U.S. patent application number 09/859901 was filed with the patent office on 2002-01-03 for systems and methods for conducting derivative trades electronically.
This patent application is currently assigned to Blackbird Holdings, Inc.. Invention is credited to May, Richard Raymond.
Application Number | 20020002530 09/859901 |
Document ID | / |
Family ID | 22759142 |
Filed Date | 2002-01-03 |
United States Patent
Application |
20020002530 |
Kind Code |
A1 |
May, Richard Raymond |
January 3, 2002 |
Systems and methods for conducting derivative trades
electronically
Abstract
The present invention facilitates efficient negotiations of
trade terms and the generation of an electronic trade ticket in the
trading of financial instruments. The negotiation process is
preferably conducted through a secure online chat program using
point-to-point messaging, though the negotiations can take place
using the tradition exchanges of phone calls and faxes outside of
the confines of an electronic trading system. Once the trade terms
have been agreed upon by both parties, then the parties enter an
electronic trading system in accordance with the present invention
to select the traded financial instrument and generate an
electronic trade ticket with can be stored by the trading system
and/or the each of the trading parties.
Inventors: |
May, Richard Raymond;
(Mathews, NC) |
Correspondence
Address: |
ALSTON & BIRD LLP
BANK OF AMERICA PLAZA
101 SOUTH TRYON STREET, SUITE 4000
CHARLOTTE
NC
28280-4000
US
|
Assignee: |
Blackbird Holdings, Inc.
|
Family ID: |
22759142 |
Appl. No.: |
09/859901 |
Filed: |
May 16, 2001 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
|
|
60204717 |
May 16, 2000 |
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Current U.S.
Class: |
705/37 ;
705/36R |
Current CPC
Class: |
G06Q 40/06 20130101;
G06Q 40/04 20130101 |
Class at
Publication: |
705/37 ;
705/36 |
International
Class: |
G06F 017/60 |
Claims
That which is claimed:
1. A method for generating an electronic trade ticket in an
electronic trading system, comprising: initiating an electronic
chat session between at least two traders to negotiate terms of a
transaction of financial instrument; receiving trader input into
the system indicating a selected financial instrument agreed upon
by the traders to transact; receiving trader input into the system
indicating contract terms defining the transaction of the financial
instrument agreed upon by the traders; generating an electronic
trade ticket for the transaction; and transmitting the electronic
trade ticket to the traders.
2. The method of claim 1, wherein the step of generating the
electronic trade ticket comprises generating an electronic trade
ticket in the format of a fax document.
3. The method of claim 1, wherein the step of generating the
electronic trade ticket comprises generating an electronic trade
ticket in the format of an XML file.
4. The method of claim 1, further comprising exploding the selected
financial instrument to reveal to a trader definitional components
of the financial instrument.
5. The method of claim 1, wherein the step of receiving trader
input into the system indicating a selected financial instrument
comprises receiving indication of one or more of a class, currency
and symbol of the financial instrument.
6. A system for generating a trade ticket in an electronic trading
system, comprising: an electronic trading system for financial
instruments that conducts electronic trades using, at least in
part, a trade mechanism; and an electronic ticketing application
that generates electronic trade tickets for transactions negotiated
outside of the trade mechanism of the electronic trading system by
at least two traders.
7. The system of claim 6, wherein the electronic ticketing
application receives trader input indicating a selected financial
instrument agreed upon by the traders to transact and contract
terms defining the transaction of the financial instrument agreed
upon by the traders.
8. The system of claim 6, wherein said electronic trading system
supports symbology for financial instrument identification.
9. The system of claim 6, wherein the electronic ticketing
application generates the electronic trade ticket formatted as one
of a facsimile document and an XML file.
10. The system of claim 6, wherein the electronic ticketing
application enables the traders to explode a financial instrument
to reveal to the trader definitional components of the financial
instrument.
Description
CROSS-REFERENCE TO RELATED APPLICATIONS
[0001] This application claims benefit of co-pending U.S.
Provisional Application No. 60/204,717, titled "Direct-Talk Systems
and Methods for Conducting Derivative Trades Electronically," and
filed May 16, 2001, and which application is hereby incorporated by
reference as if set forth in full.
FIELD OF THE INVENTION
[0002] The present invention generally relates to the trading of
financial instruments, and more particularly, to the electronic
trading of derivatives.
