Method and system for providing an automated auction for internalization and complex orders in a hybrid trading system

• US 8,296,218 B2
• Filed: 12/29/2009
• Issued: 10/23/2012
• Est. Priority Date: 04/24/2003
• Status: Active Grant

• Current Assignee: Cboe Exchange, Inc. (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: Tilly, Edward T., Carone, Anthony J., Kipnes, Stuart J., Gazis, James, Montesano, Anthony, Smith, Eileen C.
• Primary Examiner(s): Hammond, III, Thomas M
• Application Number:
  US12/649,047
• Publication Number:
  US 20100223176A1
• Time in Patent Office: 1,029 Days
• Field of Search: 705 35- 45
• US Class Current: 705/37
• CPC Class Codes: G06Q 30/08 Auctions
• 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 method of providing an automated auction for internalization for the purchase or sale of securities or derivatives in an exchange is disclosed. The method may include receiving an order at an electronic trade engine, disseminating a request for price message to at least one user in response to receiving the order, receiving a one-sided response message representative of a participant-type in response to the request for price message, selecting an allocation algorithm from a plurality of allocation algorithms, initiating the selected allocation algorithm and allocating the order according to the participant-type upon termination of the selected auction. The system may include an electronic trading engine configured to disseminate an auction message in response to an order, a database of allocation algorithms, and a trade processor for initiating an auction according the one of the allocation algorithms and terminating the auction upon defined early termination events.

Claims

1. A computer-implemented method of auctioning complex orders for the purchase or sale of securities or derivatives in an electronic exchange, the method comprising:

receiving a complex order at a computer configured as an electronic trade engine;

adding a top-of-the-spread market to the complex order;

verifying the complex order qualifies for auction;

the computer disseminating a request for price message to at least one user;

receiving a two-sided response message comprising a participant-type at the computer from the at least one user in response to the request for price message;

the computer selecting a starting price for the auction, the starting price equal to a better of an exchange market spread, a customer limit price or a limit price on any resting spread order;

the computer initiating the auction substantially instantaneously upon receipt of the two-sided response message, wherein the auction occurs for a predetermined period of time; and

the computer allocating the complex order based on participant-type priority.

2. The method according to claim 1, wherein the participant-type priority is in a sequence of:

(a) quoters in legs that can fill the order in ratio;

(b) customers at a best spread market; and

(c) request for price responses and non-customers at the best spread market.

16. The method according to claim 1, wherein the method further comprises the computer terminating the auction prior to completion of the predetermined time upon occurrence of an early termination event.

3. A computer-implemented method of providing an automated auction for complex orders for the purchase or sale of securities or derivatives in an exchange configured for trading securities or derivatives, the method comprising:

receiving an order at a computer configured as an electronic trade engine;

the computer disseminating a request for price message to at least one user in response to receiving the order;

receiving a two-sided response message comprising a participant-type at the computer in response to the request for price message from the at least one user;

the computer selecting an allocation algorithm from a plurality of allocation algorithms, each allocation algorithm representative of an auction-type and having at least one starting price associated therewith;

the computer initiating the selected allocation algorithm, wherein the auction occurs for a predetermined period of time; and

the computer allocating the order according to the participant-type upon termination of the auction.

4. The method according to claim 3, wherein the request for price message includes at least one of a minimum price data, side data, size of the order data or contingency data.

5. The method according to claim 3, wherein the auction-type is a complex order auction.

6. The method according to claim 3, wherein the auction-type is an internalization auction.

7. The method according to claim 4, wherein the at least one starting price is a price equal to the better of an exchange spread market, a customer limit price or a limit price on any resting spread orders.

8. The method according to claim 6, wherein the at least one starting price is a price equal to the better of a national best bid or offer, a customer limit price or a firm limit price.

9. The method according to claim 6, wherein the at least one starting price is a price equal to the better of one tick better than a national best bid or offer, a customer limit price or a firm limit price.

10. The method according to claim 3, wherein the at least one starting price is a price equal to the better of a best bid or offer or national best bid or offer prevailing across multiple markets for a security or derivative.

11. The method according to claim 3, wherein the one-sided response message comprises multiple prices.

12. The method according to claim 3, wherein the order is further allocated based on a number of participants and a size each participant represents.

13. The method according to claim 5, wherein the complex order auction is configurable to allow or disallow at least one spread type.

14. The method according to claim 13, wherein the at least one spread type is selected from the group consisting of vertical spread, calendar spread, diagonal spread, combo spread, butterfly spread, box spread, straddle, strangle, gut strangles, and ratio spread.

15. The method according to claim 3, wherein the order is marked for processing in the auction.

17. The method according to claim 3, wherein the method further comprises the computer terminating the auction prior to completion of the predetermined time upon occurrence of an early termination event.