Reserve order in an electronic guaranteed entitlement environment

Abstract

An enhanced system and method for handling, matching and executing reserve orders in an electronic options environment is disclosed. Market maker entitlements are integrated with the reserve order processing, so that the market maker is guaranteed an allocation of the trade if the market maker is at the NBBO when a marketable reserve order is received. Once posted to the order book, only the displayed size of a reserve order is eligible for preferential execution in a market maker entitlement process.

1 . A method for trading reserve orders in an electronic options trading environment with market maker participation, comprising:
 providing a market center which lists a plurality of options series in a market with an NBBO, wherein the market center has an order book for each option series and a quote book for each option series, wherein the order book has a displayed interest component and a nondisplayed interest component; wherein a plurality of the option series have an appointed lead market maker;   receiving an incoming reserve order having a total size with a portion of the order for display and a reserve portion of the order that is not displayed;   determining if the reserve order is marketable;   determining if the reserve order is for an option series that has a lead market maker;   determining if the lead market maker has a quote at the NBBO;   wherein if the reserve order is marketable and the lead market maker has a quote at the NBBO, computing an allocation percentage for the lead market maker; and   matching the incoming reserve order up to the lesser of the total size of the reserve order or the computed allocation percentage amount for the lead market maker.   
   
   
       2 . The reserve order trading method of  claim 1 , wherein the computation of the allocation percentage for the lead market maker is based on the total size of the reserve order. 
   
   
       3 . The reserve order trading method of  claim 1 , wherein the incoming reserve order is a sweep limit order with reserve. 
   
   
       4 . The reserve order trading method of  claim 1 , wherein the incoming reserve order is a inside limit order with reserve. 
   
   
       5 . The reserve order trading method of  claim 1 , wherein the incoming reserve order is an exchange-restricted order with reserve. 
   
   
       6 . The reserve order trading method of  claim 1 , wherein the incoming reserve order is a discretionary order with reserve. 
   
   
       7 . The reserve order trading method of  claim 1 , further comprising, prior to computing the lead market maker allocation percentage:
 determining if the order book has at least one customer order at the NBBO;   wherein if the order book does have at least one customer order at the NBBO, determining if the at least one customer order is displayed and was posted to the order book prior to the lead market maker quote at the NBBO;   wherein if the at least one customer order at the NBBO is displayed and was posted to the order book prior to the lead market maker quote at the NBBO, matching the incoming order with the at least one customer order.   
   
   
       8 . The reserve order trading method of  claim 7 , wherein the at least one customer order that was posted to the book prior to the lead market maker quote at the NBBO is a resting reserve order having a total size with a portion of the order for display and a reserve portion of the order that is not displayed, further comprising:
 matching the incoming order with the displayed portion of the reserve order and not the reserve portion of the reserve order; and   then proceeding to compute the lead market maker allocation percentage.   
   
   
       9 . The reserve order trading method of  claim 7 , wherein if the at least one customer order at the NBBO was posted to the order book after the lead market maker quote at the NBBO, proceeding to compute the lead market maker allocation percentage. 
   
   
       10 . The reserve order trading method of  claim 7 , wherein if the at least one customer order at the NBBO is not displayed, proceeding to compute the lead market maker allocation percentage. 
   
   
       11 . The reserve order trading method of  claim 1 , wherein the lead market maker has a quote at the NBO. 
   
   
       12 . The reserve order trading method of  claim 1 , wherein the lead market maker has a quote at the NBB. 
   
   
       13 . The reserve order trading method of  claim 1 , further comprising determining if the incoming reserve order is too executable. 
   
   
       14 . The reserve order trading method of  claim 1 , further comprising:
 providing at least one appointed market maker in the option series in addition to the lead market maker;   wherein the incoming reserve order is from a specified order sending firm and is directed to and designates the at least one appointed market maker;   determining if the order sending firm is permissioned to direct orders to the designated market maker;   wherein if the order sending firm does have permission to direct orders to the designated market maker, determining if the designated market maker has a quote at the NBBO;   wherein if the designated market maker has a quote at the NBBO, computing an allocation percentage for the designated market maker;   matching the incoming reserve order up to the lesser of the total size of the reserve order or the computed allocation percentage amount for the designated market maker.   
   
