U.S. patent application number 14/039757 was filed with the patent office on 2014-02-06 for real time trading.
This patent application is currently assigned to Chicago Mercantile Exchange, Inc.. The applicant listed for this patent is Chicago Mercantile Exchange, Inc.. Invention is credited to Marcus Grubb, Andre Keijsers, Philip McConnell.
Application Number | 20140040101 14/039757 |
Document ID | / |
Family ID | 9953874 |
Filed Date | 2014-02-06 |
United States Patent
Application |
20140040101 |
Kind Code |
A1 |
Grubb; Marcus ; et
al. |
February 6, 2014 |
REAL TIME TRADING
Abstract
A computer based system for executing transactions involving
financial instruments, comprising a central host computer system,
and a network of client computer systems including browser-based
software which is adapted to present different interfaces to
different trading parties, and also adapted to enable the different
parties to set permission filters which control the presentation of
information relating to their own trading, to other parties.
Inventors: |
Grubb; Marcus; (London,
GB) ; Keijsers; Andre; (London, GB) ;
McConnell; Philip; (Middlesex, GB) |
|
Applicant: |
Name |
City |
State |
Country |
Type |
Chicago Mercantile Exchange, Inc. |
Chicago |
IL |
US |
|
|
Assignee: |
Chicago Mercantile Exchange,
Inc.
Chicago
IL
|
Family ID: |
9953874 |
Appl. No.: |
14/039757 |
Filed: |
September 27, 2013 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
|
|
13073713 |
Mar 28, 2011 |
8548896 |
|
|
14039757 |
|
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|
10386976 |
Mar 12, 2003 |
7930234 |
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13073713 |
|
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Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 40/04 20130101;
G06Q 40/00 20130101 |
Class at
Publication: |
705/37 |
International
Class: |
G06Q 40/04 20060101
G06Q040/04 |
Claims
1. A computer based system for executing transactions involving
financial instruments, comprising: a central host computer system
communicatively coupled to a plurality of client computer systems
over a network, each of the plurality of client computer systems
associated with at least one trading party and including
browser-based software configured to present a trading interface
and to enable administration of at least one permission filter that
control re-transmission of the associated at least one trading
party's trading information by the central host computer system to
others of the plurality of client computer systems, the trading
information including the associated at least one trading party's
quotes, wherein the central host computer system is configured to
cross-map the trading information received from each of the
plurality of client computer systems according to the at least one
permission filter of each of the associated at least one trading
parties and to retransmit the received trading information to at
least the others of the plurality of client computer systems
according to the cross-map, the cross-map identifying to which of
the plurality of client computer systems each of the trading
party's trading information may be re-transmitted.
2. The computer based system of claim 1 where the at least one
trading party may select the trading interface from a plurality of
standard interfaces.
3. The computer based system of claim 2 where the plurality of
standard interfaces includes interfaces for traders at regulated
banks, brokers at regulated brokerages, credit officers at
regulated banks or combinations thereof.
4. The computer based system of claim 1 where the central host
computer system is further configured to rank incoming orders and
prices for a set of instruments, and to re-transmit a resulting
market view to the plurality of client computer systems according
to the at least one permission filter of each of the associated at
least one trading parties.
5. The computer based system of claim 4 where the at least one
permission filter are adjustable during a trading process in which
a new quote is entered so as to cause trading information including
the new quote to be re-transmitted only to those of the plurality
of client computer systems associated with selected trading
parties.
6. The computer based system of claim 4 where the central host
computer system is further configured to auto-generate an implied
swap quote for a derivative financial instrument based on two or
more swap quotes of differing maturity available to a trading party
from other trading parties according to the at least one permission
filter of the other parties.
7. The computer based system of claim 4 where the trading
information of a trading party comprises at least one quote for a
swap spread, the swap spread being a derivative financial
instrument including at least two legs different financial
instrument of each with differing maturities.
8. The computer based system of claim 7 where the central host
computer system is further configured to initiate a matching
process in which the quote for the swap spread is compared with
existing swap orders for a trading party and to generate at least
one swap quote for the trading party.
Description
CROSS-REFERENCE TO RELATED APPLICATION
[0001] This is a divisional of application Ser. No. 13/073,713
filed on Mar. 28, 2011, which will issue as U.S. Pat. No. 8,548,896
on Oct. 1, 2013, which is a divisional of application Ser. No.
