Abstract:
Systems and methods for matching orders are provided. One or more trade templates are created. The trade templates define groups of orders for financial instruments that may be combined such that all of the orders are matched. New orders and resting orders are analyzed using one or more trade templates to determine whether a combination of orders satisfies all of the elements of a trade template. When all of the elements of a trade template are satisfied, the corresponding orders may be matched contemporaneously.

Description:
The present application is a continuation of application U.S. Ser. No. 11/617,915 filed Dec. 29, 2006, and entitled “Template Based Matching”, which claims priority to U.S. Provisional Patent Application Ser. No. 60/826,630, filed Sep. 22, 2006, entitled “Implied Order Modeling”, the entire disclosures of both are hereby incorporated by reference. 
    
    
     FIELD OF THE INVENTION 
     The present invention relates to systems and methods that are utilized in connection with the trading of financial instruments. More particularly, trade templates are created to define groups of orders for financial instruments that may be combined such that all of the orders are matched. 
     DESCRIPTION OF THE RELATED ART 
     Traders often desire to trade defined combinations of financial instruments. For example, butterfly and calendar spread products consist of well defined legs. Typically an exchange attempts to match an order for a spread product with another order for the same spread product. Some existing exchanges attempt to match orders for spread products with multiple orders for legs of the spread products. With such systems, every spread product contract is broken down into a collection of legs and an attempt is made to match orders for the legs. Each leg of a spread instrument may in turn be either an outright or a spread instrument and is matched against an order for the same instrument. 
     Large exchanges typically list numerous outright and spread. Market liquidity can be limited by segregating orders into numerous order books with limited ability to match combinations of orders. 
     Therefore, there exists a need in the art for improved systems and methods for matching groups of orders for financial instruments. 
     SUMMARY OF THE INVENTION 
     Aspects of the invention overcome at least some of the above problems and limitations by providing systems and methods for matching orders that utilize one or more trade templates. The trade templates define groups of orders for financial instruments that may be combined such that all of the orders&#39; legs are matched. The orders may include a plurality of orders for spread products and outright products. 
     In one embodiment order books are analyzed to generate a collection of needed orders that each when combined with one or more existing orders meet the requirements of one of the acceptable trade templates. New orders are then compared to orders in the collection of needed orders. When the new order matches one of the needed orders, a trade is executed between the new order and an order corresponding to the needed order. Trades for other orders corresponding to a template may also be executed contemporaneously with the execution of the trade between the new order and the order corresponding to the needed order 
     In other embodiments, the present invention can be partially or wholly implemented on a computer-readable medium, for example, by storing computer-executable instructions or modules, or by utilizing computer-readable data structures. 
     Of course, the methods and systems of the above-referenced embodiments may also include other additional elements, steps, computer-executable instructions, or computer-readable data structures. In this regard, other embodiments are disclosed and claimed herein as well. The details of these and other embodiments of the present invention are set forth in the accompanying drawings and the description below. Other features and advantages of the invention will be apparent from the description and drawings, and from the claims. 
    
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
       Aspects of the invention may take physical form in certain parts and steps, embodiments of which will be described in detail in the following description and illustrated in the accompanying drawings that form a part hereof, wherein: 
         FIG. 1  shows a computer network system that may be used to implement aspects of the invention; 
         FIG. 2  shows a system that may be used to match orders in accordance with an embodiment of the invention; 
         FIG. 3  illustrates a method that may be used to match orders for financial instruments, in accordance with an embodiment of the invention; 
         FIG. 4  shows a trade template that consists of trades for two butterfly spreads and two calendar spreads, in accordance with an embodiment of the invention; 
         FIGS. 5   a ,  5   b  and  5   c  illustrate a process for matching legs of instruments to create a template, in accordance with an embodiment of the invention; 
         FIG. 6  illustrates an exemplary method of creating acceptable trade templates in accordance with an embodiment of the invention; and 
         FIG. 7  illustrates an exemplary process that may be used to ensure that all tradable instruments are included in at least one template. 
