Counterparty credit in electronic trading systems

• US 8,898,080 B1
• Filed: 08/25/2005
• Issued: 11/25/2014
• Est. Priority Date: 08/25/2005
• Status: Active Grant

• Current Assignee: Patshare Limited (CME Group Incorporated)
• Original Assignee: Patshare Limited (CME Group Incorporated)
• Inventors: Nolan, Kieron, Holmes, Simon, Dowling, William, Young, Darryl
• Primary Examiner(s): JOHNSON, GREGORY L
• Application Number:
  US11/212,458
• Time in Patent Office: 3,379 Days
• Field of Search: None
• 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

Abstract

There is disclosed an electronic trading system and associated methods adapted to automatically match submitted orders on the basis of price, quantity limitations, and lines of credit defined by potential counterparties. Lines of credit are divided into time based tranches relating to the maturity of an instrument to be traded, and a number of schemes are used to manage the tranches in order to improve control and use of remaining credit, which can be replenished manually or automatically. Traders are grouped into desks, and orders submitted by a trader may be matched on behalf of any of several credit centers defined per trader desk. Lines of credit may be held in various ways such as at the level of counterparty trading organizations, and at the level of counterparty credit centers. A variety of mechanisms are used to numerically interrelate lines of credit and different tradeable instruments, and a permissioned user can select how these mechanisms are used to control display of the market and matching of orders for traders in their trading organization.

Claims

1. A computerized trading system for use in trading financial instruments between parties, comprising:

an accounts store that stores details of multiple trading accounts relating to at least some of the parties, the multiple trading accounts for each party defining respective multiple trading preferences for the party and being defined at multiple levels of a tree of trading accounts;

an order store that records order parameters defining orders submitted on behalf of the parties for trading financial instruments;

a credit store that records a set of credit parameters maintained for each of the multiple trading accounts for each party, each set of credit parameters defining limits of credit for the trading account to determine the credit worthiness of trades between the party and other parties;

a credit management mechanism that manages the credit parameters; and

an order matching engine that generates trades by matching orders contained in the order store subject to the limits of credit, the order matching engine being arranged to automatically chain together said orders, without instruction to do so from any of the parties, to generate a multi-legged chain of simultaneous trades, wherein the order matching engine is arranged to fully authorize the chain, to fully reject the chain or to partially authorize the chain by scaling down all the orders in the chain by an appropriate factor determined by the credit parameters.

4. The system of claim 1, wherein the matching engine is adapted to chain together instruments based on both the order parameters and the credit parameters.

5. The system of claim 1, wherein the matching engine is adapted to allow the same party to be a party to more than one trade in the chain.

6. The system of claim 1, wherein the order matching engine is implemented as a single threaded process.

2. The system of claim h wherein the financial instruments are financial derivatives.

3. The system of claim 2, wherein the financial instruments include underlying instruments and strategy instruments comprising two or more underlying instruments.

7. The system of claim 3, wherein the order matching engine is arranged to automatically chain together both the underlying and the strategy instruments to generate a multi-legged chain of simultaneous trades.

8. A computerized trading system for use in trading instruments between parties, comprising

an accounts store that stores details of multiple trading accounts relating to at least some of the parties, the multiple trading accounts for each party defining respective multiple trading preferences for the party and being defined at multiple levels of a tree of trading accounts;

an order matching engine that automatically generates trades by matching orders submitted by traders on behalf of the parties, the order matching engine being arranged to automatically chain together said orders, without instruction to do so from any of the parties, to generate a multi-legged chain of simultaneous trades; and

a trade mechanism to post-process trades generated by the order matching engine, the trade mechanism being adapted to automatically select any of the trading accounts, of said multiple trading accounts, relating to the parties involved in a trade.

9. The system of claim 8, wherein the trade mechanism preferentially selects trading accounts of said multiple trading accounts, of the parties involved in a trade, which both relate to a single clearing system.

10. The system of claim 9, wherein:

the order matching engine is adapted to match orders between first and second parties subject to credit parameters relating to the first and second parties to generate a trade between the parties, and the trade mechanism is adapted to automatically select a trading account of said multiple trading accounts related to each party and to post-process the trade using the selected trading accounts.

11. The system of claim 10, wherein the trade is split across one or more further trading accounts if insufficient credit is available to post-process a trade using the selected trading accounts of said multiple trading accounts.

12. The system of claim 8, wherein the trade mechanism allows each party to define one or more settlement parties and is adapted to route settlement of a trade to a settlement party commonly defined by two parties to a trade.

16. The system of claim 8, wherein each order submitted on behalf of a party identifies a trading account of the multiple trading accounts of the party, and the trade mechanism is adapted to select the identified trading account, of said multiple trading accounts, relating to each party involved in a trade.

17. The system of claim 8, wherein the computerized trading system further comprises a clearing system preferences store for storing details of clearing system preferences for each party.

18. The system of claim 8, wherein the multiple trading preferences for a party include one or more of:

a preference to trade with a specified counterparty;

a preference to trade via a central counterparty;

a preference to trade via a specified clearing system;

a preference that a trade is notified to a third party; and

a preference that a trade is novated into the name of a third party.

13. In a computerized trading system comprising an accounts store, an order store, a credit store and an order matching engine, a method of matching orders for financial instruments, submitted on behalf of trading parties, comprising:

receiving and storing, in the accounts store, details of multiple trading accounts relating to at least some of the parties, the multiple trading accounts for each party defining respective multiple trading preferences for the party and being defined at multiple levels of a tree of trading accounts;

receiving and storing, in the credit store, a plurality of credit parameters for each of the multiple trading accounts defining limits of credit for the trading account to determine the credit worthiness of trades between a party and other parties;

receiving and storing, in the order store, a plurality of orders submitted on behalf of the parties for said financial instruments;

in the order matching engine, generating trades by matching orders contained in the order store subject to the limits of credit, automatically chaining together orders to generate a multi-legged chain of simultaneous trades, without instruction to do so from any of the parties; and

in the order matching engine, fully authorizing the chain, fully rejecting the chain or partially authorizing the chain by scaling down all the orders in the chain by an appropriate factor determined by the credit parameters.

14. The method of claim 13, wherein the step of automatically chaining together orders uses a single threaded matching process.

15. A method of electronically trading instruments between parties, in a computerized trading system, comprising an accounts store, an order matching engine and a trade mechanism, the method comprising:

the accounts store receiving and storing data defining multiple trading accounts for at least some of the parties, the multiple trading accounts defining respective multiple trading preferences for each party and being defined at multiple levels of a tree of trading accounts;

the order matching engine receiving and matching orders submitted by the parties to form trades by automatically chaining together said orders, without instruction to do so from any of the parties, to generate a multi-legged chain of simultaneous trades; and

the trading mechanism automatically selecting, for at least some of the trades any of the trading accounts of said multiple trading accounts for the trading parties; and

post-processing at the trade mechanism, the trade using the selected trading accounts.

19. The method of claim 15, wherein each order submitted on behalf of a party identifies a trading account of the multiple trading accounts of the party, and the step of automatically selecting at the trade mechanism any of the trading accounts of said multiple trading accounts for the trading parties comprises automatically selecting the identified trading account, of said multiple trading accounts, relating to each party involved in the trade.