Abstract:
A computer assisted method of operating a venue of an exchange comprises the steps of providing a market for trading of a product, acquiring a measure of trading volume of the product, and developing a measure of open interest in the product. A relationship is calculated between the measure of trading volume and the measure of open interest. A settlement price is computed in accordance with the relationship, and the settlement price is published.

Description:
CROSS REFERENCE TO RELATED APPLICATIONS 
       [0001]    Not applicable 
       REFERENCE REGARDING FEDERALLY SPONSORED RESEARCH OR DEVELOPMENT 
       [0002]    Not applicable 
       SEQUENTIAL LISTING 
       [0003]    Not applicable 
       BACKGROUND OF THE INVENTION 
       [0004]    1. Field of the Invention 
         [0005]    The present invention relates generally to a method of operating a market, and particularly to a method of computing a settlement price for a product traded in a market. 
         [0006]    2. Description of the Background of the Invention 
         [0007]    An exchange provides one or more venues for the purchase and sale of various types of products including financial instruments such as stocks, bonds, futures contracts, options, cash, and other similar instruments. A futures contract is a contract to purchase or sell a commodity or financial instrument for delivery in the future at a price that is determined at the initiation of the contract. A transaction is the purchase or sale of any of the above financial instruments and similar instruments, as well as similar rights and obligations. 
         [0008]    Generally, each exchange establishes specifications for each product traded on a market. The specifications define at least the product traded in the market, minimum quantities that must be traded, and a minimum price increment in which the product can be traded. For some types of products, for example, futures, the specification further defines a quantity of the underlying goods or financial instruments represented by one unit (or lot) of the product, an expiration date of the product, and a delivery date for the underlying goods or financial instruments. 
         [0009]    A minimum price fluctuation for a product is defined as a tick. Therefore, prices for a product are constrained to values that differ only by multiples of the tick. A bid price is a price offered by a trader seeking to buy a quantity of the product and an offer price is a price sought by a trader seeking to sell a quantity of the product. An order comprises a bid or offer price and a quantity to be bought or sold, respectively. Therefore, a bid is an order to buy and an offer is an order to sell. For example, a bid for a futures contract may be for a quantity of 200 contracts at 95 dollars each. 
         [0010]    Typically, only traders authorized by an exchange are allowed to trade directly on the exchange; however, brokerages or persons who are not affiliated with the exchange may also place orders through authorized traders. All accounts trading the exchange&#39;s products must be carried by an authorized clearing firm and guaranteed by the clearing firm to a central clearing house associated with the exchange. All accounts carried by the authorized clearing firms are marked to market and subject to minimum performance bond requirements established by the exchange. The performance bonds represent good faith deposits to guarantee performance and represent a minimum amount of protection against potential losses that each clearing firm must maintain to carry a position or portfolio of positions. Should the performance bond on deposit fall below a designated level, the account must be re-margined to the initial performance bond level. To determine if re-margining is required, all open positions held in a product are marked to market during or at the end of each trading session by determining a settlement price and marking open positions to the settlement price. A net change in the value of a trader&#39;s account is computed based upon the settlement price and a value of all the open positions held in a trader&#39;s account is updated to reflect the net change. Re-margining cash flows between the clearing firms and the clearing house remove any debt obligations therebetween and safeguard the financial integrity of the market by not allowing losses to accumulate over time. Periodic settlement of accounts assures that all parties involved in trading through an exchange are solvent and can meet their obligations to one another and to the exchange. 
         [0011]    Some products on an exchange are traded in an open outcry venue where the exchange provides a location for buyers and sellers to meet and negotiate a price for a quantity of a product. Other products are traded on an electronic venue, for example, an electronic trading platform, where a trader uses software to send an order to the electronic trading platform. The order identifies the product, the quantity of the product the trader wishes to trade, a price at which the trader wishes to trade the product, and whether the order is a bid or an offer. 
         [0012]    Markets for some products operate simultaneously in both open outcry and electronic venues. In this situation, price variations that may develop between the venues are quickly eliminated by traders who arbitrage between the venues. Therefore, in a situation where a single product is traded on two venues, prices on the two venues tend to closely track each other. The operating hours of the venues may be different and one of the two venues may stop trading at a predetermined time while the other venue continues trading, possibly without ever stopping. Settlement prices for a product traded in a market that operates on more than a single venue must still be periodically established for the reasons described above. Settlement prices for a product may be established using a number of methods. 
         [0013]    One way an open outcry venue establishes the settlement price for a product is by a decision made by a settlement committee. The settlement committee typically consists of several traders who review and discuss trading data to determine the settlement price considered to represent fair value at a discrete moment in time. Another way to establish the settlement price for a product is to set the settlement price to be identical to a price of a last trade executed before a predetermined settlement time. If two markets are provided for the same product, the settlement price of the product on one of the two markets may be based on the settlement price of the product on the other of the two markets. For example, the settlement price for a product trading on a first exchange (or venue thereof) may be set identical to a price of a last trade executed on a coincidentally operating second exchange (or venue thereof) or on a coincidentally operating second venue of the first exchange before a predetermined settlement time. 
         [0014]    A further way to establish the settlement price for a product is to compute a volume weighted average price (“VWAP”) for the product. The VWAP may be computed, for example, by the relation: 
         [0000]    
       