   
       15 . The reserve order trading method of  claim 14 , further comprising, prior to computing the designated market maker allocation percentage:
 determining if the order book has at least one customer order at the NBBO;   wherein if the order book does have at least one customer order at the NBBO, determining if the at least one customer order is displayed and was posted to the order book prior to the designated market maker quote at the NBBO;   wherein if the at least one customer order is displayed and was posted to the order book prior to the designated market maker quote at the NBBO, matching the incoming reserve order with the at least one customer order.   
   
   
       16 . The reserve order trading method of  claim 15 , wherein if the at least one customer order was posted to the order book after the designated market maker quote at the NBBO, proceeding to compute the designated market maker allocation percentage. 
   
   
       17 . The reserve order trading method of  claim 15 , wherein if the at least one customer order at the NBBO is not displayed, proceeding to compute the designated market maker allocation percentage. 
   
   
       18 . The reserve order trading method of  claim 14 , wherein the designated market maker has a quote at the NBO. 
   
   
       19 . The reserve order trading method of  claim 14 , wherein the designated market maker has a quote at the NBB. 
   
   
       20 . The reserve order trading method of  claim 1 , wherein the market center includes a display order process and wherein after the incoming reserve order is matched with the lead market maker quote, processing the incoming reserve order in the display order process. 
   
   
       21 . The reserve order trading method of  claim 20 , wherein the market center includes a working order process and wherein after the incoming reserve order is matched in the display order process, processing the incoming reserve order in the working order process. 
   
   
       22 . The reserve order trading method of  claim 1 , wherein the market center includes a routing process and wherein the incoming reserve order is processed by the routing process. 
   
   
       23 . A market center which lists a plurality of options series and handles reserve order trading, comprising:
 an order book for each option series and a quote book for each option series, wherein the order book has a displayed interest component and a nondisplayed interest component; wherein a plurality of the option series have an appointed lead market maker;   an interface for receiving orders and an interface for receiving quotes;   a market center memory for storing code for analyzing and processing orders and quotes;   a processor for interacting with the interfaces and executing the code for analyzing and processing quotes and orders, wherein the code, when executed:   receives an incoming reserve order having a total size with a portion of the order for display and a reserve portion of the order that is not displayed;   determines if the reserve order is marketable;   determines if the reserve order is for an option series that has a lead market maker;   determines if the lead market maker has a quote at the NBBO;   wherein if the reserve order is marketable and the lead market maker has a quote at the NBBO, computes an allocation percentage for the lead market maker; and   matches the incoming reserve order up to the lesser of the total size of the reserve order or the computed allocation percentage amount for the lead market maker.   
   
   
       24 . A method for trading reserve orders in an electronic options trading environment with market maker participation, comprising:
 providing a market center which lists a plurality of options series in a market with an NBBO, wherein the market center has an order book for each option series and a quote book for each option series, wherein the order book has a displayed interest component which is processed in a display order process and a nondisplayed interest component which is processed in a working order process; wherein a plurality of the option series have an appointed lead market maker;   posting a reserve order having a total size with a portion of the order for display and a reserve portion of the order that is not displayed on the market center;   receiving an incoming order on the side of the order book opposite to the posted reserve order;   determining if the incoming contra side order is for an option series that has a lead market maker;   determining if the lead market maker has a quote at the NBBO;   wherein if the lead market maker has a quote at the NBBO, computing an allocation percentage for the lead market maker;   matching the incoming contra side order up to the lesser of the total size of the incoming contra side order or the computed allocation percentage amount for the lead market maker; and   after matching the incoming contra side order with the lead market maker quote, matching at least a portion of the remainder of the incoming contra side order with the displayed portion of the posted reserve order.   
   
   
       25 . The reserve order trading method of  claim 24 , wherein the posted reserve order is a sweep limit order with reserve. 
   
   
       26 . The reserve order trading method of  claim 24 , wherein the posted reserve order is an inside limit order with reserve. 
   
   
       27 . The reserve order trading method of  claim 24 , wherein the posted reserve order is an exchange-restricted order with reserve. 
   
   
       28 . The reserve order trading method of  claim 24 , wherein the posted reserve order is a discretionary order with reserve. 
   
   
       29 . The reserve order trading method of  claim 24 , wherein the posted reserve order is a primary peg order with reserve. 
   
   
       30 . The reserve order trading method of  claim 24 , wherein the posted reserve order is a market peg order with reserve. 
   
   
       31 . The reserve order trading method of  claim 24 , further comprising, prior to computing the lead market maker allocation percentage:
 determining if the posted reserve order is at the NBBO;   wherein if the posted reserve order is at the NBBO, determining if the posted reserve order was posted to the order book prior to the lead market maker quote at the NBBO;   wherein if the posted reserve order was posted to the book prior to the lead market maker quote at the NBBO, matching the incoming contra side order with the displayed portion of the reserve order and not the reserve portion of the posted reserve order; and   then proceeding to compute the lead market maker allocation percentage.   
   
