Method and system for providing option spread indicative quotes

• US 8,799,136 B2
• Filed: 04/16/2013
• Issued: 08/05/2014
• 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:
  US13/863,862
• Publication Number:
  US 20130232055A1
• Time in Patent Office: 476 Days
• Field of Search: 705/35, 705/36.R, 705/37
• US Class Current: 705/36.R
• 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 system for electronically trading derivatives, comprising:

a market maker station;

a subscriber station; and

a network managing station in communication over a network with the market maker station and the subscriber station;

wherein the market maker station is configured to receive and/or provide one or both of an indicative quote and a binding quote; and

wherein the subscriber station is configured to request and/or receive one or both of the indicative quote and the binding quote, and is further configured to order a transaction based on the binding quote; and

wherein the network managing station is configured to match binding quotes and orders and to send the binding quotes and orders to an Exchange for clearance.

2. The system of claim 1 wherein the system further comprises a plurality of market maker stations and/or a plurality of subscriber stations and/or a plurality of network managing stations.

3. The system of claim 1 wherein the system further comprises one or a plurality of Exchanges, each of which is configured to receive and/or clear the order for the transaction.

4. The system of claim 1 wherein the network managing station is configured to transmit the request for the indicative quote to the market maker station on behalf of the subscriber station.

5. The system of claim 1 wherein the network managing station is configured to transmit the request for the binding quote to the market maker station on behalf of the subscriber station.

6. The system of claim 1 wherein the network managing station is configured to transmit the indicative quote on behalf of the market maker station to the subscriber station.

7. The system of claim 1 wherein the network managing station is configured to transmit the binding quote on behalf of the market maker station to the subscriber station.

8. The system of claim 1 wherein the subscriber station is further configured to transmit the request for the indicative quote directly to the market maker station.

9. The system of claim 1 wherein the subscriber station is further configured to transmit the request for the binding quote directly to the market maker station.

10. The system of claim 1 wherein the market maker station is further configured to transmit the indicative quote directly to the subscriber station.

11. The system of claim 1 wherein the market maker station is further configured to transmit the binding quote directly to the subscriber station.

12. The system of claim 1 wherein the system comprises a plurality of market maker stations, and wherein the network managing station comprises a quote engine.

13. The system of claim 12 wherein the quote engine comprises:

a quote aggregator configured to collect and store published indicative quotes from the plurality of market maker stations;

a combination pricing module coupled to the quote aggregator and configured to generate indicative quotes based on (a) the published indicative quotes and (b) spread parameters provided by the market maker stations; and

a market resolver module coupled to the combination pricing module and configured to determine a best bid/best ask and an aggregate quantity for the indicative quotes.

14. The system of claim 1 wherein the system further comprises an archive database coupled to the network managing station and configured to store historical quote generation data sufficient to recreate the market maker'"'"'s indicative and/or binding quotes.

15. The system of claim 1 wherein the market maker station is further configured to receive and/or provide indicative quote information.

16. The system of claim 15 wherein the indicative quote information is selected from the group consisting of theoretical values, spread parameters, quote offset parameters, indicative quote data sets, and combinations thereof.

17. The system of claim 16 wherein the indicative quote data sets comprise elements selected from the group consisting of indicative bid price, indicative bid size, indicative ask price, indicative ask size, quantity, delta, theoretical value, and combinations thereof.

18. The system of claim 16 wherein the indicative quote data sets comprise information selected from the group consisting of (a) a double-sided price and a quantity, (b) a theoretical value and a spread, (c) a double-sided indicative quote and a theoretical value, (d) a table from which a double-sided indicative quote and/or a theoretical value may be determined, and (e) combinations thereof.

19. A system for electronically trading derivatives, comprising:

one or a plurality of market maker stations;

one or a plurality of subscriber stations;

one or a plurality of Exchanges; and

a network managing station in communication over a network with the one or the plurality of market maker stations, the one or the plurality of subscriber stations, and the one or the plurality of Exchanges;

wherein the market maker stations are independently configured to receive and/or provide one or both of an indicative quote and a binding quote;

wherein the subscriber stations are independently configured to request and/or receive one or both of the indicative quote and the binding quote, and are independently further configured to order a transaction based on the binding quote;

wherein the network managing station is configured to match binding quotes and orders and to send the binding quotes and orders to an Exchange for clearance; and

wherein the Exchanges are independently configured to receive and/or clear the order for the transaction.

20. The system of claim 19 wherein the network managing station is configured to (a) transmit requests for indicative quotes and/or requests for binding quotes to at least one market maker station on behalf of at least one requesting subscriber station, and (b) transmit indicative quotes and/or binding quotes on behalf of at least one market maker station to at least one requesting subscriber station.

21. The system of claim 19 wherein the one or the plurality of subscriber stations are further configured to transmit requests for indicative quotes and/or binding quotes directly to at least one market maker station, and wherein the one or the plurality of market maker stations are further configured to transmit indicative quotes and/or binding quotes directly to at least one requesting subscriber station.

22. A system for electronically trading derivatives, comprising:

one or a plurality of market maker stations;

one or a plurality of subscriber stations;

one or a plurality of Exchanges; and

a network managing station in communication over a network with the one or the plurality of market maker stations, the one or the plurality of subscriber stations, and the one or the plurality of Exchanges;

wherein the market maker stations are independently configured to (a) receive requests for indicative quotes and/or binding quotes directly from at least one subscriber station, and to (b) provide indicative quotes and/or binding quotes directly to at least one subscriber station;

wherein the subscriber stations are independently configured to (a) request indicative quotes and/or binding quotes directly from at least one market maker station, and to (b) order a transactions based on at least one binding quote;

wherein the Exchanges are independently configured to receive and/or clear orders for transactions directly from the subscriber stations and/or the market maker stations; and

wherein the network managing station is configured to (a) monitor activity between the market maker stations, the subscriber stations, and the Exchanges, (b) maintain an audit trail of the activity, and (c) match binding quotes and orders and send the binding quotes and orders to an Exchange for clearance.