         
           
             VWAP 
             = 
             
               ( 
               
                 
                   
                     ∑ 
                     k 
                   
                    
                   
                     
                       ( 
                       
                         Quantity 
                         k 
                       
                       ) 
                     
                     · 
                     
                       ( 
                       
                         Price 
                         k 
                       
                       ) 
                     
                   
                 
                 
                   
                     ∑ 
                     k 
                   
                    
                   
                     ( 
                     
                       Quantity 
                       k 
                     
                     ) 
                   
                 
               
               ) 
             
           
         
       
     
         [0000]    where the summation index k represents the number of trades that occur during a predetermined time period, Quantity k  represents quantity of product traded in each of the summed trades, and Price k  represents a corresponding price for the product traded in each of the summed trades. 
         [0015]    In some markets, the settlement price is set equal to the computed VWAP. Still another way to establish the settlement price for a product is to set the settlement price for the product trading on a first exchange (or venue thereof) equal to the VWAP for the product computed from trading data acquired from a second exchange (or venue thereof) that operates coincidentally with the first exchange or from a coincidentally operating second venue of the first exchange. 
         [0016]    Yet other ways adjust the computation of the settlement price to be responsive to trading conditions for a product. Such ways compare parameters that are computed from trading data to determine the exact procedure for determining the settlement price. An example of one such parameter is a quotient of open interest of a product having a particular contract expiration month (“contract month”) divided by open interest of the product including all of the contract months. Illustratively, suppose the product in question is a hypothetical soybeans futures contract that has contract months of March, May, July, August, September, November, and January. Open interest in a soybeans futures contract is the number of contracts that have been traded and that have not yet closed or been delivered. An open interest parameter for the soybeans futures contract in this illustration may be the quotient of open interest of the July expiration futures contract divided by a sum of the open interest of the futures contract over all of the contract months. An example of another such parameter is a quotient of volume traded during a predetermined time period of a product having a particular contract month divided by volume traded during the predetermined time period of the product including all of the contract months. Illustratively using the same hypothetical soybeans futures contract discussed above, an open interest parameter for the soybeans futures contract in this illustration may be the quotient of volume traded during a predetermined time period of the July expiration futures contract divided by a sum of the volume traded during a predetermined time period of the futures contract over all of the contract months. 
       SUMMARY OF THE INVENTION 
       [0017]    According to one aspect of the invention, a computer assisted method of operating a venue of an exchange comprises the steps of providing a market for trading of a product, acquiring a measure of trading volume of the product, and developing a measure of open interest in the product. A relationship is calculated between the measure of trading volume and the measure of open interest. A settlement price is computed in accordance with the relationship, and the settlement price is published. 
         [0018]    According to another aspect of the invention, a method of using a computer to determine a settlement price for a product traded on a venue of an exchange comprises the steps of acquiring a measure of trading volume of the product and developing a measure of open interest in the product. A relationship is calculated between the measure of trading volume and the measure of open interest. A settlement price is computed in accordance with the relationship. 
         [0019]    According to yet another aspect of the invention, a method of using a computer to determine a settlement price for a product traded on a first venue comprises the steps of acquiring a measure of trading volume of the product from a second venue, developing a measure of open interest in the product, and collecting bid and offer prices for the product. A relationship is calculated between the measure of trading volume and the measure of open interest. A settlement price is computed in accordance with the relationship and the bid and offer prices. 
         [0020]    According to a further aspect of the invention, a system for operating a venue that provides a market for trading a product comprises a computer-readable medium and a software program stored in the computer-readable medium. The software program comprises a first routine that acquires a measure of trading volume of the product, a second routine that develops a measure of open interest in the product, and a third routine that calculates a relationship between the measure of trading volume and the measure of open interest. The software program further comprises a fourth routine that computes a settlement price in accordance with the relationship and a fifth routine that publishes the settlement price. 
         [0021]    According to a still further aspect of the invention, a method of using a computer to periodically update a trader&#39;s account comprises the steps of determining a marked to market price a plurality of times during a trading session for a product traded on an exchange and calculating a net change of the trader&#39;s account based upon the determined marked to market price. The method also updates the trader&#39;s account based upon the calculated gains and losses. 
     
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
         [0022]      FIG. 1A  is a schematic representation of an embodiment of a market that has multiple venues operating on a single exchange for trading a product; 
           [0023]      FIG. 1B  is a schematic representation of another embodiment of a market that is traded on multiple venues, each venue operating on a distinct exchange for trading a product; 
           [0024]      FIG. 2  is a timeline diagram illustrating typical daily exchange activity; 
           [0025]      FIG. 3  is a block diagram illustrating market operation; 
           [0026]      FIG. 4  is a block diagram illustrating settlement procedures; 
           [0027]      FIG. 5  is an illustration of related futures contract families; 
           [0028]      FIG. 6  is a block diagram illustrating computation of a settlement price; 
           [0029]      FIG. 7  is a chart showing example settlement prices and open interests; and 
           [0030]      FIG. 8  is an overview description of the settlement data shown in  FIG. 7 . 
       
