U.S. patent application number 12/939782 was filed with the patent office on 2011-02-24 for system and method of allocating an incoming order to standing orders.
This patent application is currently assigned to Board of Trade of the City of Chicago, Inc.. Invention is credited to Donald M. Cuba, Andrew Czupek, Bryan T. Durkin, Jonathan Kronstein, Troy C. Mathe, Thomas G. McCabe, Brian M. Wolf.
Application Number | 20110047104 12/939782 |
Document ID | / |
Family ID | 39795896 |
Filed Date | 2011-02-24 |
United States Patent
Application |
20110047104 |
Kind Code |
A1 |
Czupek; Andrew ; et
al. |
February 24, 2011 |
SYSTEM AND METHOD OF ALLOCATING AN INCOMING ORDER TO STANDING
ORDERS
Abstract
A method of allocating a quantity of an incoming order to a
plurality of standing orders, wherein the plurality of standing
orders are contra to the incoming order and have an identical price
is disclosed. The method includes allocating a first portion of the
quantity of the incoming order to a first subset of the plurality
of standing orders, wherein each order comprising the first subset
is designated with a priority; allocating a second portion of the
quantity of the incoming order to a second subset of the plurality
of standing orders, wherein each order comprising the second subset
was submitted by a preferred trader; allocating a third portion of
the quantity of the incoming order to a third subset of the
plurality of standing orders in accordance with when each order
comprising the third subset was received; and allocating a fourth
portion of the quantity of the incoming order to a fourth subset of
the plurality of standing order proportionally.
Inventors: |
Czupek; Andrew; (New Lenox,
IL) ; Durkin; Bryan T.; (Orland Park, IL) ;
McCabe; Thomas G.; (Chicago, IL) ; Wolf; Brian
M.; (Roselle, IL) ; Cuba; Donald M.; (Tinley
Park, IL) ; Kronstein; Jonathan; (Elmhurst, IL)
; Mathe; Troy C.; (Chicago, IL) |
Correspondence
Address: |
BRINKS HOFER GILSON & LIONE / CME
P.O. BOX 10395
CHICAGO
IL
60610
US
|
Assignee: |
Board of Trade of the City of
Chicago, Inc.
|
Family ID: |
39795896 |
Appl. No.: |
12/939782 |
Filed: |
November 4, 2010 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
|
|
11729578 |
Mar 29, 2007 |
7853499 |
|
|
12939782 |
|
|
|
|
Current U.S.
Class: |
705/500 |
Current CPC
Class: |
G06Q 10/00 20130101;
G06Q 40/04 20130101; G06Q 40/00 20130101; G06Q 99/00 20130101 |
Class at
Publication: |
705/500 |
International
Class: |
G06Q 90/00 20060101
G06Q090/00 |
Claims
1. A method of allocating a quantity of an incoming order to a
plurality of standing orders, wherein the plurality of standing
orders are contra to the incoming order and have an identical
price, the method comprising the steps of: allocating a first
portion of the quantity of the incoming order to a first subset of
the plurality of standing orders, wherein each order comprising the
first subset is designated with a priority; allocating a second
portion of the quantity of the incoming order to a second subset of
the plurality of standing orders, wherein each order comprising the
second subset was submitted by a preferred trader; allocating a
third portion of the quantity of the incoming order to a third
subset of the plurality of standing orders in accordance with when
each order comprising the third subset was received; and allocating
a fourth portion of the quantity of the incoming order to a fourth
subset of the plurality of standing order proportionally.
2. The method of claim 1, wherein the method comprises the further
step of designating orders comprising the first subset with the
priority in accordance with a criterion.
3. The method of claim 2, wherein the criterion is improving the
market.
4. The method of claim 2, wherein the criterion requires a minimum
order quantity.
5. The method of claim 1, wherein the step of allocating the fourth
portion comprises the step of comparing a quantity associated with
each order comprising the fourth subset with a predetermined
value.
6. The method of claim 1, wherein the step of allocating the second
portion comprises the step of allocating a part of the second
portion to an order comprising the second subset, wherein the part
is in accordance with a ratio associated with the trader who
submitted the order.
7. The method of claim 2, wherein the step of allocating a part of
the second portion comprises the step of calculating the part in
accordance with the ratio and the quantity of the incoming
order.
8. The method of claim 1, wherein the method undertakes the step of
allocating the second portion before undertaking the step of
allocating the first portion.
9. The method of claim 1, wherein the method undertakes the step of
allocating the fourth portion before undertaking the step of
allocating the step of allocating the third portion.
Description
CROSS REFERENCE TO RELATED APPLICATIONS
[0001] This patent is a divisional of U.S. patent application Ser.
No. 11/729,578 (now U.S. Pat. No. ______), filed on Mar. 29, 2007
(Atty. Docket No. 04672-00791 [2007-008-US1]), the entire content
of which is hereby incorporated in their entirety herein for all
purposes.
TECHNICAL FIELD
[0002] The present invention relates generally to trade matching
systems and more particularly to determining how a quantity of an
order in a market is allocated to other orders in the market.
BACKGROUND
[0003] An exchange provides one or more markets for the purchase
and sale of various types of products including financial
instruments such as stocks, bonds, futures contracts, options,
cash, and other similar instruments. Agricultural products and
commodities are also examples of products traded on such exchanges.
A futures contract is a product that is a contract for the future
delivery of another financial instrument such as a quantity of
grains, metals, oils, bonds, or cash. Generally, each exchange
establishes a specification for each market provided thereby that
defines at least the product traded in the market, minimum
quantities that must be traded, and minimum changes in price (e.g.,
tick size). For some types of products (e.g., futures or options),
the specification further defines a quantity of the underlying
product represented by one unit (or lot) of the product, and
delivery and expiration dates.
[0004] Some products on an exchange are traded in an open outcry
environment where the exchange provides a location for buyers and
sellers to meet and negotiate a price for a quantity of a product.
Other products are traded on an electronic trading platform (e.g.,
an electronic exchange) where traders use software to send an order
to the trading platform. The order identifies the product, the
quantity of the product the trader wishes to trade, a price at
which the trader wishes to trade the product, and a direction of
the order (i.e., whether the order is a bid or an offer). Other
products are traded in an over-the-counter market (e.g., where
products are not listed on an exchange).
