Leg Pricer for Complex Implied Orders
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Solution Overview
Problem
Prior art trading systems lack a systematic and predictable method for calculating on-tick leg prices for complex implied orders, limiting the use of implied orders in electronic trading systems.
Innovation Solution
A leg pricer system that includes an input, processor, and output to calculate leg prices for tradable combinations of orders, ensuring prices are multiples of the minimum price increment and optimally distributing gains and losses among traders, with the ability to round tick prices to minimize fractional gains and losses.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If a trading system supports complex implied orders with multiple roundable spreads, then the system's adaptability and versatility improve, but the complexity of calculating on-tick leg prices increases significantly
Solution Approach 1:
The patent segments the complex pricing problem into distinct components: identifying roundable spreads, calculating unrounded leg prices, determining rounding scenarios, and selecting the optimal scenario. This segmentation allows each component to be handled separately through automated processing, reducing the overall calculation complexity while maintaining support for complex implied orders.
Solution Approach 2:
The patent introduces an intermediary computational framework that mediates between the complex implied order specifications and the required on-tick leg prices. This framework systematically evaluates multiple rounding scenarios and selects the optimal one, acting as an intermediary layer that simplifies the calculation process while preserving the ability to handle complex order structures.
2Measurement precision
If leg prices are rounded to on-tick values, then measurement precision is maintained for reporting, but manufacturing precision of actual trade prices is reduced due to fractional gains and losses
Solution Approach 1:
The patent applies preliminary action by calculating all possible rounding scenarios before finalizing the leg prices. By evaluating multiple rounding options in advance and selecting the optimal scenario that minimizes fractional gains and losses, the system ensures both accurate on-tick reporting and fair price distribution among traders before the trade is executed.
Solution Approach 2:
The patent changes the pricing parameters by introducing multiple rounding scenarios with different rounding directions (up or down) for each leg. This allows the system to explore different parameter combinations and select the optimal set of rounded prices that maintains measurement precision for reporting while minimizing the impact on actual trade prices through optimal parameter selection.
3Reliability
If multiple rounding scenarios are evaluated to minimize fractional gains and losses, then fairness among traders improves, but the calculation time and processing complexity increase
Solution Approach 1:
The patent segments the scenario evaluation process into systematic steps: generating rounding scenarios, calculating leg prices for each scenario, evaluating fractional gains and losses, and selecting the optimal scenario. This segmentation enables efficient automated processing of multiple scenarios without excessive calculation time, as each segment can be handled independently and systematically.
Solution Approach 2:
The system performs self-service by automatically evaluating multiple rounding scenarios and selecting the optimal one without requiring manual intervention. This automated self-service approach ensures fairness among traders through systematic evaluation while minimizing calculation time by using efficient algorithms that can independently determine the best rounding scenario.
Data Source
AI summary
An electronic trading system utilizes a Match Engine that receives orders, stores them internally, calculates tradable combinations and advertises the availability of real and implied orders in the form of market data. The tradable combinations may include spread orders where one leg of the spread has a different tick size than the other or where the tick of the spread contract is different from the tick size in one or both legs. A method and system for calculating on-tick leg prices in an equitable and predictable manner is provided.