    
    
       [0031]    Other aspects and advantages of the present invention will become apparent upon consideration of the following detailed description, wherein similar structures have similar reference numerals. 
       DETAILED DESCRIPTION 
       [0032]    While specific embodiments of a method of computing a settlement price are discussed herein, it is understood that the present disclosure is to be considered only as an exemplification of the principles of the invention. The present disclosure is not intended to limit the disclosure to the embodiments illustrated. 
         [0033]    Referring to  FIGS. 1A and 1B , authorized traders  50  trade a product in a market that may comprise a first venue  52  and a second venue  54 . Trading data is passed between the traders  50 , and the exchanges  52 ,  54 . Trading data may include, for example, bid and offer quantities and prices, matched bids and offers, or other data. An associated computer  56  computes a settlement price as required for products traded in certain markets. In one embodiment shown in  FIG. 1A , each of the first and second venues  52 ,  54  may operate as part of a single exchange  58 . In another embodiment shown in  FIG. 1B , the first venue  52  may operate as part of a first exchange  60   a  and the second venue  54  may operate as part of a second exchange  60   b.    
         [0034]      FIG. 2  shows first and second timelines  62  and  64  that illustrate trading sessions of a market comprising the first and second venues  52  and  54 , respectively. Trading activity in a typical market begins when the market opens. A product is traded in the market as illustrated in  FIG. 1 , for example, on the first venue  52  and on the second venue  54 . During a normal trading day as indicated in  FIG. 2 , there may be no trading activity on either of the first or second venues  52 ,  54  from a time to a time t 1 . The first venue  52  may open at the time t 1  and the second venue  54  may open at a different time t 2 . A trading session  70   a  continues on the first venue  52  until a predetermined settlement time t 3  when the trading session on the first venue closes. A trading session  70   b  opens at the time t 2  on the second venue  54 . In this example, the trading session  70   a  on the first venue  52  closes at the predetermined settlement time t 3 , but the trading session  70   b  on the second venue  54  continues beyond the time t 3  and closes at a time t 6 . 
         [0035]    A block  72   a  determines a settlement price for the product at the predetermined settlement time t 3 . A Block  74   a  applies the settlement price determined by the block  72   a  to traders&#39; positions to update traders&#39; accounts at a time t 4 . A period of no trading activity  76   a  begins at a time t 3  and extends back around on the timeline  62  until the time t 1 . The first venue  52  reopens with all traders&#39; accounts current and the entire process repeats starting at the time t 1 . 
         [0036]    The second venue  54  continues the trading session  70   b  through the time period between the times t 3  and t 5 . However, at the time t 3  the settlement price for the second venue  54  is also set to the same price as set for the first venue  52 . Shortly after the time t 6 , accounts for traders&#39; open positions from trades on either of the first or the second venue  52 ,  54  are updated based on the settlement price for the second venue  54 . Trading on the second venue  54  may stop at the time t 6 , as shown in  FIG. 2 , or trading on the second venue may be continuous for a period of days separated by periods of no trading, for example, the second venue may trade continuously from midnight on a Monday morning to midnight on a Friday night and have a period of no trading that includes Saturday and Sunday. Further, trading on the second venue  54  may be continuous seven days a week with a break once a month or once a quarter or once a year, or may be continuous without any breaks. 
         [0037]    Regardless of whether the second venue trades for a part of each day or trades continuously for a day or several days as just described, a settlement price is periodically applied to the product traded on the second venue. For example, suppose the second venue  54  trades continuously twenty four hours a day and seven days a week, but the first venue  52  closes daily at 2 p.m. The settlement price determined from the data acquired from the first venue  52  may be applied to the second venue  54  at 2 p.m. Twelve hours later at 2 a.m., the first venue  52  has not yet re-opened however the second venue  54  may have experienced a volume of trading that has resulted in a significant shift in the product price. In such a situation, it would be useful to recompute a settlement price based on data acquired from the second venue  54  at 2 a.m. to help ensure that all parties involved in trading through the second venue are solvent and can meet their obligations to one another and to the second venue. 
         [0038]    In fact, depending on trading patterns and price volatility, it may be useful to recompute a settlement price on a high volume venue multiple times a day. Such a settlement price may also be called a marked to market price or a margin maintenance price, and is useful for ensuring traders&#39; solvency in markets having a single venue as well as multiple venues. The marked to market price may be computed multiple times per trading session and as frequently as necessary to ensure traders&#39; solvency, for example, every hour or every half hour. In a venue that trades continuously 24 hours a day, seven days a week, the trading conditions may vary tremendously with time such that the marked to market price may be computed on a staggered schedule that is predetermined to match historical trading patterns. Alternatively, the marked to market price could be computed on a flexible schedule as determined by real time trading activity, or the marked to market price may be computed on demand by human intervention or by a preset trigger event. 
