U.S. patent application number 12/948101 was filed with the patent office on 2011-03-10 for systems and methods for linking orders in electronic trading systems.
Invention is credited to Philip N. GINSBERG, Glenn D. KIRWIN, Robert J. WOODMANSEY.
Application Number | 20110060682 12/948101 |
Document ID | / |
Family ID | 26844465 |
Filed Date | 2011-03-10 |
United States Patent
Application |
20110060682 |
Kind Code |
A1 |
WOODMANSEY; Robert J. ; et
al. |
March 10, 2011 |
SYSTEMS AND METHODS FOR LINKING ORDERS IN ELECTRONIC TRADING
SYSTEMS
Abstract
Systems and methods for linking orders in electronic trading
systems are provided. These systems and methods enable a trader to
select two or more items that are to be linked and specify linking
parameters for those items. Any desired set of items may be linked,
and the linking parameters may include price adjustments, order
sequencing instructions, automatic/manual execution controls,
execution delays commands, and update frequency limits. Upon
detecting a bid or offer for a linked item, the systems and methods
may then determine a size and a price for each linked item based
upon the size and the price of the bid or offer for the first
linked item. In this way, the sizes and the prices for the other
linked items may be propagated from the size and the price for the
first item. Once the size and the price for each item is
determined, the systems and methods may submit orders for the items
in accordance with the linking parameters. In the case where orders
for linked items may only be submitted in designated lot sizes, the
systems and methods may round the sizes of the orders to the
designated lot sizes, and then submit remainder orders to make up
for the rounding.
Inventors: |
WOODMANSEY; Robert J.;
(Blackmore Essex, GB) ; GINSBERG; Philip N.; (New
York, NY) ; KIRWIN; Glenn D.; (Scarsdale,
NY) |
Family ID: |
26844465 |
Appl. No.: |
12/948101 |
Filed: |
November 17, 2010 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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11084547 |
Mar 18, 2005 |
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12948101 |
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09627705 |
Jul 28, 2000 |
7155410 |
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11084547 |
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60146971 |
Aug 3, 1999 |
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Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 40/00 20130101;
G06Q 40/04 20130101 |
Class at
Publication: |
705/37 |
International
Class: |
G06Q 40/00 20060101
G06Q040/00 |
Claims
1-47. (canceled)
48. A method, comprising: receiving, by a computing device, from a
trader, a selection of a first financial instrument, wherein the
first financial instrument is transacted in a first market;
determining, by the computing device, one or more financial
instruments to which the first instrument can be linked, wherein
the one or more financial instruments comprise a second financial
instrument; causing, by the computing device, the one or more
financial instruments to be displayed at an interface; after
causing the one or more financial instruments to be displayed,
receiving, by the computing device, from the trader, a selection of
the second financial instrument, wherein the second financial
instrument is transacted in a second market, and wherein the first
financial instrument is different from the second financial
instrument; receiving, by the computing device, from the trader, a
linking relationship between the first financial instrument and the
second financial instrument; monitoring, by the computing device,
bids and offers from at least one external trading system, wherein
the bids and offers comprise bids and offers for at least the first
financial instrument; controlling, by the computing device, a
submission of orders for the second financial instrument based at
least in part on the linking relationship, wherein controlling the
submission of orders for the second financial instrument comprises:
generating, by the computing device, a price of an order for the
second financial instrument based at least in part on applying a
conversion factor to a price of a monitored bid or offer for the
first financial instrument; generating, by the computing device, a
size of the order for the second financial instrument based at
least in part on applying a hedge ratio to a size of the monitored
bid or offer for the first financial instrument; and submitting, by
the computing device, the order for the second financial instrument
to a second trading system.
49. The method of claim 48, wherein the computing device comprises
at least one of: a workstation used by the trader; an electronic
trading system configured to rank and store bid and offers for
instruments in a queue; and a device that facilitates communication
between the trader and an external trading system.
50. The method of claim 48, wherein the method further comprises:
updating, by the computing device, at least the conversion factor;
and wherein controlling the submission of orders for the second
financial instrument further comprises: generating, by the
computing device, another price of another order for the second
financial instrument based at least in part on the updated
conversion factor; and submitting, by the computing device, the
another order for the second financial instrument to the second
trading system.
51. The method of claim 48, wherein receiving the linking
relationship from the trader comprises: receiving, by the computing
device, from the trader, an indication that the first financial
instrument and the second financial instrument are to be linked to
one another for basis trading based at least in part on one or more
basis trading formulas; and receiving, by the computing device,
from the trader, at least one input to the one or more basis
trading formulas.
52. The method of claim 51, wherein the at least one input
comprises the hedge ratio.
53. The method of claim 51, wherein controlling the submission of
orders for the second financial instrument based at least in part
on the linking relationship comprises: applying, by the computing
device, the one or more basis trading formulas to at least one
monitored bid or offer for the first financial instrument.
54. The method of claim 48, wherein controlling the submission of
orders for the second financial instrument comprises: limiting, by
the computing device, order updates for the second financial
instrument based at least in part on the linking relationship.
55. The method of claim 48, wherein the at least one external
trading system comprises the second trading system.
56. The method of claim 48, wherein the at least one external
trading system and the second trading system are different trading
systems.
57. The method of claim 48, further comprising: receiving, by the
computing device, from the trader, a selection of a trigger
event.