[0005] A trading host on the trading platform monitors incoming
orders received thereby and attempts to identify (i.e., match) one
or more previously received orders stored in an order book
database, wherein each identified order is contra to the incoming
order and has a favorable price relative to the incoming order. In
particular, if the incoming order is a bid then the identified
order is an offer at a price that is identical to or less than the
bid price. Similarly, if the incoming order is an offer at a
particular price, the identified order is a bid at a price that is
identical to or greater than the offer price.
[0006] Upon identification (matching) of a contra order, a minimum
of the quantities associated with the identified order and the
incoming order is matched and that quantity of each of the
identified and incoming orders become two halves of a matched trade
that is sent to a clearinghouse. The trading host considers each
identified order in this manner until either all of the identified
orders have been considered or all of the quantity associated with
the incoming order has been matched. If any quantity of the
incoming order remains, an entry is created in the order book
database and information regarding the incoming order is recorded
therein.
[0007] Traders access the markets on a trading platform using
trading software that receives and displays at least a portion of
the order book for a market, enables a trader to provide parameters
for an order for the product traded in the market, and transmits
the order to the trading platform. The trading software typically
includes a graphical user interface to display at least a price and
quantity of some of the entries in the order book associated with
the market. The number of entries of the order book displayed is
generally preconfigured by the trading software, limited by the
trading platform, or customized by the user. Some graphical user
interfaces display order books of multiple markets of one or more
trading platforms. The trader may be an individual who trades on
his/her behalf, a broker trading on behalf of another person or
entity, a group, or an entity. Furthermore, the trader may be a
system that automatically generates and submits orders.
[0008] If the trading host identifies multiple orders contra to the
incoming order and that have an identical price, wherein the price
of the multiple orders is favorable to the price of the incoming
order, the trading host allocates the quantity of the incoming
order among such identified orders in accordance with
prioritization and allocation algorithms as defined in the product
specification. A first-in/first-out (FIFO) allocation algorithm
considers each identified order sequentially in accordance with
when the identified order was received. The quantity of the
incoming order is matched to the quantity of the identified order
received earliest, then quantities of the next earliest, and so on
until the quantity of the incoming order is exhausted. FIG. 1
illustrates how an incoming order to sell 100 lots of a product at
a price of 111.01/lot received by the trading host is allocated to
standing orders. Table 100 shows orders A-E that the trading host
has identified in the order book that are contra to and that have a
favorable price compared to the incoming order. Rows of the table
100 show information regarding standing orders A through E in the
order book. A column 104 shows the price of each order, a column
106 shows the time each order was received, and a column 108 shows
the quantity requested by each order. A column 110 shows the
portion of the quantity of the incoming order allocated to each of
the standing orders A-E. In particular, the 30 units requested in
order A are allocated first because the order A has the most
favorable price (111.03). The remaining 70 units of the incoming
order are allocated to the orders B-E in accordance with the time
they were received because such orders are all at the same price.
Therefore, the orders B and C are allocated 50 and 20 units of the
remaining 70 units of the incoming order, respectively. Because the
quantity of the incoming order is exhausted, the remainder of the
standing order C, and all of the standing orders D and E are not
allocated any portion of the incoming order.
[0009] Some market specifications define the use of a pro-rata
allocation algorithm, wherein a quantity of an incoming order is
allocated to each of plurality of identified orders proportionally.
FIG. 2 illustrates an example of how an incoming order to sell 100
lots of a product with a price of 111.01/lot is allocated among
standing orders using the pro-rata allocation algorithm. As with
the example of FIG. 1, the trading host has identified orders A-E
as being contra (i.e., orders to buy) to the incoming order and
having a favorable price. Further, 30 lots of the incoming order
are allocated to the 30 lots requested in the order A first because
this order has the highest bid price (i.e., is most favorable).
Thereafter, the remaining 70 lots are allocated to the orders B-E
proportionally because these orders are at the same price. In
particular, the trading host calculates the total number of lots
requested by the orders B-E (111 units) and calculates a proportion
the quantity of each order comprises of the total. Column 202 shows
the proportion corresponding to each order. The trading host
calculates the portion of the remaining quantity (70) of the
incoming order to allocate to each of the orders B-E by multiplying
the proportion of the total requested by the order and the quantity
remaining. Typically, the trading host rounds the calculated
quantity to an integer and whether the trading host rounds up,
down, or to a nearest integer is determined by the specification
for the market. Any quantity of the incoming order that remains
after pro-rata allocation (e.g., because the trading host rounds
down the calculated quantity) is allocated to any orders that have
an unfilled quantity on a FIFO basis. For example, for the order B,
the trading host multiplies the proportion of quantity requested by
the order B (i.e., 45%) by the remaining quantity (70) and thus
allocates 32 lots of the remaining 70 lots to this order. Column
204 shows the quantity of the incoming order allocated to each of
the orders A-E.
[0010] Some trading platforms provide a priority to certain
standing orders in particular markets. An example of such an order
is the first order that improves a price (i.e., improves the
market) for the product during a trading session. To be given
priority, the trading platform may require that the quantity
associated with the order is at least a minimum quantity. Further,
some trading platforms cap the quantity of an incoming order that
is allocated to a standing order on the basis of a priority for
certain markets. In addition, some trading platforms may give a
preference to orders submitted by a trader who is designated as a
market maker for the product. Other trading platforms may use other
criteria to determine whether orders submitted by a particular
trader are given a preference. Typically, when the trading host
allocates a quantity of an incoming order to a plurality of
identified orders at the same price, the trading host allocates a
quantity of the incoming order to any orders that have been given
priority. The trading host thereafter allocates any remaining
quantity of the incoming order to orders submitted by traders
designated to have a preference, and then allocates any still
remaining quantity of the incoming order using the FIFO or pro-rata
algorithms.
[0011] FIG. 3 illustrates an example of allocating an incoming
order to sell 110 lots of a product where an order that improved
the price is given priority. In this example, the order that is
given priority must be for a quantity of more than 20 lots and a
maximum of 50 lots are to be allocated to on the basis of priority.