         [0039]    Referring next to  FIG. 3 , a block  100  executes tasks undertaken before a market opens on an exchange. For example, before the market for a product opens a first time, a specification for the product is established, and the market is provided for the product to be traded. Before the market opens every time including the first time, a block  102  authorizes traders to trade the product in the corresponding market provided on the exchange. Authorization of a trader depends upon a status of the trader&#39;s updated account, and authorization may be denied if a trader cannot meet his obligations. Traders may be authorized to trade a single product or may be pre-authorized to trade any product on the exchange. Still referring to  FIG. 3 , a block  104  accepts and notes the authorization of traders and executes orders for trading the product. The block  104  may undertake trades for a predetermined duration (as indicated by the trading session  70   a  in  FIG. 2 ) or the trading session may continue through the predetermined settlement time t 3  (as indicated by the trading session  70   b  in  FIG. 2 ). A block  106  determines the settlement price and a block  108  updates the traders&#39; accounts. 
         [0040]      FIG. 4  shows one embodiment of a settlement procedure that is initiated, for example, at the predetermined settlement time t 3 . In particular, a block  200  acquires a measure of trading volume for the product trading, for example, on the first venue  52 . A block  202  acquires a measure of open interest for the product. A block  204  acquires bid and offer prices for the product at the predetermined settlement time t 3 . A block  206  calculates a relationship between the measures of trading volume and open interest. A block  208  calculates a settlement price for the product in accord with the relationship and the bid and offer prices. A block  210  publishes the settlement price and a block  212  uses the settlement price to determine unrealized gains and losses of authorized traders and accordingly update their accounts on all venues providing a market for the product. In other embodiments, the measure of trading volume acquired by the block  200  and the bid and offer prices acquired by the block  204  are acquired from a second venue, for example, the second venue  54  that operates simultaneously with a first venue, for example the first venue  52 . 
         [0041]    In some embodiments, the block  200  acquires a measure of trading volume for the product having a particular contract month by summing individual volumes of all trades of the particular contract month for the product that occur on a venue of a market for the product during a configurable time period, T p , that occurs just prior to a configurable settlement time, T s , for example, time t 3  shown in  FIG. 2 . Illustratively, T p  is 60 seconds, but may be any other time period specified by the market. T s  is illustratively 2 p.m. for computing settlement prices. T s  may illustratively be 10 a.m., noon, and 2 p.m. for computing marked to market prices. In a market traded on a single venue, the measure of trading volume is acquired from the single venue. Alternatively, if the market is provided by the first and second venues,  52 ,  54 , the measure of trading volume for the market may be acquired by the block  200  from the first venue or the second venue, or both of the first and second venues, wherein the second venue  54  operates simultaneously with the first venue  52  for trading the product. 
         [0042]    The block  202  may acquire a measure of open interest for the product by several different methods. Futures contracts, for example, may have an open interest defined for a particular contract month, or for a combination of particular contract months, or for all the contract months combined.  FIG. 5  shows example open interests for all listed contract months of soybeans and soybean oil futures contracts. For example, the &#39;08 March soybeans futures contract  302  has an open interest as indicated of 10,109 contracts. The &#39;08 January, &#39;07 November, and &#39;07 July soybeans futures contracts  304 ,  306 , and  308  each has an open interest of 11,373, 129,656, and 245,287, respectively. In addition, combinations of contract months provide a different measure of open interest. For example, the &#39;08 January 304 and &#39;07 November 306 contracts have a combined measure of open interest of 141,029. Further, an open interest computed for all of the contract months taken together gives yet another measure of open interest. 
         [0043]    Further, if futures contracts for soybeans are considered to be a family of futures contracts, futures contracts for soybean oil may be considered a related family of futures contracts. The &#39;08 March soybean oil futures contract  310  has an open interest of 4,216 contracts. The &#39;07 August, &#39;07 September, and &#39;07 December soybean oil futures contracts  312 ,  314 , and  316  each also has an open interest of 14,027, 11,217, and 68,658 contracts, respectively. Again, combinations of months provide a different measure of open interest, as may all of the contract months taken together. A combination of all the contract months of both families taken together yields yet another measure of open interest. 
         [0044]    Referring again to  FIG. 4 , the block  204  acquires bid and offer prices for the product at the configurable settlement time, T s . In a market having a single venue, the bid and offer prices may be acquired from the venue. Alternatively, if a market is provided by the first and second venues,  52 ,  54 , the bid and offer prices may be acquired from the first venue or the second venue, or both the first and the second venues, wherein the second venue  54  operates simultaneously with the first venue  52  for trading the product. For example, it is contemplated that the block  204  could acquire a bid price for the product at the configurable settlement time, T, from each of the first and second venues  52 ,  54 , and compute an average acquired bid price therefrom. Alternatively, the block  204  may acquire a bid price from each of the first and second venues  52 ,  54 , and then select the lower value or the higher value thereof for further computations requiring the bid price. Similarly, each of the possible modes of acquiring the bid price just discussed also applies to acquisition of an offer price. 