     
    
    
     DETAILED DESCRIPTION 
     The present invention may take physical form in certain parts and steps, embodiments of which will be described in detail in the following description and illustrated in the accompanying drawings that form a part hereof 
     Exemplary Operating Environment 
     Aspects of the present invention are preferably implemented with computer devices and computer networks that allow users to exchange trading information. An exemplary trading network environment for implementing trading systems and methods is shown in  FIG. 1 . 
     An exchange computer system  100  receives orders and transmits market data related to orders and trades to users. Exchange computer system  100  may be implemented with one or more mainframe, desktop or other computers. In one embodiment, a computer device uses a 64-bit processor. A user database  102  includes information identifying traders and other users of exchange computer system  100 . Data may include user names and passwords. An account data module  104  may process account information that may be used during trades. A match engine module  106  is included to match bid and offer prices. Match engine module  106  may be implemented with software that executes one or more algorithms for matching bids and offers. A trade database  108  may be included to store information identifying trades and descriptions of trades. In particular, a trade database may store information identifying the time that a trade took place and the contract price. An order book module  110  may be included to compute or otherwise determine current bid and offer prices. A market data module  112  may be included to collect market data and prepare the data for transmission to users. A risk management module  134  may be included to compute and determine a user&#39;s risk utilization in relation to the user&#39;s defined risk thresholds. An order processing module  136  may be included to decompose delta based and bulk order types for processing by order book module  110  and match engine module  106 . 
     The trading network environment shown in  FIG. 1  includes computer devices  114 ,  116 ,  118 ,  120  and  122 . Each computer device includes a central processor that controls the overall operation of the computer and a system bus that connects the central processor to one or more conventional components, such as a network card or modem. Each computer device may also include a variety of interface units and drives for reading and writing data or files. Depending on the type of computer device, a user can interact with the computer with a keyboard, pointing device, microphone, pen device or other input device. 
     Computer device  114  is shown directly connected to exchange computer system  100 . Exchange computer system  100  and computer device  114  may be connected via a T1 line, a common local area network (LAN) or other mechanism for connecting computer devices. Computer device  114  is shown connected to a radio  132 . The user of radio  132  may be a trader or exchange employee. The radio user may transmit orders or other information to a user of computer device  114 . The user of computer device  114  may then transmit the trade or other information to exchange computer system  100 . 
     Computer devices  116  and  118  are coupled to a LAN  124 . LAN  124  may have one or more of the well-known LAN topologies and may use a variety of different protocols, such as Ethernet. Computers  116  and  118  may communicate with each other and other computers and devices connected to LAN  124 . Computers and other devices may be connected to LAN  124  via twisted pair wires, coaxial cable, fiber optics or other media. Alternatively, a wireless personal digital assistant device (PDA)  122  may communicate with LAN  124  or the Internet  126  via radio waves. PDA  122  may also communicate with exchange computer system  100  via a conventional wireless hub  128 . As used herein, a PDA includes mobile telephones and other wireless devices that communicate with a network via radio waves. 
       FIG. 1  also shows LAN  124  connected to the Internet  126 . LAN  124  may include a router to connect LAN  124  to the Internet  126 . Computer device  120  is shown connected directly to the Internet  126 . The connection may be via a modem, DSL line, satellite dish or any other device for connecting a computer device to the Internet. 
     One or more market makers  130  may maintain a market by providing constant bid and offer prices for a derivative or security to exchange computer system  100 . Exchange computer system  100  may also exchange information with other trade engines, such as trade engine  138 . One skilled in the art will appreciate that numerous additional computers and systems may be coupled to exchange computer system  100 . Such computers and systems may include clearing, regulatory and fee systems. 
     The operations of computer devices and systems shown in  FIG. 1  may be controlled by computer-executable instructions stored on computer-readable medium. For example, computer device  116  may include computer-executable instructions for receiving order information from a user and transmitting that order information to exchange computer system  100 . In another example, computer device  118  may include computer-executable instructions for receiving market data from exchange computer system  100  and displaying that information to a user. 
     Of course, numerous additional servers, computers, handheld devices, personal digital assistants, telephones and other devices may also be connected to exchange computer system  100 . Moreover, one skilled in the art will appreciate that the topology shown in  FIG. 1  is merely an example and that the components shown in  FIG. 1  may be connected by numerous alternative topologies. 
