Multiple quote risk management

• US 20070118453A1
• Filed: 11/17/2006
• Published: 05/24/2007
• Est. Priority Date: 11/18/2005
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Studnitzer, Ari, Callaway, Paul, Farrell, James, Flemm, Lori, Thiruthuvadoss, A., Bauerschmidt, Paul, Albert, William
• Granted Patent: US 7,734,538 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 10/10 Office automation; Time management
• CPC Class Codes: G06Q 20/381 Currency conversion
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• 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
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

The disclosed systems and methods relate to allowing trading of over the counter (“OTC”) foreign exchange (“FX”) contracts on a centralized matching and clearing mechanism, such as that of the Chicago Mercantile Exchange'"'"'s (“CME”'"'"'s) futures exchange system (the “Exchange”). The disclosed systems and methods allow for anonymous transactions, centralized clearing, efficient settlement and the provision of risk management/credit screening mechanisms to lower risk, reduce transaction costs and improve the liquidity in the FX market place. In particular, the disclosed embodiments increase speed of execution facilitating growing demand for algorithmic trading, increased price transparency, lower cost of trading, customer to customer trading, and automated asset allocations, recurring trades as well as clearing and settlement efficiencies.

Claims

1. A method of protecting a market participant participating in a market, the method comprising:

allocating an amount of risk to the market participant, the allocated amount of risk being stored in an account;

reducing the stored allocated amount of risk based on a transaction proposed by the market participant; and

determining if the stored allocated amount of risk has been depleted by the reduction and acting in accordance therewith.

2. The method of claim 1 wherein the allocating further comprises allocating an amount of risk based on a credit rating of the market participant.

3. The method of claim 1 wherein the allocating further comprises allocating an amount of risk based on the maximum liability the market participant may be expected to satisfy.

4. The method of claim 1, wherein the reducing further comprises determining a first amount of risk associated with the proposed transaction and deducting the first amount of risk from the stored allocated amount of risk.

5. The method of claim 4, wherein the reducing further comprises storing the reduced allocated amount of risk in the account in place of the stored allocated amount of risk.

6. The method of claim 4, wherein the first amount is fixed.

7. The method of claim 4, wherein the first amount is based on the proposed transaction.

8. The method of claim 1, wherein the determining further comprises warning the market participant that the stored allocated amount of risk is nearing depletion.

9. The method of claim 1, wherein the acting further comprises alerting the market participant when the stored allocated amount of risk has been depleted.

10. The method of claim 1, wherein the acting further comprises blocking the proposed transaction when the stored allocated amount of risk has been depleted.

11. The method of claim 1 further comprising:

determining that the proposed transaction has been concluded and increasing the stored allocated amount risk based thereon.

12. The method of claim 1 further comprising:

re-allocating the amount of risk to the market participant after an elapse of a period of time.

13. A system for protecting a market participant participating in a market, the system comprising:

a risk allocation processor operative to allocate an amount of risk to the market participant, the allocated amount of risk being stored in an account;

a transaction processor coupled with the account and operative to reduce the stored allocated amount of risk based on a transaction proposed by the market participant;

a monitor processor coupled with the account and operative to determine if the stored allocated amount of risk has been depleted by the reduction; and

a transaction handling processor coupled with the monitor processor and operative to take an action in accordance with the determination of the monitor processor.

14. The system of claim 13 wherein the risk allocation processor is further operative to allocate an amount of risk based on a credit rating of the market participant.

15. The system of claim 13 wherein the risk allocation processor is further operative to allocate an amount of risk based on the maximum liability the market participant may be expected to satisfy.

16. The system of claim 13, wherein the transaction processor is further operative to determine a first amount of risk associated with the proposed transaction and deduct the first amount of risk from the stored allocated amount of risk.

17. The system of claim 16, wherein the transaction processor is further operative to store the reduced allocated amount of risk in the account in place of the stored allocated amount of risk.

18. The system of claim 16, wherein the first amount is fixed.

19. The system of claim 16, wherein the first amount is based on the proposed transaction.

20. The system of claim 13, wherein the monitor processor is further operative to generate a warning to the market participant that the stored allocated amount of risk is nearing depletion.

21. The system of claim 13, wherein the transaction handling processor is further operative to alert the market participant when the stored allocated amount of risk has been depleted.

22. The system of claim 13, wherein the transaction handling processor is further operative to block the proposed transaction when the stored allocated amount of risk has been depleted.

23. The system of claim 13 wherein the transaction processor is further operative to determine that the proposed transaction has been concluded and, based thereon, increase the stored allocated amount risk.

24. The system of claim 13 wherein the risk allocation processor is further operative to re-allocate the amount of risk to the market participant after an elapse of a period of time.

25. A system for protecting a market participant participating in a market, the system comprising:

means for allocating an amount of risk to the market participant, the allocated amount of risk being stored in an account;

means for reducing the stored allocated amount of risk, coupled with the account, based on a transaction proposed by the market participant;

means for determining if the stored allocated amount of risk has been depleted by the reduction, the means for determining being coupled with the account; and

means acting in accordance the determination of the means for determining.

26. A system for protecting a market participant participating in a market, the system comprising a processor and a memory coupled with the processor, the system further comprising:

first logic stored in the memory and executable by the processor to allocate an amount of risk to the market participant, the allocated amount of risk being stored in an account in the memory;

second logic stored in the memory and executable by the processor to reduce the stored allocated amount of risk based on a transaction proposed by the market participant; and

third logic stored in the memory and executable by the processor to determine if the stored allocated amount of risk has been depleted by the reduction and act in accordance with the determination.