         [0045]    The block  206  calculates a relationship between the measure of trading volume for the product acquired by the block  200  and the measure of open interest in the product acquired by the block  202 . Illustratively, the relationship may be a quotient of the measure of trading volume divided by the measure of open interest. For example, suppose the product is the &#39;07 July soybeans futures contract  308  listed in  FIG. 5 . Suppose the block  200  acquires a measure of trading volume for the &#39;07 July soybeans futures contract  308  that is, illustratively, 2,453 contracts. Also suppose the block  202  acquires a measure of open interest in the &#39;07 July soybeans futures contract  308  that is, illustratively, 245,287 contracts. The block  206  calculates the quotient of the measure of trading volume divided by the measure of open interest in this example to be 2,453/245,287, or 1%. Suppose, for example, that the block  202  acquires a different measure of open interest for the product that is the sum of the open interest for each of the soybeans futures contracts for all of the contract months. The open interest quantities for soybeans futures contracts listed in  FIG. 5  total 432,045 contracts. The block  206  calculates the quotient of the measure of trading volume divided by the measure of open interest including all contract months to be 2,453/432,045, or about 0.6%. 
         [0046]    The Block  208  computes a settlement price for the product, for example a futures contract, in accord with the relationship and bid and offer prices. The steps followed to compute a settlement price for a futures contract that has a particular contract month may depend upon several factors including the contract month, a measure of open interest of the contract, and/or a quotient of a measure of trading volume divided by the measure of open interest. The block  208  compares these factors to predetermined configurable threshold parameters to select the steps included in the computation of a settlement price.  FIG. 6  shows one embodiment of a detailed progression of the steps followed by the block  208 . 
         [0047]    Referring to  FIG. 6 , a block  400  checks whether the futures contract has a contract month that is the front month or one of the immediately following T m  contract months, wherein T m  is a predetermined configurable parameter of a number of contract months following the front month. T m  may range from zero to one less than the number of contracts that exist for a product, which may vary by product. For example, as seen in  FIG. 5 , soybeans have 7 contract months and soybean oil has 8 contract months. Therefore, T m  may illustratively be set to three. The front month for a futures contract is the contract month for the futures contract that is the closest to expiration. If the contract has some other contract month, the block  400  checks whether the open interest for the contract is greater than a threshold open interest parameter O t . O t  is, a predetermined configurable parameter that may have any reasonable value for open interest, but O t  is illustratively set to 10,000. If block  400  yields a positive answer, processing proceeds to a block  402 . Otherwise, processing proceeds to a block  502 . 
         [0048]    The block  402  determines whether the futures contract had any trading activity on the first venue  52  during the time period T p . In a market traded on a single venue, the block  402  makes this determination based on the single venue. Alternatively, if a market is provided by the first and second venues,  52 ,  54 , then the block  402  selects the venue that typically has the highest trading volume as the first venue and uses trading data acquired therefrom. 
         [0049]    If the block  402  determines that trading activity occurred during the time period T p , a block  404  computes the volume of contracts traded during the time T p  and a VWAP for the trading activity. A block  406  checks whether a quotient of trading volume of the futures contract during the time T p  divided by the measure of open interest of the futures contract is greater than or equal to a threshold quotient parameter O p . The parameter O p  is a predetermined configurable parameter that may, for example, be set to 1%; however, O p  may be adjusted higher or lower to accommodate trading conditions, or for other reasons. If the block  406  yields a positive answer, then a block  408  checks whether the VWAP is the average of two closest prices in the bid and offer range at the time T s . For example, suppose a product has a tick size of 0.005 and the block  404  has computed a VWAP of 94.5672. If the bid and ask prices at the time T s  are 94.475 and 94.670, respectively, then the two closest prices within the bid and offer range to the VWAP are 94.565 and 94.570. In this example, the block  408  determines that the VWAP is not the average of two closest prices in the bid and offer range at the time T s . If the block  408  yields a negative answer, then a block  410  sets the settlement price at the one of the two closest prices within the bid and offer range at the time T s  that is closest to the VWAP. Continuing the previous example, the block  410  sets the settlement price to 94.565, because 94.5672 is closer to 94.565 than 94.570. If the block  408  determines that the VWAP is the average of the two closest prices in the bid and offer range at the time T s , then a block  412  sets the settlement price at the one of the two closest prices within the bid and offer range at the time T s  that is closest to an immediately previous settlement price. Referring to the ongoing example, the block  412  sets the settlement price to whichever value of 94.565 or 94.570 that is closest to an immediately previous settlement price. 