     Exemplary Embodiments 
       FIG. 2  shows a system that may be used to match orders in accordance with an embodiment of the invention. A new order for a financial instrument  202  is received at a match engine  204 . Match engine  204  may be similar to match engine module  106  (shown in  FIG. 1 ). As will be described below, match engine  204  attempts to match new order  202  to data included in a collection of almost matched orders  206  and pending orders included in order books  208  and  210 . Collection of almost matched orders  206  and/or order books  208  and  210  may be stored in a microprocessor memory. The microprocessor may be used to implement a match engine. 
     Templates for a variety of acceptable trades may be included in a collection of possible trade templates  212 . The collection of possible trade templates  212  may identify the structures of a variety of different trades that may involve spread products and other combinations of financial instruments.  FIG. 4  shows a template that consists of trades for two butterfly spreads  402  and  404  and two calendar spreads  406  and  408 . Orders for spread products  402 ,  404 ,  406  and  408  may be received from a variety of combinations of trading entities. For example, a first trader may transmit an order to an exchange for one side of each of spread products  402 ,  404 ,  406  and  408 . The template may be used to match that order to separate orders for the other sides of spread products  402 ,  404 ,  406  and  408 . In alternative embodiments, the template may be used to match orders that include orders for individual legs of spread products  402 ,  404 ,  406  and  408 . Other templates may include combinations of more or fewer financial instruments. Some or all of the financial instruments may be implied financial instruments. 
     A computer device  214  may be used to add new templates, such as new template  216 , to the collection of possible trade templates  212 . A plurality of algorithms may be used to create templates and such templates may be added on the fly or during a trading session. In some embodiments computer device may display a graphical user interface to a user that allows the user to create new templates. In other embodiments, described in detail below, computer device  214  may be programmed with computer-executable instructions to analyze instruments and suggest new templates. 
       FIG. 3  illustrates a method that may be used to match orders for financial instruments, in accordance with an embodiment of the invention. First, in step  302  a collection of acceptable trade templates having more than one order is generated. Some templates may involve a variety of complex and multilevel transactions. Next, in step  304  a collection of needed orders that each when combined with one or more existing orders meets the requirements of one of the acceptable trade templates is generated.  FIG. 4  shows a trade template that consists of trades for two butterfly spreads  402  and  404  and two calendar spreads  406  and  408 . Leg  408   a  is shown with a dashed line to represent that at least one order does not currently exist to complete the template. If only one order is needed, that information may be added to collection of almost matched orders  206 . Step  304  may include using a computer device to compare existing orders in order books  208  and  210  to the acceptable trade templates. 
     Next, in step  306  a new order is received. The order may be received at match engine  204 . In step  308 , it is determined whether the new order matches one of the needed orders. For example, it is determined whether the new order would result in one of the possible trade templates being complete. When the new order does match one of the needed orders, in step  310 , a trade between the new order and an order that corresponds to the needed order may be executed. Step  310  may include executing a plurality of trades contemporaneously, such that all of the trades comprising a template are executed before the change in a market. When the new order does not match one of the needed orders, in step  312  an attempt is made to match the order with an order resting in an order book. Step  312  may include utilizing a conventional order match process. 
     When attempting to match orders, a match engine, such as match engine  204  selects orders having the best price. When a group of orders are combined in accordance with a template and one or more prices are unknown, last trade prices, previous settle prices or a variety of conventional algorithms may be used to determine prices. In one embodiment, an algorithm may use a group of linear equations to derive the price of one leg of a spread product. 
     Almost matched orders may also be used to create implied instruments. For example, in  FIG. 4  if all of the legs of the combination of butterfly spread  402 , butterfly spread  404  and calendar spread  406  are matched except for legs  404   a  and  404   b , the result will be an implied calendar spread that may be listed on an exchange with a price needed to complete the template. 
     Acceptable trade templates may be created by analyzing individual legs of a group of financial instruments.  FIG. 5   a , for example, shows a first leg of instrument  502  matched with a first leg of instrument  504 . After the first leg of instrument  502  and the first leg of instrument  504  are matched, three legs remain unmatched. In accordance with some embodiments of the invention, some algorithms may give preference to instruments that are already included in the template. For example,  FIG. 5   b  shows a second leg of instrument  504  matched with a second leg of instrument  502 . The second leg of instrument  502  is given preference over a similar leg of another instrument to minimize the number of instruments included in a template. 
