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WO2001009700A2 - Systeme, procede, et article manufacture d'estimation d'un temps - Google Patents

Systeme, procede, et article manufacture d'estimation d'un temps Download PDF

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Publication number
WO2001009700A2
WO2001009700A2 PCT/US2000/020956 US0020956W WO0109700A2 WO 2001009700 A2 WO2001009700 A2 WO 2001009700A2 US 0020956 W US0020956 W US 0020956W WO 0109700 A2 WO0109700 A2 WO 0109700A2
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WO
WIPO (PCT)
Prior art keywords
limit order
time
price
trading
order
Prior art date
Application number
PCT/US2000/020956
Other languages
English (en)
Other versions
WO2001009700A8 (fr
WO2001009700A3 (fr
Inventor
Manoj Narang
Original Assignee
Tradeworx, Inc.
Priority date (The priority date is an assumption and is not a legal conclusion. Google has not performed a legal analysis and makes no representation as to the accuracy of the date listed.)
Filing date
Publication date
Priority claimed from US09/365,383 external-priority patent/US6276625B1/en
Application filed by Tradeworx, Inc. filed Critical Tradeworx, Inc.
Priority to AU63952/00A priority Critical patent/AU6395200A/en
Publication of WO2001009700A2 publication Critical patent/WO2001009700A2/fr
Publication of WO2001009700A3 publication Critical patent/WO2001009700A3/fr
Publication of WO2001009700A8 publication Critical patent/WO2001009700A8/fr

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Classifications

    • G—PHYSICS
    • G06—COMPUTING; CALCULATING OR COUNTING
    • G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
    • G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
    • G06Q40/04—Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Definitions