10/386,976 filed on Mar. 12, 2003, issued as U.S. Pat. No.
7,930,234 on Apr. 19, 2011, the contents of all of which are hereby
incorporated herein by reference in their entirety.
BACKGROUND OF THE INVENTION
[0002] This invention relates to a method of facilitating the
operation of markets for financial instruments such as "SWAPS". In
particular it relates to a system which utilizes internet
browser-type software to present different interfaces to trading
parties who have different rights of access to the system, and also
to present different views of the activities of other parties.
[0003] Preferably, the invention provides an interconnecting
network of internet browser based software applications delivered
from a central host to traders at regulated banks to trade as
principals, to brokers at regulated brokerages to trade as agents
and to credit officers at regulated banks to input counterparty
credit limits.
[0004] Preferably the system is delivered centrally over a high
powered telecommunications network from a central host.
[0005] In a preferred form of the invention, there are three user
interfaces and the internal workings of the system are designed to
support multiple types of users and multiple trading processes. For
example a trader at a regulated bank uses an interface to
anonymously price disseminate, price discover and trade directly
with other regulated banks or to perform the same activities via a
regulated broker or brokers, or to perform both activities at the
same time. A broker at a regulated brokerage uses a different
interface to price disseminate and discover non-anonymously and to
enter orders/prices and execute orders on behalf of regulated banks
by entering the code name of the bank on whose behalf they are
acting. A third non-trading interface is available for credit
officers at regulated banks to input counterparty credit limits to
enable the system to automatically cross-match and clear credit
limits during the trade process. The system is also designed to
enable trading to take place without the loading of any credit
limits in to the system--it is at the discretion of the regulated
banks.
Permissions Filter
[0006] Market participants in the current voice and manual
marketplace regard their price/order information as proprietary in
nature. A key problem to solve in any electronic system for OTC
derivatives is how to ensure that the correct orders/prices are
sent only to the correct parties. According to a preferred feature
of the present invention the price dissemination, price discovery,
order management and trade management is all conducted via a
"permissions filter" central to the system. This operates in the
following manner: As orders/prices are entered into the system by
regulated banks themselves and by regulated brokers on behalf of
regulated banks they are routed to the central servers. The
orders/prices are ranked by price and by time of receipt into a
display of the available marketplace of orders/prices showing a
"touch" bid and offer price and a ranked order book of less
competitive and timely bids and offers for each instrument in each
maturity. This market view is then re-transmitted to each regulated
bank and regulated broker on the system. The re-transmission takes
place using a unique "permissions filter" which cross-maps the
regulated banks and regulated brokers that the order enterer or
order viewer is/is not permissioned to see and be seen by. The
system does this for every order/price entered into the system by
every system member and then constructs the market view of
orders/prices appropriate to each member's permission set. The
result is that the market view of available prices/orders in the
same instruments and maturities presented to each member bank and
broker will be different depending upon the cross-mapping of
permission sets. Only two parties with identical permission sets
will see the same marketplace. Even then, the permissions are
alterable within the set by members themselves who can turn
permissioned parties on and off as they interact with the system.
This means that even with identical permissions one party may not
see what an identical party sees because they have been switched
off momentarily by a third party sending in an order/price. As a
result the system only shows orders/prices to banks and brokers
that are permissioned to see them by the order/price enterer. Thus
the proprietary nature of the orders/prices entered into the system
is maintained. This process of order/price ranking and filtering
via cross-mapped permission sets and re-transmission is tailored to
each system member bank and broker and is conducted by the system
continuously in real-time.
[0007] The trading modules of the user interface allow trading to
occur between regulated banks directly, between regulated banks via
a regulated broker and between banks and brokers in multiple
combinations. Once an available order/price is hit/executed by a
trader at a bank or by a broker at a brokerage the appropriate
dealing tickets appear electronically on screen to the appropriate
counterparties to facilitate the trade to be negotiated and
executed. Not only does the system present the appropriate deal
tickets to each participant, if a sequence of complex negotiations
occurs between the parties, the system also facilitates this and
presents at every step of the negotiations the correct information
and selectable fields in order to negotiate, finalize terms and
execute the transaction.
