System and method for risk management using average expiration times

• US 8,799,145 B2
• Filed: 09/20/2013
• Issued: 08/05/2014
• Est. Priority Date: 11/26/2002
• Status: Active Grant

• Current Assignee: Trading Technologies International, Inc.
• Original Assignee: Trading Technologies International, Inc.
• Inventors: Schluetter, Jens-Uwe
• Primary Examiner(s): Lemieux, Jessica
• Application Number:
  US14/032,733
• Publication Number:
  US 20140025556A1
• Time in Patent Office: 319 Days
• Field of Search: 705/37
• US Class Current: 705/37
• 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A margin requirement is computed while trading. The margin requirement may be calculated while trading because the preferred system takes into account working orders to generate the margin requirement. The on the fly possibility allows the preferred system to provide pre-trade risk calculations, but can also be used to provide post-trade calculations. A generic spread number and the maximum number of outright positions are determined. Average expirations for the generic spread are computed. Using the spread positions, the average expirations and the maximum number of outright positions, a spread margin and an outright margin are calculated, which when summed provide a total margin requirement. Limits based in part on the total margin requirement may be imposed on one or more traders.

Claims

1. A computer readable medium having stored therein instructions executable by a processor, wherein the instructions are executable to:

determine a total maximum leg position based on maximum leg positions for each of one or more tradeable objects, wherein the maximum leg positions represent a maximum position in each leg;

determine a number of total outright positions based on a total filled net long position and a total net short position, wherein the number of total outright positions represents the number of positions that are not considered part of a spread;

determine a number of spreads based on the total maximum leg position and the number of total outright positions, wherein the number of spreads represents a generic spread position;

determine a first average expiration time based on equivalent buy leg spread positions and filled long positions, and further based on expiration times for the one or more tradeable objects;

determine a second average expiration time based on equivalent sell leg spread positions and filled short positions and further based the expiration times for the one or more tradeable objects;

determine an average distance based on the first average expiration time and the second average expiration time between the legs corresponding to the one or more tradeable object of the spread;

compute a spread margin requirement using the average distance, a first base value, and the number of spreads; and

provide the spread margin requirement, wherein a decision to allow an order to be sent to an electronic exchange is based on the spread margin requirement.

2. The computer readable medium of claim 1, wherein the instructions are further executable to:

determine a maximum number of outrights based on a number of outrights due to working buy outright orders and a number of outrights due to working sell outright orders, wherein the maximum number of outrights represents the maximum number of outright positions possible with a current configuration of outright market working orders and filled positions;

determine an outright margin requirement based on the maximum number of outrights and a second base value; and

determine a total margin requirement based on the spread margin requirement and the outright margin requirement, wherein the decision to allow the order to be sent is based on the total margin requirement.

3. The computer readable medium of claim 2, wherein the instructions are further executable to determine whether to send the order based on the total margin requirement and an available margin balance.

4. The computer readable medium of claim 2, wherein the instructions are further executable to send the order to the exchange when the available margin balance is greater than the total margin requirement.

5. The computer readable medium of claim 3, wherein the instructions are further executable to refrain from sending the order to the exchange when the available margin balance is less than the total margin requirement.

6. The computer readable medium of claim 1, wherein the filled long and short positions exclude excess outright positions that do not combine to form spreads.

7. The computer readable medium of claim 2, wherein the total margin requirement is computed for one trader.

8. The computer readable medium of claim 2, wherein the total margin requirement is computed for a plurality of traders.

9. The computer readable medium of claim 2, wherein the total margin requirement is computed at a client device used by a trader to place orders with the exchange.

10. The computer readable medium of claim 1, wherein the total maximum leg position is the sum of the maximum leg positions for each of the one or more tradeable objects.

11. The computer readable medium of claim 1, wherein the maximum leg position for each of the one or more tradeable objects is based on a filled net long position, a filled net short position, an equivalent buy leg spread position, and an equivalent sell leg spread position.

12. The computer readable medium of claim 11, wherein a maximum leg position for one of the one or more tradeable objects is equal to maximum (absolute value (filled net long position−

filled net short position +equivalent buy leg spread position), absolute value (filled net long position−

filled net short position−

equivalent sell leg spread position)).

13. The computer readable medium of claim 1, wherein the number of total outright positions is equal to absolute value (a total filled net long position−

a total filled net short position).

14. The computer readable medium of claim 1, wherein the total filled net long position is based on filled net long positions for each of the one or more tradeable objects, wherein the total filled net short position is based on filled net short positions for each of the one more tradeable objects.

15. The computer readable medium of claim 1, wherein the number of spreads is equal to (the total maximum leg position−

the number of total outright positions)/2.

16. The computer readable medium of claim 1, wherein the first average expiration time is the sum of individual first average expiration times for each of the one or more tradeable objects, and wherein the second average expiration time is the sum of individual second average expiration times.

17. The computer readable medium of claim 16, wherein the individual first average expiration time for each tradeable object in the one or more tradeable object is based on an equivalent buy leg spread position and an expiration time for the corresponding tradeable object, and wherein the individual second average expiration time for each tradeable object of the one or more tradeable object is based on an equivalent sell leg spread position and an expiration time for the corresponding tradeable object.

18. The computer readable medium of claim 17, wherein the individual first expiration time is equal to the equivalent buy leg spread position * the corresponding expiration time, and wherein the individual second expiration time is equal to the equivalent sell leg spread position * the corresponding expiration time.

19. The computer readable medium of claim 1, wherein the average distance is further based on a total net long position and a total net short position.

20. The computer readable medium of claim 19, wherein the average distance is based on absolute value [(the first average expiration time /the total net long position)−

(the second average expiration time/the total net short position)].