  • limit orders is a standard way to buy and sell exchange-traded secu ⁇ ties
  • a limit order is similar to an ordinary "market" order, except for a few characteristics
  • limit orders also specify a worst acceptable price for the trade
  • Avoiding limit orders is often detrimental for a broker, because customers are more likely to be dissatisfied with the result of a market order, and because the SEC w ants people to use limit orders Even worse, employing guesswork in determining a price of a limit order is problematic because sub-optimal limit orders may render the order not competitive enough, so it never gets executed, or too competitive, so the buyer ended up paying too much Ultimately, the only sub- optimal limit orders which ever get filled are the ones where the customer pays too much. As such, people waste vast amounts of money annually in submitting sub-optimal limit orders for execution.
  • a system, method and article of manufacture are provided for estimating a time associated with a limit order
  • an indicia identifying a security is received from a user
  • a time required for a limit order for the secu ⁇ ty to be filled is then estimated
  • Estimation of the time may be based on va ⁇ ous factors such as a desired price for the limit order, a desired probability with which the limit order is to be filled, and/or a cu ⁇ ent bid price and offered price of the secu ⁇ ty
  • the time associated with the limit order is outputted
  • the time may be estimated on a server connected to a plurality of client computers via a netwoik
  • the indicia may be received from the client computers over the network
  • the estimated time associated with the limit order may be outputted to the client computers over the network
  • Figure 1 is a schematic diagram of one possible hardware implementation m accordance with one embodiment of the present invention.
  • Figure 1A is a schematic diagram of one embodiment of the present invention implemented on a network, I e the Internet,
  • Figure 2 is a flow diagram depicting a method by which a p ⁇ ce is estimated for a limit order in accordance with one embodiment of the present invention
  • Figure 2A is a flow diagram depicting a method by which a probability is estimated for a limit order in accordance with another embodiment of the present invention
  • Figure 2B is a flow diagram depicting a method by which a time is estimated for a limit order in accordance with another embodiment of the present invention
  • Figure 3 is a flow diagram depicting a method by which a price is estimated for a limit order based on a user-specified time interval and probability in accordance with another embodiment of the present invention
  • Figure 4 is a flow diagram depicting a method by which a time interval is estimated for a limit order based on a user-specified price and probability in accordance with another embodiment of the present invention
  • Figure 5 is a flow diagram depicting a method by which a probability is estimated for a limit order based on a user-specified p ⁇ ce and time interval in accordance with another embodiment of the present invention
  • Figure 6 is a flow diagram illustrating the operation 306 of Figure 3 in greater detail
  • Figure 7 is a flow diagram illustrating the operation 604 of Figure 6 in greater detail
  • Figure 8 is a flow diagram illustrating the operations 704 and 706 of Figure 7 in greater detail.
  • the present invention facilitates the placement of a limit order without requi ⁇ ng focus on more complex aspects of the problem More particularly, the present invention involves selecting a few intuitive parameters which are easy for unsophisticated users to supply
  • Figure 1 is a schematic diagram of one possible hardware implementation by which the present invention may be earned out As shown, the present invention may be practiced in the context of a personal computer such as an IBM compatible personal computer, Apple Macintosh computer or UNIX based workstation
  • FIG. 1 A representative hardware environment is depicted in Figure 1 , which illustrates a typical hardware configuration of a workstation in accordance with one embodiment having a central processing unit 110, such as a microprocessor, and a number of other units interconnected via a system bus 112
  • the workstation shown m Figure 1 includes a Random Access Memory (RAM) 114, Read Only Memory (ROM) 116, an I/O adapter 118 for connecting peripheral devices such as disk storage units 120 to the bus 112, a user interface adapter 122 for connecting a keyboard 124, a mouse 126, a speaker 128, a microphone 132, and/or other user interface devices such as a touch screen (not shown) to the bus 112, communication adapter 134 for connecting the workstation to a communication network (e g , a data processing network) and a display adapter 136 for connecting the bus 112 to a display device 138
  • a communication network e g , a data processing network
  • display adapter 136 for connecting the bus 112
  • the workstation typically has resident thereon an operating system such as the Microsoft Windows NT or Wmdows/95 Operating System (OS), the IBM OS/2 operating system, the MAC OS, or UNIX operating system Those skilled in the art will appreciate that the present invention may also be implemented on platforms and operating systems other than those mentioned
  • FIG. 1A is a schematic diagram of one embodiment of the present invention implemented on a network 200, I e the Internet
  • a network 200 I e the Internet
  • such embodiment includes a plurality of clients 202 each connected to a sen er 204 via the network 200
  • the present invention may be executed at a large scale
  • a simplified framew ork is shown to be provided for estimating limit order prices for a secu ⁇ ty, 1 e stock, bond, etc
  • an indicia identifying a secu ⁇ ty is received from a user in operation 210
  • a p ⁇ ce is then estimated for a limit order for the security in operation 212
  • Estimation of the p ⁇ ce may be based on va ⁇ ous factors such as a desired time interval dunng which the limit order is to be filled, a desired probability with which the limit order is to be filled, and/or a cu ⁇ ent bid price and offered price of the secu ⁇ ty
  • the estimation of the price may be at least partly dependent on whether
  • a simplified framework is shown to be provided for estimating a probability with which a limit order is to be filled
  • an indicia identifying a security is received from a user, in operation 217
  • a probability is then estimated for a limit order for the secunty in operation 218
  • Estimation of the probability may be based on va ⁇ ous factors such as a desired time mterv al dunng which the limit order is to be filled, a desired pnce for the limit order being filled, and/or a current bid p ⁇ ce and offered p ⁇ ce of the secu ⁇ ty
  • the estimation of the probability may be at least partly dependent on whether the limit order is a sell order or a buy order Any or all of the foregoing parameters may be received as a component of the indicia
  • the desired probability ith which the limit order is to be filled is outputted after which the process is terminated in 221.
  • an indicia identifying a secu ⁇ ty is received from a user in operation 224
  • the indicia may include a ticker symbol of the security
  • a time interval is then estimated for a limit order for the secunty in operation 226
  • Estimation of the time interval may be based on va ⁇ ous factors such as a desired price of the limit order to be filled, a desired probability with which the limit order is to be filled, and/or a cu ⁇ ent bid p ⁇ ce and offered p ⁇ ce of the security
