Patent Issued for Automated Trading System In An Electronic Trading Exchange (USPTO 10,891,692)
2021 JAN 21 (NewsRx) -- By a
The assignee for this patent, patent number 10,891,692, is
Reporters obtained the following quote from the background information supplied by the inventors: “Technical Field
“The present disclosure relates to an automated trading system for use in an electronic trading exchange network system and, more particularly, a trading system that rapidly, accurately, and safely responds to desirable trading opportunities.
“Description of the Related Art
“Trading exchanges historically provided a location for buyers and sellers to meet to trade stocks, bonds, currencies, commodities, and other items.
“A communications network connects the exchange computers to numerous trader sites. Each trader site includes one or more trader stations operated by traders. Exchange network operators typically provide exchange members with interface software and, in some cases, hardware to enable traders to view prices and other information relating to products, and to execute transactions by submitting orders and quotes. This trading information is displayed in a grid or other organized format. Market competition is fierce. Traders who can quickly identify opportunities and act on them generate the largest profits.
“Most trader stations in use today rely upon the traders themselves to decide whether to submit an order in response to a trading opportunity presented through the exchange. In this regard, the trading information is received from the exchange, processed, and displayed on a monitor of the trader’s station. The trader reads the trading information from the monitor and decides whether or not to submit an order. The trader submits an order by entering instructions into the trader station using a keyboard or mouse.
“Attempts have been made to implement trading systems that automate decision-making so that orders may be submitted with limited trader interaction. These systems have a number of drawbacks. For example, user-friendly systems that automatically submit orders without trader interaction, while faster than a human trader, are relatively slow in terms of computer speed due to application and system design. In a typical set-up, trading information received from the exchange is processed by general purpose backend computer equipment. The backend computer may, among other things, (1) act as a gateway by communicating market information from the exchange to various types of client equipment, (2) submit, delete, and modify orders and quotes to the exchange from the various client equipment, (3) receive real-time trade confirmations and end-of-day back office reports, and (4) perform risk analysis, position management, and accounting functions. The trader stations are clients of the backend computer. The trader stations may be tasked with numerous functions, such as (1) receiving and displaying real-time market information, (2) creating and displaying theoretical prices related to market products, (3) composing, submitting, modifying, and deleting orders and quotes, (4) maintaining positions and calculating risk management, to name a few. Each trader station is typically configured in a very user-friendly, Windows-based environment since the trader will spend long periods of time each day watching and interacting with it. The overhead associated with the functions performed by the backend computer and the trader stations reduces the response speed of automated trading.
“In addition, computer equipment lacks the trading judgment of a human trader. A computer can generate staggering losses in the blink of an eye by submitting orders based upon incomplete or mistaken assumptions inherent in the trading program, erroneous input data, or corrupted data relied upon by the trading program. Accordingly, there exists a need in the art for an automated trading system that rapidly responds to trade information transmitted from an exchange, yet is safe and accurate.”
In addition to obtaining background information on this patent, NewsRx editors also obtained the inventors’ summary information for this patent: “The present disclosure has been made in view of the above circumstances and has as an object to provide an improved trading system that rapidly responds to trading information received from an exchange.
“A further object of the disclosure is to provide an automated trading system in an electronic trading exchange system that rapidly submits orders in response to trading information received from the exchange.
“A further object of the disclosure is to provide an automated trading system that ensures the accuracy of automatic trading operations.
“A further object of the disclosure is to provide an automated trading system that performs automatic trading operations without the risk of enormous losses due to erroneous, mistaken and/or repeated operation.
“A further object of the disclosure is to provide a trading system in an automated trader station that may be remotely controlled.
“A further object of the disclosure is to provide an automated trader system that automatically hedges some or all of the delta risk associated with the execution of a trade by submitting an order in connection with another, related trade opportunity.
“Additional objects and advantages of the disclosure will be set forth in part in the description that follows, and in part will be obvious from the description, or may be learned by practice of the disclosure. The objects and advantages of the disclosure will be realized and attained by means of the elements and combinations particularly pointed out in the appended claims.