     When one of the legs of an instrument does not match a leg and another instrument already included in the template, the legs of other instruments may be analyzed to locate a match.  FIG. 5   c , for example, shows a second leg of instrument  504  matched with a first leg of instrument  506 . 
       FIG. 6  illustrates an exemplary method of creating acceptable trade templates in accordance with an embodiment of the invention. First, in step  602  a list of tradable instruments is retrieved. The list may include all instruments that are tradable at an exchange, a subset of all instruments that are tradable at an exchange or another collection of instruments. In step  604  each instrument is divided into individual legs. For example, butterfly spreads are divided into four legs. Next, in step  606  a first leg of a first instrument is matched with a first leg of a second instrument. 
     In step  608  it is determined whether the second instrument has a second leg. When the second instrument does not have a second leg, in step  610  a second leg of the first instrument is matched with a first leg of a third of instrument. When the second instrument has a second leg, in step  612  is determined whether the second leg of the second instrument matches a leg of the first instrument. When there is no match, in step  614  the second leg of the second instrument is matched with a leg of another instrument. Of course, if no match can be found, the process ends without the creation of an acceptable trade template. When the second leg of the second instrument matches a leg of the first instrument, in step  616  the second leg of the second instrument is matched with a leg of the first instrument. 
     In step  616  the process is repeated until all legs of all instruments are matched. Step  616  may include repeating different iterations of steps  606  through  616  until all legs are matched or it is determined that one or more legs cannot be matched. 
     After a template is created by matching all of the legs of the instruments in the template, in step  618  it is determined whether the number of instruments in the template exceeds a predetermined number. The predetermined number may be a maximum number of instruments that are allowed to comprise an acceptable trade template. When the number of instruments does not exceed the predetermined number, the template is saved as an acceptable trade template in step  622 . When the number does exceed the predetermined number the process ends in step  624  and the template is not considered an acceptable trade template. 
     Some match systems that implement aspects of the invention will only attempt to match instruments that are included within templates. In such systems it may be desirable to ensure that all tradable instruments are included in at least one template.  FIG. 7  illustrates an exemplary process that may be used to ensure that all tradable instruments are included in at least one template. First, in step  702  the process finds an instrument not included in a template. Step  702  may include reviewing a list of all of the instruments tradable at an exchange and identifying those instruments that are not already included in a template. Next, in step  704  the instrument is added to a candidate template. The candidate template may initially only include the single instrument. Then, it is determined whether there is an unmatched leg of a candidate template in step  705 . When there is an unmatched leg, in step  706  it is determined whether there are already unmatched legs in the candidate template that match other unmatched legs in the candidate template. When there are, in step  708  the unmatched legs that are already included in the candidate template are matched and the process returns to step  705  to locate other unmatched legs. When there are not unmatched legs in the candidate template that may be matched, in step  710  the process finds an instrument that has a leg matching an unmatched leg of the candidate template. Set  710  may include locating another instrument tradable at an exchange that has a leg that matches an unmatched leg of the candidate template. After step  710 , the process returns to step  704 . 
     Returning to step  705 , when there are no longer any unmatched legs in the candidate template, in step  712  is determined whether the candidate template conforms to one or more predetermined constraints. The predetermined constraints may include maximum number of instruments that may be included in a template, limits on combinations of particular instruments and may be included in templates or any other criteria. When the candidate template does conform to the constraints, in step  714  the template is saved as an acceptable trade template. When the candidate template does not conform to the one or more predetermined constraints, in step  716  the candidate template is discarded. Finally, in step  718  it is determined whether there are still instruments that are not included in at least one template. When there are not, the process ends. When there are instruments that are not included in at least one template, the process returns to step  702 . 
     The present invention has been described herein with reference to specific exemplary embodiments thereof. It will be apparent to those skilled in the art that a person understanding this invention may conceive of changes or other embodiments or variations, which utilize the principles of this invention without departing from the broader spirit and scope of the invention as set forth in the appended claims.