U.S. patent application number 11/267158 was filed with the patent office on 2006-03-16 for matching computer of a negotiated matching system.
This patent application is currently assigned to Reuters Limited. Invention is credited to William L. Donner, Christopher J. Ordish, David L. Silverman.
Application Number | 20060059082 11/267158 |
Document ID | / |
Family ID | 10760013 |
Filed Date | 2006-03-16 |
United States Patent
Application |
20060059082 |
Kind Code |
A1 |
Silverman; David L. ; et
al. |
March 16, 2006 |
Matching computer of a negotiated matching system
Abstract
A matching computer is provided for a negotiated matching system
that includes a plurality of remote terminals associated with
respective potential counterparties, a communications network for
permitting communication between the remote terminals, and the
matching computer. Each user enters first parameters for a trading
instrument into his or her remote terminal. The matching computer
uses the trading parameters from each user to identify potential
transactions between counterparties that are mutually acceptable
based on the first parameters, thereby matching potential
counterparties to a potential transaction. Once a match occurs, the
potential counterparties can transmit negotiating messages to
negotiate some or all terms of the transaction. Thus, the matching
computer first matches potential counterparties who are acceptable
to each other based on first trading parameters, and then enables
the counterparties to negotiate and finalize the terms of a
transaction.
Inventors: |
Silverman; David L.; (Saint
James, NY) ; Donner; William L.; (London, GB)
; Ordish; Christopher J.; (Surrey, GB) |
Correspondence
Address: |
BANNER & WITCOFF
1001 G STREET N W
SUITE 1100
WASHINGTON
DC
20001
US
|
Assignee: |
Reuters Limited
London
GB
|
Family ID: |
10760013 |
Appl. No.: |
11/267158 |
Filed: |
November 7, 2005 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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10266939 |
Oct 9, 2002 |
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11267158 |
Nov 7, 2005 |
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09313216 |
May 18, 1999 |
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10266939 |
Oct 9, 2002 |
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08475499 |
Jun 7, 1995 |
5924082 |
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09313216 |
May 18, 1999 |
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Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 40/00 20130101;
G06Q 50/188 20130101; Y10T 70/45 20150401; G06Q 40/04 20130101 |
Class at
Publication: |
705/037 |
International
Class: |
G06Q 40/00 20060101
G06Q040/00 |
Foreign Application Data
Date |
Code |
Application Number |
Aug 17, 1994 |
GB |
9416673.3 |
Claims
1. A matching computer of a negotiated matching system, the
matching computer in communication with trading terminals via a
communications network, the matching computer comprising: a
processor; and a computer-readable medium in communication with the
processor, the computer-readable medium having computer-readable
instructions stored thereon instructing the processor to perform
steps comprising: receiving first trading parameters for a trading
instrument from a first trader via a first trading terminal, the
first trading parameters comprising at least a first price for the
trading instrument; receiving first trading parameters for the
trading instrument from a second trader via a second trading
terminal, the first trading parameters from the second trader
comprising at least a second price for the trading instrument;
matching the first trading parameters from the first and second
traders to identify the first trader and the second trader as
potential counterparties for a tentative trading transaction, the
matching occurring anonymously with respect to the potential
counterparties; after the step of matching, notifying the potential
counterparties of the tentative trading transaction via the
communications network, the step of notifying including
automatically revealing to the potential counterparties the
identity of the potential counterparties so that they may negotiate
second trading parameters for the trading instrument, the second
trading parameters comprising outstanding terms of the tentative
trading transaction; receiving information indicating agreement
between the potential counterparties of all trading parameters of
the tentative trading transaction; and after the step of receiving
information, completing the transaction between the counterparties
to permit settlement of the completed transaction.
2. The matching computer of claim 1, wherein the trading instrument
is a financial instrument.
3. The matching computer of claim 2, wherein the financial
instrument is a foreign exchange instrument.
4. The matching computer of claim 1, wherein the second trading
parameters comprise some of the first trading parameters from the
first and second traders.
5. The matching computer of claim 4, wherein the second trading
parameters comprise trading parameters in addition to the some of
the first trading parameters from the first and second traders.
6. The matching computer of claim 1, wherein the outstanding terms
include second trading parameters from the first and second
traders.
7. The matching computer of claim 6, wherein the outstanding terms
further comprise all of the first trading parameters from the first
and second traders.
8. The matching computer of claim 6, wherein the outstanding terms
do not include the first trading parameters from the first and
second traders.
9. The matching computer of claim 1, wherein the step of/matching
comprises matching the first price exactly with the second
price.
10. The matching computer of claim 1, wherein, for the step of
receiving first trading parameters from the first trader, the first
trading parameters from the first trader further include buy
parameters for the trading instrument.