In addition, suppose that the order A improved the price and is for
more than 20 lots. For these reasons the order A is given priority
and up to 50 lots of any incoming order is allocated thereto before
allocation to other orders at the same price. In particular, when
an order for 110 lots is received, 50 lots is allocated to order A
and the remaining quantity (60 lots) is allocated proportionally
based on the quantity of standing orders that remains after the
allocation to the order A based on the priority thereof as
described above.
[0012] Pro-rata algorithms used in some markets may require that an
allocation provided to a particular order in accordance with the
pro-rata algorithm must meet at least a minimum allocation
quantity. Any orders that do not meet or exceed the minimum
allocation quantity are allocated to on a FIFO basis after the
pro-rata allocation (if any quantity of the incoming order
remains). In the example illustrated in FIG. 4, a column 402 shows
the results of a pro-rata allocation of an incoming order of 110
lots among orders A-E. A column 404 shows the results of applying a
minimum allocation quantity that has a value of 2 to the pro-rata
allocation. In this example, the trading host rounds fractional
quantities of the pro-rata allocation to the nearest integer.
Because orders A and B would be allocated quantities that are less
than the value of the minimum allocation quantity, the allocation
to each of the orders A and B after applying the minimum allocation
quantity is O. The 2 lots of the incoming order that were not
allocated to orders A and B because of applying the minimum
allocation quantity are allocated on a FIFO basis and because order
A was received earliest, order A is allotted the entire remainder
of 2 lots (as shown in a column 406).
[0013] Allocation algorithms used by the trading host for a
particular market may affect the liquidity of the market.
Specifically, some allocation algorithms may encourage traders to
submit more orders, where each order is relatively small. Other
allocation algorithms may encourage a trader to use an electronic
trading system that can monitor market activity and submit orders
on behalf of the trader very quickly and without intervention. As
markets and technologies available to traders evolve, the
allocation algorithms used by trading hosts must also evolve
accordingly to enhance liquidity and price discovery in
markets.
SUMMARY
[0014] According to one aspect of the present invention, a method
of allocating a quantity of an incoming order comprises the steps
of developing a value that indicates a portion of the incoming
order that is to be allocated using a FIFO algorithm and allocating
a first portion of the incoming order to standing orders using the
FIFO algorithm. The method also comprises the step of allocating a
second portion of the incoming order to standing orders using a
pro-rata algorithm, wherein step of allocating the second portion
leaves a remaining quantity of the incoming order. The method
comprises the additional step of allocating the remaining quantity
of the incoming order to the standing orders using the FIFO
algorithm.
[0015] In another aspect of the present invention, a method of
allocating a quantity of an incoming order to a plurality of
standing orders, wherein the standing orders are contra to the
incoming order and have identical prices. The method comprises the
step of allocating a first portion of the quantity of the incoming
order to a first subset of the plurality of standing orders,
wherein each order comprising the first subset is designated with a
priority. The method comprises the further steps of allocating a
second portion of the quantity of the incoming order to a second
subset of the plurality of standing orders, wherein a preferred
trader submitted each order comprising the second subset. The
method comprises the still further steps of allocating a third
portion of the quantity of the incoming order to a third subset of
standing orders in accordance with when each order comprising the
third subset was received. The method comprises the still further
step of allocating a fourth portion of the quantity of the incoming
order to a fourth subset of the plurality of standing orders
proportionally.
[0016] In yet another aspect of the present invention, a method of
managing priority among standing orders for a product on a trading
platform comprises the steps of providing priority to a plurality
of discrete standing orders in accordance with a first criterion,
wherein a quantity associated with a matched order is allocated to
those standing orders that have been provided priority before being
allocated to other standing orders at the same price, including
standing orders submitted by preferred traders. The method also
comprises the step of revoking priority from one of the plurality
of discrete standing orders in accordance with a second
criterion.
[0017] In accordance with another aspect of the present invention,
a method of operating a trading host to allocate a quantity of an
incoming order comprises the step of providing priority to a
plurality of discrete standing orders in accordance with a first
criterion. The method comprises the further step of allocating a
portion of the quantity of the incoming order to those standing
orders that have priority before allocating any quantity of the
incoming order to other standing orders that have the same price,
including standing orders submitted by preferred traders.
[0018] Other aspects and advantages of the present invention will
become apparent upon consideration of the following detailed
description.
BRIEF DESCRIPTION OF THE FIGURES
[0019] FIG. 1 shows an example of allocating an incoming order to
standing orders using a FIFO algorithm;
[0020] FIG. 2 shows an example of allocating an incoming order to
standing orders using a pro-rata algorithm;
[0021] FIG. 3 shows an example of allocating an incoming order to
standing orders in accordance with a priority;
[0022] FIG. 4 shows an example of allocating an incoming order to
standing orders in accordance with a pro-rata algorithm that
imposes a minimum allocation quantity;
[0023] FIG. 5 shows an embodiment of how a trading host processes
an incoming order;
[0024] FIG. 6A shows an embodiment of how a quantity of an incoming
order is allocated to standing orders;
[0025] FIG. 6B shows another embodiment of how a quantity of an
incoming order may be allocated to standing orders;
[0026] FIG. 6C shows yet another embodiment of how a quantity of an
incoming order may be allocated to standing orders;
[0027] FIG. 7 shows an embodiment of how a quantity of an incoming
order is allocated to standing orders that have priority;
[0028] FIG. 8 shows another embodiment of how a quantity of an
incoming order is allocated to standing orders that have
priority;
[0029] FIG. 9 shows an embodiment of allocating a quantity of an
incoming order to orders submitted by traders who are given a
preference;
[0030] FIG. 10 shows an embodiment of how a quantity of an incoming
order is allocated to standing orders using a FIFO algorithm;
[0031] FIGS. 11A-11C show an embodiment of how a quantity of an
incoming order is allocated to standing orders using a pro-rata
algorithm;
[0032] FIG. 12A shows an example of multiple standing orders having
priority;
[0033] FIG. 12B shows another example of multiple standing orders
having priority;
[0034] FIGS. 13A-13B illustrate an example of the priority of
standing orders being changed upon receipt of an additional
order;
[0035] FIGS. 14A-14B show an example of the priority of standing
orders being revoked; and
[0036] FIG. 15 shows an example of allocation of an incoming order
to resting orders in accordance with priority, preferences, FIFO
allocation, and pro-rata allocation.
