Hybrid Trading System Automated Auctions

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Solution Overview

Problem

Electronic trading mechanisms lack automated auction functionality for internalization and complex orders, while traditional open outcry systems provide this but are less efficient in other aspects, necessitating a hybrid system that combines both for improved trading efficiency.

Innovation Solution

A trading platform and method that integrates electronic and open-outcry trading mechanisms, enabling automated auctions for internalization and complex orders through an electronic trade engine that disseminates requests for price, selects allocation algorithms, and allocates orders based on participant-type and auction-type, ensuring efficient order execution and price improvement.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Productivity

If electronic trading mechanisms are used, then trading efficiency and immediacy are improved, but automated auction functionality for internalization and complex orders is lost

Engineering Contradiction:

Improvetrading efficiencyVSAvoidautomated auction functionality

Core Design Contradiction:

ProductivityVSAdaptability or versatility

Solution Approach 1:

The patent combines electronic trading mechanisms with automated auction functionality into a hybrid system. The electronic trade engine receives orders and automatically initiates auction processes, merging the speed of electronic trading with the order execution capabilities of traditional auctions for both simple and complex orders including internalization

Inventive Principle:

Principle #5Merging (Combining)

Solution Approach 2:

The electronic trade engine is designed to handle multiple order types (simple orders, complex orders, internalization orders) through a unified automated auction mechanism. The system provides universal functionality by adapting the same core engine to serve different trading needs that previously required separate systems

Inventive Principle:

Principle #6Universality (Multi-functionality)

2Adaptability or versatility

If traditional open outcry trading is used, then automated auction for internalization and complex orders is provided, but trading efficiency and information dissemination are reduced

Engineering Contradiction:

Improveautomated auction for internalization and complex ordersVSAvoidtrading efficiency

Core Design Contradiction:

Adaptability or versatilityVSProductivity

Solution Approach 1:

The patent replaces the manual open outcry mechanism with an electronic trade engine that automatically processes orders and conducts auctions. The electronic system substitutes human traders and manual procedures with automated computer-based processes, maintaining auction functionality while dramatically improving speed and efficiency

Inventive Principle:

Principle #28Mechanics substitution (Replace mechanical system)

Solution Approach 2:

The electronic trade engine replicates the essential auction functionality of open outcry trading in a digital environment. It copies the core mechanism of competitive bidding and order matching while eliminating the physical constraints of the traditional system, allowing the same auction processes to occur electronically with enhanced performance

Inventive Principle:

Principle #26Copying

3Extent of automation

If all-electronic exchanges are used, then automated functionality is improved, but capability to handle complex orders and internalization is reduced

Engineering Contradiction:

Improveautomated functionalityVSAvoidhandling complex orders and internalization

Core Design Contradiction:

Extent of automationVSAdaptability or versatility

Solution Approach 1:

The electronic trade engine dynamically adapts its behavior based on order type. It automatically adjusts its processing logic to handle simple orders, complex orders with multiple legs, and internalization orders differently, providing flexible automated functionality that responds to varying trading requirements rather than following a rigid single-path process

Inventive Principle:

Principle #15Dynamics

Data Source

PatentUS7676421B2Method and system for providing an automated auction for internalization and complex orders in a hybrid trading system

Publication Date: 2010.03.09 CBOE EXCHANGE INC

AI summary

A method of providing an automated auction for internalization for the purchase or sale of securities or derivatives in an exchange is disclosed. The method may include receiving an order at an electronic trade engine, disseminating a request for price message to at least one user in response to receiving the order, receiving a one-sided response message representative of a participant-type in response to the request for price message, selecting an allocation algorithm from a plurality of allocation algorithms, initiating the selected allocation algorithm and allocating the order according to the participant-type upon termination of the selected auction. The system may include an electronic trading engine configured to disseminate an auction message in response to an order, a database of allocation algorithms, and a trade processor for initiating an auction according the one of the allocation algorithms and terminating the auction upon defined early termination events.