11. The matching computer of claim 10, wherein, for the step of
receiving first trading parameters from the second trader, the
first trading parameters from the second trader include an
acceptance of the first buy parameters from the first trader.
12. The matching computer of claim 11, wherein, for the steps of
receiving first trading parameters from the first and second
traders, the buy parameters include a bid and the acceptance of the
first buy parameters includes a hit.
13. The matching computer of claim 1, wherein, for the step of
receiving first trading parameters from the first trader, the first
trading parameters from the first trader further include sell
parameters for the trading instrument.
14. The matching computer of claim 13, wherein, for the step of
receiving first trading parameters from the second trader, the
first trading parameters from the second trader include an
acceptance of the first sell parameters from the first trader.
15. The matching computer of claim 14, wherein, for the steps of
receiving first trading parameters from the first and second
traders, the sell parameters include an ask and the acceptance of
the first sell parameters includes a take.
16. The matching computer of claim 1, wherein, for the step of
receiving first trading parameters from the first trader, the first
trading parameters further comprise a first quantity for the
trading instrument.
17. The matching computer of claim 16, wherein, for the step of
receiving first trading parameters from the second trader, the
first trading parameters further comprise a second quantity for the
trading instrument.
18. The matching computer of claim 16, wherein, for the step of
notifying the potential counterparties, the outstanding terms
include a third quantity for the trading instrument and, for the
step of receiving information indicating agreement, the information
indicates agreement between the potential counterparties of the
third quantity.
19. The matching computer of claim 18, wherein the third quantity
is the same as at least one of the first and second quantity.
Description
CROSS-REFERENCE TO RELATED CASES
[0001] This application is a continuation of U.S. application Ser.
No. 10/266,939 filed Oct. 9, 2002, pending application; which is a
continuation of U.S. Ser. No. 09/313, 216 filed May 18, 1999,
abandoned; which is a divisional of U.S. Ser. No. 08/475,499 filed
Jun. 7, 1995, patented, which are expressly incorporated herein by
reference.
FIELD OF THE INVENTION
[0002] The present invention relates to a matching computer of a
negotiated matching system that identifies potential counterparties
to a transaction using criteria input by each user of the system
and then reveals the identity of the counterparties so that the
counterparties may negotiate the final terms and/or details of the
transaction.
BACKGROUND OF THE INVENTION
[0003] Automated dealing systems (e.g., for trading currencies,
commodities, and the like) are increasingly replacing the
conventional manner of dealing using a broker as an intermediary.
When a broker is used to complete a transaction, anonymity of the
counterparties is preserved either throughout the deal or until
just prior to the completion of a transaction depending on the
conventions of the particular market. The brokers are familiar with
the trading practices of their clients and therefore help to
prevent traders who do not want to trade with one another for
whatever reason from dealing with one another. Removal of such
human safeguards has lead to the development of automated checks
and validations in the automated dealing systems.
[0004] For example, some known automated trading systems allow
traders to enter credit information which is used to check the
suitability of counterparties before the deal is completed and
before the identity of the parties is revealed. One such system is
described in U.S. Pat. No. 5,136,501 wherein, prior to the
completion of a transaction, a credit check is performed to insure
that each party is willing to extend sufficient credit to its
potential counterparty. Another known trading system is described
in European Patent Application 92303437.5 in which the system
automatically matches offers and bids using credit ranking
information entered by each trader.
[0005] These and other known trading systems have a number of
drawbacks. First, these systems are only amenable to highly
specified trading instruments in which all criteria on which a
decision to trade is based are readily quantifiable and
standardized in the industry and the system. For example, decisions
to trade some types of highly specified financial instruments are
based solely on the price of the instrument and the quantity
available. These easily-defined criteria are easy to incorporate
into an automated trading system. However, the known automated
trading systems are not capable of accommodating types of financial
instruments that are traded using more subjective,
less-quantifiable criteria. For example, known automated trading
systems do not provide traders with the opportunity to filter out
potential deals with other traders who may be unacceptable trading
partners on the basis of subjective criteria other than the party's
credit, for example, geographic location or political or other
competitive criteria. Hitherto, this has only been possible through
the agency of a broker who may take into account his client's other
types of less quantifiable, subjective criteria concerning parties
his clients are willing to deal with while maintaining the
anonymity of his clients. Therefore, there is a need for an
electronic trading system which accommodates subjective,
less-quantifiable trading criteria.
[0006] Second, the marketplace may create new, non-standardized
types of trading instruments to fit its specific needs. The known
electronic trading systems are not capable of accommodating these
non-standardized trading instruments because the instrument
specifications in these systems are pre-defined based on
standardized trading instruments. Therefore, there is a need for an
automated trading system which is capable of accommodating
non-standardized trading instruments.
