Automated trading system for routing and matching orders

• US 8,346,653 B2
• Filed: 10/23/2009
• Issued: 01/01/2013
• 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., Montesano, Anthony, Smith, Eileen C.
• Primary Examiner(s): Borlinghaus, Jason M
• Application Number:
  US12/605,127
• Publication Number:
  US 20100191640A1
• Time in Patent Office: 1,166 Days
• Field of Search: None
• 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 automated system for matching orders from a virtual trading crowd in an exchange configured for trading securities or derivatives is disclosed including an electronic trade engine operative to receive an order or a quote for a security or derivative at the exchange, the trade engine further operative to disseminate a request for a price message to a plurality of market makers quoting a class in response to receiving the order or the quote, an electronic book in communication with the electronic trade engine, the electronic book operative to store at least one order or quote received by the electronic trade engine, a database including an allocation algorithm, the database in communication with the electronic trade engine, and a trade processor in communication with the database, the trade processor operative to analyze and execute orders or quotes according to the allocation algorithm selected from the database.

Claims

1. A computer implemented method of allocating orders for the purchase or sale of securities or derivatives in an exchange configured for trading securities or derivatives, the method comprising:

receiving an electronic order for a security or derivative at an electronic trade engine in a server of the exchange while the exchange is currently at a price for the security or derivative that is different than a national best bid or offer price such that the received order is marketable against an away market;

in response to receiving the electronic order, a trade processor in the trade engine at the exchange flashing the electronic order to a plurality of eligible market participants, wherein the plurality of eligible market participants is less than a total number of market participants in communication with the electronic trade engine;

routing the electronic order in its entirety to an away market in absence of the trade processor receiving a price from at least one eligible market participant for the electronic order that is equal to or better than the national best bid or offer price within a predetermined period of time after flashing the electronic order;

in response to receiving an improved price from at least one of the plurality of eligible market participants within the predetermined time period after flashing the electronic order, wherein the improved price is equal to or better than the national best bid or offer price, the trade processor;

matching and allocating a portion of the electronic order at the improved price against each of the eligible market participants from whom the improved price was received, wherein the improved price is not included as part of a disseminated quote at the exchange; and

routing a remaining portion of the electronic order to an electronic book configured for storing orders received by the electronic trade engine, or to an away market, based on a price available at the exchange after matching and allocating the portion.

2. The method of claim 1, wherein the trade processor flashing the electronic order comprises the trade processor transmitting a request for price message.

3. The method of claim 1, wherein the plurality of eligible market participants less than the total number of market participants comprises market makers quoting in a class associated with the securities or derivatives in the received electronic order.

4. The method of claim 2, wherein the request for price message comprises a price equal to the national best bid or offer price.

5. The method of claim 4, wherein the request for price message further comprises an order size.

6. The method of claim 1, wherein the trade processor matching and allocating the portion of the electronic order comprises the trade processor allocating the portion according to an allocation algorithm, wherein an order size of each eligible market participant at the improved price is capped to prevent inflation of an allocated portion of the order.

7. The method of claim 6, wherein the allocation algorithm comprises a participation component and a pro rata component for each eligible market participant at the improved price.

8. A computer implemented method of allocating orders for the purchase or sale of securities or derivatives in an exchange configured for trading securities or derivatives, the method comprising:

receiving an electronic order for a security or derivative at an electronic trade engine in a server of the exchange while the exchange is currently at a price for the security or derivative that differs from the national best bid or offer price, wherein the received order does not lock or cross an away market;

in response to receiving the electronic order, a trade processor in the trade engine at the exchange flashing the electronic order to a plurality of eligible market participants, wherein the plurality of eligible market participants is less than a total number of market participants in communication with the electronic trade engine;

storing the electronic order in an electronic book in absence of the trade processor receiving a price from at least one eligible market participant for the electronic order that is equal to or better than the national best bid or offer price within a predetermined period of time after flashing the electronic order; and

in response to receiving an improved price from at least one of the plurality of eligible market participants within the predetermined time period, wherein the improved price is equal to or better than the national best bid or offer price, the trade processor;

matching and allocating a portion of the electronic order at the improved price against each of the eligible market participants from whom the improved price was received, wherein the improved price is not included as part of a disseminated quote at the exchange;

routing a remaining portion of the electronic order to an electronic book configured for storing orders received by the electronic trade engine, or to an away market, based on a price available at the exchange after matching and allocating the portion.

9. The method of claim 8, wherein the trade processor flashing the electronic order comprises the trade processor transmitting a request for price message.

10. The method of claim 8, wherein the plurality of eligible market participants less than the total number of market participants comprises market makers quoting in a class associated with the securities or derivatives in the received electronic order.

11. The method of claim 9, wherein the request for price message comprises a price equal to the national best bid or offer price.

12. The method of claim 8, wherein the trade processor matching and allocating the portion of the electronic order comprises the trade processor allocating the portion according to an allocation algorithm, wherein an order size of each eligible market participant at the improved price is capped to prevent inflation of an allocated portion of the order.

13. The method of claim 12, wherein the allocation algorithm comprises a participation component and a pro rata component for each eligible market participant at the improved price.

14. An automated exchange system for the purchase or sale of securities or derivatives in an exchange configured for trading securities or derivatives comprising:

an electronic trade engine comprising at least one server configured for receiving an electronic order for a security or derivative at an electronic trade engine of the exchange;

an electronic book configured for storing the incoming orders received by the electronic trade engine when the exchange price is equal to or better than the national best bid or offer price;

a database comprising an allocation algorithm, the database in communication with the electronic trade engine;

a trade processor in communication with the database and configured to, in response to a price at the exchange for the security or derivative being different than a national best bid or offer price upon receipt of the electronic order, such that received order is marketable against an away market, flash the electronic order to a plurality of eligible market participants, wherein the plurality of eligible market participants is less than a total number of market participants in communication with the electronic trade engine;

the trade processor further configured to;

route the electronic order in its entirety to an away market in absence of receiving a price from at least one eligible market participant for the electronic order that is equal to or better than the national best bid or offer price within a predetermined period of time after flashing the electronic order;

in response to receiving an improved price from at least one of the plurality of eligible market participants within the predetermined time period after flashing the electronic order, wherein the improved price is equal to or better than the national best bid or offer price;

match and allocate a portion of the electronic order at the improved price against each of the eligible market participants from whom the improved price was received, wherein the improved price is not included as part of a disseminated quote at the exchange; and

route a remaining portion of the electronic order to the electronic book or to an away market based on a price available at the exchange after matching and allocating the portion.

15. The automated exchange system of claim 14, wherein the trade processor is configured to transmit a request for price message in order to flash the electronic order.

16. The automated exchange system of claim 14, wherein the plurality of eligible market participants less than the total number of market participants comprises market makers quoting in a class associated with the securities or derivatives in the received electronic order.

17. The automated exchange system of claim 15, wherein the request for price message comprises a price equal to the national best bid or offer price.

18. The automated exchange system of claim 17, wherein the request for price message further comprises an order size.

19. The automated exchange system of claim 14, wherein the trade processor is configured to match and allocate the portion according to an allocation algorithm, and wherein the trade processor is configured to cap an order size of each eligible market participant at the improved price to prevent inflation of an allocated portion of the order.

20. The automated exchange system of claim 19, wherein the allocation algorithm comprises a participation component and a pro rata component for each eligible market participant at the improved price.