58. The method of claim 57, further comprising: receiving data;
monitoring, by the computing device, the data; determining, by the
computing device, based at least in part on the data, that the
trigger event has occurred.
59. The method of claim 58, further comprising: in response to
determining that the trigger event has occurred, linking, by the
computing device, the first financial instrument and the second
financial instrument together.
60. The method of claim 48, wherein controlling the submission of
orders for the second financial instrument comprises: controlling,
by the computing device, the submission of orders for the second
financial instrument based at least in part on the linking
relationship based at least in part on a trader-selected trigger
event having occurred.
61. The method of claim 48, further comprising: determining, by the
computing device, that an event has occurred.
62. The method of claim 61, wherein the event comprises a
trader-selected trigger event.
63. The method of claim 61, wherein the event comprises at least
one of: the first financial instrument attaining at least one of: a
particular market price, a particular market size, and a particular
market yield; the second financial instrument attaining at least
one of: a particular market price, a particular market size, and a
particular market yield; the first financial instrument together
and the second financial instrument attaining at least one of the
following with respect to one another: a particular subtractive
difference in at least one of: market price, market size, and
market yield; a particular ratio in at least one of: market price,
market size, and market yield; a particular average in at least one
of: market price, market size, and market yield; a market index
attaining a particular market value; a particular date having
occurred; a particular business transaction having closed; and a
third financial instrument having attained at least one of: a
particular market price, a particular market size, and a particular
market yield; wherein the third financial instrument is different
from the first financial instrument and the second financial
instrument.
64. The method of claim 61, wherein controlling the submission of
orders for the second financial instrument comprises: after
determining that the event has occurred, controlling, by the
computing device, the submission of orders for the second financial
instrument based at least in part on the linking relationship.
65. The method of claim 48, wherein generating the price of the
order for the second financial instrument comprises: generating, by
the computing device, the price of an order for the second
financial instrument based at least in part on applying the
conversion factor and a basis to the price of the monitored bid or
offer for the first financial instrument.
66. The method of claim 48, wherein the second market comprises a
futures market, and wherein the second financial instrument
comprises a futures contract for the first financial
instrument.
67. The method of claim 66, wherein the first financial instrument
comprises a note.
68. The method of claim 66, wherein the first financial instrument
comprises a bond.
69. The method of claim 68, wherein the bond comprises a U.S.
Treasury bond.
70. The method of claim 66, wherein the first financial instrument
comprises a derivative.
71. The method of claim 66, wherein generating the price of the
order for the second financial instrument comprises: generating, by
the computing device, the price of an order for the second
financial instrument based at least in part on applying the
conversion factor and a basis to the price of the monitored bid or
offer for the first financial instrument.
72. The method of claim 66, wherein the first market comprises a
cash market.
73. The method of claim 48, wherein the first market comprises a
futures market, and wherein the first financial instrument
comprises a futures contract for the second financial
instrument.
74. The method of claim 73, wherein the second financial instrument
comprises a note.
75. The method of claim 73, wherein the second financial instrument
comprises a bond.
76. The method of claim 75, wherein the bond comprises a U.S.
Treasury bond.
77. The method of claim 73, wherein the second financial instrument
comprises a derivative.
78. The method of claim 73, wherein generating the price of the
order for the first financial instrument comprises: generating, by
the computing device, the price of an order for the first financial
instrument based at least in part on applying the conversion factor
and a basis to the price of the monitored bid or offer for the
second financial instrument.
79. The method of claim 73, wherein the second market comprises a
cash market.
80. The method of claim 48, wherein the second market comprises a
futures market, wherein the second financial instrument comprises a
futures contract.
81. The method of claim 80, wherein the first financial instrument
comprises a note.
82. The method of claim 80, wherein the first financial instrument
comprises a bond.
83. The method of claim 82, wherein the bond comprises a U.S.
Treasury bond.
84. The method of claim 80, wherein the first financial instrument
comprises a derivative.
85. The method of claim 80, wherein generating the price of the
order for the second financial instrument comprises: generating, by
the computing device, the price of an order for the second
financial instrument based at least in part on applying the
conversion factor and a basis to the price of the monitored bid or
offer for the first financial instrument.
86. The method of claim 80, wherein the first market comprises a
cash market.
87. The method of claim 48, wherein the first market comprises a
futures market, wherein the first financial instrument comprises a
futures contract.
88. The method of claim 87, wherein the second financial instrument
comprises a note.
89. The method of claim 87, wherein the second financial instrument
comprises a bond.
90. The method of claim 89, wherein the bond comprises a U.S.
Treasury bond.
91. The method of claim 87, wherein the second financial instrument
comprises a derivative.
92. The method of claim 87, wherein generating the price of the
order for the first financial instrument comprises: generating, by
the computing device, the price of an order for the first financial
instrument based at least in part on applying the conversion factor
and a basis to the price of the monitored bid or offer for the
second financial instrument.
93. The method of claim 87, wherein the second market comprises a
cash market.
94. The method of claim 48, wherein the first financial instrument
comprises a note, and wherein the second financial instrument
comprises a derivative.
95. The method of claim 48, wherein the first financial instrument
comprises a bond, and wherein the second financial instrument
comprises a derivative.
