Ratio spreads for contracts of different sizes in implied market trading

• US 8,793,180 B2
• Filed: 07/06/2012
• Issued: 07/29/2014
• Est. Priority Date: 09/15/2009
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Milne, Andrew
• Primary Examiner(s): RANKINS, WILLIAM E
• Application Number:
  US13/543,512
• Publication Number:
  US 20120271755A1
• Time in Patent Office: 753 Days
• Field of Search: 705/35, 705/38
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A method for matching orders is provided. The method includes receiving a first order for a product, the first order specifying a first volume, receiving a second order for the product, the second order specifying a second volume, wherein the first volume is different than the second volume, generating an implied order based on a ratio spread defined between the first order and the second order, and matching a third order with the implied order.

Claims

1. A computer implemented method comprising:

receiving, by a processor, a first order to trade a first quantity of at least a first contract, the first contract being characterized by an underlier and a first size indicative of a first volume of the underlier represented by the first contract;

determining, by the processor, whether one or more other orders have been previously received which are counter to the first order and for at least a collective second quantity of a second contract or a combination of at least the first contract and the second contract, the second contract being characterized by the underlier and a second size indicative of a second volume of the underlier represented by the second contract, the second size being different from the first size;

determining, by the processor, when the previously received one or more orders are for the second contract whether a first product of the first quantity multiplied by the first size is equivalent to a second product of the collective second quantity multiplied by the second size;

determining, by the processor, when the previously received one or more orders are for the combination of the first and second contracts whether a third product of the first quantity multiplied by the first size is equivalent to a fourth product of the collective second quantity multiplied by the first size and whether a fifth product of the collective second quantity multiplied by the second size is equivalent to a sixth product of a third quantity of a second previously received order for the second contract multiplied by the second size; and

executing, by the processor, a trade between the first order and the one or more other orders when the first product is equal to the second product and executing, by the processor, a trade between the first order, the one or more other orders and the second previously received order when the third product is equal to the fourth product and the fifth product is equal to the sixth product.

2. The computer implemented method of claim 1, wherein the first order comprises a combination contract for the first and second contracts.

3. The computer implemented method of claim 1, wherein one of the first size or second size is defined as a unit size, the other of the first size or second size being a multiple of the unit size.

4. The computer implemented method of claim 3, wherein the one or more other orders are orders for full sized contracts defined by a predetermined full size, and the first size of the first contract is less than the predetermined full size.

5. The computer implemented method of claim 3, wherein lot points are assigned to a full sized contract and a small contract such that the number of lot points for the full sized contract is a multiple of a number of lot points assigned to the small contract.

6. The computer implemented method of claim 1, further comprising:

resting, by the processor, the first order when it is determined that the first product is not equal to the second product the third product is equal to the fourth product and the fifth product is equal to the sixth product, and

receiving additional orders counter to the first order.

7. The computer implemented method of claim 1, further comprising;

identifying, with the processor, a proposed match between the first order, the one or more other orders and the second previously received order when the third product is equal to the fourth product and the fifth product is equal to the sixth product; and

publishing, on a display, the proposed match as market data.

8. The computer implemented method of claim 1, further comprising;

identifying, with the processor, a proposed match between the first order and the one or more other orders when the first product is equal to the second product; and

publishing, on a display, the proposed match as market data.

9. The computer implemented method of claim 1, wherein the one or more other orders comprises a calendar spread.

10. A computer implemented method comprising:

receiving, by a processor, a first order for a first quantity of a first contract, the first contract characterized by an underlier and a first volume;

identifying, by the processor, whether there is at least one previously received order for a second quantity of a second contract, the second contract characterized by the underlier and a second volume;

identifying, by the processor, whether there is at least one previously received combination contract order for a third quantity of combination contracts, wherein the combination contract comprises a third contract characterized by the underlier and a third volume, and a fourth contract characterized by the underlier and a fourth volume;

determining, by the processor,

a first product where the first quantity is multiplied by the first volume,

a second product where the second quantity is multiplied by the second volume,

a third product where the third quantity is multiplied by the third volume, and

a fourth product where the third quantity is multiplied by the fourth volume; and

executing, by the processor, the steps of;

a first trade between the first order and the previously received order when the first order and the previously received order are counter and the first product is equal to the second product,

a second trade between the first order and the existing combination contract order when the when the first order and the existing combination contract order are counter and the first product is equal to the sum of the third product added to the fourth product, and

a third trade between the first order, the previously received order and the existing combination contract order when the first order is counter to part of the combination contract order, the previously received order is counter to another part of the combination order, the first product is equal to the third product and the second product is equal to the fourth product.

11. The computer implemented method of claim 10, wherein the first volume is representative of a full sized volume as defined by an exchange or a government body.

12. The computer implemented method of claim 11, wherein the second volume is representative of a less than full sized volume, the less than full sized volume sized such that the full sized volume is a multiple of the less than full sized volume.

13. The computer implemented method of claim 12, wherein the full sized volume is a volume corresponding to a CL contract for West Texas Intermediate Crude Oil and the less than full sized volume is a QM contract for West Texas Intermediate Crude Oil.

14. The computer implemented method of claim 13, wherein the third contract has a price of zero, the third volume is infinite, and the third product is further determined by multiplying the third contract price with the third volume and the third quantity.

15. A trading environment comprising:

one or more trading workstations for entry of a plurality of orders;

a communication network coupled to the trading workstations;

a trade matching system coupled to the communication network, wherein the trade matching system comprises, a processor and a computer readable non-transitory storage medium with instructions executable by the processor, the instructions executable to;

receive a first order from a trading station via the communication network for a first quantity of a first contract, the first contract characterized by an underlier and a first volume;

identify whether there is at least one previously received order for a second quantity of a second contract, the second contract characterized by the underlier and a second volume;

identify whether at least one existing combination contract orders for a third quantity of combination contracts, wherein the combination contract comprises a third contract characterized by the underlier and a third volume, and a fourth contract characterized by the underlier and a fourth volume;

determine,

a first product where the first quantity is multiplied by the first volume,

a second product where the second quantity is multiplied by the second volume,

a third product where the third quantity is multiplied by the third volume, and

a fourth product where the third quantity is multiplied by the fourth volume; and

execute the steps of,

a first trade between the first order and the previously received order when the first order and the previously received order are counter and the first product is equal to the second product,

a second trade between the first order and the existing combination contract order when the when the first order and the existing combination contract order are counter and the first product is equal to the sum of the third product added to the fourth product, and

a third trade between the first order, the previously received order and the existing combination contract order when the first order is counter to part of the combination contract order, the previously received order is counter to another part of the combination order, the first product is equal to the third product and the second product is equal to the fourth product.

16. The trade environment of claim 15, wherein the communication network operates using an FIX (financial information exchange) protocol.

17. The trade environment of claim 15, wherein the first volume is representative of a full sized volume as defined by an exchange or a government body.

18. The trade environment of claim 17, wherein the second volume is representative of a less than full sized volume, the less than full sized volume sized such that the full sized volume is an integer multiple of the less than full sized volume.

19. The trade environment of claim 15, wherein the existing combination contract order comprises a system generated combination contract at a price and volume determined by an exchange business objective.

20. The trade environment of claim 19, wherein the third contract has a price of zero, the third volume is infinite, and the third product is further determined by multiplying the third contract price with the third volume and the third quantity.