BACKGROUND OF THE INVENTION
[0003] In recent years, commodity exchanges have become more and
more dependent upon electronic trading systems. The older manual
methods by which trades were conducted have given way to advanced
computer systems that have generally mimicked the manual methods of
old. These relatively new electronic trading systems have many
advantages over the manual systems, including the ability to
provide such features as greater accuracy, reduced labor cost, real
time market information, more efficient communications over greater
distances, and automated record keeping. However, because the
markets in which these commodities are being traded are so vastly
different from their descriptions to their transaction
methodologies, electronic trading systems are generally limited to
specific markets such as futures, cash, oil, stock, securities,
etc., and sometimes to specific commodities within a single
market.
[0004] Illustrative of such electronic trading systems are those
described in U.S. Pat. No. 5,270,922 to Higgins, U.S. Pat. No.
5,873,071 to Ferstenberg et al., U.S. Pat. No. 4,980,826 Wagner,
U.S. Pat. No. 5,168,446 to Wiseman, U.S. Pat. No. 5,924,083 to
Silverman, and U.S. Pat. No. 5,970,479 to Sheperd. The systems
described in these patents are generally unable to accommodate
complex financial instruments because, among other things, these
systems apparently treat all financial instruments alike, and
therefore, may be incapable of handling more complex financial
instruments, such as derivatives, which require a judgment about
the financial strength of the opposing counterparties. Trades
conducted with some financial instruments such as derivatives
create multi-year financial commitments, and therefore, mere credit
limit or credit cap systems are insufficient as measuring and
managing on institutions credit risk.
[0005] For example, derivatives were once considered by many to be
too complex to be efficiently handled within an electronic trading
system. Particularly, derivative products are typically define by
certain terms and conditions, and each of the different types of
derivatives products are defined by a different set of terms and
conditions. For example, an FRA is defined by a start time, an end
time, an over date, and a floating rate option, while an interest
rate swap is defined by a start time, an end time, an over date, a
floating rate option, a frequency of the fixed coupons, a basis,
and a special rule(s) as applicable with some currencies.
Accordingly, the variances in the specific information necessary to
adequately define the different derivative products have apparently
been deterrence to the development of an electronic derivative
trading system.
[0006] The assignee of the present invention has developed and
deployed what is believed to be the first and currently the only
electronic trading systems for derivatives in operation. The system
is called Blackbird.TM. (www.blackbird.net), and has received wide
acceptance. Nonetheless, the transition to an all-electronic
trading system for many derivative traders will most likely be
gradual and take some time, relegating many derivative traders to
deal with the inefficiencies of such manual trading processes.
[0007] For example, the financial markets, and particularly the
over-the-counter (OTC) derivative marketplace, have been accessed
principally by phone and fax for years. Once a transaction has been
completed in this environment, both parties separately draw up
their own internal `trade tickets` without referring to the other
organization. These tickets are then entered manually into the
respective parties' computer systems for processing. This manual
process introduces many opportunities for errors, which requires
several layers of manual controls to verify and ensure that the
precise details of the transaction to which both parties agreed are
the same. This is particularly acute for OTC Derivatives due to the
large number of parameters required to define a derivative.
[0008] Thus, a heretofore unresolved need exist in the industry for
methods and systems that overcome the inadequacies of the manual
trading processes without requiring end-to-end electronic
trading.
SUMMARY OF THE INVENTION
[0009] The present invention, as described herein, comprises
methods and systems for providing facilitation of efficient
negotiations of trade terms and the generation of an electronic
trade ticket. The negotiation process is preferably conducted
through a secure online chat program using point-to-point
messaging, though the negotiations can take place using the
tradition exchanges of phone calls and faxes outside of the
confines of an electronic trading system. Once the trade terms have
been agreed upon by both parties, then the parties enter an
electronic trading system in accordance with the present invention
to select the traded financial instrument and to generate an
electronic trade ticket with can be stored by the trading system
and/or by each of the trading parties. When selecting the
instrument, the symbol explode functionality enables the traders to
quickly and easily identify the specific instrument being traded.
With complex instrument like derivatives, this is desirable because
of the effort needed to define all the terms of a derivative can be
cumbersome. Advantageously, the electronic trade ticket can be
generated in a number of different forms, such as on-screen HTML,
paper/fax, XML or a customized format. In fact, the format of the
electronic trade ticket can be determined based upon the format or
formats designated by the trader or traders, thereby allowing the
traders to directly process the electronic trade ticket with
conversion to a particular format.
[0010] Other features and advantages of the present invention will
become apparent to one skilled in the art upon examination of the
following drawings and detailed description. It is intended that
all such features and advantages be included herein within the
scope of the present invention.