  • the estimation of the time interval may be at least partly dependent on whether the limit order is a sell order or a buv oider Any or all of the foregoing parameters may be received as a component of the indicia
  • the time interval for the limit order is
  • any of the user-specified parameters, I e p ⁇ ce. time interval, probability, cu ⁇ ent bid price, offered p ⁇ ce, etc . may be inputted by any input device such as the keyboard
  • the estimations may be earned out via the CPU 110 which in turn may be governed by a computer program stored on a computer readable medium, l e the RAM 114, ROM 116, the disk storage units 120, and/or anything else capable of stonng the computer program
  • dedicated hard are such as an application specific integrated circuit (ASIC) may be employed to accomplish the same
  • the outputtmg of the p ⁇ ce may be effected by way of the display 138, the speaker 128, a p ⁇ nter (not shown) or any other output mechanism capable of dehve ⁇ ng the p ⁇ ce to the user
  • the foregoing components need not be resident on a single computer, but also may be a component of either a networked client 202 and/or a server 204, as shown in Figure
  • the price may be estimated using the formula
  • PI a p ⁇ ce selected between a current bid p ⁇ ce and an offered pnce, inclusive
  • o prob a desired probability with which the limit order is to be filled
  • o CUMNORM(x) ⁇ a definite integral of a standard normal density function f(x) over an interval [0, ⁇ ]
  • o f(x) l/sqrt(2* ) exp(-x 2 /2)
  • the v ariable x represents an arbitranlv or intentionally selected upper limit of a time interval during which the limit order is to be filled
  • the vanable PI may be arbitrarily or intentionally selected
  • the cu ⁇ ent bid p ⁇ ce may be defined as
  • the offered price may be defined as
  • the vanable that is to be estimated is a time interval during which the limit order is to be filled
  • va ⁇ ous alternate embodiments of the present invention sigma may be selected by the user or any other entity based on an assortment of different factors It should be noted that sigma may also be received as a component of the aforementioned indicia
  • va ⁇ ous factors on which selection of sigma may be based include a histo ⁇ cal volatility of the secu ⁇ ty over an arbitra ⁇ ly predetermined time pe ⁇ od, a forecasted volatility of the secu ⁇ ty over an arbitra ⁇ ly predetermined time penod, a cu ⁇ ent volatility of the security, a forecasted trading range of the secu ⁇ ty over an arbitrarily predetermined time penod, an implied volatility of the secu ⁇ ty, and/or another type of factor
  • an implied volatility is a volatility which is implied by current p ⁇ ces of options on the secunty
  • sigma may be calculated using the formula
  • o a, a constant (possiblv 0)
  • o n a constant length of a trading day in an arbitrarily selected units of time (T)
  • o Ho a current highest trading price of the secunty
  • o Lo a current lowest trading price of the secunty
  • o y an arbitrarily predetermined number of days
  • o H the highest trading price of the secu ⁇ ty l days ago
  • o L, the lowest trading pnce of the security l days ago
  • variable y may be an arbitrarily predetermined number of days, it is preferred that a large number of days be chosen to enhance accuracy of the estimation
  • a may be non-zero for only a finite number of values of 1
  • at least one value of a may be calculated via a regression or be a function of sqrt( ⁇ )
  • H, and L may be defined as the highest and lowest trading pnce of the security at any time ithm i previous days, respectively
  • Figures 4 and 5 each illustrate alternate embodiments of the embodiment shown in Figure 3
  • Figure 4 shows a va ⁇ ation wherem, upon starting in operation 400, a desired probability and desired p ⁇ ce are received from a user in operations 402 and 404, respectively
  • a time interval during which the limit order is to be filled is estimated and outputted in operations 406 and 408, respectively It should be noted that the time internal is estimated based on the desired pnce and probability
  • the method of Figure 4 is then terminated in operation 410
  • Figure 5 shows a va ⁇ ation wherein, upon starting in operation 500, a desired time interval and desired p ⁇ ce are received from a user in operations 502 and 504, respectively Next, a probability with which the limit order is to be filled is estimated and outputted in operations 506 and 508, respectively In the present embodiment, the probability is estimated based on the desired p ⁇ ce and time interval The method of Figure 5 is then terminated in operation 510
  • the anous information of the alternate embodiments ol Figure 4 and Figure 5 mav inputted, processed, and outputted in a manner similar to the embodiment of Figure 1A.
  • the present method includes calculating the p ⁇ ce in real-time using a particular algonthm which represents a relationship between the time interval, probability, and p ⁇ ce Note operation 602
  • algonthm may assume a sufficiently short time interval and that the p ⁇ ce may be described by a d ⁇ ftless Browman motion
  • the method of Figure 6 terminates in operation 606.
  • the present invention thus reduces the problem of calculating the odds of execution of a limit order priced at (P) to the problem of estimating the random variable R(T), the mathematical expectation of the ensuing trading range in time interval (T)
  • the estimator R (T) thus represents an adaptive robust algorithm for predicting the future trading range oi an exchange-traded secunty in real time
  • R(T) denotes the trading range of some security ov er the forthcoming mterv al (T)
  • the estimator R / (T) is a valid substitute for R(T).
  • the estimator R (T) In order for the estimator R (T) to be useful in the context of p ⁇ cing limit orders for commercial use, it should have certain characteristics.
  • the estimator R T should exhibit a high signal-to-noise ratio when tested on out- of-sample data. Further, it should be adaptive to unexpected changes in real time volatility and be able to incorporate real time data in a mathematically consistent way, without requiring explicit calibration to real time data.
  • the robust estimator R/T) should forecast over a fixed interval smoothly with time; that is to say, without extreme swings. The estimator R/(T) should further exhibit its robust qualities by producing meaningful and useful results regardless of extreme market conditions. The estimation of the model's parameters should also yield consistent results over the space of all related securities.
  • the estimator R (T) should measure the model's goodness-of-fit and yield consistent results for all securities over the same periods of out-of-sample data.
  • (S) is arbitrarily chosen to be one day.
  • the (L) is chosen to be seven days.
  • the calibration of the parameters cs (t) and c (t) for arbitrary values of (t) , where (t) is less than one day, is discussed hereinafter.
  • the form of the above model suggests the use of regression to estimate the parameters.
  • a fixed threshold i.e. number two
  • Step 3 Step 1 gi es a forecast of the 1-day trading range which is v alid at the start of the day Step 2 yields a forecast of the 1 -day trading range which is valid at the end of the day
  • x be the fraction of the trading day which has elapsed at some point p dunng the day
  • the model is thus calibrated so that it can accept real-time information on the size of the prior range without ha ing directly used real time data in the estimation process
