Ratio spreads for contracts of different sizes in implied market trading

• US 8,255,305 B2
• Filed: 09/15/2009
• Issued: 08/28/2012
• 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:
  US12/560,122
• Publication Number:
  US 20110066536A1
• Time in Patent Office: 1,078 Days
• Field of Search: 705/35, 705/38
• US Class Current: 705/35
• 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 for matching orders, the method comprising:

receiving, by a processor, one or more real orders via a communication network;

generating, by the processor, an implied order, one or more components of the implied order being a ratio spread linking a first contract and a second contract that have been specified with a common product but with trading units of different sizes; and

matching, by the processor, the one or more real orders with other real orders or the implied order.

2. The computer implemented method of claim 1, further comprising performing match engine setup, wherein match engine setup comprises:

defining, by the processor, a full size contract as the first contract and a small contract as the second contract;

assigning, by the processor, lot points to the full size contract and the small contract, the lot points being used to associate a volume of one or more small contracts with a volume of the full size contract; and

creating, by the processor, the ratio spread in a way that liquidity in the full size contract is available to traders of the one or more small contracts, the ratio spread orders being created based on the lot points assigned to the full size contract and the one or more small contracts.

3. The computer implemented method of claim 2, wherein assigning lot points comprises assigning a number of lot points to the full size contract such that the number of lot points for the full size contract is a least common multiple of a number of lot points assigned to the one or more small contracts.

4. The computer implemented method of claim 1, wherein generating an implied order comprises:

determining, by the processor, a minimum volume of the one or more small contracts; and

dividing, by the processor, the minimum volume of the small contracts by a volume of the full size contract and rounding to a nearest full integer, the ratio spread of the implied order being set equal to the nearest full integer.

5. The computer implemented method of claim 1, wherein the ratio spread is freely tradable subject only to a constraint that sufficient volume be present to calculate trades.

6. The computer implemented method of claim 1, further comprising publishing, by the processor, market data about matches between the one or more real orders and the other real orders or the implied order.

7. The computer implemented method of claim 1, further comprising displaying, by the processor, the ratio spreads on a trade machine.

8. A match engine comprising:

an input configured to receive one or more new orders;

a processor configured to receive the one or more new orders and generate an implied order, one or more components of the implied order being a ratio spread linking a first contract and a second contract that have been specified with a common product but with trading units of different sizes, the implied order being generated based on the one or more new orders; and

an output configured to receive the implied order from the processor and transmit the implied order to a trade machine used for placing trades.

9. The match engine of claim 8, wherein the processor is operable to perform match engine setup.

10. The match engine of claim 9, wherein, as a part of match engine setup, the processor is operable to:

define a full size contract as the first contract and a small contract as the second contract;

assign lot points to the full size contract and the small contract, the lot points being used to associate a volume of one or more small contracts with a volume of the full size contract; and

create the ratio spread in a way that liquidity in the full size contract is available to traders of the one or more small contracts, the ratio spread orders being created based on the lot points assigned to the full size contract and the one or more small contracts.

11. The match engine of claim 10, wherein the processor is operable to assign a number of lot points to the full size contract such that the number of lot points for the full size contract is a least common multiple of a number of lot points assigned to the one or more small contracts.

12. The match engine of claim 10, wherein the processor is operable to:

determine a minimum volume of the one or more small contracts; and

divide the minimum volume of the small contracts by a volume of the full size contract and rounding to a nearest full integer, the ratio spread of the implied order being set equal to the nearest full integer.

13. The match engine of claim 10, wherein the ratio spread is freely tradable subject only to a constraint that sufficient volume be present to calculate trades.

14. The match engine of claim 10, wherein the processor is operable to publish market data about matches between the one or more new orders and other real orders or the implied order and display the ratio spreads via the output.

15. A computer-readable storage medium encoded with computer executable instructions, the computer executable instructions executable with a processor, the computer-readable medium comprising:

instructions executable to receive one or more real orders via a communication network; and

instructions executable to generate an implied order, one or more components of the implied order being a ratio spread linking a first contract and a second contract that have been specified with a common product but with trading units of different sizes; and

instructions executable to match the one or more real orders with other real orders or the implied order.

16. The computer-readable storage medium of claim 15, further comprising:

instructions executable to define a full size contract as the first contract and a small contract as the second contract;

instructions executable to assign lot points to the full size contract and one or more small contracts, the lot points being used to associate a volume of the one or more small contracts with a volume of the full size contract; and

instructions executable to create the ratio spread in a way that liquidity in the full size contract is available to traders of the one or more small contracts, the ratio spread orders being created based on the lot points, assigned to the full size contract and the one or more small contracts.

17. The computer-readable storage medium of claim 16, further comprising instructions executable to assign lot points, wherein assigning lot points comprises assigning a number of lot points to the full size contract such that the number of lot points for the full size contract is a least common multiple of a number of lot points assigned to the one or more small contracts.

18. The computer-readable storage medium of claim 16, further comprising:

instructions executable to determining a minimum volume of the one or more small contracts; and

instructions executable to divide the minimum volume of the small contracts by a volume of the full size contract and rounding to a nearest full integer, the ratio spread of the implied order being set equal to the nearest full integer.

19. A match engine comprising:

means for receiving one or more real orders via a communication network;

means for generating an implied order, one or more components of the implied order being a ratio spread linking a first contract and a second contract that have been specified with a common product but with trading units of different sizes; and

means for matching the one or more real orders with other real orders or the implied order.

20. The match engine of claim 19, further comprising:

means for defining a full size contract as the first contract and a small contract as the second contract;

means for assigning lot points to the full size contract and the small contract, the lot points being used to associate a volume of one or more small contracts with a volume of the full size contract; and

means for creating the ratio spread in a way that liquidity in the full size contract is available to traders of the one or more small contracts, the ratio spread orders being created based on the lot points assigned to the full size contract and the one or more small contracts.

21. The match engine of claim 20, wherein assigning lot points comprises assigning a number of lot points to the full size contract such that the number of lot points for the full size contract is a least common multiple of a number of lot points assigned to the one or more small contracts.

22. The match engine of claim 19, further comprising means for publishing market data about matches between the one or more real orders and the other real orders or the implied order.

23. A trading environment, comprising:

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

a communication network coupled to the trading workstations; and

a trade matching system coupled to the communication network, wherein the trade matching system generates an implied order wherein one or more components of the implied order is a ratio spread linking a first contract and a second contract that have been specified with a common product but with trading units of different sizes.

24. The trading environment of claim 23, wherein the trade matching system may be operable to compare the implied order with one or more real orders to find a matched trade.

25. The trading environment of claim 23, wherein at least one of the orders is an inter-commodity spread order, an inter-calendar spread order, or a real spread order.

26. The trading environment of claim 23, wherein the ratio spread is a system-generated spread at a price and volume determined by an exchange business objective, including but not limited to zero price and infinite volume.

27. The trading environment of claim 23, wherein the trade matching system may transmit the ratio spreads to one or more trading workstations for display on the one or more trading workstations.

28. A computer implemented method for matching orders, the method comprising:

receiving, by a processor, a first order for a product, the first order specifying a first volume;

receiving, by the processor, a second order for the product, the second order specifying a second volume, wherein the first volume is different than the second volume;

generating, by the processor, an implied order based on a ratio spread defined between the first order and the second order; and

matching, by the processor, a third order with the implied order.