“To achieve the objects and in accordance with the purpose of the disclosure, as embodied and broadly described herein, the disclosure provides an automated trading system for use in an electronic exchange system network that includes a receiver interface that receives market price information for a first traded item from an exchange, data reference logic that outputs a transaction value for the first traded item from a data structure based on price information for a second traded item related to the first traded item, decision logic using at least a portion of the received market price information and the transaction value to generate a decision whether to submit an order for the first traded item, and an output interface for outputting a request for market transaction for one of the first traded item and the second traded item for transmission to the exchange in response to the decision logic. By way of example, the first traded item may correspond to an option and the second traded item may correspond to a security underlying the option.
“The data reference logic may receive current price information for the second traded item and uses the current price information to output the transaction value. The data reference logic may include memory storing the data structure, which maps pre-calculated transaction values of the first traded item over a range of price values of the second traded item, and reference logic for identifying one of the pre-calculated transaction values based at least in part on a current price value for the second traded item. The data structure may comprise one or more of a two-dimensional data structure mapping pre-calculated transaction values of the first traded item over a range of prices of the second traded item, an n-dimensional data structure, where n is 3 or more, a look-up table, a linked list, and/or a tree structure.
“The decision logic may compare at least a portion of the received market price information to the transaction value when automated trading in the first item first becomes enabled. The automated trading system may also include safety check logic, responsive to the decision logic, to prevent transmission of a request for market transaction (or to cap the maximum quantity of the market transaction) for the first traded item to the exchange if the request does not meet a predetermined criterion, such as a maximum trade quantity for the first traded item or a maximum number of market transaction attempts within a predetermined period of time. The decision logic may compare at least a portion of the received market price information to the transaction value when the maximum number of attempts is increased.
“The receiver interface may receive the market price information for the first traded item indirectly from the exchange via an exchange interface. Further, the decision logic may compare the transactional value to at least a portion of the received market price information, where the transaction value is a minimum sell price for the first traded item, and the market price information includes a market bid price for the first traded item. The transaction value may be a maximum buy price for the first traded item, and the market price information may include a market ask price for the first traded item. The transactional value may be a theoretical value of the first traded item based on a mathematical model.
“The price information for the second traded item may correspond to a current market price for the second traded item. The decision logic may then generate a comparison when the current market price for the second traded item changes. Comparisons may additionally be generated when the current market price for the first traded item changes, when a table variable are updated or changed, when automated trading is enabled, and/or when safety checks are relaxed.
“A backend computer may include the receiver interface, the data reference logic, the decision logic, and the output interface. The first backend computer may operate using a Windows-based operating system or a text-based operating system. A trader station separate from the backend computer may be coupled to the backend computer through a communication link. The trader station may include a graphic user interface to enable a trader to monitor the operation of the backend computer. The trader station may transmit updated data reference information for updating the data reference logic to the backend computer over the communication link. For example, the trader station can calculate the updated data reference information, which the backend computer stores. The backend computer may be located substantially closer than the trader station to the exchange that transmits the market price information for the first traded item.
“The present disclosure further comprises an automated trading method for use in an electronic exchange system network, that includes receiving market price information for a first traded item, identifying a desired price for the first traded item in a look-up table based on price information for a second traded item related to the first traded item, comparing the received market price information for the first traded item to the desired price for the first traded item, and generating an order for one of the first traded item and the second traded item based on the comparison of the received market price information to the desired price.
“The first traded item may correspond to an option and the second traded item may correspond to a security underlying the option. The step of identifying a desired price may include receiving current market price information for the second traded item, using that current market price information to index a desired price for the first traded item in the look-up table. The look-up table may be a two-dimensional table providing desired price values indexed by item traded and price of the second traded item or an n-dimensional table, where n is 3 or more.
“The present disclosure further comprises an automated method of trading in an electronic exchange system network, comprising the steps of receiving a current market price for an option from an electronic exchange, comparing the current market price for the option with a desired price for the option, where the desired price is derived from current price information for an underlying security for the option, and submitting an order for the option to the electronic exchange within 1 millisecond of the step of receiving the current market price.
“The step of submitting an order may be performed within 600 microseconds of the step of receiving the current market price, and even within 380 or 250 microseconds of the step of receiving the current market price.
“The present disclosure further comprises an automated trading method for use in an electronic exchange system network, including the steps of receiving market information for a first traded item, identifying a transaction value for the first traded item in a look-up table based on at least one of price information for a second traded item related to the first traded item and received market information for the first traded value, and using at least the identified transaction value in determining whether to submit an order for the first traded item.
“The identified transaction value may be an implied volatility value corresponding to the first traded item, a maximum buy value for the first traded item, a minimum sell value for the first traded item, or a theoretical value for the first traded item generated based on a mathematical model. Further, the look-up table may comprise a linked list.