DETAILED DESCRIPTION
[0037] FIG. 5 shows a flow diagram 500 of how a trading host may
allocate an incoming order to identified orders. At a block 502,
the trading host waits to receive an order that is either a bid or
an offer to buy or sell, respectively, a quantity of a product. In
response to receiving an order, processing proceeds to a block 504,
which validates the incoming order. Typically, validation includes
verifying that the trader who submitted the incoming order is
authorized to trade in the market in which the product is traded
and that the incoming order conforms to the specifications for the
market in which the product trades. If the order is not valid then
processing proceeds to a block 506 that posts the error to the
trading software being used by the trader who submitted the order
and then processing returns to the block 502 to wait for another
incoming order. If the incoming order is valid, a block 508 checks
a database maintained by the trading host to determine if an order
book (i.e., a market) exists for the incoming order. If the market
does not exist, then processing proceeds to a block 510, otherwise
processing proceeds to a block 512. The block 510 creates a new
order book for the market and a block 514 creates an entry in the
newly created order book for the incoming order. The trading host
thereafter proceeds to the block 502 to wait for another order to
arrive.
[0038] The block 512 obtains the specification for the market.
Typically, the specification is read from a database or a file
structure maintained on computers used by the trading platform. In
some embodiments, the database that stores the specification also
stores the order book. In other embodiments, separate databases are
used to store the specification and the order book. In still other
embodiments, the specification is obtained via a network connection
to a remote system. A block 516 sets a value Q.sub.remaining to the
quantity of the product specified in the incoming order.
[0039] A block 517 queries the order book to determine if there are
any orders therein that are contra to the incoming order and that
have a favorable price. If no such orders are identified, the block
514 creates an entry for the incoming order in the order book. If
the block 517 identifies at least one order that is contra to the
incoming order and that has a favorable price, then a block 518
sets a value FIFO.sub.percent that is the percent of the incoming
order that should be allocated using a FIFO algorithm. The value
FIFO.sub.percent may be determined by querying a database or
obtained from another system using a private or public network
connection. In some markets, the value FIFO.sub.percent may be
fixed and defined by the market specification. In other markets,
the value of FIFO.sub.percent may be varied during the course of
the trading session in accordance with metrics associated with the
market. In other embodiments, the value FIFO.sub.percent is
determined in accordance with a measure of activity in the market.
Specifically, the block 518 uses the criteria of the market
specification to determine the value of FIFO.sub.percent that
should be used. For example, in some embodiments, the block 518 may
set a higher value of FIFO.sub.percent when there are many orders
in the market and a relatively low value of FIFO.sub.percent if
there are few orders in the market. In other embodiments, the block
518 may use a high value of FIFO.sub.percent if the sum of the
quantities associated with the orders in the market at the best
price is high; otherwise, the block 518 uses a relatively low value
of FIFO.sub.percent. In still other embodiments, the value of
FIFO.sub.percent is determined dynamically as the number of orders
in the market or the quantities associated with the orders varies.
Other types of metrics and indicators of market activity that may
be used to determine the value of FIFO.sub.percent should be
apparent to those having skill in the art.
[0040] A block 520 determines a value Q.sub.FIFO, that is the
quantity of the incoming order that is to be allocated using a FIFO
algorithm, by multiplying the value Q.sub.remaining with the value
FIFO.sub.percent. It should be apparent that if the value
FIFO.sub.percent is 100% then the trading host uses the FIFO
algorithm to allocate all of the quantity of the incoming order. In
addition, if the value of FIFO.sub.percent is 0% then none of the
quantity the incoming order is allocated using the FIFO algorithm
and the entire quantity is allocated using the pro-rata algorithms
described above or other algorithms designated for the market.
[0041] A block 522 identifies and selects all of the orders from
the order book that have the best price and that have not had any
quantity of the incoming order allocated thereto. A block 524
allocates the quantity of the product specified by the incoming
order (i.e., Q.sub.remaining) and adjusts the value Q.sub.remaining
in accordance with the quantity of the product allocated thereby. A
block 526 updates the order book entry of each order selected by
the block 522 to reflect any quantity of the incoming order
allocated thereto. For each selected order to which a portion of
the incoming order was allocated, a block 528 reports a match
between the selected order and the incoming order to the
clearinghouse, the trader who submitted the selected order, and the
trader who submitted the incoming order. In some embodiments, the
block 528 also records the match in a database maintained by the
trading platform. A block 530 checks to determine whether the value
Q.sub.remaining is greater than zero. If the value Q.sub.remaining
is greater than zero (i.e., the quantity of the incoming order has
not been exhausted) then processing proceeds to the block 517 to
determine if there are any remaining (i.e., unallocated) orders
that are contra to the incoming order and have a favorable price.
Otherwise, processing proceeds to the block 502 to wait for another
incoming order.
[0042] FIG. 6A shows a flow chart 600 of how the Q.sub.remaining
quantity of the incoming order is allocated to the order(s) that
are selected at the best price by, for example, the block 524 of
FIG. 5. A block 602 checks to see if only one order is selected or
if multiple orders are selected. If only one order is selected,
then a block 604 determines a quantity Q.sub.matched of the
incoming order that is to be matched to the contra order by
calculating the minimum of the quantity of product specified by the
selected order (Q.sub.order) and the quantity of the incoming order
that remains to be allocated (Q.sub.remaining). A block 606 updates
the value Q.sub.remaining by subtracting the value Q.sub.matched
therefrom.
[0043] Similarly, a block 607 updates the quantity of the selected
order that remains (Q.sub.order) by subtracting Q.sub.matched
therefrom. It should be apparent that after the block 607 one of
the values Q.sub.matched or Q.sub.remaining is zero. Processing
continues at block 610 where the allocation to the selected order
is complete and other orders may be considered.