BRIEF DESCRIPTION OF THE DRAWINGS
[0011] Having thus described the invention in general terms,
reference will now be made to the accompanying drawings, which are
not necessarily drawn to scale, and wherein:
[0012] FIG. 1 is a high-level representation of one possible
embodiment of the present invention.
[0013] FIG. 2 is an example of a chat interface in accordance with
an embodiment of the present invention.
[0014] FIG. 3 is an example of an instrument selection interface in
accordance with an embodiment of the present invention.
[0015] FIG. 4 is an example of an order generate interface in
accordance with an embodiment of the present invention.
[0016] FIG. 5 is a trade ticket generated in accordance with an
embodiment of the present invention.
[0017] FIG. 6 is a flow-chart illustrating a method in accordance
with an embodiment of the present invention.
DETAILED DESCRIPTION OF THE INVENTION
[0018] The present invention now will be described more fully
hereinafter with reference to the accompanying drawings, in which
preferred embodiments of the invention are shown. This invention
may, however, be embodied in many different forms and should not be
construed as limited to the embodiments set forth herein; rather,
these embodiments are provided so that this disclosure will be
thorough and complete, and will fully convey the scope of the
invention to those skilled in the art. Like numbers refer to like
elements throughout.
[0019] The present invention provides great flexibility to
derivative traders, such as for negotiation and trading directly
through an online trading system, and the generation of an
electronic ticket which can then be used to directly load the
transaction data to both parties' processing systems automatically
and to complete the trade confirmation process. Advantageously,
both parties get the same data, at the same time, with essentially
no chance of errors being introduced. As a result, traders are able
to make trades faster and more efficiently than with prior art
systems.
[0020] The present invention is preferably implemented as an
integral component of an electronic trading system, and while the
invention is disclosed in the context of a derivative trading
system, the invention is not so limited in utility and
functionality. The present invention can be implemented with
electronic trading system for virtually any financial instrument,
not just derivatives. Nonetheless, the illustrative embodiment of
the present invention is described in the context of the
Blackbird.TM. System as disclosed in the co-pending patent
application Ser. No. 09/169,906, which is hereby incorporated by
reference as if set forth in full.
[0021] With reference to FIG. 1, an electronic trading system 10 in
accordance with the present invention includes a central processing
center server 12 which is in communication with the traders
computer 14 via the communications network 16. The present
invention can be implemented as an integrated or bundle software
component, such as the electronic ticket application 18, of an
underlying electronic trading system, such as the Blackbird.TM.
system.
[0022] The central processing center 12 and the traders 14
preferably operate in conjunction with one another to implement an
electronic trading system with which the present invention
operates, such as in a client-server configuration, though the
system architectures of the underlying electronic trading system
does not materially impact the present invention. Thus, the breath
and scope of the implementations available for the trader and
central processing center elements extend to the present invention
and its implementation. For example, should the trader workstation
interface of the electronic trading system be implemented on a PDA
device, the interfaces of the present invention will likewise be
implemented through the similar PDA interface.
[0023] In accordance with the present invention, the trader 14 not
only communicate with the central processing center through the
communications network 16, they can communicate with one another.
The communications network 16 can be any data or voice network
capable of interfacing two or more parties. Therefore, the
communications network may support, for example, Internet protocol,
facsimile and voice communications between the parties and between
the traders 14 and the central processing center 12. In addition,
it is preferable that some traders 14 will be connected to more
that one of communications networks 16 so that in the event of a
failure of the primary network, there will be an immediate backup
in place. With this multiple access method, the preferred
embodiment of the invention is able to offer the widest possible
access to potential users.
[0024] The electronic ticket application 18 provides a trader with
the ability to generate an electronic ticket once a transaction has
been agreed upon and for this electronic ticket to be in a standard
and easy to use/process format. While the traders may negotiate the
trade terms using whatever means they wish, it is preferable that
they utilize a point-to-point messaging, such as a secure chat
application provided by the underlying electronic trading system to
allow the traders to negotiate on-line, in a manner substantially
similar to that historically done over the phone. Alternatively,
should the traders wish to continue to use the telephone, they can
advantageously use the present invention to generate electronic
tickets and point-to-point messages and confirmations. The
point-to-point messaging can take many forms as will be appreciated
by those skilled in the art, but is preferably a live chat
session.
[0025] The electronic trading system preferably has trade profile
information for each registered trader, include for example,
address, legal entity (LE), business unit (BU), contact
information, and settlement details. In the Blackbird.TM. system,
symbology provides for the definition of trade terms in, for
example, price, quantity, buyer/seller, trade date (if necessary),
and term negotiation items.
