Automated trading system in an electronic trading exchange

• US 8,732,048 B2
• Filed: 04/28/2011
• Issued: 05/20/2014
• Est. Priority Date: 07/18/2000
• Status: Expired due to Fees

• Current Assignee: DCFB LLC
• Original Assignee: Edge Capture LLC
• Inventors: Marynowski, John M., Voinescu, Catalin D., Puscasu, Stefan, O'Donnell, Thomas M.
• Primary Examiner(s): FELTEN, DANIEL S
• Application Number:
  US13/096,182
• Publication Number:
  US 20120030087A1
• Time in Patent Office: 1,118 Days
• Field of Search: 705/35, 705/36.R, 705/37, 705/38
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

An electronic exchange system network includes a trader site having an automated trading system capable of submitting orders and/or quotes to an exchange site. The automated trading system determines whether an order or quote should be submitted based on, for example, the current market price of an option and theoretical buy and sell prices. The theoretical buy and sell prices are derived from, among other things, the current market price of the security underlying the option. The theoretical buy and sell prices are calculated when underlying factors that contribute to the theoretical prices change. Computation times of the theoretical prices may be reduced by using precalculated values and/or using interpolation and extrapolation. Other techniques may be used in addition or in the alternative to speed automatic decision-making. In addition, a system of checks may be conducted to ensure accurate and safe automated trading. The automated trading system may be capable of automatically submitting orders in connection with the underlying security in order to hedge part of the delta risk associated with the automated option trades.

Claims

1. A system for implementing automated trading through an electronic option trading exchange system, comprising:

a first computer in electronic communication with an electronic option trading exchange system, comprising a processor configured with logic for implementing an automated trading application and at least one other application through an operating system, wherein the operating system gives priority to the automated trading application over the at least one other application,

the first computer (a) receiving electronic communications indicative of a current price for an option traded on the electronic option trading exchange system, (b) automatically determining, based on a theoretical price of the option, whether the current price for the option satisfies a price condition, wherein the theoretical price is based at least on price data of an underlying security of the option that is stored in a memory, (c) automatically checking whether one or more safety criteria for an option transaction are satisfied, and (d) automatically transmitting to the electronic option trading exchange system a response to the current price within 150 milliseconds of receiving the electronic communications when the price condition and the one or more safety criteria are satisfied, wherein the response includes an order or quote for the option capable of being matched to the current price.

2. The system of claim 1, wherein the automated trading application is run without debug messages.

3. The system of claim 1, wherein the first computer implements multiple other applications through an operating system, wherein the operating system gives priority to the automated trading application over the multiple other applications.

4. The system of claim 1, further comprising the first computer receiving electronic communications from an updating market feed, the electronic communications indicative of price information of the underlying security of the option, deriving the price data from the electronic communications from the market feed, and storing the price data in the memory.

5. The system of claim 4, further comprising the first computer calculating the theoretical price using at least the stored price data.

6. The system of claim 1, further comprising a second computer communicatively coupled to the first computer, the second computer receiving electronic communications from an updating market feed, the electronic communications indicative of price information of the underlying security of the option, and deriving the price data from the electronic communications from the market feed.

7. The system of claim 6, further comprising the second computer transmitting the price data to the first computer, and the first computer calculating the theoretical price using at least the transmitted price data.

8. The system of claim 6, further comprising the second computer storing the price data in the memory, and the first computer calculating the theoretical price using at least the stored price data.

9. The system of claim 6, further comprising the second computer calculating the theoretical price using at least the price data, and transmitting the theoretical price to the first computer.

10. The system of claim 7, further comprising the second computer calculating the theoretical price using at least the price data, and storing the theoretical price in the memory.

11. The system of claim 1, wherein the operating system is a Windows-based operating system.

12. The system of claim 1, wherein the operating system is a Linux operating system.

13. The system of claim 1, wherein the current price is a current bid price, and the price condition includes the current bid price being greater than or equal to the theoretical price of the option.

14. The system of claim 1, wherein the current price is a current offer price, and the price condition includes the current offer price being less than or equal to the theoretical price of the option.

15. The system of claim 1, wherein the one or more safety criteria include being able to send or receive data over one or more communication links of the electronic option trading exchange system.

16. The system of claim 1, wherein the one or more safety criteria include a trading status of the option or the underlying security of the option.

17. The system of claim 1, wherein the one or more safety criteria include a maximum quantity of the option.

18. The system of claim 1, wherein the one or more safety criteria include a maximum number of automated trading attempts during a predetermined time period.

19. The system of claim 1, wherein the one or more safety criteria include an automated trading frequency for the option.