[0007] Third, in the known automated trading systems, once a trader
has entered a bid or offer, the trader no longer has the discretion
of negotiating the entered terms of the bid or offer. The system
automatically executes trades when compatible offers and/or bids
are found. In some systems, a trader may enter a "soft" offer or
bid, wherein the trader retains the discretion to either execute or
not execute the trade. However, the terms of such a soft offer or
bid define the objective criteria that must be satisfied to create
a firm offer or bid. The known systems provide no means by which a
trader can input a mere "expression of interest" in a particular
transaction wherein the trader need not provide predefined
objective criteria which would make the expression of interest
firm.
[0008] In other words, the known trading systems are designed to
execute firm transactions when the system locates a bid and offer
that match based on detailed specific information concerning the
terms of the bid and offer input by the users. These systems do not
provide a means by which two parties who are potentially interested
in dealing with one another may be introduced to one another based
on preliminary information input into the system, and then allowed
to negotiate the terms of a transaction using a communication
link.
[0009] Fourth, the known automated trading systems cannot
accommodate credit-complex trading instruments. Credit-complex
trading instruments are those for which the calculation of a
trading party's risk or exposure at a given time is based on
multiple elements and is therefore too complex to integrate into a
large-scale trading system. Generally, in order to calculate its
exposure, a bank must evaluate several types of risk, for example,
credit risk, settlement risk, and liquidity risk. Credit risk is
the effect of the transaction on the bank's overall books if the
counterparty goes bankrupt before the transaction is completed.
Credit risk is evaluated as the replacement value of the
transaction assuming that the counterparty is unable to compete the
transaction. Settlement risk is the risk that a bank will complete
its half of the transaction and the counterparty will be unable to
complete its half of the transaction, for example, because the
counterparty goes bankrupt prior to settlement. Liquidity risk is
the risk that the holder of an instrument will not be able to sell
that instrument at a reasonable price when the holder wishes to
liquidate the position.
[0010] The determination of credit risk is fairly straightforward
for short-term transactions such as spot transactions which are
settled as soon as the market allows because the risk that a
counterparty will go bankrupt during the short period of time prior
to settlement is very small. Therefore, it is likely that both
parties will complete the settlement of the transaction.
[0011] However, the complexity of calculating credit risk increases
significantly as the settlement period increases. For example, in
forward markets, e.g., the forward foreign exchange and forward
rate agreements markets, often transactions do not have a final
settlement for several months, a year, or longer. Clearly, there is
a greater risk that a counterparty will go bankrupt within this
longer period of time prior to settlement. As a result, banks'
methods of calculating their long term exposure, including both
settlement and credit risk, become increasingly complex and take
into account multiple factors.
[0012] Therefore, banks and other financial institutions use
complex formulae and methods to calculate their potential exposure
for each transaction based on a highly complex evaluation of the
time decay of the value of money and risk, the institution's total
exposure, and numerous other factors. Each financial institution
has its own systems and procedures for evaluating its exposure.
These credit and risk management procedures are highly confidential
and not standardized by any means. As a result, to successfully
accommodate these procedures into a single automated trading
system, either the financial institutions must standardize their
procedures or the implementers of the system must customize their
system to accommodate each different institution. Neither of these
options is a practicable solution to this problem because banks are
not likely to standardize their credit and risk management
processes and a customized trading system would be economically
infeasible. Also, banks and other trading institutions are
extremely protective of information regarding their credit and risk
management procedures and may be unwilling to give out this
information to third-party programmers who are designing a system
or to put this information on line where other parties may be able
to access it.
SUMMARY OF THE PRESENT INVENTION
[0013] The present invention provides a matching computer of a
negotiated matching system which introduces potential
counterparties to a transaction based on a first set of transaction
parameters input into the system by each party, and then reveals
the identifies of the counterparties so that they may negotiate a
second set of transaction parameters. A transaction is completed
when both sets of transaction parameters are agreed upon by parties
to the transaction. The sets of transaction parameters may vary for
each market. Also, in some markets, traders may negotiate all
transaction parameters.
[0014] A negotiated matching system may include a plurality of
remote terminals associated with respective potential
counterparties and a communications network for permitting
communication between the remote terminals and one or more matching
computers and between the remote terminals themselves. Each user
may enter a first set of transaction parameters into his or her
remote terminal. A matching computer may use the first set of
transaction parameters (e.g., price data, size data and other
parameters or attributes) from each user to identify potential
transactions with potential counterparties. If potential
transactions are identified, the respective parties are notified so
that they may begin negotiation of a second set of transaction
parameters. The second set of transaction parameters which may be
negotiated by the parties to the potential transaction identifies
by the system may consist of 1) some or all of the parameters in
the first set of transaction parameters, 2) some parameters from
the first set and other parameters not included in the first set,
or 3) only parameters not included in the first set. Both the first
and second set of transaction parameters must match before the
system will execute a transaction.