         [0050]    If the block  402  determines that no trading activity occurred during the time period T p , or if the block  406  yields a negative answer, a block  414  checks whether an average of the bid and offer prices at the time T s  differs from the bid and offer prices by integer multiples of the tick. In another example, suppose bid and offer prices at the time T s  are 46.750 and 46.785 and a product has a tick size of 0.005. The average in this example is 46.7675, which block  414  determines does not differ from the bid and offer prices by integer multiples of the tick. The two prices that are closest to 46.7675 are 46.765 and 46.770. Therefore, in this example, the block  414  yields a negative answer, and the block  412  sets the settlement price to one of the prices 46.765 and 46.770 that is closest to an immediately previous settlement price. In a further example, suppose bid and offer prices at the time T s  are 46.750 and 46.780 and a product has a tick size of 0.005. The average is 46.765, which block  414  determines does differ from the bid and offer prices by integer multiples of the tick. Therefore, in this example, the block  414  yields a positive answer, and a block  416  sets the settlement price to the average of the bid and offer prices at the time T s , which is 46.765. 
         [0051]    If the block  400  determines that a futures contract has a contract month that is not the front month or one of the immediately following T m  months and an open interest for the contract is not greater than O t , then the block  502  preliminarily sets the settlement price for the futures contract to be consistent with a net change of settlement prices for a futures contract that has an immediately preceding contract month. A block  504  compares the preliminary settlement price set in the block  502  to bid and offer prices at the time T s  for orders that have a predetermined minimum order size of M o  contracts or more. M o  is a predetermined configurable parameter that may, for example, be set to 100; however, M o  may be adjusted higher or lower to accommodate trading conditions, or for other reasons. If the block  504  determines that the preliminary settlement price is less than the bid price at the time T s  for an order of at least M o  contracts, then a block  508  sets the settlement price at the bid price at the time T s . If the block  504  determines that the preliminary settlement price is more than the offer price at the time T s  for an order of at least M o  contracts, then the block  508  sets the settlement price at the offer price at the time T s . If the block  504  determines that the preliminary settlement price is within a range of the bid and offer prices at the time T s , a block  506  sets the settlement price at the preliminary settlement price. 
         [0052]    Anomalous trading activity may affect the method of computing the settlement price described herein. In the event of such an occurrence or a dispute over the settlement price determined by the described method, a settlement committee may be convened to establish the settlement price independent of the described method. 
         [0053]    An example computation of settlement prices is presented for a family of futures contracts for Aug. 19, 2007 using fictional trading data. Results for each contract month are listed together in the summary section shown in  FIG. 7 . A brief description for each contract month listed in  FIG. 7  is included in  FIG. 8 . A full description and steps from  FIG. 6  that are used in each computation are provided in the explanation that follows. For the purpose of this example, &#39;07 August is the front month, the tick size for this family of futures contracts is 0.005, and the configurable parameters are set as follows: T s =2 p.m.; T p =60 seconds; O t =10,000; O p =1%; T m =3; and M o =100. 
         [0054]    Referring to  FIGS. 6-8 , a futures contract that has a contract month of &#39;07 August  602  is shown to have an August 18 settlement price of 94.740. The last trade for the &#39;07 August contract  602  was at 13:59:59, the bid/offer range at the time T s  was 94.740/94.745, and the open interest for this contract is 210,823. Referring to  FIG. 6 , the block  400  yields a positive answer because the &#39;07 August contract  602  is the front month. The block  400  also yields a positive answer because the open interest in the &#39;07 August contract  602  is greater than O t . The block  402  yields a positive answer because the last trade for the contract occurred at 13:59:59, which is within the time period T p . The block  404  acquires a measure of the volume of the &#39;07 August contract  602  traded during the time period T p , and also computes a VWAP of the trades. For illustrative purposes, assume the block  404  acquires a volume of 4,567 contracts and computes a VWAP of 94.743. The block  406  determines that the quotient of the volume of the &#39;07 August contract  602  traded during the time T p  divided by the open interest of the contract is greater than O p . The block  408  determines that the VWAP computed for the &#39;07 August contract  602  is not an average of two closest prices within the bid/offer range at the time T s . Therefore, the block  410  sets the settlement price for the &#39;07 August contract  602  at 94.745, which is the one of the two closest prices within the bid and offer range at the time T s  that is closest to the VWAP. 
         [0055]    A futures contract  604  that has a contract month of &#39;07 September is shown in  FIG. 7  to have an August 18 settlement price of 94.725. The last trade for the &#39;07 September contract  604  was at 13:58:42, the bid/offer range at the time T s  was 94.725/94.735, and the open interest for this contract is 133,708. Referring to  FIG. 6 , the block  400  yields a positive answer because the &#39;07 September contract  604  has a contract month within the first T m  months of the contract family beyond the front month. The block  400  also yields a positive answer because the open interest in the &#39;07 September contract  604  is greater than O t . The block  402  yields a negative answer because the last trade for the contract occurred at 13:58:42, which is not within the time period T p . The block  414  determines that the average of the bid and offer prices at the time T s  is 94.730, which differs from the bid and offer prices by integer multiples of the tick. Therefore, the block  416  sets the settlement price of the &#39;07 September contract  604  to the average of the bid and offer prices at the time T s , which is 94.730. 