96. The method of claim 95, wherein the bond comprises a U.S.
Treasury bond.
97. The method of claim 48, wherein the second financial instrument
comprises a note, and wherein the first financial instrument
comprises a derivative.
98. The method of claim 48, wherein the second financial instrument
comprises a bond, and wherein the first financial instrument
comprises a derivative.
99. The method of claim 98, wherein the bond comprises a U.S.
Treasury bond.
100. The method of claim 48, wherein the first market comprises a
first futures market, wherein the first financial instrument
comprises a first futures contract, wherein the second market
comprises a second futures market, and wherein the second financial
instrument comprises a second futures contract.
101. A method, comprising: receiving, by a computing device, from a
trader, a selection of a first financial instrument, wherein the
first financial instrument is transacted in a first market;
determining, by the computing device, one or more financial
instruments to which the first instrument can be linked, wherein
the one or more financial instruments comprise a second financial
instrument; causing, by the computing device, the one or more
financial instruments to be displayed at an interface; after
causing the one or more financial instruments to be displayed,
receiving, by the computing device, from the trader, a selection of
the second financial instrument, wherein the second financial
instrument is transacted in a second market, and wherein the first
financial instrument is different from the second financial
instrument; receiving, by the computing device, from the trader, a
linking relationship between the first financial instrument and the
second financial instrument; monitoring, by the computing device,
bids and offers from at least one external trading system, wherein
the bids and offers comprise bids and offers for at least the first
financial instrument; controlling, by the computing device, a
submission of orders for the second financial instrument based at
least in part on the linking relationship, wherein controlling the
submission of orders for the second financial instrument comprises:
generating, by the computing device, at least one of a price and a
yield of an order for the second financial instrument based at
least in part on applying a conversion factor to at least one of a
price and a yield of a monitored bid or offer for the first
financial instrument; generating, by the computing device, a size
of the order for the second financial instrument based at least in
part on applying a hedge ratio to a size of the monitored bid or
offer for the first financial instrument; and submitting, by the
computing device, the order for the second financial instrument to
a second trading system.
102. The method of claim 101, wherein generating at least one of
the price and the yield of the order for the second financial
instrument comprises: generating, by the computing device, the
yield of the order for the second financial instrument based at
least in part on applying the conversion factor to the price of the
monitored bid or offer for the first financial instrument.
103. The method of claim 101, wherein generating at least one of
the price and the yield of the order for the second financial
instrument comprises: generating, by the computing device, the
yield of the order for the second financial instrument based at
least in part on applying the conversion factor to the yield of the
monitored bid or offer for the first financial instrument.
104. The method of claim 101, wherein generating at least one of
the price and the yield of the order for the second financial
instrument comprises: generating, by the computing device, the
price of the order for the second financial instrument based at
least in part on applying the conversion factor to the yield of the
monitored bid or offer for the first financial instrument.
105. The method of claim 101, wherein generating at least one of
the price and the yield of the order for the second financial
instrument comprises: generating, by the computing device, at least
one of the price and the yield of the order for the second
financial instrument based at least in part on applying the
conversion factor and a basis to at least one of the price and the
yield of the monitored bid or offer for the first financial
instrument.
106. A method, comprising: receiving, by a computing device, from a
trader, a selection of a first financial instrument, wherein the
first financial instrument is transacted in a first market;
determining, by the computing device, one or more financial
instruments to which the first instrument can be linked, wherein
the one or more financial instruments comprise a second financial
instrument; causing, by the computing device, the one or more
financial instruments to be displayed at an interface; after
causing the one or more financial instruments to be displayed,
receiving, by the computing device, from the trader, a selection of
the second financial instrument, wherein the second financial
instrument is transacted in a second market, and wherein the first
financial instrument is different from the second financial
instrument; receiving, by the computing device, from the trader, a
linking relationship between the first financial instrument and the
second financial instrument; monitoring, by the computing device,
bids and offers from at least one external trading system, wherein
the bids and offers comprise bids and offers for at least the first
financial instrument; controlling, by the computing device, a
submission of orders for the second financial instrument based at
least in part on the linking relationship, wherein controlling the
submission of orders for the second financial instrument comprises:
generating, by the computing device, a price of an order for the
second financial instrument based at least in part on a price
adjustment and on applying a conversion factor to at least one of a
price and a yield of a monitored bid or offer for the first
financial instrument, wherein the price adjustment is relative to
market value for the second financial instrument; generating, by
the computing device, a size of the order for the second financial
instrument based at least in part on applying a hedge ratio to a
size of the monitored bid or offer for the first financial
instrument; and submitting, by the computing device, the order for
the second financial instrument to a second trading system.
107. The method of claim 106, wherein generating the price of the
order for the second financial instrument comprises: generating, by
the computing device, the price of the order for the second
financial instrument based at least in part on the price adjustment
and applying the conversion factor to the price of the monitored
bid or offer for the first financial instrument.
108. The method of claim 106, wherein generating the price of the
order for the second financial instrument comprises: generating, by
the computing device, the price of the order for the second
financial instrument based at least in part on the price adjustment
and applying the conversion factor to the yield of the monitored
bid or offer for the first financial instrument.
109. The method of claim 106, wherein generating the price of the
order for the second financial instrument comprises: generating, by
the computing device, the price of the order for the second
financial instrument based at least in part on the price
adjustment, applying the conversion factor, and applying a basis to
at least one of the price and the yield of the monitored bid or
offer for the first financial instrument.