[0015] According to embodiments of the invention, the matching
computer of the negotiated matching system may only permit dealing
between parties who are mutually acceptable counterparties based on
the first set of transaction parameters (e.g., ranking, price, size
and other "firm" parameters) and does not automatically execute
transactions until the parties have agreed on all terms of the
transaction.
[0016] A benefit of a matching computer of the negotiated matching
system according to embodiments of the present invention may be
that the complex and confidential credit evaluation and risk
management procedures of various financial institutions may be
taken off line completely and left up to each individual party.
This can greatly simplify the system needed to accommodate numerous
financial institutions, may not require standardization of
institution financial practices, and can allow the institutions to
keep their credit practices confidential. Furthermore, a matching
computer of the negotiated matching system according to the present
invention can match potential counterparties without necessarily
automatically executing transactions. The discretion to execute a
transaction thus may remain with the traders themselves and may not
be surrendered to the system.
[0017] An embodiment of a negotiated matching system may include
one or more matching computers; a plurality of remote terminals
corresponding to a plurality of users, wherein the remote terminals
enable the users to enter transaction data into the system; and a
communications network for transmitting negotiating messages
between two or more of the remote terminals in response to control
signals from the matching computer. The matching computer may be
coupled to the plurality of remote terminals by the communications
network. The matching computer can match potential counterparties
to a transaction based on the transaction data entered by the users
and can generate the control signals when a potential match is
identified.
[0018] In another configuration, the remote terminals enable the
users to enter transaction data and ranking data into the system.
The matching computer may be coupled to the plurality of remote
terminals by the communications network. The matching computer may
match potential counterparties to a transaction by comparing the
transaction data entered by the users and filtering the transaction
data using the ranking data. The matching computer may generate the
control signals when a potential match is identified.
[0019] The matching computer may identify potential counterparties
to a transaction via receiving first parameters for a potential
transaction from a plurality of remote terminals corresponding to a
plurality of potential counterparties to a type of transaction;
identifying potential counterparties who are mutually acceptable
based on the first parameters, thereby matching potential
counterparties to a transaction; and identifying the potential
counterparties to each other to enable the potential counterparties
to negotiate terms of the transaction.
[0020] Various additional advantages and features of novelty which
characterize the invention are further pointed out in the claims
that follow. However, for a better understanding of the invention
and its advantages, reference should be made to the accompanying
drawings and descriptive matter which illustrate and describe
preferred embodiments of the invention.
BRIEF DESCRIPTION OF THE DRAWINGS
[0021] FIG. 1 provides a diagram of one configuration of the
negotiated matching system according to the present invention.
[0022] FIG. 2 provides a flow chart of the operation of the
negotiated matching system according to the present invention.
[0023] FIGS. 3A, 4A, 5A, 5B, 6 and 7 provide illustrations of
sample screens displayed on the remote terminal displays of two
parties to a transaction at different stages of the
transaction.
DETAILED DESCRIPTION
[0024] The negotiated matching system according to the present
invention will now be described with reference to the accompanying
drawings.
[0025] With reference to FIG. 1, one possible configuration of the
negotiated matching system 100 according to the present invention
includes a matching computer 11 and remote terminals 101 and 102.
The system contemplates a plurality of remote terminals whereby a
large number of users have simultaneous access to the negotiated
matching system; however, for description purposes, two remote
terminals 101 and 102 and optional remote terminals 103 and 104 are
shown in FIG. 1.
[0026] The matching computer 11 is connected to the remote
terminals 101 and 102 through a communication network 1. Nodes 17
and 19 may also be inserted into the communication network 1
between matching computer 11 and remote terminals 101 and 102.
These nodes 17 and 19 may be intelligent nodes which, for example,
perform filtering operations or passive nodes (repeater stations)
which merely transmit information from the matching computer 11 to
the remote terminals 101 and 102. Connectors 21 and 23 maybe used
to connect additional remote terminals (e.g., 103 and 104) and/or
additional nodes (e.g., 25 and 27) to the network.
[0027] Remote terminals 101 and 102 also are connected via
communication network 1. Remote terminals 101 and 102 may
communicate with each other via network 1 once the filtering and
matching process is completed by the matching computer 11. This
operation will be described in further detail below with reference
to FIGS. 3, 4, 4A, 5A, 5B, 6 and 7.
[0028] The communication network 1 may also include switching
centers (not shown) which are configured as a conventional packet
switching network so that, if the most direct route between remote
terminals 101 and 102 becomes inoperable due to a malfunction in a
part of the system, the routing can be varied to enable
communication between the terminals 101 and 102. It will be
appreciated that, in many situations, terminals 101 and 102 will be
distributed around the globe.