Swap Spread Price Dissemination, Discovery, Order And Trade
Management
[0008] The trading module also contains a second OTC derivatives
instrument market known as "swap spreads". The swap spread market
is a derivative of the interest rate swap market and a single
spread instrument is always composed of two interest rate swaps in
differing maturities (see Appendix I). The system uniquely solves
the problems of electronic price dissemination, price discovery,
order management, trade management and the automatic matching of
spreads and the automatic linkage to the underlying interest rate
swaps market. If two interest rate swap orders/prices are entered
into the system in differing maturities by banks or brokers, under
certain circumstances the system will auto-generate a single
resulting spread order/price and put it into the swaps spread
marketplace. If a spread price/order is entered into the system by
a bank or broker, under certain circumstances the system will
auto-generate a single or pair of swap orders/prices and put them
into the swap marketplace. The system continuously chains swap
orders/prices and spread orders/prices throughout all maturities in
both the swap marketplace and the spread marketplace automatically
in order to assist swap and spread traders and brokers and to
generate as much market depth as possible in both markets. When a
price/order is hit/executed in either the swap or spread markets
the system will automatically present the correct trading tickets
to all the banks and brokers in the chain in order to manage and
execute all the trades.
Background of the OTC Derivatives Marketplace
[0009] The development and growth of the OTC swap market has been
dramatic in recent years and continues to grow with a total
estimated notional amount of US$99.8 trillion outstanding in June
2001, of which interest rate derivative contracts accounted for
US$67.5 trillion (see FIG. 1). Catalyst to this growth has been the
advent of the European Monetary Union and the demand for solutions
aimed to meet end-users' interest rate exposure. Since its
inception in 1976, the OTC derivatives market continues to grow at
a steady pace. The total estimated notional amount of outstanding
contracts as at June 2001 was US$99.8 trillion, a 5% increase over
December 2000 and a 35% rise from June 1998. Growth in the second
half of the year came mainly from interest rate swaps and
currencies. The IRS and interest rate derivatives markets grew in
line with the OTC market in general, to a new high in notional
out-standings of US$67.5 trillion. IRS contracts grew by 17% from
June 1999 to June 2001 and the fastest growing segment was Euro
denominated IRS. The market consists of approximately 500 banks and
40 brokers. The share of brokers in transaction volume is slowly
declining at around 40%. The top 40 banks account for 80% of the
business by value. Swaps are traded in the following currencies:
US$38%, Euro 38%, Yen 10% and other currencies 14%. Euros
denominated swaps are now equal to or exceed USD denominated
swaps.
[0010] In the OTC derivatives market, participants hedge their
exposure risks to movements in interest rates, exchange rates,
equity prices, commodity prices and credit through OTC contracts.
Interest rate derivative contracts--which include interest rate
swaps ("IRS"), forward rate agreement ("FRA"), spreads, caps and
floors, swaptions, etc, account for 68% of the total.
[0011] The market participants are banks, inter-bank brokers and
end-customers (i.e. corporate treasuries, funds). In terms of
transactions, 60% are executed directly between banks, and the
remaining 40% involve brokers. The key players are a handful of
large market making banks and brokers who provide prices to other
market players.
BRIEF DESCRIPTION OF THE DRAWINGS
[0012] FIG. 1 shows a graph of the OTC interest rate derivatives
market;
[0013] FIG. 2 shows a chart concerning the communication of
information pertinent to the present invention; and,
[0014] FIG. 3 shows a schematic view of a hardware infrastructure
for implementing the present invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT
[0015] One embodiment of the present invention will now be
described by way of example.
[0016] The preferred embodiment of the invention supports price
discovery, trade execution, credit clearing and confirmation for
swaps and derivatives. The system enables banks to trade directly
or through a broker on live prices, and send electronic
confirmations by fax, e-mail or FpML format and via the SWIFT
secure payments system if desired.
[0017] In addition, the service offers full Straight Through
Processing ("STP") capabilities and be integrated with various
critical internal systems like credit checking, risk management,
trade capture, settlement & confirmation, data storage and
management, and external services like futures platforms, SWIFT
messaging, clearing, bond trading, etc. The application requires
minimal software on the customers' PC (called `thin client
technology`) and can therefore be implemented very quickly over
networks.
[0018] The system guarantees anonymity for banks until the moment
of trade execution when credit approval is done or required.
Bids/offers are live for trading and displayed to the system
members. Accessed through a private IP network the drop-down menus
of the front-end application consist of a trading center for
posting yield curves electronically, trading on bids/offers and
countering, a credit/risk management center delivered to the
members LAN enabling the credit department to internally update
credit/counterparty limits and an alert center for prices and
alerts.