Description
CROSS REFERENCE TO RELATED APPLICATION
[0001] This application claims the benefit of U.S. Provisional
Patent Application No. 60/146,971, filed Aug. 3, 1999, entitled
AUTOMATED LINKED ORDER PROCESSOR, which is hereby incorporated by
reference herein in its entirety.
BACKGROUND OF THE INVENTION
[0002] The present invention relates to systems and methods for
linking orders in electronic trading systems. More particularly,
the present invention relates to systems and methods which enable
traders to link trading of goods, services, financial instruments,
and commodities in electronic trading systems.
[0003] In recent years, electronic trading systems have gained wide
spread acceptance for trading of a wide variety of goods, services,
financial instruments, and commodities. For example, electronic
trading systems have been created which facilitate the trading of
financial instruments and commodities such as stocks, bonds,
currency, futures, oil, gold, pork bellies, etc. As another
example, online auctions on the Internet have become popular
markets for the exchange of services and both new and used goods.
In one embodiment of systems for electronic trading of financial
instruments, for example, a first trader may submit a "bid" to buy
a particular number of 30 Year U.S. Treasury bonds at a given
price. In response to such a bid, a second trader may submit a
"hit" in response to the bid in order to indicate a willingness to
sell bonds to the first trader at the given price. Alternatively,
the second trader may submit an "offer" to sell the particular
number of the bonds at the given price, and then the first trader
may submit a "take" or "lift" in response to the offer to indicate
a willingness to buy bonds from the second trader at the given
price. In such trading systems, the bid, the offer, the hit, and
the take (or lift) are collectively know as "orders". Thus, when a
trader submits a bid, the trader is said to be submitting an
order.
[0004] Modern day trading includes not only the buying and selling
of a single type of item, but also more complex transactions
involving exchanges of a combination of the same or different types
of items. For example, in a typical spread transaction, one bond
may be sold and another bond may be purchased as part of a single
transaction. The trading of combinations of items in this way
facilitates arbitrage, hedging, and speculation.
[0005] However, because such combinations of items may have very
complex relationships, there is a need to automate the trading of
combinations of items. Thus, it is an object of the present
invention to provide systems and methods for linking orders in
electronic trading systems.
SUMMARY OF THE INVENTION
[0006] In accordance with this and other objects of the invention,
systems and methods for linking orders in electronic trading
systems are provided. Preferred systems and methods in accordance
with the present invention enable a trader to select two or more
items that are to be linked and specify linking parameters for
those items. Any desired set of items may be linked, and the
linking parameters may include price adjustments, order sequencing
instructions, automatic/manual execution controls, execution delays
commands, and update frequency limits. Upon detecting a bid or
offer for a linked item, the systems and methods may then determine
a size and a price for each linked item based upon the size and the
price of the bid or offer for the first linked item. In this way,
the sizes and the prices for the other linked items may be
propagated from the size and the price for the first item. Once the
size and the price for each item is determined, the systems and
methods may submit orders for the items in accordance with the
linking parameters. In the case where orders for linked items may
only be submitted in designated lot sizes, the systems and methods
may round the sizes of the orders to the designated lot sizes, and
then submit remainder orders to make up for the rounding.
BRIEF DESCRIPTION OF THE DRAWINGS
[0007] Further features of the invention, its nature and various
advantages will become more apparent from the following detailed
description of the invention, taken in conjunction with the
accompanying drawings, in which like reference characters refer to
like parts throughout, and in which:
[0008] FIG. 1 is block diagram of hardware that may be used to
implement one embodiment of the present invention;
[0009] FIGS. 2A-2C are flow diagrams illustrating a linking process
in accordance with one embodiment of the present invention;
[0010] FIG. 3 is a flow diagram of an item selection process in
accordance with one embodiment of the present invention;
[0011] FIG. 4 is an illustration of an item selection display in
accordance with one embodiment of the present invention; and
[0012] FIG. 5 is an illustration of a linking parameter
specification interface in accordance with one embodiment of the
present invention.
DETAILED DESCRIPTION OF THE INVENTION
[0013] As stated above, the present invention provides systems and
methods for linking orders in electronic trading systems. More
particularly, the present invention provides systems and methods
that enable traders to link two or more items for trading and
specify parameters for controlling placement of orders for those
items, and that automatically monitor bids and offers placed for
those items, generate sizes and prices for orders related to those
items, and place the corresponding orders for those items.
[0014] Although the present invention is described herein as being
used by "traders," it should be apparent that the term "trader" is
meant to broadly apply to any user of a trading system, whether
that user is an agent acting on behalf of a principal, a principal,
an individual, a legal entity (such as a corporation), etc., or any
machine or mechanism that is capable of placing and/or responding
to orders in a trading system.
[0015] Preferred embodiments of the systems and methods of the
present invention are now described in greater detail in connection
with FIGS. 1-6. In the examples which follow, trading of U.S.
Treasury bonds, notes, and bond futures contracts, and their
derivatives (e.g., spreads and basis), are used to illustrate
various aspects of the present invention. Trading of these
instruments is typically accomplished at a given price for a given
size.