[0029] The negotiated matching system according to the present
invention may be realized using a number of different network
configurations. For example, where nodes 17 and 19 are passive
(repeaters), matching computer 11 performs all matching and filter
operations for the system as will be described below. Where nodes
17 and 19 are intelligent nodes, these nodes may perform some
filtering functions, while matching and additional filtering takes
place in the matching computer 11. Filtering may also be performed
by remote terminals 101 and 102. Particularly in a worldwide
system, the use of intelligent nodes will prevent overloading of
the computer or network and result in more efficient operation of
the negotiated matching system.
[0030] FIG. 2 provides a flow chart which illustrates the overall
operation of the negotiated matching system according to the
present invention shown in FIG. 1 (with intelligent nodes such as
17 and 19). The functions of the matching computer 11 as described
below may be performed using a configuration of hardware
components, software components, or both. The system may
accommodate a plurality of markets (e.g., foreign exchange,
interest rate swaps, etc.). However, for purposes of simplicity,
the operation of the system in a single market will be described
below. The steps of operation are as follows.
[0031] Initial Operation
[0032] 201--Each user enters ranking information (as described
below with reference to FIG. 1).
[0033] 202--ranking information from each user is uploaded to the
matching computer 11 and stored.
[0034] 203--the ranking information is then distributed by the
matching computer 11 to intelligent nodes 17, 19, etc. where it is
stored (this step is optional depending on the configuration of the
system--if there are no intelligent nodes, storage occurs only in
the matching computer 11).
[0035] 204--the users enters bids and offers including firm
(non-negotiable) and soft (negotiable) parameters pertaining to the
bids and offers (e..g., price, quantity, expiration terms,
acceptable credit ranking) into the system using their remote
terminals. Traders may enter bids and offers into the system at any
time.
[0036] 205--the matching computer 1 uploads and stores entered
bids/offers with their corresponding parameters.
[0037] Matching Operation
[0038] 206--the matching computer attempts to match bids and offers
entered by the users based on the parameters of the entered bids
and offers and the ranking information entered by the users. The
bids and offers entered by the users may also be matched with
standing orders or resting orders already in the system.
[0039] 220--if a match between a bid and an offer is identified,
the matching computer 11 then freezes (places on hold) the bid and
offer so that it is not displayed to other users (in a different
embodiment of the system, the offer or bid is not held such that
other users may select it simultaneously and attempt to negotiate a
better deal with the offeror or bidder).
[0040] 221--once the offer and bid are frozen, the system
automatically signals counterparties to enable electronic
communication between the two parties to the potential
transaction.
[0041] 222--once the traders have agreed to the transaction (e.g.,
each party has performed its credit and risk management procedures
in which any objective and/or subjective criteria may be evaluated
and is able to complete the transaction) and an agreement has been
reached as to all firm and soft parameters of the transaction, the
remote terminals of the offeror and bidder send signals to the
matching computer 11 to execute the transaction and remove the
offer and bid from the system.
[0042] 223--(optional) trade tickets are printed for each party to
confirm the transaction.
[0043] 224--the transaction is recorded by the matching computer
11, and (optional) the price and quantity of the transaction is
broadcast to the remote terminals of all traders on the system.
[0044] 225--if the traders are not successful in negotiating a
deal, the offeror or bidder may have the option of re-entering the
offer or bid into the system.
[0045] 207--if no matches are identified, the bids and offers are
distributed to the users of the system as described below in step
208.
[0046] Display Operation
[0047] 208--either simultaneously with, before, or after trying to
match the entered bids and offers described above in step 206
(depending on the desired implementation of the system), the
matching computer 11 distributes the bids/offers to the intelligent
nodes 17, 19, etc. where they are optionally stored.
[0048] 209--each user selects a display mode (no filtering,
unilateral filtering, or bilateral filtering or a combination of
these).
[0049] 210--if the bilateral display mode is selected, the node
corresponding to the user's remote terminal or the remote terminal
itself filters all offers and bids in the market using the ranking
information from each user to determine whether parties are
acceptable to one another. The remote terminal then displays all
offers/bids in the market which are mutually acceptable to the user
and a potential counterparty.
[0050] 211--if the unilateral filtering display mode is selected,
the user may select whether filtering is performed using the user's
ranking information or potential counterparties' ranking
information.
[0051] 212--once the user has made this selection, the node
corresponding to the user's remote terminal or the remote terminal
itself filters the offers and bids in the market based on ranking
information as requested by the user and displays all acceptable
offers/bids in the market.
[0052] 213--if the "no filtering" display mode is selected, the
node corresponding to the user's remote terminal transmits for
display all offers/bids in the market.
[0053] 214--once the filtered or unfiltered bids/offers are
displayed, the user may "hit" or "take" one of the displayed bids
or offers.
[0054] 215--the hit and take messages are uploaded to the matching
computer 11.