  • Step 4 Derive from first pnnciples that Ry(T) varies as the square root of (T) Thus, one can forecast the range over an arbitrary interval by taking the output of Step 3 and multiplying by the square root of (T), where (T) is in units of days
  • FIG. 7 is a flowchart illustrating a summary of the foregoing four steps
  • r(S) and r(L) are determined, in operation 702
  • the estimator R T) is then generated using the first preliminary estimator R ⁇ (T) and the second preliminary estimator R/zfT), as indicated m operation 708
  • the process is then terminated in operation 710
  • step 1 begins in operation 800, after which a standard regression line is fitted in order to afford a fit See operation 802 Next, outliers to the fit are discounted in operation 804 The regression line is then re-estimated using a discounting schedule in operation 806 after which the process is terminated in operation 808
  • the physical auction floor is divided into several rooms, each of which has posts or columns around which trading panels are a ⁇ anged
  • the trading panels are w here particular secunties are designated to be traded
  • Each security is traded at a certain trading panel
  • the specialist is situated at one of the trading panels and has several roles in the trading process including auctioneer to call out the best bids and offers to brokers that request quotes dunng the trading session and to ensure that all trades are posted, catalyst to call a particular broker who has previously expressed a buying interest to the post in response to a selling interest at the post, agent to represent investors in trades that have limits imposed thereon, for example, a pnce floor, etc , and franchiser to provide capital when necessary to maintain liquidity when supply and demand are out of balance
  • the floor broker roams about the trading floor, and, as an agent, transacts orders on behalf of the buyers and sellers Approximately ninety percent of the orders that the floor broker executes are obtained from a clerk who is situated on the penmeter of the exchange
  • the floor trader is like a floor broker, except the floor trader trades for his or her own account For further information on the stock market and cu ⁇ ent automation
  • an investor is an order originator which may include institutions such as banks and pension funds, other broker'dealers, trading desks (institutional, retail, arbitrage, etc ), public customers (including individuals), and the like
  • a typical transaction originates when an order is placed with an off-the-floor trading desk to buy or sell a particular security
  • the trading desk may either con ⁇ ey the order to a clerk (electronically or by telephone), or electronically to the specialist at the trading post
  • the clerk is known as the "order" or "booth clerk "
  • the booth clerk notes the parameters of the order, for example, the side of the transaction (buy or sell), the symbol of the secu ⁇ ty (e.g., IBM, GM, etc.), the quantity (e g , 9,000 shares), the price (market or limit), any special conditions (e g., all or none, fill or kill, good 'till canceled, on opening, etc ), and the time that the order is placed
  • the market m any one secu ⁇ ty fluctuates with each trade and is influenced by the activity in other securities, an important aspect of the clerk's function is to ensure that the order is delivered to the broker so that it is executed in a timely fashion.
  • An executed order is one that
  • the investor may also request that the trading desk obtain a quote from the floor of the exchange to get the "feel" of what is happening in the market of a particular secu ⁇ ty Unlike an official quote provided by the quotation services such as ADP and Quotron, which includes the best bid and ask p ⁇ ces, the market size at the best p ⁇ ces, and perhaps opening and closing prices on the day for the stock as well as the last trade, this quote provides more insight or "flavor” mto the market
  • the "flavor quote” or “market look” may indicate ( 1 ) who were the recent buyers and sellers of the secunty and the size and pnce of those trades, (2) the market depth (the extent of market interest) and who are the players at the current market and at diffenng p ⁇ ce levels, as obtained from the trading crowd and perhaps the specialist's book, (3) the learned opinion and interpretation of the market from the floor brokers themselves, and (4) the possible trading interest of people
  • the trading crowd which includes the specialist who makes the market in that security and the other floor brokers and floor traders that may be working that post, provides a view of the market not obtainable from an official quote LTsing the information obtained from the trading crowd and the floor broker's experience and understanding, the investor is able to discern the real story of the market in a particular security so that he or she can make an educated decision as to what position to take in a secu ⁇ ty
  • quote requests and orders are generally refe ⁇ ed to as instructions whereas the quotes and executions are generally refe ⁇ ed to as responses to the instructions, but are transmitted as mstRictions
  • the floor broker executes orders and obtains quotes according to instructions from the booth clerk
  • the floor broker is typically stationed at one of several trading panels It is not uncommon for a floor broker to specialize in a few select securities The specialized floor broker can therefore generally be located on the crowded trading floor in the icinity of a certain trading panel, however, the floor broker is only effective in his or her function if he or she is free to move from panel to panel, and to different posts
  • the booth clerk transcribes the instructions onto either an order slip or a quote request form, depending on the nature of the instruction
  • the booth clerk decides whether to send the instruction to the trading post electronically, or to use a floor broker
  • the booth clerk decides to use a floor broker
  • he or she enlists the aid of pages or runners to cany the instructions to the floor broker because the booth clerk is situated around the penmeter of the trading floor
  • the floor broker provides the page with transcribed quotes and executions in response to all of the instructions that the floor broker has handled since the last time a page found that broker in the trading crowd
  • the floor broker can remain in the crowd, doing his or her job
  • the floor broker may provide the page with an "unsolicited quote," that is, insight on the market that may be important to investors being represented by the floor broker, but who have yet to specify such a request
  • the astute floor broker recognizing activity at the trading panel that may be of interest to the investors he or she represents, transmits unsolicited quotes back
  • a booth clerk cannot apprise the investor of progress on the instruction For example, in an upwardly mobile market, a booth clerk cannot report the partial execution of a buy order, or the av erage price for that portion of the filled order until the executions are retrieved from the floor brokers and reconciled ith the order
  • the floor broker on either side of a transaction transcribes the time of the transaction, the side of the transaction (buy or sell), and the time, so that the trades can later be reconciled
  • a unique badge number is usually reprinted on each floor broker's "deck" of execution slips to facilitate reconciliation
  • AUDIT Automatic Data Input Terminal