[0016] Notwithstanding that the present invention is illustrated
with respect to trading of bonds, notes, and bond futures, and
their derivatives, it should be noted that the systems and methods
of the present invention are equally applicable to the trading of
any type of goods, services, financial instruments, commodities,
etc.
[0017] Turning first to FIG. 1, an example of hardware 100 that may
be used to implement one embodiment of the present invention is
shown. As illustrated, hardware 100 may include one or more local
workstations 102 and one or more remote workstations 104 that may
be used by traders to view trading data and enter trading commands.
Workstations 102 and 104 may be any suitable means for presenting
data and, in preferred embodiments of this invention, accepting
input. For example, workstations 102 and 104 may be personal
computers, laptop computers, mainframe computers, dumb terminals,
data displays, Internet browsers, Personal Digital Assistants
(PDAs), two-way pagers, wireless terminals, portable telephones,
etc., or any combination of the same.
[0018] To orchestrate trading between traders using workstations
102 and 104, the workstations preferably submit commands to, and
receive data to be displayed from, a processor 106. In alternative
embodiments, however, workstations may communicate with additional
processors, or include processors to orchestrate trading in a
distributed fashion without requiring processor 106. Processor 106,
and any additional processors, may be any suitable circuitry or
devices capable of processing data such as microprocessors,
personal computers, network servers, mainframe computers, dedicated
computer systems, etc.
[0019] As shown, processor 106 may be connected to workstations 102
and 104 by networks 108 and 110, respectively. Each of networks 108
and 110 may be any suitable data network for communicating data
between workstations 102 and 104 and processor 106, such as a local
area network, a wide area network, the Internet, an Intranet, a
wireless network, a hard wired connection, a dial-up network, etc.,
or any combination of the same. In an arrangement of hardware 100
without processor 106, workstations 102 and 104 may be linked
together by networks 108 and 110 directly.
[0020] As also shown in FIG. 1, a telephone network 120 may be
provided that comprises a local telephone 122 and a remote
telephone 124 connected by a telephone line 126. Telephone network
120 may be used to enable a trader at a remote location to
communicate with an operator at a workstation 102 or 104. This may
be useful when the trader does not have access to a workstation 102
or 104 or when the trader only has access to a display-only
workstation 102 or 104. Obviously, telephone network 120 may be
implemented as a private telephone network, a public telephone
network, a wireless telephone network, or any suitable combination
of the same.
[0021] In order to communicate with external trading systems 130,
hardware 100 may include a network interface 128 that connects
processor 106 to external trading systems 130. Network interface
128 may be any suitable interface and/or computer network that
facilitates communication between processor 106 and external
trading systems 130.
[0022] When used to implement a bid/offer, hit/take trading system
as described above, hardware 100 may enable a trader to submit a
bid to buy, or an offer to sell, an item at one of workstations 102
and 104. This bid or offer may then be communicated to processor
106, where the bid or offer can be ranked and stored in a bid-offer
queue. The ranking may be based upon time of submission, price, or
any other suitable criterion. The bid or offer may then be
presented to other traders via other workstations 102 and 104
dependent upon its ranking in the bid-offer queue. Once displayed,
the bid or offer can then be hit or taken by one or more of the
other traders so that a trade of the item can proceed to execution.
Alternatively, hardware 100 may be configured so that it does not
operate as a trading system, but instead facilitates communication
between traders and external trading systems 103, and performs the
order linking functions described herein.
[0023] Turning to FIGS. 2A-2C, one embodiment of a linking process
200 that may be executed in processor 106 in accordance with the
present invention is illustrated. As shown in FIG. 2A, once process
200 has begun, the process enables traders to select items to be
linked at step 202. The linking of items may occur in the same
market (e.g., only in the bond market) or in different markets
(e.g., one in the bond market and another in the futures market)
whether or not those different markets are related in any way.
Similarly, items that are traded in different trading systems may
be linked.
[0024] One embodiment of an instrument linking process 300 that may
be executed at step 202 in accordance with the present invention is
illustrated in FIG. 3. As shown, process 300 initially allows a
trader to identify a first item to be linked in the trading system
at step 302. The trader may identify that the item is to be linked
in any suitable fashion. For example, the trader may enter
keystrokes on a workstation 102 or 104 (FIG. 1) which indicate that
the trader would like to link a 10-year treasury bond.
Alternatively, the trader may select the item from a graphical user
interface that presents a menu of available items to be linked.
[0025] Next, at step 304, process 300 determines the identity of
other instruments to which the first item identified at step 302
can be linked. This determination may be made by searching a
database of items that are related to the first item, or in any
other suitable manner. In the case where a trader has selected to
link a 10-year treasury bond, for example, such a search may reveal
that there are three different types of related futures contracts
which are traded in two different markets (e.g., an 8% notional
bond contract that is traded on the Chicago Board of Trade, an 8%
notional bond contract that is traded on the Cantor Exchange, and a
6% notional bond contract that is traded on the Cantor Exchange). A
possible linked trade involving such items could include buying the
basis of the bond, that is, buying the bond on the cash market and
selling an equivalent amount of futures contracts.