   
       32 . The reserve order trading method of  claim 24 , wherein the displayed portion of the posted reserve order is depleted during matching with the incoming contra side order and further comprising:
 flagging the depleted display portion of the reserve order for replenishment;   executing the remainder of the incoming contra side order in the display order process,   executing the remainder of the incoming contra side order with the reserve portion of the depleted reserve order in the working order process; and   contemporaneously replenishing the depleted display portion of the reserve order.   
   
   
       33 . The reserve order trading method of  claim 32 , wherein the market center has a lead market maker guaranteed entitlement routine and a routing routine and wherein if the NBBO is locked or crossed when the reserve order is replenished, further comprising:
 prior to replenishing the reserve order, activating the lead market maker guaranteed entitlement routine and the routing routine;   attempting to process the reserve order in the lead market maker guaranteed entitlement routine,   processing the replenished reserve order in the routing routine; and   then replenishing the depleted display portion of the replenished reserve order.   
   
   
       34 . The reserve order trading method of  claim 24 , wherein the lead market maker has a quote at the NBO. 
   
   
       35 . The reserve order trading method of  claim 24 , wherein the lead market maker has a quote at the NBB. 
   
   
       36 . The reserve order trading method of  claim 24 , further comprising:
 providing at least one appointed market maker in the option series in addition to the lead market maker;   wherein the incoming order is from a specified order sending firm and is directed to and designates the at least one appointed market maker;   determining if the order sending firm is permissioned to direct orders to the designated market maker;   wherein if the order sending firm does have permission to direct orders to the designated market maker, determining if the designated market maker has a quote at the NBBO;   wherein if the designated market maker has a quote at the NBBO, computing an allocation percentage for the designated market maker;   matching the incoming order up to the lesser of the total size of the incoming order or the computed allocation percentage amount for the designated market maker.   
   
   
       37 . The reserve order trading method of  claim 36 , further comprising, prior to computing the designated market maker allocation percentage:
 determining if the order book has at least one customer order at the NBBO;   wherein if the order book does have at least one customer order at the NBBO, determining if the at least one customer order is displayed and was posted to the order book prior to the designated market maker quote at the NBBO;   wherein if the at least one customer order is displayed and was posted to the order book prior to the designated market maker quote at the NBBO, matching the incoming order with the at least one customer order.   
   
   
       38 . The reserve order trading method of  claim 37 , wherein if the at least one customer order was posted to the order book after the designated market maker quote at the NBBO, proceeding to compute the designated market maker allocation percentage. 
   
   
       39 . The reserve order trading method of  claim 37 , wherein if the at least one customer order at the NBBO is not displayed, proceeding to compute the designated market maker allocation percentage. 
   
   
       40 . The reserve order trading method of  claim 36 , wherein the designated market maker has a quote at the NBO. 
   
   
       41 . The reserve order trading method of  claim 36 , wherein the designated market maker has a quote at the NBB. 
   
   
       42 . The reserve order trading method of  claim 24 , wherein the market center includes a routing process and wherein the incoming reserve order is processed by the routing process. 
   
   
       43 . A market center which lists a plurality of options series and handles reserve order trading, comprising:
 an order book for each option series and a quote book for each option series, wherein the order book has a displayed interest component and a nondisplayed interest component; wherein a plurality of the option series have an appointed lead market maker;   an interface for receiving orders and an interface for receiving quotes;   a market center memory for storing code for analyzing and processing orders and quotes;   a processor for interacting with the interfaces and executing the code for analyzing and processing quotes and orders, wherein the code, when executed:   posts a reserve order having a total size with a portion of the order for display and a reserve portion of the order that is not displayed on the market center;   receives an incoming order on the side of the order book opposite to the posted reserve order;   determines if the incoming contra side order is for an option series that has a lead market maker;   determines if the lead market maker has a quote at the NBBO;   wherein if the lead market maker has a quote at the NBBO, computes an allocation percentage for the lead market maker;   matches the incoming contra side order up to the lesser of the total size of the incoming contra side order or the computed allocation percentage amount for the lead market maker; and   after matching the incoming contra side order with the lead market maker quote, matches at least a portion of the remainder of the incoming contra side order with the displayed portion of the posted reserve order.