[0026] The electronic ticketing application 18 enables the traders
to select a financial instrument to be traded and generate a trade
ticket. The selection process may be as simple as the selection
from a listing or as complex as the building of a symbol with any
necessary terms. Advantageously, symbology of the Blackbird.TM.
system enables traders to explode a symbol or alias to see the
terms defining the derivative. This allows traders to quickly come
to an agreement on an instrument to be traded and confirm the terms
of that instrument without a long and drawn out process of verbally
reading through the terms over the phone or through faxes, which is
a tedious and time consuming process. Once the instrument has been
selected, the electronic ticketing application 18 generates the
electronic ticket for the traders. The electronic trade tickets and
confirmations can be generated and transmitted to the traders for
electronic processing using XML or other standard message
protocols. The electronic trade tickets are particularly
advantageous for record keeping and trade status within the
lifecycle of the trade.
[0027] With reference to FIGS. 2-5, the operation of an embodiment
of the present invention is provided herein below. It will be
understood that each block of the flowchart illustration, and
combinations of the blocks in the flowchart illustration, can be
implements by computer program instructions. These computer program
instructions may load onto a computer or other programmable
apparatus to produce a machine, such that the instructions will
execute on the computer or other programmable apparatus to create
means for implementing the functions specified in the flowchart
block or blocks. These computer program instructions may also be
stored in a computer-readable memory that can direct the computer
or other programmable apparatus to function in a particular manner,
such that the instructions stored in the computer-readable memory
produces an article of manufacturing including instructions which
implement the function specified in the flowchart block or
blocks.
[0028] The computer program instructions may also be loaded onto a
computer or other programmable apparatus to cause a series of
operational steps to be performed on the computer or other
programmable apparatus to produce a computer implemented process
such that the instructions which execute on the computer or other
programmable apparatus provide steps for implementing the function
specified in the flowchart block or blocks.
[0029] Accordingly, blocks within the flowchart illustrations
support combinations of means for performing the specified
functions and combinations of steps for performing the specified
functions. It will be understood that each block of the flowchart
illustrations, and the combinations of blocks in the flowchart
illustrations, can be implemented by a special purpose
hardware-based computer systems which perform the specified
functions or steps, or combinations of special purpose hardware and
computer instructions.
[0030] Initially, a trader wanting to enter into a private two-way
negotiation initializes the chat screen 20, as illustrated in FIG.
2. The chat screen is preferably initialized from one of the
interfaces of the Blackbird.TM. system. The trader who wants to
initiate a chat conversation clicks on the name of another trader
from the list 22. All or some subset of available users preferably
are included in list 22, including, for example, full name, legal
entity, normal class of instrument traded and currency traded. This
information can be retrieved from one or more of the databases
associated with the electronic trading system 10. This enables a
specific trader at another institution to be quickly and easily
identified. In addition, this enables the two users to privately
negotiate the terms of the trade and only the two parties to the
session can see the conversation. Note, however, a trader may
select more than one trader to communicate with so that the
messages generated in the chat session are communicated to each of
the traders participating in the session. While chat negotiations
are typically preferred, the traders may communicate by alternative
means such as by a telephone or facsimile, as historically
done.
[0031] A Select Instrument and Generate Ticket Button 24 can be
selected to allow the user to select the financial instrument to be
traded and initiate the generation of the electronic ticket, which
can be used by either party to automatically load the transaction
data to their respective processing system, as discussed in more
detail below. A display window 26 identifies the traders presently
logged into the electronic trading system 10. This is essentially
the list from which the trader that wants to initiate private
negotiations can choose someone with which to negotiate. From left
to right, each column includes characteristics of each trader which
may identify, for example, the following: name; institution name
(legal entity name and/or business unit name); the type of
derivative/financial instrument the user trades most often; and the
preferred currency of that trader.
[0032] A chat display window 28 provides a chronological sequence
of statements made between the traders. The window 28 may list, for
example, the following information (some of which is not shown in
the embodiment illustrated): the time the comment was made; the
name of the person making the statement; and the message the person
typed in. The message display window 30 provides the message being
typed (i.e., inputted) by the trader as she/he types it. When the
trader selects the enter button on the keyboard, or the send button
32 on the chat screen 20, the message in the message display window
30 is sent to the other trader(s) and is inserted as last entry in
the chat display window 28.