[0026] Once process 300 has identified other items that can be
linked to the first item at step 304, process 300 creates a display
listing the related instruments at step 306. An example of such a
display 400 is illustrated in FIG. 4. Because the trader in the
example underlying display 400 has selected to link a 10-year
treasury bond, display 400 indicates two ways in which this bond
can be linked--i.e., for basis trades and for spread trades (as
indicated by rows 412 and 414). As stated above, a basis trade is
one in which the trader buys a bond and sells a corresponding
futures contract. A spread trade, on the other hand, is one in
which the trader buys one bond and sells another.
[0027] As shown, display 400 contains five columns 402, 404, 406,
408, and 410 identifying the different items that can be linked. In
the case of the exemplary 10-year treasury bond, this bond is
available on the cash market as indicated by column 404, and three
corresponding future contracts are available on the Chicago Board
of Trade (CBOT 8%) and on the Cantor Exchange (CX 8% and CX 6%) as
indicated by columns 406, 408, and 410. Because display 400
indicates that the bond can be linked for basis trades and spread
trades, the display also indicates that the basis and the spread
for this bond can be purchased on the direct market by column
402.
[0028] Referring back to FIG. 3, at step 308, process 300 next
enables the trader to select the items that the trader wants to
link. As shown in FIG. 4, this may be accomplished by placing "X's"
in the grid formed by columns 402, 404, 406, 408, and 410 and rows
412 and 414. In the example illustrated in FIG. 4, the trader has
linked the cash market for the bond with the direct market for the
basis of the bond and the CX 6% market. The trader has also linked
the cash market for the bond with the direct market for the spread
of the bond.
[0029] Because the trader in this case has linked the direct market
for the basis of the bond with the cash market for the bond and has
linked the direct market for the spread of the bond with the cash
market for the bond, preferred embodiments of the invention also
transitively link the direct market for the basis of the bond to
the direct market for the spread of the bond through the cash
market for the bond.
[0030] Alternatively to determining items that can be linked to a
first item and to displaying and selecting items that can be linked
to the first item through an interface, as shown in steps 304, 306,
and 308 of FIG. 3 and display 400 of FIG. 4, the present invention
may be implemented in any other suitable fashion to enable a trader
to specify items to be traded. For example, a trader may be
permitted to specify particular items to be linked on a pair basis.
Then to enable three items to be linked, the trader could simply
link each of a first item and a second item with a third item.
Because of the transitive linking aspect of the invention, the
three items would then be linked. One way in which such a linking
specification may be made is through the use of a command line
entry mechanism wherein the trader may specify an identifier for a
first bond and an identifier for a second bond to indicate the pair
to be linked.
[0031] Referring back to FIG. 2A, once a trader has selected items
to be linked at step 202, the trader is then permitted to select
linking parameters for the linked items at step 204. In preferred
embodiments of the invention, the trader is preferably permitted to
select parameters that adjust the pricing of those items, sequence
the placement of orders (i.e., bids, offers, hits, and takes)
related to those items, indicate whether orders are to be placed
automatically or manually, indicate whether there is to be a delay
in the placement of orders for those items, and indicate the
maximum frequency at which updates to orders for those items are to
be placed.
[0032] An example of an interface 500 for enabling a trader to make
these settings is illustrated in FIG. 5. As shown, interface 500
indicates three items 502, 504, and 506. The number of items
indicated in interface 500 may be any number and is preferably all
of the items in a set of linked items. For the indicated items,
interface 500 enables a trader to specify price adjustments,
sequencing requirements, execution methods, order placement delays,
and maximum update frequencies as indicated by rows 508, 510, 512,
514, and 515.
[0033] Price adjustments may be configured in interface 500 by
specifying a number in fields 516, 518, or 520 that is to be added
to the price of the corresponding item that may otherwise be
determined by the linking engine as explained below. For example,
if the trader is linking a bond and a futures contract for a basis
trade, the trader may want to offer the futures contract at a
higher price than the market value for that futures contract as
calculated from the market value for the bond. In this case, the
trader would indicate the increase in the offer price of the
futures contract over market in the corresponding one of fields
516, 518, and 520.
[0034] Sequencing may be configured in interface 500 by first
selecting one of a "fixed" radio button 522 and a "variable" radio
button 524. Then, if radio button 522 is selected, the sequencing
settings may be completed by filling in the numerical sequence of
placement of orders in fields 526, 528, and 530. For example, in
order to cause orders for item 2 to always be placed before orders
for item 1, and orders for item 1 to always be placed before orders
for item N, the numbers "1," "2," and "3" would be placed in fields
528, 526, and 530, respectively. Alternatively, if radio button 524
is selected, the sequencing settings may be completed by filling in
the numerical sequence of priority in sorting that is to be
performed in fields 532, 534, 536, 538, 540, and 542. For example,
in order to cause placement orders to be based upon priority of age
and size, a "1" would be placed in field 534 and a "2" would be
placed in field 538. In this way, the items would be sorted first
by age and then by size to determine sequence of order placement.
By not filling in some of fields 532, 534, 536, 538, 540, and 542,
sorting may be reserved to corresponding categories in the
completed fields. Although particular categories to control
variable sequencing are shown in FIG. 5 for the sake of
illustration, any suitable categories may be used in accordance
with the present invention.
[0035] In order to control whether orders are placed automatically
or manually, the trader may select any of check boxes 544, 546, and
548 for the corresponding item 502, 504, and 506. For example, to
cause item 502 to be executed automatically and item 504 and item
506 to be executed manually, the trader would select check box 544
and clear check boxes 546 and 548.
