Method and system for providing option spread indicative quotes

• US 8,306,902 B2
• Filed: 07/20/2009
• Issued: 11/06/2012
• Est. Priority Date: 10/15/2002
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Brady, Neal, Paronis, Tom, Whittington, Christopher S., Schmid, Paul A., Dahl, Jon
• Primary Examiner(s): Hamilton, Lalita M
• Application Number:
  US12/505,946
• Publication Number:
  US 20090299893A1
• Time in Patent Office: 1,205 Days
• Field of Search: 705/35, 705/36.R, 705/37
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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 computer network and method for electronically trading combinations of derivatives. One preferred method of trading includes providing quotes information to a central server, and determining indicative quotes for combination trades, and providing the non-binding, indicative quotes to market participants (which typically includes subscribers, but may also include market makers). A participant may then submit an e-RFQ, which is a request for a binding quote for the combination of derivatives. Market Makers may then elect to submit a binding quote for the corresponding derivative combination. Market participants may then elect to enter a binding order.

Claims

1. A computer implemented method for electronically trading derivative instruments comprising:

receiving, by a network computer, an indicative quote data set for a plurality of derivative instruments from at least one market maker computer of a plurality of market maker computers, the indicative quote data set operative to enable the network computer to generate non-binding quotes based thereon on behalf of the at least one market maker computer;

receiving, by the network computer, a request for a non-binding quote for at least one of the plurality of derivative instruments from at least one of a market maker computer or subscriber computer over a communications network;

generating, by the network computer on behalf of the at least one market maker computer from which the indicative quote data set was received, a non-binding quote based on the indicative quote data set;

transmitting, by the network computer, the generated non-binding quote to the at least one of the market maker computer or subscriber computer over the communications network from which the request for the non-binding quote was received;

receiving, by the network computer, a request for binding quote for the at least one derivative instrument from at least one of the at least one of the market maker computer or subscriber computer over the communications network;

transmitting, by the network computer, the request for binding quote over the communications network to at least one of the plurality of market maker computers;

receiving, by the network computer, a binding quote from the at least one of the plurality of market maker computers to which the request for binding quote was transmitted by the network computer in response to the transmitted request for binding quote; and

transmitting, by the network computer, the binding quote to the at least one of the market maker computer or subscriber computer from which the request for binding quote was received.

2. The computer implemented method of claim 1, wherein the indicative quote data set includes at least one theoretical value.

3. The computer implemented method of claim 1, wherein at least one theoretical value for use in generating a combination non-binding quote is determined in response to the received plurality of quote data sets.

4. The computer implemented method of claim 1, wherein the step of generating a combination non-binding quote utilizes at least one spread parameter obtained from a market maker computer.

5. The computer implemented method of claim 4, wherein the at least one spread parameter includes a spread edge parameter and an offset parameter.

6. The computer implemented method of claim 1, wherein the step of generating a combination non-binding quote is performed by a network management system of the network computer.

7. A computer implemented method for electronically trading derivative instruments comprising the steps of:

receiving, by a network computer, at least one indicative quote data set from at least one market maker computer for a plurality of option contracts, wherein the at least one indicative quote data set comprises at least bid and ask non-binding prices for the plurality of options contracts and is further operative to enable the network computer to generate non-binding quotes on behalf of the at least one market maker computer from which the at least one indicate quote data set was received;

providing, by the network computer, at least one non-binding quote to at least one of a market maker computer or subscriber computer for at least one specific combination of at least one options contract based on the received at least one indicative quote data set;

receiving, by the network computer, at least one request from at least one of the market maker computer or subscriber computer for at least one binding quote for the at least one specific combination of at least one options contract; and

requesting, by the network computer based on the receipt of the at least one request for at least one binding quote, at least one market maker computer to provide at least one binding quote for the at least one specific combination of at least one options contract.

8. The computer implemented method of claim 7 wherein the at least one indicative quote data set further comprises an associated quantity.

9. The computer implemented method of claim 7 wherein the step of providing at least one non-binding quote to at least one of the market maker computer or subscriber computer for at least one specific combination of at least one options contract comprises:

determining, by the network computer, at least one component leg of the combination;

determining, by the network computer, at least one theoretical value of the at least one component leg;

summing, by the network computer, the at least one theoretical value according to at least one predetermined pricing formula;

applying, by the network computer, a spread function to the resulting summation to obtain a two sided non-binding quote; and

transmitting, by the network computer, the two-sided non-binding quote to the at least one of the market maker computer or subscriber computer.

10. The computer implemented method of claim 9 wherein the step of providing at least one non-binding quote to at least one of the market maker computer or subscriber computer for at least one specific combination of at least one options contract further comprises applying an offset function to the summation.

11. The computer implemented method of claim 9 wherein the step of determining at least one theoretical value of the at least one component leg comprises using at least one theoretical value received from at least one market maker computer.

12. A computer implemented method for electronically trading derivative instruments comprising the steps of:

receiving, by a network computer, at least one indicative quote data set from at least one market maker computer for a plurality of option contracts, wherein the at least one indicative quote data set comprises at least bid and ask non-binding prices for the plurality of options contracts and is further operative to enable the network computer to generate non-binding quotes on behalf of the at least one market maker computer from which the at least one indicate quote data set was received;

receiving, by the network computer, at least one spread parameter;

providing, by the network computer, at least one non-binding quote to at least one of a market maker computer or subscriber computer for at least one specific combination of at least one options contract based on the received at least one indicative quote data set and the at least one spread parameter;

receiving, by the network computer, at least one request from at least one of the market maker computer or subscriber computer for at least one binding quote for the at least one specific combination of at least one options contract;

requesting, by the network computer based on the receipt of the at least one request for at least one binding quote, at least one market maker computer to provide at least one binding quote for the at least one specific combination of at least one options contract; and

archiving, by the network computer, quote generation data used to provide the at least one non-binding quote to the at least one of the market maker computer or subscriber computer from which the at least one request for at least one binding quote was received.

13. The computer implemented method of claim 12 wherein the archived quote generation data includes at least one market maker'"'"'s volatility levels.

14. The computer implemented method of claim 12 wherein the archived quote generation data includes at least one price over a range of at least one of option strikes, interest rate, days to expiration, and a bid/ask spread.