order sequencer computer program stored in the memory and executable by the processor to cause the processor to order the sell orders of the unit order set in a first sequence;

an order selector computer program stored in the memory and coupled with the order sequencer computer program and executable by the processor to cause the processor to select, one at a time, each of the buy orders of the buy orders in the unit order set, order the buy orders of the unit order set in a second sequence beginning with the selected buy order, and, for one of the at least one minimal set for which order subsets have not yet been generated, generate, for each buy order in order of the second sequence for which an order subset of the one of the at least one minimal set does not already include a pairing thereof, an order subset comprising a pairing of the buy order with an unpaired sell order in order of the first sequence, and wherein for each remaining unpaired buy order, generate an order subset comprising a pairing thereof with a virtual sell order and for each remaining unpaired sell order, generate an order subset comprising a pairing thereof with a virtual buy order; and

a minimal set comparator computer program stored in the memory and coupled with the order selector computer program and executable by the processor to cause the processor to compare each of the at least one minimal sets to another of the at least one minimal set and remove the other of the at least one minimal set if the other of the at least one minimal set is substantially equivalent thereto, each of the remaining at least one minimal set being unique.

17. The system of claim 16 wherein, for the purpose of determining equivalence among minimal order sets, separate buy orders converted from one of the at least one buy order are considered equivalent to each other, separate sell orders converted from one of the at least one sell order are considered equivalent to each other, virtual sell orders are considered equivalent to each other and virtual buy orders are considered equivalent to each other.

18. The system of claim 14 wherein each order subset comprises a spread.

19. The system of claim 14 wherein the tradeable item comprises a futures contract, an order to buy a futures contract, an order to sell a futures contract, a combination contract, or a combination thereof.

20. The system of claim 14 wherein the set of orders comprises a strategy, each of the at least one buy order and at least one sell order comprising a leg of the strategy.

21. The system of claim 20 wherein the strategy comprises one of a butterfly or condor.

22. The system of claim 14 wherein the set of orders comprises a combination contract.

23. The system of claim 14 wherein the set of orders is specified using the FIX protocol.

24. The system of claim 14 wherein the tradeable item is characterized by a price, a quantity, a delivery month or combinations thereof.

25. The system of claim 14 wherein the set of orders comprises a maximal form.

26. The system of claim 14 further comprising a display coupled with the processor and operative to represent each of the at least one minimal set as a graph having edges and nodes defined by the order subsets thereof.

27. A system for transforming a set of orders comprising at least one buy order and at least one sell order, each being for a quantity of one or more units of an item tradeable on an exchange, into at least one minimal set of at least one order subset, each order subset comprising at least one buy order for one unit and at least one sell order for one unit, the system comprising:

means for converting each of the at least one buy order of the set of orders into a separate buy order for each unit of the respective quantity of the corresponding at least one buy order and converting each of the at least one sell order into a separate sell order for each unit of the respective quantity of the corresponding at least one sell order of the set of orders, a unique order set comprising the separate buy and sell orders;

means for identifying each of the at least one minimal set as a unique set of order subsets of the buy and sell orders of the unit order set; and

means for computing at least one implied order based on at least one of the at least one minimal set, each of the at least one implied order comprising at least two orders of the unit order set characterized by a 1;

1 volume ratio.

28. The system of claim 27 wherein the means for converting further comprises, for each of the at least one buy order of the set of orders for a quantity of more than one unit, means for converting the at least one buy order into a separate buy order for each unit of the quantity, the unit order set comprising the remaining of the at least one buy order of the set of orders for a quantity of only one unit and the separate buy orders;

and

for each of the at least one sell order of the set of orders for a quantity of more than one unit, means for converting the at least one sell order into a separate sell order for each unit of the quantity, the unit order set further comprising the remaining of the at least one sell orders of the set of orders for a quantity of only one unit and the separate sell orders.

29. The system of claim 28 wherein the means for identifying further comprises:

means for ordering the sell orders of the unit order set in a first sequence;

means for selecting, one at a time, each of the buy orders of the buy orders in the unit order set, for ordering the buy orders of the unit order set in a second sequence beginning with the selected buy order, and, for one of the at least one minimal set for which order subsets have not yet been generated, for generating, for each buy order in order of the second sequence for which an order subset of the one of the at least one minimal set does not already include a pairing thereof, an order subset comprising a pairing of the buy order with an unpaired sell order in order of the first sequence, and wherein for each remaining unpaired buy order, for generating an order subset comprising a pairing thereof with a virtual sell order and for each remaining unpaired sell order, generating an order subset comprising a pairing thereof with a virtual buy order; and

means for comparing each of the at least one minimal sets to another of the at least one minimal set and removing the other of the at least one minimal set if the other of the at least one minimal set is substantially equivalent thereto, each of the remaining at least one minimal set being unique.