20. The system of claim 1, wherein the one or more safety criteria include the delta of the option transaction.

21. The system of claim 1, wherein the one or more safety criteria include a price reasonability check.

22. The system of claim 1, wherein the one or more safety criteria include a check of a price of the underlying security of the option.

23. The system of claim 1, wherein the one or more safety criteria include the difference between a current bid and offer price of the underlying security of the option being less than a predetermined value.

24. The system of claim 1, wherein the one or more safety criteria include the rate of change of the price of the underlying security of the option being less than a predetermined value.

25. A system for implementing automated trading through an electronic option trading exchange system, comprising:

a first computer in electronic communication with an electronic option trading exchange system, the first computer (a) receiving electronic communications indicative of a current price for an option traded on the electronic option trading exchange system; and

a second computer communicatively coupled to the first computer, comprising a processor configured with logic for implementing an automated trading application and at least one other application through an operating system, wherein the operating system gives priority to the automated trading application over the at least one other application, the second computer (b) automatically determining, based on a theoretical price of the option, whether the current price for the option satisfies a price condition, wherein the theoretical price is based at least on price data of an underlying security of the option that is stored in a memory, and (c) automatically checking whether one or more safety criteria for an option transaction are satisfied,

the first computer responding to the automatic determination of the second computer by (d) automatically transmitting to the electronic option trading exchange system a response to the current price within 150 milliseconds of receiving the electronic communications when the price condition and the one or more safety criteria are satisfied, wherein the response includes an order or quote for the option capable of being matched to the current price.

26. The system of claim 25, wherein the automated trading application is run without debug messages.

27. The system of claim 25, wherein the second computer implements multiple other applications through an operating system, wherein the operating system gives priority to the automated trading application over the multiple other applications.

28. The system of claim 25, further comprising the first computer receiving electronic communications from an updating market feed, the electronic communications indicative of price information of the underlying security of the option, wherein the price data is derived from the electronic communications from the market feed.

29. The system of claim 28, further comprising the first computer storing the price data in the memory, and the second computer calculating the theoretical price using at least the stored price data.

30. The system of claim 28, further comprising the first computer transmitting the price data to the second computer, and the second computer calculating the theoretical price using at least the price data.

31. The system of claim 25, further comprising the second computer receiving electronic communications from an updating market feed, the electronic communications indicative of price information of the underlying security of the option, deriving the price data from the electronic communications from the market feed, and storing the price data in the memory.

32. The system of claim 31, further comprising the second computer calculating the theoretical price using at least the stored price data.

33. The system of claim 31, further comprising the second computer calculating the theoretical price using at least the price data, and storing the theoretical price in the memory.

34. The system of claim 25, wherein the operating system is a Windows-based operating system.

35. The system of claim 25, wherein the operating system is a Linux operating system.

36. The system of claim 25, wherein the current price is a current bid price, and the price condition includes the current bid price being greater than or equal to the theoretical price of the option.

37. The system of claim 25, wherein the current price is a current offer price, and the price condition includes the current offer price being less than or equal to the theoretical price of the option.

38. The system of claim 25, wherein the one or more safety criteria include being able to send or receive data over one or more communication links of the electronic option trading exchange system.

39. The system of claim 25, wherein the one or more safety criteria include a trading status of the option or the underlying security of the option.

40. The system of claim 25, wherein the one or more safety criteria include a maximum quantity of the option.

41. The system of claim 25, wherein the one or more safety criteria include a maximum number of automated trading attempts during a predetermined time period.

42. The system of claim 25, wherein the one or more safety criteria include an automated trading frequency for the option.

43. The system of claim 25, wherein the one or more safety criteria include the delta of the option transaction.

44. The system of claim 25, wherein the one or more safety criteria include a price reasonability check.

45. The system of claim 25, wherein the one or more safety criteria include a check of a price of the underlying security of the option.

46. The system of claim 25, wherein the one or more safety criteria include the difference between a current bid and offer price of the underlying security of the option being less than a predetermined value.

47. The system of claim 25, wherein the one or more safety criteria include the rate of change of the price of the underlying security of the option being less than a predetermined value.

48. The system of claim 25, wherein the first computer is located near the electronic option trading exchange system.

49. The system of claim 25, wherein the first computer is located closer to the electronic option trading exchange system than the second computer.

50. The system of claim 25, wherein the first computer is located substantially closer than the second computer to the electronic option trading exchange system.

51. The system of claim 25, wherein the first computer is located in the same city as the electronic option trading exchange system.

52. The system of claim 25, wherein the first computer is located in a different city than the electronic option trading exchange system.

53. The system of claim 25, wherein the second computer controls the automated trading of the option performed by the first computer.