Chicago Mercantile Exchange (CME) is developing an options
trading technology that could solve critical bandwidth and
electronic options trading problems.
CME currently has three patents pending with US Patent and
Trademark Office that are collectively designed to drastically
lower the bandwidth needed for handling inbound and outbound
messaging of options by automating and centralising, at
exchange level, much of the price adjustment and hedging
process used by traders and market makers.
The patents are based on concepts designed to solve
bandwidth problems and, by doing so, broaden the scope of
options products offered on CME, such as fx options.
Former CME chief information officer Scott Johnston, a
principal author of the patents, explained that the process is
designed to address four key problems associated with
electronic options exchanges and their market
participants: inbound messaging, outbound messaging,
integration of volatility traded and premium-traded options
markets and current limitations on market making in terms of
risk management and hedging. "You can change the rules of the
game if you solve all of those things all at once," Johnston
told FO Week.
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