[0044] A block 611 allocates the quantity of the incoming order
(Q.sub.remaining) to the selected orders in accordance with any
priority criteria defined by the market specification for the
product. A block 612 checks if any quantity Q.sub.remaining of
incoming order remains and if so, processing proceeds to a block
613, where the remaining quantity is allocated to standing orders
submitted by traders designated to have a preference.
[0045] A block 614 determines if there is any quantity of the
incoming order remaining to be allocated. If all of the quantity of
the incoming order has not been allocated, processing proceeds to a
block 616 that allocates a number of lots up to the value
Q.sub.FIFO of the incoming order to the selected orders using the
FIFO algorithm and adjusts the values Q.sub.FIFO and
Q.sub.remaining accordingly. Thereafter, a block 618 checks to see
if any quantity of the incoming order remains to be allocated and
if so, processing proceeds to a block 620 to allocate the remaining
quantity (Q.sub.remaining) using the pro-rata algorithm. If any of
the blocks 612, 614, or 618 determine that the entire quantity of
the incoming order has been allocated, processing therefrom
proceeds to the block 610.
[0046] At the block 610 processing is returned to the block that
initiated the allocation processing (e.g., block 524 of FIG.
5).
[0047] FIG. 6B shows a flowchart 630 of an embodiment that is a
variant of that shown in FIG. 6A. Specifically, the embodiment
shown in FIG. 6B allocates a quantity of an incoming order to
orders submitted by preferred traders before allocating any
remaining quantity of the incoming order to orders based on
priority. In this embodiment, the blocks 611-613 of FIG. 6A are
replaced by blocks 632-636. In particular, if the block 602 of FIG.
6A determines that more than one order has been selected then
processing proceeds to the block 632, which allocated the quantity
Q.sub.remaining of the incoming order to those selected orders
submitted by preferred traders. The block 634 thereafter branches
to the block 636 if any quantity of the incoming order remains;
otherwise, the block 634 branches to the block 610 of FIG. 6A. The
block 636 allocates any remaining quantity of the incoming order on
the basis of priority and proceeds to the block 614 of FIG. 6A.
[0048] FIG. 6C shows a flowchart 650 of an embodiment that is
another variant of that shown in FIG. 6A. In particular, the
embodiment shown in FIG. 6C allocates a remaining quantity of the
incoming order using the pro-rata algorithm before allocating a
quantity of the incoming order using the FIFO algorithm. In this
embodiment, blocks 652-658 are executed instead of the blocks
616-620 shown in FIG. 6A. The block 652 determines a value of
Q.sub.ProRata that is to be allocated using the pro-rata algorithm.
In some embodiments, the value Q.sub.ProRata is the difference
between the value Q.sub.remaining and Q.sub.FIFO. In other
embodiments, the value Q.sub.ProRata is developed in a manner
similar to how the value Q.sub.FIFO is developed and described
herein above. The block 654 allocates a quantity Q.sub.ProRata of
the incoming order to the selected orders using the pro-rata
algorithm. The block 656 determines if any quantity of the incoming
order remains and, if any quantity does remain, branches to the
block 658, which allocates the remaining quantity to the selected
orders using the FIFO algorithm and proceeds to the block 610 of
FIG. 6A. Alternately, the block 656 branches to block 610 of FIG.
6A if the quantity of the incoming order is exhausted.
[0049] FIG. 7 shows a flowchart 700 of an embodiment of how a
remaining quantity of the incoming order may be allocated to the
selected contra or standing orders that have a priority associated
therewith. Specifically, the FIG. 7 shows an embodiment that may be
used by the block 611 of FIG. 6A, for example, to allocate the
Q.sub.remaining quantity (or a portion thereof) of the incoming
order to such selected orders. The trading host tracks a quantity
of orders within a market during a trading session that has been
allocated based on a priority, this value is referred herein as
N.sub.priority. For example, the market specification may define
that the first three orders that improve the price during a trading
session are to have priority. At the start of the trading session,
the value of N.sub.priority is set to three by the trading host of
the trading platform. The value of N.sub.priority is decremented
for each order that is allocated a quantity of an incoming order
because of priority.
[0050] A block 704 sets a value of a counter i to 1. A block 706
identifies any orders among the selected orders (e.g., those
selected at the block 522 of FIG. 5) that are given priority and a
block 708 sets a value N to the number of such priority orders. A
block 710 branches to a block 712 if there are additional priority
orders to be considered (i<=N) and if there is a remaining
quantity of the incoming order to allocate (Q.sub.remaining>0).
Otherwise, the block 710 branches to a block 714 to return to
continue allocating the remaining quantity of the incoming
order.
[0051] The block 712 set a value Q.sub.order to the quantity
requested by the i.sup.th priority order. In some embodiments, the
priority orders are selected sequentially in accordance with the
time when each priority order was received. In some embodiments,
the priority orders are selected in accordance with trader status.
Other methods of selecting the priority orders may be apparent to
those with skill in the art. A block 713 determines if the value of
Q.sub.order is at least a minimum quantity min.sub.priority
necessary to have a portion of the incoming order allocated thereto
in accordance with the priority. The value of min.sub.priority is
typically defined by the market specification. If the value of
Q.sub.order is at least min.sub.priority then processing proceeds
to a block 716; otherwise processing proceeds to the block 717.
[0052] The block 716 determines a value Q.sub.matched allocate to
the i.sup.th priority order by calculating the minimum of the
quantity of the i.sup.th priority order and the quantity that
remains of the incoming order. The value Q.sub.matched is
subtracted at a block 718 from the value Q.sub.order to calculate
the quantity of the i.sup.th priority order that remains. A block
720 calculates the quantity of the incoming order (Q.sub.remaining)
that remains by subtracting the value of Q.sub.matched therefrom.
The quantity remaining of the i.sup.th priority order is set to
Q.sub.order at a block 722. The value of the counter i is
incremented by the block 717. The processing thereafter continues
to the block 710.
