System, method and apparatus for creating and executing inter-exchange spread instruments

• US 8,341,059 B1
• Filed: 11/03/2009
• Issued: 12/25/2012
• Est. Priority Date: 11/03/2008
• Status: Active Grant

• Current Assignee: GX2 Systems, LLC
• Original Assignee: Breakwater Trading LLC (Peak6 LLC)
• Inventors: Rubio, Thomas
• Primary Examiner(s): Liu, Marissa
• Application Number:
  US12/611,248
• Time in Patent Office: 1,148 Days
• Field of Search: 705 1- 50, 237 1- 18, 338 1- 63, 345 59-150, 715/15
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes

Abstract

A system, method and apparatus for creating and executing inter-exchange spread instruments, comprising a buy and a sell leg (or other variation of buys and/or sells) of two distinct global exchange traded instruments. A spread instrument price is set using an implied base price of a first leg based upon a current bid and offer of the first leg on a global exchange, an implied base price of a second leg based upon a current bid and offer of the second leg on a global exchange, a first leg weighting factor, a second leg weighting factor, and a volatility risk factor. When the spread instrument is traded, each underlying leg is automatically filled and confirmed pursuant to the customs and practices of the corresponding exchange and clearinghouse or clearing firm for the product associated with the leg.

Claims

1. A method of creating and executing a spread instrument having n financial products, wherein n>

=2, comprising the steps of;

receiving at a first server an identification of a first financial product listed on a first exchange, the first financial product having a first bid price and a first offer price, the identification of the first financial product being transmitted from a terminal associated with a market maker;

receiving at the first server an identification of selecting a second financial product listed on a second exchange, the second financial product having a second bid price and a second offer price, the identification of the second financial product being transmitted from the terminal associated with the market maker;

receiving at the first server an assignment of a first leg weighting factor for the first financial product, the first leg weighting factor being transmitted from the terminal associated with the market maker;

receiving at the first server an assignment of a second leg weighting factor for the second financial product, the second leg weighting factor being transmitted from the terminal associated with the market maker;

receiving at the first server an assignment of at least one volatility risk factor for the spread instrument, the at least one volatility risk factor being transmitted from the terminal associated with the market maker;

executing a software module on the first server to assign a price to the spread instrument calculated using, as inputs, the first bid price, the first offer price, the second bid price, the second offer price, the first leg weighting factor, the second leg weighting factor, and the at least one volatility risk factor; and

listing the spread instrument on an exchange as a unitary tradable instrument, the unitary tradable instrument being capable of being bought and sold by diverse trading entities.

2. The method according to claim 1, further comprising the steps of:

automatically transmitting a first fill confirmation for the first financial product from the first server to a server associated with the first exchange pursuant to customs and practices of the first exchange and its associated first clearing institution upon receipt of corresponding buy and sell instructions received by the first server and issued from a buyer'"'"'s terminal and a seller'"'"'s terminal, respectively; and

automatically transmitting a second fill confirmation for the second financial product to the first server to a server associated with the second exchange pursuant to customs and practices of the second exchange and its associated second clearing institution upon receipt of corresponding buy and sell instructions received by the first server and issued from the buyer'"'"'s terminal and the seller'"'"'s terminal, respectively.

3. The method according to claim 2, wherein the step of automatically transmitting the first fill confirmation for the first financial product causes the server associated with the first exchange to automatically route the order to the server associated with the first clearing institution.

4. The method according to claim 2, wherein the step of automatically transmitting the second fill confirmation for the second financial product causes the server associated with the second exchange to automatically route the order to the server associated with the second clearing institution.

5. The method according to claim 1, wherein the exchange that the unitary tradable instrument is listed upon is the first server.

6. The method according to claim 1, wherein the exchange that the unitary tradable instrument is listed upon is an exchange other than the first server.