[0055] 216--if the taken offer or hit bid is available to the
trader based on the ranking information and the bid/offer
parameters entered by both the trader and the potential
counterparty, the matching computer 11 freezes the offer or bid so
that it is not displayed to other users as described in step 220
above, and the steps following step 220 are performed as described
above.
[0056] 217--if the transaction is not available to the user, for
example, based on the ranking information entered by both the user
and the potential counterparty or the timing of the hit or take,
the user is informed that the transaction is not available.
[0057] Unlike bids and offers entered into the system in step 204,
when a party hits a bid or takes an offer in step 214, the party in
effect enters an offer with terms corresponding to the hit bid or a
bid with terms corresponding to the taken offer. If the matching
process does not result in a potential transaction, the hit or take
is removed from the system without any effect on the standing order
book.
[0058] As described above, each trader may personalize his or her
display screen based on the information the trader desires to see.
For example, for each instrument, the trader may view all bids and
offers available in the market (no filtering); only the offers and
bids from counterparties ranked above a certain ranking entered by
the trader (unilateral filtering); only the offers and bids
available to the trader based on other parties' ranking of the
trader (unilateral filtering); only bids and offers that are
mutually acceptable (bilateral filtering); or a combination of
several options. According to one embodiment of the negotiated
matching system according to the present invention, each trader
screen is arranged to display all offers and bids available in the
market (no filtering) in one window of the display screen and the
bids and offers available to the trader based on mutual
acceptability (bilateral filtering) in another window on the
display screen (see FIG. 4). However, other arrangements are
contemplated within the scope of the present invention. As a
result, a trader may obtain a personalized view of the market. The
filtering necessary to provide the selected personalized view of
the market may be performed by remote terminals 101 and 102,
intelligent nodes such as 17 and 19, or the matching computer
11.
[0059] With reference to FIGS. 3, 4, 4A, 5A, 5B, 6 and 7, the
step-by step operation of a negotiated matching system according to
the present invention will now be described in detail.
[0060] With reference to FIG. 3, prior to or during commencement of
trading activities, each party enters ranking information
indicating the party's willingness to trade with other parties
(i.e., counterparties) in the system, for example, using a display
screen 300. The ranking information may take the form of a banding
scheme, for example, using a system of letters to represent each
band of counterparties listed in column 301 as shown in column 302.
The ranking scheme may be based on specific values such as monetary
value that parties are willing to lend to and borrow from others or
less tangible forms of evaluation such as general relations between
companies, the country of origin, or any type of objective or
subjective criteria as desired by the ranking party. An objective
ranking scheme may be as follows: TABLE-US-00001 RANKING VALUE
(size of counterparty) A very large (assets > $1 B) B large
(assets > $500 M) C medium/large (assets > $250 M) D medium
(assets > $100 M) E medium small (assets > $50 M) F small
(assets < $50 M)
[0061] Similarly, a subjective ranking scheme may be as follows:
TABLE-US-00002 RANKING VALUE A preferred business associates B
businesses with good reputation C businesses with average
reputations D businesses with poor reputations
[0062] The ranking information entered by each user of the system
may differ for each type of instrument (each market). For example,
each user may enter different ranking information for different
markets such as forward foreign exchange trading, lending, forward
rate agreements, interest rate swaps, etc. The user may also enter
different ranking information within each market depending on the
direction of the currency flow. For example, a user's rank of a
counterparty for lending purposes may be different from the rank
for borrowing purposes. Furthermore, the ranking scheme for each
type of transaction may be based on different criteria as desired
by the individual user. The only constant is the symbols indicating
the ranking bands or categories (e.g., A, B, C, D, E, F, etc.).
These categories may have different values for each user in each
market.
[0063] There may also be a series of ranks by which counterparties
may be filtered multiple times based on different criteria. For
example, a first filtering process may be based on size of
counterparties, and a second filtering process may be based on the
assets of the counterparties.
[0064] For example, using the objective or subjective ranking
scheme provided above, Bank 1 might enter the following ranking
information: TABLE-US-00003 COUNTERPARTY RANKING Bank 2 C
(medium/large) Bank 3 A (very large) Bank 4 D (medium)
[0065] Similarly, Bank 2 might enter the following ranking
information: TABLE-US-00004 COUNTERPARTY RANKTNG Bank 1 B (good
reputation) Bank 3 A (preferred business associate) Bank 4 C
(average reputation)
[0066] Other ranking schemes such as numeric ranks and yes/no ranks
may also be used.
[0067] Users may change their rankings of other counterparties at
any time. If a user enters new ranking information, the system will
update its information as well as optionally update the information
displayed on all counterparties' displays to dynamically reflect
the new ranking. Therefore, the information stored in the matching
computer 11 and displayed on the counterparties' display screens is
automatically updated as rankings are modified by the users.