[0053] FIG. 8 shows another embodiment 800 of how an incoming order
may be allocated to selected orders that are given a priority,
wherein a maximum of a predetermined quantity (Q.sub.priority) of
the remaining quantity (Q.sub.remaining) of the incoming order are
allocated to selected orders having a priority associated
therewith. A block 802 looks up the value of Q.sub.priority that
may be allocated in accordance with the priority. In some
embodiments, the trading host tracks the number of lots within a
market and during a trading session that may be allocated based on
a priority. The value of Q.sub.priority may be stored in a database
of the trading host and the value of Q.sub.priority is decremented
as incoming orders are allocated to orders in accordance with a
priority. Typically, the trading host sets the value of
Q.sub.priority to a predetermined value defined by the trading
platform for a particular market. A block 804 initializes the value
of a counter i to 1. A block 808 sets the value of a variable N to
the number of such orders identified. A block 810 determines if any
priority orders remain (i<=N) and if the predetermined quantity
of orders have not been allocated in accordance with priority
(Q.sub.priority>0) and if there is any remaining quantity of the
incoming order to be allocated (Q.sub.remaining). If all three
conditions are true then the block 810 branches to a block 812;
otherwise, the block 810 branches to a block 814. The block 812
sets the value of Q.sub.order to the quantity of the i.sup.th
priority order. In some embodiments, the priority orders are
considered in the order in which each priority order was received,
so that the first priority order selected by the block 812 is the
priority order among the ones identified by the block 806 that was
received earliest.
[0054] A block 813 compares the value of Q.sub.order with the value
min.sub.priority to determine if the value of Q.sub.order is
sufficient to be considered for allocation in accordance with
priority. If the value of Q.sub.order is at least min.sub.priority
then processing proceeds to a block 816; otherwise processing
proceeds to a block 817.
[0055] The block 816 calculates a value Q.sub.matched that is the
amount of the remaining quantity Q.sub.remaining to allocate to the
i.sup.th priority order without exceeding Q.sub.priority. Blocks
818, 820, and 822 subtract the value Q.sub.matched from the values
Q.sub.order, Q.sub.remaining, and Q.sub.priority, respectively to
reflect the quantity allocated to the i.sup.th order. A block 824
sets the quantity of the i.sup.th order to Q.sub.order and the
block 817 thereafter increments the counter i. Processing proceeds
to the block 810.
[0056] The block 814 stores the quantity of Q.sub.priority and
allocation of the Q.sub.remaining quantity of the incoming order to
the selected orders on the basis of priority is completed.
[0057] FIG. 9 shows a flowchart 900 that illustrates allocation of
the remaining quantity (Q.sub.remaining) of the incoming order to
the orders selected at the block 522 and that have an unfilled
quantity associated therewith on the basis of preferences provided
to traders. A block 902 sets a value of a counter i to 1. A block
904 identifies orders submitted by traders who are provided a
preference. A block 906 sets the value of N to be number of orders
identified by the block 904. A block 908 sets a value Q to the
value of Q.sub.remaining. A block 910 tests to determine if orders
from preferred traders remain to have a portion of the quantity of
the incoming order allocated thereto and if any quantity of the
incoming order remains. If orders from preferred traders remain and
the quantity of the incoming order remains then processing proceeds
to a block 912; otherwise processing proceeds to a block 914 to
continue allocating any remaining quantity of the incoming
order.
[0058] The block 912 sets a value Q.sub.order to the quantity of
the i.sup.th order identified at the block 904. A block 916
identifies a value R that is a predetermined portion of the
incoming order to which the preferred trader is entitled and that
may vary from trader to trader. In some embodiments, if the
preferred trader has submitted multiple orders at the same price,
the trading host insures that the total allocation to the preferred
trader does not exceed the predetermined portion by adjusting the
value R accordingly.
[0059] A block 918 determines a value Q.sub.matched that is the
quantity of the incoming order to be matched to the i.sup.th order
by calculating the minimum of the quantity of the i.sup.th order
and the product of the value R and the value Q. The value
Q.sub.matched calculated at the block 918 is subtracted from the
values Q.sub.order and Q.sub.remaining by blocks 920 and 922,
respectively. A block 924 sets the value of the i.sup.th order to
the value Q.sub.order and updates the order database to reflect the
match. A block 926 increments the value of the counter i and
processing continues at the block 910.
[0060] FIG. 10 shows a flowchart 1000 of how the quantity
Q.sub.FIFO of the incoming order is allocated to selected orders
using the FIFO algorithm. The block 1002 sorts the selected orders
in accordance with the time each order was received. A block 1004
sets a counter i to 1 and a block 1006 sets a value N to be the
number of orders that have been selected. A block 1008 sets a value
Q.sub.order to the quantity of the product specified in i.sup.th
order of the sorted, selected orders. A block 1010 calculates the
quantity of the incoming order to allocate to the i.sup.th order
using the FIFO algorithm. Specifically, the block 1010 sets a value
Q.sub.matched to the minimum of the quantity of the incoming order
that remains to be allocated (Q.sub.remaining), the quantity of
orders that may be allocated using the FIFO algorithm (Q.sub.FIFO),
and the quantity of the i.sup.th order (Q.sub.order). Blocks 1012,
1014, and 1016 subtract Q.sub.matched from Q.sub.order,
Q.sub.remaining, and Q.sub.FIFO, respectively, to reflect the
quantity of the incoming orders that is allocated to the i.sup.th
order. A block 1018 sets the quantity that remains of the i.sup.th
order to Q.sub.order. A block 1020 increments the value i by one so
that the block 1008 selects the next order received for allocation.
A block 1022 branches to the block 1008 if any quantity of the
incoming order remains that can be allocated using the FIFO
algorithm (Q.sub.FIFO>0) and if another selected order need to
be considers (i<=N), otherwise the block 1020 returns to the
calling block (e.g., block 616 of FIG. 6A).
[0061] FIGS. 11A-C show an embodiment of allocating the quantity
Q.sub.remaining of an incoming order to the selected orders in
accordance with the pro-rata algorithm and which is representative
of the processing that may be undertaken by the block 620 of FIG.