“The backend computer may perform the receiving, identifying, and using steps on a Windows-based operating system or on a text-based platform. A trader station separate from the backend computer may calculates transaction values for storage in the look-up table and transmit the calculated transaction values to the backend computer, which stores the calculated transaction values in the look-up table. The values stored in the look-up table of the backend computer may be checked against values stored in a look-up table in the trader station to confirm the accuracy of the look-up table stored in the backend computer.
“Moreover, the method may further include submitting an order for the first traded item receiving confirmation of a transaction from an exchange responsive to the order submitted, and submitting an order for the second traded item to hedge a delta risk associated with the confirmed transaction.
“It is to be understood that both the foregoing general description and the following detailed description are exemplary and explanatory only and are not restrictive of the disclosure, as claimed.”
The claims supplied by the inventors are:
“The invention claimed is:
“1. A method of reducing a response time of an automated trading system, comprising: receiving, by a first backend computer, information related to a first traded item from an electronic exchange system via a first interface, the first backend computer comprising a processor configured perform one or more non-automated trading functions for one or more trader stations; receiving, by a second backend computer, the information related to the first traded item, the second backed computer positioned between the electronic exchange system and the one or more trader stations, such that the second backend computer is closer to the electronic exchange system than the one or more trader stations, and comprising a specialized processor configured to solely perform automatic trading functions comprising the steps of: retrieving, from a memory, trading parameters particular to the first traded item, the trading parameters having been generated and stored in the memory in a searchable format prior to receiving the information related to the first traded item, comparing at least a portion of the information related to the first traded item and the trading parameters, determining to execute one or more market transactions based on, at least, the comparison, automatically generating a request for the one or more market transactions, and transmitting the request to the electronic exchange system via a second interface, thereby causing the electronic exchange system to execute the one or more market transactions, the second interface dedicated to transmissions for the automatic trading functions and configured to have a low latency when communicating with the electronic exchange system.
“2. The method of claim 1, wherein the specialized processor of the second backend computer is further configured to perform the functions of: looking-up, using a look-up protocol, the trading parameters; comparing, using a decision logic, the at least portion of the information related to the first traded item and the trading parameters to generate the determination to automatically execute the one or more market transactions for the first traded item; and automatically transmit, via the second interface, the request for the one or more market transactions to the electronic exchange system in response to said determination.
“3. The method of claim 1, wherein the received information related to the first traded item comprises market information.
“4. The method of claim 2, wherein the look-up protocol looks up the trading parameters based on information related to a second traded item, the second traded item being related to the first traded item.
“5. The method of claim 4, wherein the information related to the second traded item comprises price information.
“6. The method of claim 2, wherein the second backend computer comprises an automated trading system.
“7. The method of claim 1, wherein one or more trader stations are communicatively coupled to the second backend computer.
“8. The method of claim 1, wherein the one or more non-automated trading functions comprise one or more of: serving as a communication server for the one or more trader stations, serving as a gateway to communicate data and information from the electronic exchange system to the one or more trader stations, submitting, deleting and modifying orders and quotes to the electronic exchange system from the trader stations, receiving real-time trade confirmations and end-of-day back office reports, performing risk analysis, performing position management and performing accounting functions.
“9. The method of claim 1, wherein the one or more market transactions comprise at least one of a market order, a limit order, a fill or kill order, a cancel order, a quote order and a modified order.
“10. The method of claim 1, wherein the first traded item comprises at least one of an option, a future, a swap, a stock, a stock index, a bond, a commodity, a currency, a physical and an underlying security.
“11. The method of claim 10, wherein the option comprises at least one of an option on a commodity, an option on a commodity future and an option on an index.
“12. The method of claim 10, wherein the future comprises at least one of a future on a bond, a future on a commodity and a future on a stock index.
“13. The method of claim 10, wherein the physical comprises at least one of an energy-related product, an agriculture-related product and a metal-related product.
“14. The method of claim 4, wherein the first traded item comprises an option and the second traded item comprises at least one of a second option, an underlying security, a bond and a swap.
“15. The method of claim 14, wherein the option comprises an option on an index and the second option comprises an option on the same index.
“16. The method of claim 4, wherein the first traded item comprises a future and the second traded item comprises a second future.
“17. The method of claim 16, wherein the future and second future have different expiration dates.