[0068] The ranking information from both banks is uploaded to
matching computer 11 and stored there, for example, in a random
access memory device. In another configuration of the system
according to the present invention, the ranking information is
uploaded into matching computer 11 from the remote terminals 101
and 102, stored, and then distributed by the matching computer 11
to intelligent nodes (such as 17 and 19 shown in FIG. 1) which
perform filtering operations to provide each user with a
personalized view of the market. Thus, the location of the
filtering processes within the network may be varied according to
the desires of the user and implementer of the system. However, the
matching and at least some filtering operations are preferably
performed in the same location, for example, in matching computer
11.
[0069] The user then selects which market he or she wishes to view,
for example using a choice box as illustrated in FIG. 7 selected
from the "Display" menu of screen 400 (see FIG. 4).
[0070] Once a market is selected, each trader views a market screen
such as the forward rate agreement (FRA) market shown in FIG. 4. On
the screen 400 shown in FIG. 4, a trader may select from six
different instruments as listed in column 401 (the third
instrument, U.S. dollar three month to six month forward rate
agreements, is selected). Once the trader has selected an
instrument, for example by clicking on the appropriate instrument
box using a mouse (not shown), the trader is able to enter bids,
offers, etc. for the selected instrument. The trader is able to
view the continuous activity of all instruments in both the market
row (e.g., rows 1-6) and price display box 408 in which market
prices are dynamically displayed whether or not the trader has
selected a particular instrument.
[0071] In each instrument row 1-6, there are a number of columns,
each of which provides different information to the trader. Column
401 provides the name of the instrument(s) and optionally the
ranking by which the displayed bids and offers are filtered. Column
402 provides the best bid and offer price available in the market
(the "market quote"). Column 403 provides the best bid and offer
price available in the market based on the filter criteria (the
"best quote"). Rank information indicating the trader's rank of the
party making the bid or offer may also be displayed in this column
("a" rankings shown for the selected instrument). Column 404
provides the quantity available to the trader: the quantity shown
is that available at the "best quote" unless there is no "best
quote", in which case the quantity available at the "market quote"
is optionally displayed. Optionally, both quantities may be
displayed. A small number or "+" sign displayed next to the
quantity indicates the number of trade tickets needed to complete
the transaction at the displayed quantity (i.e., the transaction
will involve more than two parties). The "+" sign may indicate, for
example, that the number of trade tickets needed to complete the
transaction is greater than five. Columns 405 and 406 display the
price and quantity of any bids or offers in the system which have
been entered by the trader. Column 407 indicates the direction of
change in the last trade as well as the amount of the last
trade.
[0072] Notably, the trader may access the credit limit entry screen
shown in FIG. 3 and change counterparty rankings at any time by
selecting the screen from a menu such as the "Admin" menu shown at
the top of screen 400.
[0073] Other information such as help information or financial news
may also be displayed on screen 400, for example, in box 412.
[0074] The trader may enter bids, offers, hit and takes into the
system, for example, using entry screens shown in FIGS. 5A and 5B.
As shown in bid box 500 in FIG. 5A, the trader may, for example,
enter a bid to buy a quantity of 10 (box 502) at a price of 5.69
(box 501). The trader may set the duration of the offer in box 503
and the minimum ticket size in box 504. A trader may enter an offer
to sell using a similar order entry box (not shown).
[0075] The trader also inputs a ranking limit with its bid in box
505 such that it is only willing to be matched with offers from
counterparties which it ranks the same as or higher than the input
rank limitation if bilateral filtering is implemented. The entered
ranking limit also ensures that the bid will only be displayed to
those potential counterparties whom the trader ranks equal to or
greater than the entered ranking limit. For example, if the trader
inputs a ranking limit of C in box 505, its bid will only be
displayed to potential counterparties that the trader ranks as an C
or higher. A ranking of A is displayed in box 505, indicating that
the bid will only be displayed to counterparties ranked as an A by
the bidder.
[0076] Similarly, in the "Yours" (hit) box 510 of FIG. 5B, the
trader enters a quantity in box 508 and a ranking in box 507. The
price shown in box 506 indicates the bid price that the trader
wishes to hit.
[0077] Based on the price, quantity, and ranking information
entered into the system by the trader, the system attempts to
locate a match for the trader's order (bid or offer). The match may
also occur when one party (a "market taker") hits a bid or takes an
offer of a "market maker" displayed on the market screen 400. The
matched transaction may be displayed on the market screen 400, for
example, in box 409 in FIG. 4. The operation of the system from
commencement of trading activities through the matching operation
may be referred to as the "initiation" stage of operation.
[0078] Following the initiation stage of operation, the negotiated
matching system according to the present invention may operate in
several different ways. The system may enable free-style or more
structured communication between the "matched" parties. This stage
of operation of the system may be referred to as the "completion"
stage, wherein the terms of the transaction are finalized through
negotiations between the matched potential counterparties.