[0033] Once the traders have decided on the terms of the trade
during the chat session, and have come to an agreement on terms,
either one can initiate the trade ticket generation by selecting
the Select Instrument and Generate Ticket button 24 which launches
an instrument selection screen 34, as illustrated in FIG. 3, which
allows the user to (1) select from one or more down-down menus 36
(for example) the type of financial instrument (e.g., class,
currency, and/or symbol, as defined by the symbology of the
Blackbird.TM. system) being traded and (2) select the appropriate
terms of the transaction via selectable options 38 as described by
the symbology of Blackbird.TM. system. This includes the symbol,
parameters, trade date, currency, etc. Alternatively, the trader
may explode the symbol via the Explode button 40 to see the
specifics of the transaction including start and end dates of the
transaction, floating rate options, accrual basis etc. Yet another
alternative is that the traders can build their own instrument via
Build button 42. This enables the traders to ensure that they both
agree to all the terms.
[0034] Once the trader has selected the instrument and built the
Symbol, the trader selects the Generate button 44 of screen 34
which launches the order generate screen 50, as illustrated in FIG.
4. This interface is similar in function to "Place Order" Screen in
the Blackbird.TM. System. The order generate screen 50 presents the
selected instrument in window 52, and enables the traders to select
the specific contract and terms via selectable options 54. For
example, the traders designate the Buyer and Seller, the financial
institution party to the trade, the price, the quantity, any
additional terms that need to be negotiated (e.g., such as those
defined via Term Negotiation), etc. If desired, the trader can
explode the instrument via Explode button 56. The trader then
selects the Generate button 58 to produce a trade ticket (also
referred to as the Confirmation Ticket), an illustrative example of
which is provided in FIG. 5 (note that only the first page of the
trade ticket is provided in FIG. 5, as will be appreciated by one
of ordinary skill in the art).
[0035] In accordance with the Blackbird.TM. system, once both
traders confirm, they are automatically given the option to enter
Term Negotiation as if the trade had been conducted on the
Blackbird.TM. System.
[0036] When the trader initiating the trade selects the Generate
Button 58 of the generate order screen, both traders receive an
electronic trade ticket. The trade ticket can be in any or all the
following formats, or any other suitable format: on screen/HTML,
included in the Blackbird.TM. Trade Blotter, paper/fax
Blackbird.TM. ticket, ISDA Confirmation format, XML, or flat file.
In an embodiment of the present invention, the trader's
preferential format can be pre-selected by the trader or his/her
legal entity so that at a trade ticket generated for that trader is
formatted in the pre-selected format. This may eliminate the need
to convert the electronic trade ticket to another format for
processing by the trader's system.
[0037] With reference to FIG. 6, a flowchart illustrating a method
of the operation of the electronic ticketing application 18 in
accordance with the embodiment of the present invention is
provided. At step 60, a trader opens the secure chat room
application, which preferably is an integral component of the
Blackbird.TM. system. At step 62, the trader then selects a party
with which to negotiate from a provided list of available
counterparties. An advantage of integrating the electronic
ticketing application 18 with an electronic trading system is that
information about each potential counterparty can be accessed and
presented to user with a list of available traders. Once the trader
has selected one or more potential counterparties, the parties
begin to negotiate the terms of a transaction using the chat
functionality, as is well known, as illustrated in step 64. If it
is determined at step 66 that the traders have decided the final
terms of the transaction, one of the traders initiates the
automated ticketing process by selecting the Select Instrument and
Generate Ticket button. Alternatively, if it is determined at step
66 that the parties have not decided the final terms of the deal,
then the parties continue to negotiate terms at step 64.
[0038] Once the traders have selected the Select Instrument and
Generate Ticket button, the traders identify the instrument to be
traded and the contract terms. Next, at step 72, the traders
request that an electronic ticket be generated in accordance with
the identified instrument and terms.
[0039] Once a trade ticket is generated, then it is stored in a
database (which could be a Blackbird.TM. system database for a
database of a trader or other third party having a requisite
permission and/or authorization), thereby enabling the following
functionality: recall at a later time, audit checks, automatic
confirms, process status (i.e., as the ticket is processed,
messages can be received and the status updated). Examples include
"faxed", "XML file sent", "agreed", "processed by . . . ",
"Matured" etc.
[0040] Many modifications and other embodiments of the invention
will come to mind to one skilled in the art to which this invention
pertains having the benefit of the teachings presented in the
foregoing descriptions and the associated drawings. Therefore, it
is to be understood that the invention is not to be limited to the
specific embodiments disclosed and that modifications and other
embodiments are intended to be included within the scope of the
appended claims. Although specific terms are employed herein, they
are used in a generic and descriptive sense only and not for
purposes of limitation.
* * * * *