         [0056]    A futures contract  606  that has a contract month of &#39;07 October is shown in  FIG. 7  to have an August 18 settlement price of 94.690. The last trade for the &#39;07 October contract  606  was at 13:59:43, the bid/offer range at the time T s  was 94.695/94.700, and the open interest for this contract is 84,999. Referring to  FIG. 6 , the block  400  yields a positive answer because the &#39;07 October contract  606  has a contract month within the first T m  months of the contract family beyond the front month. The block  400  also yields a positive answer because the open interest in the &#39;07 October contract  606  is greater than O t . The block  402  yields a positive answer because the last trade for the contract occurred at 13:59:43, which is within the time period T p . The block  404  acquires a measure of the volume of the &#39;07 October contract  606  traded during the time period T p , and also computes a VWAP of the trades. For illustrative purposes, assume the block  404  acquires a volume of 335 contracts and computes a VWAP of 94.696. The block  406  determines that the quotient of the volume of the &#39;07 October contract  606  traded during the time T p  divided by the open interest of the contract is less than O p . The block  414  determines that the average of the bid and offer prices at the time T s  is 94.6975, which does not differ from the bid and offer prices by integer multiples of the tick. Therefore, the block  412  sets the settlement price of the &#39;07 October contract  606  to 94.695, because 94.695 is the one of the prices 94.695 and 94.700 that is closest to an immediately previous settlement price. 
         [0057]    A futures contract  608  that has a contract month of &#39;07 November is shown in  FIG. 7  to have an August 18 settlement price of 94.665. The last trade for the &#39;07 November contract  608  was at 13:59:53, the bid/offer range at the time T s  was 94.665/94.670, and the open interest for this contract is 52,134. Referring to  FIG. 6 , the block  400  yields a positive answer because the &#39;07 November contract  608  has a contract month within the first T m  months of the contract family beyond the front month. The block  400  also yields a positive answer because the open interest in the &#39;07 November contract  608  is greater than O t . The block  402  yields a positive answer because the last trade for the contract occurred at 13:59:53, which is within the time period T p . The block  404  acquires a measure of the volume of the &#39;07 November contract  608  traded during the time period T p , and also computes a VWAP of the trades. For illustrative purposes, assume the block  404  acquires a volume of 884 contracts and computes a VWAP of 94.6675. The block  406  determines that the quotient of the volume of the &#39;07 November contract  608  traded during the time T p  divided by the open interest of the contract is greater than O p . The block  408  determines that the VWAP computed for the &#39;07 November contract  608  is an average of two closest prices within the bid/offer range at the time T s . Therefore, the block  412  sets the settlement price for the &#39;07 November contract  608  at 94.665, which is the one of the two closest prices within the bid and offer range at the time T s  that is closest to an immediately previous settlement price. 
         [0058]    A futures contract  610  that has a contract month of &#39;07 December is shown in  FIG. 7  to have an August 18 settlement price of 94.665. The last trade for the &#39;07 December contract  610  was at 13:55:13, the bid/offer range at the time T s  was 94.665/94.670, and the open interest for this contract is 46,431. Referring to  FIG. 6 , the block  400  yields a positive answer because the open interest in the &#39;07 December contract  610  is greater than O t . The block  402  yields a negative answer because the last trade for the contract occurred at 13:55:13, which is not within the time period T p . The block  414  determines that the average of the bid and offer prices at the time T s  is 94.6675, which does not differ from the bid and offer prices by integer multiples of the tick. Therefore, the block  412  sets the settlement price for the &#39;07 December contract  610  at 94.665, which is the one of the two closest prices within the bid and offer range at the time T s  that is closest to an immediately previous settlement price. 
         [0059]    A futures contract  612  that has a contract month of &#39;08 January is shown in  FIG. 7  to have an August 18 settlement price of 94.690. The last trade for the &#39;08 January contract  612  was at 13:59:07, the bid/offer range at the time T s  was 94.670/94.680, and the open interest for this contract is 13,584. Referring to  FIG. 6 , the block  400  yields a positive answer because the open interest in the &#39;08 January contract  612  is greater than O t . The block  402  yields a positive answer because the last trade for the contract occurred at 13:59:07, which is within the time period T p . The block  404  acquires a measure of the volume of the &#39;08 January contract  612  traded during the time period T p , and also computes a VWAP of the trades. For illustrative purposes, assume the block  404  acquires a volume of 68 contracts and computes a VWAP of 94.676. The block  406  determines that the quotient of the volume of the &#39;08 January contract  612  traded during the time T p  divided by the open interest of the contract is less than O p . The block  414  determines that the average of the bid and offer prices at the time T s  is 94.675, which differs from the bid and offer prices by integer multiples of the tick. Therefore, the block  416  sets the settlement price of the &#39;08 January contract  612  to the average of the bid and offer prices at the time T s , which is 94.675. 