[0079] At the completion of the initiation stage of operation, the
identities of the parties are revealed so that they may negotiate
the outstanding terms of the transaction in the completion
stage.
[0080] According to one embodiment of the present invention as
illustrated in FIG. 6, after the system has matched potential
counterparties to a transaction, a window 600 is automatically
displayed to each party. In this more structured implementation of
the system according to the present invention, the transaction
dates and instrument price are firm, meaning that they are no
longer negotiable between the potential counterparties. However,
the quantity and spot rate remain "soft" or negotiable between the
parties. Market conventions may allow one party, such as the market
maker to choose values for certain soft terms, such as the spot
rate, such that the market taker may only accept or decline the
spot rate chosen by the market maker. Other soft terms, such as
quantity, may be determined by the minimum of the two quantities
entered by the parties to the transaction. Which terms remain
negotiable and the structure of the negotiations relating to these
terms may be set to correspond to market conventions and/or to the
desires of the implementers and users of the negotiated matching
system.
[0081] The box 600 shown in FIG. 6 is a market maker's box which
enables the trader to adjust both the quantity and the spot rate.
The example shown in FIG. 6 is used in forward foreign exchange
transactions, such that the forward points shown in box 604 are
firm for both parties once the match has occurred. However, both
the quantity (box 602) and the spot rate (box 603) are soft and may
be negotiated prior to completion of the transaction. The rate
shown in box 601 indicates the sum of the forward points and the
spot rate selected by the market maker.
[0082] According to another embodiment of the negotiated matching
system according to the present invention, all terms entered by the
parties to the transaction may be negotiated after the potential
match has occurred. These terms may be negotiated using free-style
dialog entered, for example, using a keyboard and mouse (not shown)
and displayed for example in box 410 of screen 400. In this
embodiment of the present system, once a match occurs, the system
automatically initiates a "call" from one party to the other party
which is displayed, for example, in box 411 of screen 400. An
example of a display screen from such an embodiment is provided in
FIG. 4A.
[0083] Thus, the negotiated matching system according to the
present invention creates tentative matches between potential
counterparties, wherein neither party is initially committed to the
transaction and the identities of the parties are unknown. The
system does not automatically execute transactions. Instead, the
system introduces compatible counterparties who are provided with
an opportunity to communicate with one another prior to execution
of the transaction to negotiate some or all terms of the
transaction.
[0084] The negotiations between potential counterparties to a
transaction may take the form of pre-defined, structured dialogue
(e.g., predefined sentences), free dialogue, or a combination of
both as desired by the users and implementers of the system. A
structured dialogue format may be desirable to restrict the aspects
of the transaction which may be negotiated by the parties after a
match has occurred. For example, the implementers of the system may
provide structured dialogue regarding price (so that the traders
cannot renegotiate the price of each unit), but may allow the
parties to renegotiate the quantity available at that price based
on their off-line credit analysis. The communications between the
parties may also be recorded, for example, to enable parties to
verify the agreed upon transaction terms at a later time.
[0085] The potential counterparty negotiations which take place in
the negotiated matching system according to the present invention
may be accomplished using a pre-formatted display window, text
format entered on a keyboard, through a speech recognition system
which converts spoke words into text, or by verbal communication
via a telephone. Communication may also be accomplished using a
visual format in which the remote terminal of each user is provided
with a video camera and microphone to enable traders to communicate
"face-to-face."
[0086] Possible video communication systems for use in the
negotiated matching system according to the present invention are
described in U.S. Pat. Nos. 4,525,779; 4,531,184; 4,555,781; and
5,034,916 which describe several types of conversational video
systems.
[0087] In the embodiments of the negotiated matching system
according to the present invention as described above, matches are
identified by the system based on ranking, price and quantity as
input by each user. However, the negotiated matching system
according to the present invention is capable of accommodating
types of transactions that have less specific parameters. For
example, the system may be used to sell real estate, wherein a
potential seller enters the location, square footage, and price
range of his house. In response, the system will provide potential
counterparties who are interested in houses having those
characteristics and are unilaterally or bilaterally ranked as
acceptable counterparties.
[0088] In other words, the negotiated matching system according to
the present invention may accommodate a range of markets from those
in which highly specified instruments are traded to those in which
loosely or subjectively defined instruments are traded. Known
trading systems cannot accommodate the subjectively defined
instruments because the known systems do not provide the necessary
personalized negotiation opportunity as does the present
invention.
[0089] While the present invention has been particularly described
with reference to the preferred embodiments, it should be readily
apparent to those of ordinary skill in the art that changes and
modifications in form and details may be made without departing
from the spirit and scope of the invention. It is intended that the
appended claims include such changes and modifications.
* * * * *