[0019] The OTC derivatives transaction system is an integrated
network of desktop applications through which a member can enter a
yield curve of bids and offers and the size at which they are
prepared to deal. The orders can be directed to brokers or to other
member banks via a sophisticated permissioning system which
reflects existing trading behavior. The system also networks into
the credit and risk management departments of member firms allowing
the credit and trading limits to be updated in real time and
reflected to the dealers. The system operates a credit clearing
function. The secure IP private network connects banks and brokers
to the system.
[0020] The core application acts as a real-time transaction manager
tracking the status of individual IRS transactions. The indicative
IRS yield curve is supplied by analytics from Gottex and other
brokers, seamlessly linked into the core systems. The curves for
IRS, forward swaps and spreads feed in automatically and traders
can then submit counter bids and offers to improve the curve. All
market members are able to use the same module to feed their prices
into the system electronically. Additional integrated applications
generate the ETCs by e-mail and fax. Using a common IP interface,
members are able to enter information concerning yield curves and
proposed transactions.
[0021] The system guarantees anonymity for banks until the moment
of trade execution when credit approval is required. Bids/offers
are live for trading and displayed to the system members. Accessed
through the private IP network the drop-down menus of the front-end
application consist of a trading center for posting e-yield curves,
trading on bids/offers and countering, a credit/risk management
center delivered to the members LAN enabling the credit department
to internally update credit/counterparty limits and an alert center
for prices and alerts.
[0022] The front-end enables the retrieval of IRS records from the
databases and report production by date, currency, customer, term
etc. The trading center conforms to the generally accepted
calculations and representations of OTC derivatives transactions
governed by the existing marketplace. The system manual explains
the basic transaction types. The system improves trading efficiency
and provides an e-audit and record keeping function enabling a
ticket-less process.
[0023] The market maker electronically inputs a bid/offer and a
counterparty accepts it to trade, the system automatically
generates order confirmation screens to all parties showing that
they have traded, displaying the full terms and revealing the
counterparties for credit checking. If a credit check is required
the trade remains open linked to live prices until the
counterparties accept each other's credit. When they finally accept
the trade, the ETCs can be sent out automatically by the core
system.
[0024] The system is preferably compliant with SwapsWire and
SwapsClear and has the ability to send/transfer Excel, FpML and
SWIFT MT3X if required. There are Excel APIs for both price feeds
and credit/risk limit feeds, FpML capability to generate formatted
trade confirmations and also SWIFT MT3X trade clearing
standards.
[0025] The front-end is designed to be intuitive, navigable and
easy to use with the minimum number of mouse clicks in order for a
member to trade. It accommodates both inter-bank brokers and banks
and provides a wealth of information to the trader.
[0026] Brokers that join will be able to hook up their analytics to
the system in order to submit their indicative curves.
[0027] The system enables banks and brokers to realize efficiency
gains in the confirmation and processing of OTC derivatives
transactions. Once a trade has taken place the system generates
multiple confirmations automatically. These can be sent by rapid
fax and e-mail, reducing back office costs. The system loads and
calculates the default commission rate on every brokered
transaction. The broker can aggregate commissions, adjust the
amounts and invoice banks electronically on a monthly basis.
[0028] The platform is preferably capable of sending FpML message
types to banks on the Swaps Wire processing platform and SWIFT
messages to offer e-STP via LCH Swap Clear, enabling Swap Clear
members to "novate" swap trades for multi-lateral clearing.
Finally, Swapstream employs fully backed-up data storage and online
recovery, allowing members online access to their historic trades,
versus the current manual retrieval from paper archives. This data
can also be downloaded in various file formats. In the near future
this facility permits netting and assignment of swap and OTC
derivatives positions within Swapstream.
[0029] As the futures hedging and collateral management process of
the IRS and OTC derivatives markets becomes more sophisticated, the
system will preferably be arranged to offer both bloc futures
crossing via Eurex and automated clearing and multi-lateral netting
via Swap Clear, releasing capital and further reducing bank's costs
of trading.
Application Architecture
[0030] The system provides an on-line electronic platform to
facilitate the near real time trading of swaps in Euros and Swiss
Francs. Subsequent phase deliveries will be prioritized and agreed
via the User Board and the Swapstream product development team.