  • This device uses limited handwriting recognition to allow brokers to enter trade information into a handheld terminal.
  • the AUDIT system broadcasts data on each trade from the trading pits to the exchange computers.
  • Coffee, Sugar & Cocoa Exchange a handheld terminal which resembles a calculator with dedicated alphanumeric and function keys is being tested for reporting the price and month of each futures and options contract.
  • Transactions on the trading floor must be reported to the membership and the general public. This is accomplished through a variety of communications systems by the various exchanges. Transaction information is typically entered by exchange-employed market reporters in each trading pit and is accessible through computer terminals and electronic wallboards on each trading floor. At present the open outcry auction in the pit produces a large quantity of information which must be recorded accurately and quickly by hand.
  • the clearing house which may be a subsidiary of the exchange or an independent entity, assumes one side of all open contracts: the clearing house becomes the buyer to each seller of a futures contract, and a seller to each buyer.
  • the clearing house guarantees its members the performance of both sides of all open contracts.
  • Floor traders are generally classified in two ways: (1 ) speculators, or "locals," buy and sell for their own accounts; and (2) floor brokers fill orders for commission houses, producers and processors seeking to lock in a price for their products. Unless a trader is a member of an exchange, it is necessary for the trader to deal on the exchange through a member brokerage firm. Normally, firms that handle public business (the “commission houses”) must be registered as “Futures Commission Merchants,” or “FCMs.” A “local” can take long-term positions (i.e., weeks or months) or “scalp" over very short periods (liquidating positions within seconds or minutes of entering the transactions). He may trade in one or more pits.
  • the floor traders who execute orders for others but seldom or never trade for themselves are the brokers who may specialize in orders from customers such as commercial processors, exporters, financial institution commodity trading funds and the like. They may receive only a small percentage of the commissions paid by the customer to his commission house, but the commission revenues may be substantial depending on the olume of business
  • the orders held by a floor broker at any given time are refe ⁇ ed to as his "deck " He is allowed to trade for his own account if he chooses, but he can not use the public orders to benefit his own trading
  • the representative When a registered representative of the commission house receives an order from a customer, the representative sends the order to the commission house's order desk on the trading floor, where it is usually handed to a messenger and taken directly to an appropriate broker in the trading pit or ⁇ ng
  • the broker in the trading pit Once the broker in the trading pit has the order, he typically uses voice and hand signals to announce his bid or offer price, the delivery month, and the quantity to be bought or sold
  • the order is earned by messenger back to the commission house's order desk on the trading floor, and the confirmation of the order is dispatched back to the office where it was initiated
  • the representative then usually telephones the confirmation to the customer or hands him a confirmation slip if he is present m the office
  • the floor brokers' stock in trade is their skill in executing the orders they receive and accept They must decide, instantly, the tactics that will be most effective in filling a given order whether to wait for bids or offers, or whether to hold with the cu ⁇ ent price, or to bid up or offer down promptly To be effective, they must know the pit w ho will do how much at what pnce
  • the deck is a stack of orders that are to be executed by the broker
  • the orders are typically written on pieces of paper about five by seven inches which are then arranged by the broker in a sequence foi execution as the market price moves up or down
  • the broker usually folds them for concealment and puts them his pocket so that his hands will be free to signal and to handle his trading card and pencil Occasionally, the decks are as much as an inch thick and require great memory skill and anticipatory planning
  • Continuous orders are those that impose certain limitations beyond the quantity and delivery month, such as limits in price or time, or both
  • a "price limit order” contains a price limitation that is specified by the customer, it can be executed only at the price specified or at a better price level
  • a "fill or kill” order contains a specified price at which the order must be executed or it is to be immediately cancelled
  • a "buy stop order” instructs a broker to execute the order when the price of a commodity rises to a specified level above the current market p ⁇ ce
  • the "buy limit order” is usually placed below the current market p ⁇ ce and must be executed at the limit p ⁇ ce or better
  • the difference between a buy limit order and a buy stop order is exemplified as follows
  • a customer may be inclined to buy December sugar, which could be selling at a price of 5 43 cents per pound
  • the customer could tell his broker to buy a contract at a price not to exceed 5 35 cents, this is a "buy limit order "
  • Another customer under the same circumstances could tell his broker to buy a contract of December sugar but not until the price rises to at least 5 55 cents, at which point the order will be executed at the market, this is a "buy stop order”
  • the buy stop order is placed above the cu ⁇ ent market and may be executed at the pnce specified on the stop, above it, or below it because it is executed at the market price after
  • a "sell stop order” instructs a broker to execute an order when the price falls to a given level, at which point it is to be executed at the market price Unlike a typical "sell limit order", the sell stop order is below the cu ⁇ ent market price and may be executed at a price at, above, or below the specified stop pnce when it is elected
  • stop limit order The customer might instruct his broker not to buy sugar until it rises to 5 53 cents per pound and not to pay more than 5 55 cents This is unlike the unlimited stop, which becomes a market order when the stop price has been touched
  • the limit price may be the same or different from the specified stop
  • a "market-if-touched (M I T ) order” is like a limit order, but the M I T order is executed at the market when the market has traded at the price specified on the order, and so it may be filled either at that specified p ⁇ ce, above it, or below it M I T orders are sometimes called "board orders " The order may be entered for one day, a specified pe ⁇ od, or open (l e , good until cancelled)
  • a customer may wish to take a position withm a short time but would like the broker on the floor of the exchange to use some of his personal judgment in the timing of the fill The broker could do this if the order indicates that he is to fill it at the market but is to take his time and will not be responsible if by waiting too long or not waiting long enough the p ⁇ ce is unsatisfactory to the customer Such orders may be marked "not held " Customers may also specify the time at which they wish their orders filled, e g , "on opening,” “on close,” or at a particular specified time