“18. The method of claim 16, wherein the future comprises a future on a first commodity and the second future comprises a future on a second commodity.
“19. The method of claim 4, wherein the first traded item comprises a swap and the second traded item comprises at least one of an option and an underlying security.
“20. The method of claim 4, wherein the first traded item comprises a bond and the second traded item comprises at least one of an option and an underlying security.
“21. The method of claim 4, wherein the first traded item comprises an underlying security and the second traded item comprises at least one of an option, a future, a bond and a swap.
“22. The method of claim 1, wherein the automated trading functions performed by the second backend computer further comprise: transmitting the request to at least one alternative electronic exchange system via the second interface.
“23. The method of claim 2, wherein the specialized processor is further configured to perform the functions of: automatically generating, using the decision logic, one or more hedge transactions to hedge at least some of the risk associated with the one or more market transactions; and automatically transmitting, via the second interface, a request for the one or more hedge transactions and the one or more market transactions in response to the decision, thereby causing the electronic exchange system to execute the one or more hedge transactions and the one or more market transactions from the second interface.
“24. The method of claim 23, wherein the execution of the one or more hedge transactions hedges at least one of delta risk and vega risk associated with the one or more market transactions.
“25. The method of claim 23, wherein the first traded item comprises a derivatives instrument and the one or more hedge transactions comprise a transaction for an underlying item of the derivative instrument.
“26. The method of claim 25, wherein the underlying item comprises at least one of a security, an equity and a future.
“27. The method of claim 23, wherein the one or more hedge transactions comprise at least one of a market order, a limit order, a fill or kill order, a cancel order, a quote order, an order for an option, an order for a future, an order for a swap, an order for a stock, an order for a stock index, an order for a bond, an order for a commodity, an order for currency and an order for a physical.
“28. The method of claim 23, further comprising: automatically transmitting, via the second interface, the request for the one or more market transactions and the one or more hedge transactions to at least one alternative electronic exchange system.
“29. The method of claim 1, wherein the first interface and the second interface communicate via one or more of a wired communications network, a wireless communications network, microwave communications, and satellite communications.
“30. A method of reducing a response time of automated trading, comprising: receiving, by a first backend computer, information related to a first traded item from an electronic exchange system via a first interface, the first backend computer comprises a processor configured perform one or more non-automated trading functions for one or more trader stations; generating, by the one or more trader stations, control instructions for controlling automated trading functions of an automated trading system; transmitting, by the one or more trader stations, the control instructions to a second backend computer of an automated trading system, the second backend computer positioned between the electronic exchange system and the one or more trader stations, such that the second backend computer is closer to the electronic exchange system than the one or more trader stations and comprising a specialized processor configured to solely perform automatic trading functions comprising the steps of: receiving the information related to the first traded item, retrieving, from a memory, trading parameters particular to the first traded items, the trading parameters having been generated and stored in the memory in a searchable format prior to receiving the information related to the first traded item, comparing at least a portion of the information related to the first traded item and the trading parameters, determining to execute one or more market transactions based on, at least, the comparison, automatically generating a request for the one or more market transactions, and transmitting the request to the electronic exchange system via a second interface, thereby causing the electronic exchange system to execute the one or more market transactions, the second interface dedicated to transmissions for the automatic trading functions and configured to have a low latency when communicating with the electronic exchange system.
“31. The method of claim 30, wherein the control instructions cause the automated trading system to at least one of enable and disable automated trading for one or more traded items.
“32. The method of claim 30, wherein the control instructions cause the automated trading system to prioritize automated trading functions over other tasks or processes run by the automated trading system.
“33. The method of claim 30, wherein the control instructions provide information used by the automated trading system to determine whether to automatically generate the at least one request for the one or more market transactions.
“34. The method of claim 30, wherein the one or more trader stations are communicatively coupled to the automated trading system via one or more of a wired and wireless communication link.
“35. The method of claim 30, further comprising: receiving, by the one or more trader stations, the information related to the first traded item; and displaying at least a portion of the information to at least one user via at least one monitor.
“36. The method of claim 35, wherein the at least one user comprises at least one of a trader, broker, market maker, clearing agent and a retail customer.”
For more information, see this patent: Marynowski, John M.; Voinescu, Catalin D.; Puscasu, Stefan; O’Donnell, Thomas M. Automated Trading System In An Electronic Trading Exchange.
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