         [0060]    A futures contract  614  that has a contract month of &#39;08 February is shown in  FIG. 7  to have an August 18 settlement price of 94.720. The last trade for the &#39;08 February contract  614  was at 13:58:53, the bid/offer range at the time T s  was 94.715/94.725, and the open interest for this contract is 621. Referring to  FIG. 6 , the block  400  yields a negative answer because the open interest in the &#39;08 February contract  614  is less than O t . The block  502  preliminarily sets the settlement price for the contract to 94.705, which is consistent with the net change of the &#39;08 January contract  612 . In particular, the &#39;08 January contract  612  settled at 94.675 on August 19, which is a net change of −0.015 from the settlement price of 94.690 on August 18. Therefore, the block  502  starts with the August 18 settlement price of 94.720 for the &#39;08 February contract  614  and subtracts 0.015 therefrom to yield 94.705. The block  504  checks whether the preliminary settlement price set by the block  502  is less than the bid price at the time T s  for an order of at least M o  contracts, or whether the preliminary settlement price is more than the offer price at the time T s  for an order of at least M o  contracts. The block  504  determines that the preliminary settlement price of 94.705 is less than the bid price of 94.715 for 198 contracts. Therefore, the block  508  sets the settlement price at the bid price, which is 94.715. 
         [0061]    A futures contract  616  that has a contract month of &#39;08 March is shown in  FIG. 7  to have an August 18 settlement price of 94.720. The last trade for the &#39;08 March contract  616  was at 13:56:54, the bid/offer range at the time T s  was 94.710/94.725, and the open interest for this contract is 575. Referring to  FIG. 6 , the block  400  yields a negative answer because the open interest in the &#39;08 March contract  616  is less than O t . The block  502  preliminarily sets the settlement price for the contract to 94.715, which is consistent with the net change of the &#39;08 February contract  614 . In particular, the &#39;08 February contract  614  settled at 94.715 on August 19, which is a net change of −0.005 from the settlement price of 94.720 on August 18. Therefore, the block  502  starts with the August 18 settlement price of 94.720 for the &#39;08 March contract  616  and subtracts 0.005 therefrom to yield 94.715. The block  504  checks whether the preliminary settlement price set by the block  502  is less than the bid price at the time T s  for an order of at least M o  contracts, or whether the preliminary settlement price is more than the offer price at the time T s  for an order of at least M o  contracts. The block  504  determines that the preliminary settlement price of 94.715 is within the bid/offer range at the time T s , and therefore, the block  506  sets the settlement price for the &#39;08 March contract  616  to the preliminary settlement price, which is 94.715. 
         [0062]    In this example, futures contracts  618 ,  620 , and  622  that have contract months of &#39;08 April, &#39;08 May, and &#39;08 June, respectively, have no open interest and therefore computation of a settlement price is not necessary. A futures contract  624  that has a contract month of &#39;08 July is shown in  FIG. 8  to have an August 18 settlement price of 94.770. The last trade for the &#39;08 July contract  624  was at 13:54:23, the bid/offer range at the time T s  was 94.855/94.875, and the open interest for this contract is 50. Referring to  FIG. 6 , the block  400  yields a negative answer because the open interest in the &#39;08 July contract  624  is less than O t . The block  502  preliminarily sets the settlement price for the contract to 94.765, which is the price that is consistent with the net change of the &#39;08 March contract  616 . In particular, the &#39;08 March contract  616  settled at 94.715 on August 19, which is a net change of −0.005 from the settlement price of 94.720 on August 18. Therefore, the block  502  starts with the August 18 settlement price of 94.770 for the &#39;08 July contract  624  and subtracts 0.005 therefrom to yield 94.765. The block  504  checks whether the preliminary settlement price set by the block  502  is less than the bid price at the time T s  for an order of at least M 0  contracts, or whether the preliminary settlement price is more than the offer price at the time T s  for an order of at least M 0  contracts. The block  504  determines that the preliminary settlement price of 94.765 is less than the bid price of 94.855 for 164 contracts. Therefore, the block  508  sets the settlement price at the bid price, which is 94.855. 
       INDUSTRIAL APPLICABILITY 
       [0063]    Settlement prices for products traded on a venue of an exchange are used to update traders&#39; accounts, which assures that all parties involved in trading through the exchange are solvent and can meet their obligations. Settlement prices are typically computed in a variety of ways depending upon trading conditions, and under some conditions disputes can arise as to a computed price or a particular method used to calculate the price. This invention establishes a system for computing settlement prices that is responsive to trading conditions without being arbitrary. 
         [0064]    Numerous modifications to the present invention will be apparent to those skilled in the art in view of the foregoing description. Accordingly, this description is to be construed as illustrative only and is presented for the purpose of enabling those skilled in the art to make and use the invention and to teach the best mode of carrying out same. The exclusive rights to all modifications which come within the scope of the appended claims are reserved.