  • a far more common example of the alternative order is the placing of an objective and a stop, with instructions to cancel one if the other is filled, for example, having bought one contract of soybean oil at 14 50 cents a pound, a customer may order his broker to sell the oil either at 14 95 or 14 25 cents stop, whichever occurs first, and then immediately cancel the remainder of the order to avoid inadvertently reversing his position
  • “Scale orders” are used to establish or liquidate positions as the market moves up or down
  • the sugar trader may instruct his broker to buy a contract of sugar at 5 45 cents and another contract each time the price drops five points from that level until he has accumulated six contracts
  • he may order the broker to sell one contract at 5 70 cents and another contract each time the price ⁇ ses five points until his six contracts have been sold
  • Continuous orders are filled by the broker after the price of another contract or even another commoditv reaches a specified level
  • the order management system of the present invention is applicable to all markets, including those for secu ⁇ ties trading Securities markets are usually based on actions by specialists, each of whom is the market maker for one or more specific secunties In the New York Stock Exchange, for example, the ultimate determination of price for any given transaction frequently is determined by a specialist who deals in a particular stock and who maintains a running list or "book" of offers to sell and orders to purchase that stock
  • the specialist may complete a transaction in the stock whenever one or more purchase and sell orders can be matched with respect to p ⁇ ce, on occasion, the same specialist purchases the particular stock in which he specializes or sells the same stock m order to maintain a market for the stock and prevent violent fluctuations in its price
  • Similar functions, particularly with respect to the matching of orders to purchase and to sell, must be earned out in all auction markets for the marketing of fungible goods, including such commodities as wheat, corn, and the like as well as stocks and bonds
  • p ⁇ ces are established in auction trading for the securities market
  • This computation system comprises a main data store for recording encoded data items representative of orders to buy and to sell the goods, such orders including orders at specific prices and other orders "at the market "
  • the system includes a buy order sequencing device for a ⁇ anging and recording purchase offers first in descending order by price and secondly by time of entry so that at each price lev el the oldest orders are uppermost
  • a sell order sequencing device is provided for a ⁇ anging and recording all offers to sell first in ascending order by price and secondly in descending order by time so that once again the oldest orders are the highest at each price level
  • a closing p ⁇ ce store is provided to record the last actual selling p ⁇ ce for the goods
  • the closing price store and the mam data store are coupled, bv suitable control means, to the sequencing dev ices in order to transfer the recorded data items from the data store to the sequencing dev ices with "at market" prices being transfe ⁇ ed at the aforementioned last selling p
  • the present invention provides a system that allows brokers to manage their decks and to improve the accuracy of communications between the trading floor and the customers
  • the present invention can also reduce the back office costs to trading firms by reducing the volume of paperwork and consequent e ⁇ ors
  • video telex based systems that essentially allow traders to exchange typed messages While these systems can provide for the generation of hard copy records, rapid communication with another party is greatly inhibited by the need to manually type in lengthy text messages to be sent, and by the need to read all received messages Network response time also suffers because of the length of the transmitted messages
  • Network response time also suffers because of the length of the transmitted messages
  • free text messages also makes it difficult for a single trader to simultaneously monitor the progress of more than one trade
  • An additional problem of video telex systems is that hard copy is generated for all messages sent and received, consequently, to find desired information or documentation, one must search entire "transcnpts" of free text communications to find records documenting a desired communication, such as a final agreement to buy or sell a commodity While attempts have been made to circumvent this problem by using a computer translator to scan the free text
  • the present invention overcomes these disadvantages of the p ⁇ or art
  • the structured trading of the present inv ention provides a sufficiently flexible environment to permit negotiation of complex trades while greatly reducing the data input needed from both traders and greatly enhancing comprehension of responses
  • the structured data transmissions of the present invention can be accurately processed by digital computers to create e ⁇ orless records of a completed transaction
  • the structured data transmissions can be monitored to reduce costly data entry e ⁇ ors that are possible when p ⁇ ces and amounts are being entered
  • the present invention overcomes the disadvantages and problems of the prior art by providing a central exchange host a ⁇ angement and system that is in communication, through means such as a satellite system, with local exchanges located at va ⁇ ous sites around the world
  • a remote terminal user member of any one exchange can trade with a remote terminal user member of its own exchange or with a user member of any other exchange around the world through its local exchange and the central exchange host which monitors all of the trades in each of the local exchanges and provides market information to a remote terminal user member that belongs to any of the local exchanges at the va ⁇ ous sites around the world
  • the user member of any one local exchange can communicate directly with the central exchange host to obtain market information relative to any member exchange
  • He can also make bids and offers to an othei local exchange user member through his own local exchange which communicates through the satellite system with the central exchange host and with the other selected exchange
  • a user member of the World Energy Exchange in Dallas would like to obtain market information concerning trading of a particular commodity on a Pans commodity exchange, he may communicate directly
  • the commodity information and trading transaction paths from the individual local commodity exchanges takes places as follows A central gathe ⁇ ng point (central exchange host) of commodity information from the individual local commodity exchanges is established.
  • the commodity information will come in via land or satellite communication connections
  • the information is then transmitted via satelhte(s) world wide to local exchanges
  • the traders have the necessary equipment to receive the broadcasted commodity information at remote user terminals and sort out and display the preselected individual exchanges around the world with which they wish to trade as well as displaying the commodities in which they are interested From the correlations and observation of the commodity information the trader decides upon a position (i.e , bid or offer)
  • the desired position is entered and transmitted via satellite to the central gathering point and routed to the individual local commodity exchange(s)