Already the initial Phase 2 business requirements have been
discussed with customers; these will be agreed by end of Q4 2002,
after which the design and build team will begin development. The
application architecture is designed for scalability, performance
and resilience as shown in FIG. 2.
[0031] The Presentation layer, also called User Interface, is
intuitive, navigable and easy to use with the minimum number of
mouse clicks in order for a trader to hit a bid or lift an offer,
supply a counter-bid or offer or enter an OTC transaction. The
front-end application will be initially designed to accommodate
both inter-bank brokers and banks.
[0032] The Data Delivery processing layer is concerned with taking
feeds from credit departments, broker analytics systems and bank
curve management systems and passing them through into the
Swapstream system.
[0033] The Business Logic and Data Services Areas are responsible
for providing the core exchange-type functionality of the system.
These areas aggregate pricing, order and credit information entered
via the client user interface, the front-end interfaces and the
back-end data feeds to form the market order book and best prices,
and provides the logic behind the trading process. It breaks down
into three smaller areas order management, price management and
trade management & confirmation.
[0034] The approach to performance and scalability of the
Swapstream system architecture is based around a combination of
methods, including: Volumetric modeling to predict the performance
and identify potential bottlenecks Partitionable design to maximize
horizontal (cross-server) scalability. Event driven, predominantly
stateless architecture to support partitionable design Use of
high-performance software solutions--for example Latest version of
BEA Web logic uses the most recent optimizations Performant
messaging software, such as Talarian SmartSockets, that support the
event driven architecture Careful messaging design to minimize
network traffic Design and software selection that maximize
vertical scalability Stress testing and profiling to provide
validation of the volumetric models Infrastructure &
Network
[0035] One example of hardware infrastructure (FIG. 3) consists of
Sun SPARC-3 servers running Solaris 2.8, with the Oracle database
8.0 hosted on a highly redundant Sun server. All central hardware
is hosted in central hosting facilities.
[0036] The diagram above shows an example of how the back end
servers will be linked to the client LAN's:
[0037] The platform will be available during swaps trading hours
and for some time afterwards to allow tidying up, i.e. from 6 am to
10 pm (ECT) during the working week. Availability outside these
hours it is desirable to allow access to our audit and reporting
features. However, it is not essential as volumes will be virtually
non-existent.
[0038] During trading hours, the system is highly available. It is
particularly important that if the system becomes unavailable to
only a subset of users for any reason, this can be detected and
their orders pulled. Seamless fail over if a front-end server goes
down is in place, as is the preservation of orders should an order
management server fail. A shutdown process operates like a remote
exchange, should central price feeds fail.
[0039] In the first launch, the screen includes the real-time swap
yield curve, which is displayed at all times, a maturity swap
spread curve, and later forward/forward swaps, short swaps and
Eonias. The curve prices are color coded to show the status of the
prices. In all types of curve, the application allows a trader to
trade any maturity displayed on the live curves. An electronic deal
ticket is displayed when an order is hit. The deal ticket
automatically contains as much information as possible and allows
the trader to hit at a specified size and price, which the system
then automatically matches for price and size in the market and
displays the relevant confirmation screens to the parties involved.
Orders executed and awaiting name-check are subject to markets and
credit approval; prices are automatically updated In line with
market movements. Confirmation screens show all the terms of the
swap and reveal the counterparty. If the trader wishes to alter
details of the transaction, the full ticket allows the trader to
change then submit the amended trade, using real time messaging.
Broker members of the system are able to enter prices on behalf of
customers and hit orders on their behalf, whether or not they are
platform members. A broker trade generates a three way
confirmation.
[0040] The trading blotter displays both the traders' live trades
and completed trades, the completed trades are displayed at the
bottom of the blotter. The credit/risk management screen allows
credit and risk managers to enter credit and trading limits to be
displayed to their own traders. The system stores this data and
uses it to perform a central credit clearing function between
counterparties without revealing confidential information to other
system members. As a result of varying permissions, the system
displays the curves differently to each member firm. The front-end
also contains filters to cross check inputs from banks and brokers
as well as live price feeds from Reuters, Bloomberg, and Eurex etc.
to avoid incorrect information being entered into the system.
[0041] Member firms are also able to configure the permissioning to
their own requirements, for example, displaying their prices only
to selected counterparties or viewing prices from and sending
prices to only those parties with whom they have fully cleared for
credit (see Appendix II and III).
* * * * *