6A. A block 1102 calculates a value Q.sub.sum that is a sum of the
quantities of the selected orders and a block 1104 determines the
value N that is the number of selected orders. A block 1106 sets a
value of a counter i to 1. A block 1108 determines the quantity of
the i.sup.th selected order and a block 1110 calculates a value
Q.sub.portion that is the proportion that the quantity of the
i.sup.th selected order comprises of the total of the quantities of
the selected orders. A block 1112 increments the counter i. A block
1114 compares the value of i with the number of selected orders (N)
and, if the value of i is less than the value of N, branches to the
block 1108. Otherwise, the block 1114 proceeds to a block 1116 of
FIG. 11B, which resets the value of the counter i to 1. Continuing
with FIG. 11B, a block 1118 calculates a value Q.sub.prorata that
is the minimum of the total of the quantities of the selected
orders (Q.sub.sum) and the value Q.sub.remaining. A block 1120 sets
the value of matched to 0. A block 1122 calculates a value
Q.sub.matched that is the quantity of the incoming order to be
allocated to the i.sup.th selected order by multiplying the
proportion of the i.sup.th selected order (Q.sub.portion[i]) and
the value Q.sub.prorata. In some embodiments, the block 1122 rounds
the product of Q.sub.portion[i] and Q.sub.prorata down to the
nearest integer by truncating any fraction portion thereof. In
other embodiments the block 1122 rounds the product up to the next
higher integer if the fractional portion of the product is greater
than 0.5 and down to the preceding lower integer otherwise. Other
rounding schemes that may be used are known to those skilled in the
art. A block 1124 compares the value Q.sub.matched calculated at
the block 1122 with a value of the minimum allocation quantity
(MAQ) that is defined for the market. Typically, the value of the
minimum allocation quantity is defined in the specification for the
market. If the value Q.sub.matched is greater than the value of the
minimum allocation quantity then a block 1126 sets a value
Q.sub.order to the quantity associated with the i.sup.th order.
Thereafter, a block 1128 adds the value Q.sub.matched to the value
matched. A block 1130 subtracts the value Q.sub.matched from the
value Q.sub.order and a block 1132 sets the quantity of the
i.sup.th order to the value Q.sub.order. A block 1134 increments
the value of the counter i. A block 1136 determines if the value
matched is less than the value Q.sub.prorata and if the value of
the counter i is less than or equal to the number of selected
orders (N). If both comparisons made at the block 1136 are true
then the block 1136 branches to the block 1122 to continue
allocating the incoming order to the remaining selected orders. The
block 1124 branches to a block 1136 if the value Q.sub.matched is
less than the value of the minimum allocation quantity.
[0062] If the comparisons undertaken by the block 1136 are not true
then processing proceeds to a block 1138 of FIG. 11C to allocate
any quantity of the incoming order that was not allocated. The
block 1138 calculates a value remainder that is the difference
between the quantity that could have been allocated using the
pro-rata algorithm and the quantity that actually was allocated by
the blocks 1122-1136. The value remainder represents the quantities
not allocated because of rounding or because a value Q.sub.matched
was less than the value of the minimum allocation quantity. A block
1140 sorts the selected orders. In some embodiments, the block 1140
sorts the selected orders in accordance with the time when each
order was received. In other embodiments, the block 1140 sorts the
selected orders in accordance with the portion of the sum of the
quantities of all of the selected orders represented by the
quantity of each selected order. A block 1142 resets the value of
the counter i to 1. A block 1144 branches to a block 1146 if any
remainder quantity needs to be allocated (i.e., that the value
remainder is greater than 0) and if all of the selected orders have
been considered (i.e., that value of the counter i is less than or
equal to the value N). Otherwise, the block 1144 branches to a
block 1148. The block 1146 sets the value of Q.sub.order to any
remaining quantity of the i.sup.th order (as sorted by the block
1140). A block 1149 calculates a value Q.sub.matched that is a
minimum of the values Q.sub.order and remainder. A block 1150
subtracts the value Q.sub.matched from the value Q.sub.order and
sets the value of Q.sub.order to the result. A block 1152 sets the
value remainder to the result of subtracting the value
Q.sub.matched therefrom. A block 1154 set the quantity associated
with i.sup.th order to the value Q.sub.order. A block 1156
increments the value of the counter i and thereafter proceeds to
the block 1144.
[0063] The block 1148 calculates any remaining quantity of the
incoming order after the allocation undertaken by blocks 1102
through 1156.
[0064] Specifically, the value Q.sub.remaining is decremented by
the value matched and the value remainder. Thereafter, processing
resumes with the block following the block that initiated the
pro-rata allocation (e.g., the block 620).
[0065] Some embodiments allow more than one order to have priority.
FIG. 12A shows a table 1200 of exemplary standing orders in a
market. For this example, the first three orders that improve the
market and that request an order quantity of at least 20 lots are
given priority. In addition, the maximum quantity of an incoming
order that is allocated to each order based on the priority is 50.
A column 1202 shows the time of receipt of each order, and columns
1204 and 1206 show the price and quantity requested by each order,
respectively. As shown in the column 1204, each of the orders has
an identical price and this example assumes this is the best price
for the market. A column 1208 shows a quantity of each order filled
based on priority. Although the earliest received order is order A,
no portion of order A may be filled based on priority because this
order does not meet the minimum quantity criterion of 20 lots.
Orders B-D are given priority because these are the first three
orders to improve the market and that meet the minimum quantity
criterion. Furthermore, up to 50 lots of the orders C and D may be
allocated based on priority.
[0066] FIG. 12B shows a table 1210 that depicts how a market may
provide priority to standing orders that improve the market based
on a predefined quantity. In the example shown in FIG. 12B, up to
120 lots belonging to standing bid orders that meet a minimum
quantity requirement of 20 lots are provided priority up to a
maximum of 50 lots per order. A column 1210 shows when each order
A-E was received, a column 1212 shows the price of the orders A-E
and a column 1214 shows the quantity requested by each of the
orders A-E. A column 1216 shows how the quantity available for
priority is distributed among the orders A-E. Specifically, order A
does not receive any priority because order A does not meet the
minimum requirement. Thirty lots of order B may be allocated on the
basis of priority. In addition, 50 lots of the 95 lots requested by
order C may be allocated on the basis of priority because 50 is the
maximum. All of the 30 lots requested by order D may be allocated
on a priority basis. Of the 50 lots requested by order E, only 10
lots may be allocated based on priority because the quantity
available for priority is exhausted. Note, if the trading host
receives a matching incoming (sell) order having a quantity of at
least 95 lots, the trading host allocates 30 lots of the incoming
order to order B, 50 lots to order C, and then 15 lots to order
A.