  • the central exchange host Upon confirmation of receipt by all involved local commodity exchanges participating in the submitted position and the acceptance of the position by another trader, transmits a position confirmation to the individual trader at the remote user terminals completing the establishment of a position transaction
  • the second information flow is then in two basic forms First, the gathe ⁇ ng and subsequent worldwide broadcast of participating local commodity exchanges marketing information This commodity marketing information is received in bulk by the traders' remote user terminals where it is selectively displayed
  • the second information flow is independent of the first but uses the same communications paths
  • the second information flow is a transaction consisting of the entry of a proposed commodity trading transaction and the notification of its acceptance by a trader member of the designated local exchange
  • the established position and its subsequent liquidation or completion is also routed through the central exchange host
  • a touch screen data entry system is associated with the remote user terminals screen display for displaying input information and data representing the bids and offers By physically touching symbols representing a bid or an offer, the commodity selected, and the local exchange selected, the pertinent data is input from the user terminal into the system for transmission through the user's local exchange, the central exchange host, and the selected local exchange to the remote user terminals associated with the selected exchange
  • the accounting process also has its problems Once the matching of trades takes place, the information is fed into the clearing process of an exchange
  • the present clearing process in most exchanges is a computerized process
  • the exchange only knows at the end of the day if a trader has exceeded his position limits or has inco ⁇ ectly identified a clea ⁇ ng member or has provided other inco ⁇ ect information
  • On most exchanges 300 to 400 individuals are required to process trading cards and complete the clearing function
  • the present invention the automated futures trade exchange, has created an entire automated process for trading futures contracts which provides accurate and precise information, trading based on factual data, assurance of execution and immediate confirmation of the contracts, control through real time processing of information and electronic surveillance, and the use of computer hardware to implement the process It does not separate cleanng and surveillance from the futures trading process as do other exchanges because it is the combined process which allows the markets to function properly
  • All trading conducted on the automated futures trading system will be effected through a central computer complex programmed to handle orders for the exchange's futures contracts Access to this central computer will be available only through specially programmed remote computer terminals which will be distributed only to exchange members who will have a coded membership number.
  • Each remote terminal will consist of a keyboard, a p ⁇ nter, on-line storage, and a video monitor, the latter displaying a vanety of information regarding the futures contracts traded on the exchange.
  • Members will be able to utilize these terminals to transmit to the central computer bids and offers for their own accounts as principals or for the accounts of customers for whom they are agents
  • each bid or offer will become part of the market data displayed in every member's remote terminal video monitor
  • the breadth of the market will also be indicated That is, whether a bid of 200 contracts represents one offer to buy 200 contracts or 20 offers to buy 10 contracts
  • each remote terminal will display lot sizes, last sale prices, daily price ranges, the volume for each contract month, the spread relationships or price differential among the various contract months, and allows simultaneous spread trades (both m time and by commodity) to take place.
  • Pertinent to this process is the capability to modify prices at a remote terminal by moving a cursor on the video display to the bid or offer desired to be modified by the user which modification is then accomplished through the keyboard.
  • the capability to see the display of buys and sells is analogous to the open outcry system of trading and is pertinent to good trading because it shows the supply and demand in the market.
  • a trader would have a "feel" for the market but would not be able to relay to a customer with any degree of accuracy information pertaining to the distribution of bids and offers.
  • the exchange central computer will automatically match equal bids and offers on a first come, first served basis thereby executing the transaction. Each transaction execution will be immediately confirmed to the members on both sides of the trade by the printing mechanisms of those members terminals. Each execution report will include information regarding the date, time, quantity and price of the transaction.
  • the exchange central computer will be able to handle a full a ⁇ ay of futures orders including straddles, limit orders, and stop orders. Because bids and offers are transmitted from the remote terminals directly into the computer there will be no chance for an "out trade," that case where a trade is made but the bid and offer do not match. Moreover, because trading will be effected solely by the computer, a record will exist of the precise time each order was entered, the precise time it was executed and the precise time an execution report was transmitted.
  • Another important factor in trading is the capability to determine the liquidity of the market.
  • a trader may note that trading is active but by the time information is relayed back and forth between the principal and the trader the price may have moved considerably or the bids and offers may no longer be present.
  • No presently existing exchange can determine with accuracy during the trading the volume of trading immediately taking place.
  • the present system will record trades exactly as they are made, when they are made, and thus a member would be able to determine the volume of trading taking place at any particular time and would have the information necessary to determine whether it is likely that he can come in and out of the market at his desired price level.
  • Each terminal on the system will be specifically designated to trade a certain number of contracts. Position limits for each principal are thus determined by the fiduciary capabilities of the participant. Under the present system of trading on exchanges, a member may execute trades far in excess of his limit ithout detection bv the exchange In the present trading system, limits will be programmed into each individual terminal thus further eliminating the possibility of "out trades" because an individual trader has exceeded his limits During trading times live surveillance of the market will take place through control terminals at the exchange Information may be fed directly into the surveillance system to detect the patterns of trading which may be manipulative and since all information is recorded as trading takes place, accuracy is assured
  • va ⁇ ous embodiments have been desc ⁇ bed above, it should be understood that they have been presented by way of example only, and not limitation Thus, the breadth and scope of a prefe ⁇ ed embodiment should not be limited by any of the above described exemplary embodiments, but should be defined only in accordance with the following claims and their equivalents

