An automated exchange for matching bids between a party and a counterparty based on a relationship between the counterparty and the exchange

a technology of automatic exchange and matching bids, applied in the field of automatic exchange for matching bids, can solve the problem that the automated exchange system of today does not support market makers' different actions

a technology of automatic exchange and matching bids, applied in the field of automatic exchange for matching bids, can solve the problem that the automated exchange system of today does not support market makers' different actions

US20010056393A1Inactive Publication Date: 2001-12-27ISE LLC
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  • An automated exchange for matching bids between a party and a counterparty based on a relationship between the counterparty and the exchange
  • An automated exchange for matching bids between a party and a counterparty based on a relationship between the counterparty and the exchange
  • An automated exchange for matching bids between a party and a counterparty based on a relationship between the counterparty and the exchange

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Embodiment Construction

[0033] In the following description, being given as an example only, the following definitions will be used:

[0034] A market maker is defined to be a market maker for certain financial instruments.

[0035] When a market maker sends in a prices to the order book in instruments where he is a market maker the prices are sent in as quotes. Quotes are always limit order that will be stored in the book if not matched.

[0036] Quotes can only be used by market maker members in instruments where they are defined as market makers.

[0037] When a market maker trades in series (instruments) where he not is defined as a market maker he is, in the examples given below, considered to be a firm. He can then only send in orders. Furthermore, the system as described below is assumed to have the following characteristics:

[0038] A user can insert one transaction at a time.

[0039] A transaction is returned with status, i.e. success or error.

[0040] Only one transaction at a time is handled within one orderbook....

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Abstract

In an automated exchange system means are provided by means of which a market maker can enter a course of action in advance, so that the volume in the orderbook is continuously updated, and where the updating is performed differently with respect to different counter parts. Also, quotes that may result in a trade between Market Makers are hidden for some time before being matched, thus giving the Market Makers a chance to back off. The system employs a function that supports that Market Makers through pre-defined parameters will have new orders generated by the system and that a market maker can act differently with respect to different counterparts. The parameters specify if a Market Maker should add extra volume on an existing price or generate a new order at a worse price. In order to make it possible for market makers to have a very tight spread without forcing them to take larger risks, additional logic is used when matching orders. The algorithm used for this purpose protects the market makers in certain situations and gives market makers the possibility to have a tight spread without taking a large risk. The algorithm also supports that the market makers can take the risk to quote large volumes.

Description

[0001] The present invention relates to a method and a system for increasing the security against undesired matches in an automated exchange system.BACKGROUND OF THE INVENTION AND STATE OF THE ART[0002] In existing automated exchange systems for continuous trading (dealer market), a simple first in first served model in the matching is commonly used. Thus, if there is a selling price, which is matched by a buying price, the two orders are matched.[0003] To increase liquidity there are Market Makers (quoters) who are required by the exchange to continuously enter two way quotes. The basic idea is that Market makers must have a two way quote in the market all the time. The quotes (together with ordinary orders) creates a best bid and offer that is sent out as the exchange official price. The best bid offer is used by investors when deciding about buying or selling an instrument. It is in the exchange interest to have as tight spread, i.e. the difference between the selling price and t...

Claims

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Application Information

Patent Timeline
27 Dec 2001
Publication
US20010056393A1
IPC
G06Q40/00; H04L12/18; H04M
CPC
G06Q40/00; G06Q40/06; G06Q40/04
Inventors
TILFORS, JAN; KATZ, GARY