[0067] Some embodiments allow orders that are provided priority
when such orders improved the market to retain priority even if the
market is improved further by subsequent orders. FIG. 13A shows a
table 1300 of representative standing orders A-D to sell a product
in a market. In this example, as many as three orders that improve
the market and are each for at least a minimum quantity of 20 lots
are provided priority and the maximum quantity of each order that
may be filled based on priority is 50 lots. A column 1302 shows the
time of receipt of each order. Columns 1304 and 1306 show the price
and quantities of each order. As is apparent in FIG. 13A, all of
the orders A-D are at a price that is identical. A column 1306
shows the quantity of each of the orders A-D that is eligible to be
allocated based on priority if these orders were the first to
improve the market. Specifically, order A does not meet the minimum
quantity requirements to be provided priority. Orders B-D are
provided priority. FIG. 13B illustrates a table 1310 showing the
status of the standing orders A-D of the table 1300 after an order
E is received that further improves the price. Because the order E
improves the price and meets the minimum quantity requirements for
having priority, order E is provided priority. Further, orders B
and C retain the priority previously provided because the market in
this example may have as many as three standing orders that have
priority. For the same reason, the priority provided to order D
before the receipt of order E may be revoked. In some markets, as
many as a predetermined number of orders at the same price are
given priority. In other markets, a predetermined number of orders
that are given priority may have different prices. A column 1312
shows the quantities of the orders B, C, and E that may be filled
based on priority. Typically, although orders Band C retain
priority, the trading host first fills standing orders that are at
a better price than orders B and C before filling such orders (even
if such standing order do not have priority).
[0068] Some embodiments provide a priority to an order for a
limited period of time. After the period of time expires, the
priority provided to the order is revoked. In other embodiments,
priority provided to all orders is revoked after a period of time
that begins when an initial order is given priority elapses. The
period of time may be fixed for the market (e.g., 30 seconds, 10
milliseconds) or may be dynamic and adjusted in accordance with
market activity. Furthermore, the period of time may vary by market
and in some markets, the period of time is a sub-second interval.
FIGS. 14A and 14B illustrate the aging of order priorities.
Specifically, FIG. 14A shows a table 1400 of standing orders A-D in
a market at a time 10:00:04, wherein orders A-C were received at
10:00:01, 10:00:02, and 10:00:03, respectively, and have been
provided priority (as shown in column 1402). In this example, the
market depicted in FIGS. 14A and 148 does not require orders to
have a minimum quantity to receive priority nor does the market cap
the quantity of the order that may be filled in accordance with a
priority. FIG. 148 shows a table 1404 that illustrates the status
of the standing orders A-D at a time 10:01:02 and, as shown in
column 1406, the priority provided to orders A-D has been revoked
because this market only provides a priority for 1 minute.
[0069] FIG. 15 illustrates a table 1500 of standing orders A-G in
an exemplary market. In this example, assume that the orders A-G
are sorted by the time each order was received and that order A was
received first. Also, assume that order A improved the market. The
market uses a value of FIFO.sub.percent of 30%, provides priority
to the 2 orders that improve the market and have a minimum order
quantity of 20, and caps the quantity of an order that may be
allocated on the basis of the priority to 50. The market further
rounds down allocations based on the use of a pro-rata algorithm.
Furthermore, this market provides a preference to the traders who
submitted orders C and E. Specifically, the trader who submitted
order C is entitled to be allocated up to 10% of a quantity of the
incoming order that remains after priority allocation. Similarly,
the trader who submitted order E receives up to 5% of the quantity
of the incoming order that remains after allocation of the incoming
order to order that have priority. Assume that the trading host
receives an order to sell 500 lots at 111.01 in the market and that
orders A-G are orders to buy. Furthermore, assume that each of
orders A-G has an identical bid price that is better than or equal
to 111.01. As shown in a column 1502, orders A and B are allocated
50 and 30 lots of the incoming order because these orders have been
given priority. Even though the quantity requested by order A is
80, order A is allocated 50 lots because the market caps priority
allocations to 50. The quantity of the incoming order that remains
after the priority allocation is 420. Therefore, orders C and E are
allocated 42 lots and 21 lots, respectively, because of the 10% and
5% allocation provided to the traders who submitted these orders
(shown in column 1504).
[0070] The quantity of the incoming order remaining after the
preferencing allocation is 357 lots. Of this 30% (i.e., 107 lots)
is allocated using the FIFO algorithm. The allocation to each order
using the FIFO algorithm is shown in a column 1506. The quantity of
the standing orders that remains to be filled is 328 as shown in a
column 1508 and the quantity of the incoming that remains to be
allocated is 250 lots. A column 1510 shows the 328 lots represented
by the quantity of each order. A column 1512 shows the allocation
of the remaining 250 lots in accordance with the proportion.
Because the pro-rata algorithm used by this market rounds down
fractional allocation quantities, 2 lots remain to be allocated and
these are allocated on a FIFO basis to order D as shown in a column
1514.
[0071] Although the embodiments and examples described above
illustrate the use of a FIFO.sub.percent value to determine the
number of contracts that are allocated using the FIFO algorithm, it
should be apparent that a ProRata.sub.percent value may be used
instead to determine the number of contracts that are allocated
using the pro-rata algorithm. Furthermore, an incoming order may be
allocated in accordance with the pro-rata algorithm first and then
any quantity that remains thereafter may be allocated using the
FIFO algorithm. In addition the incoming order may be allocated to
standing contra orders using a combination of FIFO, pro-rata,
multiple priority and multiple preferencing algorithms. Such
algorithms may be combined with other allocation and order
selection algorithms that may be apparent to those with skill in
the art.
INDUSTRIAL APPLICABILITY
[0072] Numerous modifications to the present invention will be
apparent to those skilled in the art in view of the foregoing
description. Accordingly, this description is to be construed as
illustrative only and is presented for the purpose of enabling
those skilled in the art to make and use the invention and to teach
the best mode of carrying out same. The exclusive rights to all
modifications which come within the scope of the appended claims
are reserved.
* * * * *