Patent EA-005042-B1 (EA)
Title: Method and system for operating an electronic exchange
Inventor: HASSAL SCOTT BRADLEY
IPC: G06Q40/04
Filed: 2000-05-19
Abstract: 1. A method for operating an electronic exchange having a plurality of clients, each client having a margin account and a position on the exchange, the exchange having a predetermined maximum market swing value and an opening market value, comprising the steps of: (i) receiving an order from a client; (ii) confirming the order if the margin account is at least equal to a potential position resulting from the order times the maximum market swing value times a threshold value factor, else rejecting the order; (iii) posting the confirmed order to the electronic exchange; (iv) adjusting the margin account and setting the client's position to an actual position when a trade of the order occurs; (v) repeating steps (i) to (iv) for each order during a trading period; (vi) determining a closing market value for the trading period; and (vii) adjusting the client's margin account by an amount equal to the difference between a closing market value and the opening market value times the actual position. 2. A method according to claim 1, wherein the threshold value factor is two. 3. A method according to claim 1, wherein a the opening market value is the closing market value of a preceding trading period. 4. A method according to claim 1, wherein the trading period is a business day. 5. A method according to claim 1, wherein the step of confirming includes sending an electronic message to the client. 6. A method according to claims 1 to 5, further including the steps of: (i) determining that the difference between the closing market value and the opening market value exceeds the maximum market swing value; and (ii) closing out the client's actual position at a limited closing market value. 7. A method according to claims 1 to 5, further including, at the end of a trading period, the steps of: (i) determining that a client's adjusted margin account is less than the client's actual position times the maximum market swing value times the threshold value factor; and (ii) reducing the client's actual position by generating a trade at a trade value; (iii) further adjusting the client's margin account by an amount equal to the reduction in the client's actual position times the trade value; (iv) repeating steps (ii) and (iii) until the client's further adjusted margin account is at least the reduced position times the maximum market swing value times the threshold value factor. 8. A method according to claim 7, wherein the trade value is the maximum market swing value. 9. An electronic exchange system for an exchange having a predetermined maximum market swing value, the exchange system comprising: a mass storage device for storing and retrieving client information including a client position and a client margin account balance; a processor unit operatively connected to the mass storage device, the processor unit having means to connect to a network, an exchange engine for receiving and processing orders from a client, an end-of-day engine for marking the margin account to market, and an auto-reduction engine for automatically reducing a client's position if the client's margin account is less than the client's position times the maximum market swing value times a threshold value factor. 10. An electronic exchange system according to claim 9, wherein the processor unit is an internet server. 11. An electronic exchange system according to claims 9 and 10, wherein the network is the internet. 12. An electronic exchange system according to claim 9 and 10, wherein the network is a local area network. 13. An electronic exchange system according to claim 9 and 10, wherein the network provides secure communications. 14. An electronic exchange system according to claim 13, wherein the secure communications include 128-bit encrypted communications.