[0036] To set the delay to be applied to the placement of orders
for items 502, 504, and 506, the trader may fill in fields 550,
552, and 554 with the appropriated delay period (e.g., 10 seconds).
For example, if the trader wanted to cause the placement of orders
for item 504 to be delayed by 1 minute, but orders for items 502
and 506 to be placed without delay, the trader would enter "60" in
field 552 and leave fields 550 and 554 blank (or enter "0").
[0037] Finally, in order to indicate the maximum frequency at which
updates to orders for items may be placed, a trader may fill in the
maximum frequency for order updates in desired ones of fields 556,
558, and 560 for corresponding items 502, 504, and 506. For
example, in order to limit order updates to once every ten seconds
for item 504, the trader may enter "6" in field 558 to indicate a
maximum of six updates per minute.
[0038] Although particular linking parameters are illustrated and
discussed in connection with FIG. 5, any suitable set of linking
parameters may be used in accordance with the present invention.
Moreover, the linking parameters that are available may change
dynamically as a function of the items that are selected to be
linked. For example, when linking bonds to a corresponding futures
contracts, hedge ratio linking parameters may be made available for
specification by traders.
[0039] Turning back to FIG. 2A, once linking parameters have been
specified at step 204, process 200 allows the trader to select a
trigger event to be used to trigger linking of the linked items.
Until the trigger event occurs, linking of the items is preferably
not performed in accordance with the present invention. The trigger
event may be the occurrence of a linked item having a certain
price, size, yield, or any other characteristic, or rate of change
of the same. Similarly, the trigger event may be the occurrence of
two or more linked items having an average, a difference, a ratio,
or any other suitable relationship in price, size, yield, rate of
change of the same, etc. As yet another possibility, the trigger
event may be only peripherally related or completely unrelated to
any of the linked items. For example, the trigger event could be a
market index reaching a certain value, a certain date having
occurred, a certain business transaction closing, or an unlinked
item in having a certain price, size, yield, etc. Naturally, any
suitable interface may be utilized to enable the trader to select
the trigger event.
[0040] Next, process 200 determines at step 206 if a trader wants
to change or add items to be linked or linking parameters. If so,
process 200 loops back to step 202. Otherwise, process 200
determines whether an on-hold order is ready to be submitted at
step 208. An order may be on-hold if, for example, a delay was
specified for submission of an order through interface 500 (FIG.
5). Similarly, an order may be on-hold if the sequencing parameter
for the order (as configured in interface 500 (FIG. 5)) indicates
that the order has not come up in the sequence for submission, if
the order is to be manually submitted, or if the maximum update
frequency for the corresponding item has been reached. If an
on-hold order is ready to be submitted, process 200 then proceeds
through links 210 and 256 (FIG. 2C) to step 248 (FIG. 2C).
Otherwise, process 200 determines at step 212 whether a bid or
offer for a linked item has been received. If not, process 200
loops back to step 206. Otherwise, process 200 proceeds through
links 214 and 218 (FIG. 2B) to step 220 (FIG. 2B).
[0041] Turning to FIG. 2B, it can be seen that at step 220, process
200 next determines whether the received bid or offer is too old to
support linking. Whether a bid or offer is too old may be based
upon any suitable determination. For example, a system parameter
may indicate that a bid or offer is too old to support linking when
it has been outstanding for a given period of time. Alternatively,
traders may be permitted to designate at what point a bid or offer
becomes too old to support linking through an interface like
interface 500 (FIG. 5). If the bid or offer is too old, then
process 200, at step 222, clears the sizes and prices of other
linked items that are based upon that bid or offer, and alerts
traders that selected links involving the item corresponding to
that bid or offer. Once the traders have been alerted at step 222,
process 200 loops back to step 206 (FIG. 2A) via links 226 and 216
(FIG. 2A).
[0042] If the bid or offer is determined not to be too old at step
220, however, then process 200 determines at step 223 whether the
item corresponding to the bid or offer has priority. Priority may
be based on a test of which bid or offer in a set of linked items
was bid or offered last, a test of the type of item (e.g., futures
contract versus bond), or a test of the activity status of the item
(e.g., active or inactive). Which of these tests determines whether
an item has priority may be selected by a trader in a manner
similar to selecting the sequencing order in interface 500 (FIG.
5). If the item does not have priority, process 200 loops back to
step 206 (FIG. 2A) via links 226 and 216 (FIG. 2A).
[0043] If the bid or offer is determined to have priority at step
223, however, then process 200 determines at step 224 whether the
trigger event has occurred for the linked items. As described
above, any suitable trigger event may be used in accordance with
the present invention. Naturally, process 200 must be able
determine whether the trigger event did in fact occur, so suitable
data is preferably provided to process 200 for this purpose. If the
event is determined not to have occurred, then process 200 loops
back to step 206 (FIG. 2A) via links 226 and 216 (FIG. 2A).