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Abstract

L'invention porte sur un système, un procédé, et un article manufacturé d'estimation du temps associé à un ordre à cours limité selon le processus suivant: (1) réception par l'utilisateur d'une marque identifiant un titre; (2) estimation du temps requis pour l'exécution de l'ordre à cours limité relatif au titre, ladite estimation pouvant se baser sur plusieurs facteurs tels que le prix désiré pour l'ordre à cours limité, une probabilité désirée d'exécution de l'ordre à cours limité, et/ou le prix demandé et offert pour le titre; (3) communication du temps lié à l'ordre à cours limité, ledit temps pouvant être estimé par un serveur relié à plusieurs ordinateurs clients via un réseau, cette structure permettant de recevoir les marques émises par les ordinateurs clients sur le réseau; et (4) transmission via le réseau aux ordinateurs clients du temps estimé associé à l'ordre à cours limité.
PCT/US2000/020956 1999-08-03 2000-08-01 Systeme, procede, et article manufacture d'estimation d'un temps WO2001009700A2 (fr)

Priority Applications (1)

Application Number Priority Date Filing Date Title
AU63952/00A AU6395200A (en) 1999-08-03 2000-08-01 System, method, and article of manufacture for estimating a time

Applications Claiming Priority (6)

Application Number Priority Date Filing Date Title
US36599399A 1999-08-03 1999-08-03
US36599299A 1999-08-03 1999-08-03
US09/365,992 1999-08-03
US09/365,383 US6276625B1 (en) 1999-08-03 1999-08-03 Tether storage system
US09/365,383 1999-08-03
US09/365,993 1999-08-03

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WO2001009700A2 true WO2001009700A2 (fr) 2001-02-08
WO2001009700A3 WO2001009700A3 (fr) 2001-06-07
WO2001009700A8 WO2001009700A8 (fr) 2001-11-29

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US8175946B2 (en) 2008-04-25 2012-05-08 Bloomberg Finance L.P. System and method for providing the execution probability of a limit order

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US7782860B2 (en) 2003-07-15 2010-08-24 Telefonaktiebolaget Lm Ericsson (Publ) Arrangements for connection-oriented transport in a packet switched communications network
US8175946B2 (en) 2008-04-25 2012-05-08 Bloomberg Finance L.P. System and method for providing the execution probability of a limit order

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AU6395200A (en) 2001-02-19
WO2001009700A8 (fr) 2001-11-29
WO2001009700A3 (fr) 2001-06-07

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