[0044] If the trigger event is determined to have occurred at step
224, however, then process 200 selects the next linked item (i.e.,
the item linked to the item corresponding to the bid or offer) as
the current item at step 225 and retrieves formulas for linking the
current item with the previous item (i.e., the item corresponding
to the bid or offer) at step 228. For many pairs of items, there
are known formulas for translating a size and a price of one item
to a size and a price of another item. Any suitable formula,
relationship, or mechanism for translating size and price of one
item into that of another item may be used in accordance with the
present invention. For example, when trading basis, the price of a
bond may be related to the price of a futures contract using the
following formula:
Bond Cash Market Price = Basis + Futures Price .times. Conversion
Factor ##EQU00001##
Alternatively, a price of one item may be calculated based upon a
yield of another item. Similarly, when trading basis, the size of a
bond bid or offer is related to the size of a futures contract bid
or offer typically using the following formula:
Bond Cash Market Size = Hedge Ratio Futures Market Size
##EQU00002##
[0045] While conversion factors are published by the exchanges and
data vendors, they need to be updated dynamically as issues mature
and new contracts become open to trading. Process 200 dynamically
updates these conversion factors at step 230 so that any financial
instrument, including instruments that are not eligible for
delivery, have current conversion factors for generating
appropriate market accepted weightings for combination bidding and
offering and buying and selling.
[0046] In the case where there are no standard formulas for
translating the size and the price of an order for one item into a
size and a price for order for another item, the trader may be
permitted to specify a relationship through a suitable interface,
or the trading system may use historical data relating to the items
to estimate a relationship.
[0047] Next, process 200 determines the price of the order for the
current item at step 232 and the size of the order for the current
item at step 234 using the retrieved formulas. In addition to
calculating the size of the order using a formula, due to
restrictions on trading of certain items that require that those
items be traded in specified minimum lot sizes (or a multiple
thereof), process 200 may also round the size of the order for the
item to a corresponding lot size (or a multiple thereof) at step
236. For example, US treasuries are typically traded in sizes that
are multiples of one million dollars. In the event that a sizing
formula indicates that a bid size for a bond should be $1.1 million
based upon another trader's available bid for a linked futures
contract, the bid size for the bond may be rounded to $1 million to
conform to the lot size requirements. Once step 236 has been
performed, process 200 proceeds from step 236 through links 238 and
240 (FIG. 2C) to step 242 (FIG. 2C).
[0048] Alternatively, a trader may be permitted to specify absolute
values for the price and size of an item when linking items rather
than specifying a formula or formulas relating the item to another
item. In such a case steps 228 and 230 of process 200 may be
skipped.
[0049] As shown in FIG. 2C, at step 242, process 200 determines if
the order for the current item is ready to be submitted. An order
may not be ready to be submitted if an order submission delay was
specified through interface 500 (FIG. 5). Similarly, an order may
be not be ready to be submitted if the sequencing parameter for the
order (as configured in interface 500 (FIG. 5)) indicates that the
order has not come up in the sequence for submission, if the order
is to be manually submitted, or if the maximum update frequency for
the corresponding item has been reached. In the event that an order
is not ready to be submitted, process 200 then puts the order and
subsequent orders for items that are linked to the current item on
hold at step 244. Once the orders have been put on hold, process
200 loops back to step 206 (FIG. 2A) through links 246 and 216
(FIG. 2A).
[0050] If the order is ready to be submitted, however, process 200
then submits the order to a trading system at step 248. As
explained above in connection with FIG. 1, this trading system may
be implemented as part of hardware 100 or may be implemented in an
external trading system 130 connected to hardware 100.
[0051] In preferred embodiments of the present invention, trading
systems may enable process 200 to briefly lock the trading systems
so that all of the orders for a set of linked items can be
submitted without interference from external sources in response to
a new bid or offer.
[0052] After process 200 has submitted the order, the process
determines at step 249 if there are more linked items in the set of
linked items containing the item corresponding to the received bid
or offer. If so, then process 200 loops back to step 225 (FIG. 2B)
via links 251 and 237 (FIG. 2B).
[0053] Using formulas, relationships, or mechanisms between
transitively linked items, sizing and pricing of items can
propagate through a chain of linked items in order to price one
item from an otherwise un-associated item. For example, assume that
an item A is linked to an item B, and the item B is linked to an
item Z. If a size and a price are available for item A, that size
and that price may be used to determine a size and a price for item
B. Then using the determined size and the determined price for item
B, a size and a price may be determined for item Z. This chaining
of links could be used for any number of linked items.
[0054] If process 200 determines that there are no more linked
items in a set of linked items at step 249, process 200 then
proceeds to step 250 to determine if there is any remainder size
from the rounding of the order sizes at step 236 (FIG. 2B). For
example, in connection with the example given above where an order
for a bond is rounded from a size of $1.1 million to $1 million, a
remainder order may have a size of $0.1 million. Similarly, if a
size is rounded up, there may be a remainder size for the
over-order. For example, if a hit order is rounded up from $0.9
million to $1.0 million, a bid or lift remainder order may need to
be submitted for the $0.1 remainder size.
[0055] If there is remainder size, process 500 then bunches the
remainder sizes for separate trading at step 252 and submits the
remainder orders to a suitable trading system for trading the
remainder size at step 254. Once the remainder orders have been
submitted, or if there is no remainder size, then process 200 loops
back to step 206 (FIG. 2A) via links 246 and 216 (FIG. 2A).
[0056] Those skilled in the art will appreciate that the present
invention can be practiced by other than the described embodiments,
which are presented for purposes of illustration and not of
limitation, and the present invention is limited only by the
claims.
* * * * *