U.S. patent application number 12/815881 was filed with the patent office on 2010-09-30 for method and system for rebrokering orders in a trading system.
This patent application is currently assigned to WALL CORPORATION. Invention is credited to Charles Fefferman, Webster Hughes.
Application Number | 20100250447 12/815881 |
Document ID | / |
Family ID | 27497060 |
Filed Date | 2010-09-30 |
United States Patent
Application |
20100250447 |
Kind Code |
A1 |
Hughes; Webster ; et
al. |
September 30, 2010 |
METHOD AND SYSTEM FOR REBROKERING ORDERS IN A TRADING SYSTEM
Abstract
Systems and methods are described herein for supporting the
trading of bonds in a computerized system using broker dealers as
intermediaries. Broker dealers receive orders relating to
particular transactions and have the option to accept the order by
submitting a matching counter order, or to rebroker the order with
the same or modified terms to a number of other investors or
additional broker dealers. The additional broker dealers have
similar options, thus providing a system wherein orders can be
quickly proliferated to a large number of parties. This order
proliferation can be fully or partially automated through the use
of predefined rules stored in a database which dictate for each
broker dealer whether, to whom and under what terms to rebroker
orders. When an order is received, the system processes all such
rules to output a set of orders which are then communicated to the
corresponding parties.
Inventors: |
Hughes; Webster; (Charlotte,
NC) ; Fefferman; Charles; (Princeton, NJ) |
Correspondence
Address: |
KEITH D. NOWAK
CARTER LEDYARD & MILBURN LLP, 2 WALL STREET
NEW YORK
NY
10005
US
|
Assignee: |
WALL CORPORATION
Greenwich
CT
|
Family ID: |
27497060 |
Appl. No.: |
12/815881 |
Filed: |
June 15, 2010 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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11742608 |
May 1, 2007 |
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|
12815881 |
|
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|
09706678 |
Nov 6, 2000 |
7231363 |
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11742608 |
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|
60173581 |
Dec 29, 1999 |
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|
60178049 |
Jan 24, 2000 |
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60201599 |
May 3, 2000 |
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Current U.S.
Class: |
705/80 ;
705/37 |
Current CPC
Class: |
G06Q 40/00 20130101;
G06Q 40/04 20130101; G06Q 30/0601 20130101; G06Q 50/188
20130101 |
Class at
Publication: |
705/80 ;
705/37 |
International
Class: |
G06Q 40/00 20060101
G06Q040/00 |
Claims
1. In a computerized system, a method for facilitating execution of
a financial transaction between a first party and a second party
through a plurality of intermediaries, the method comprising, for
each intermediary involved in the financial transaction: presenting
to the intermediary an order received by the intermediary relating
to the financial transaction; storing information for identifying a
list of other parties in a memory accessible to the intermediary;
displaying the list to the intermediary; allowing the intermediary
to select one or more parties from the list to which the
intermediary can communicate an order relating to the financial
transaction; and communicating the order from the intermediary to
the one or more selected parties.
2. The method of claim 1, comprising allowing the intermediary to
generate the list of other parties from among a group of parties
using the system.
3. The method of claim 1, comprising storing status data
representing whether each party in the list is an intermediary
party which is allowed to communicate an order relating to the
financial transaction to other parties or a counterparty which is
not allowed to communicate an order relating to the financial
transaction to other parties, and displaying the status data with
the list to the intermediary.
4. The method of claim 1, wherein the order presented to the
intermediary identifies parties with which the intermediary party
may communicate orders, and comprising selecting the identified
parties from the information for identifying the list and
displaying the identified parties as the list to the
intermediary.
5. The method of claim 1, wherein the order presented to the
intermediary contains a first set of terms, the method comprising
allowing the intermediary to generate a second set of terms for the
order to be communicated to each party.
6. The method of claim 5, wherein the step of allowing the
intermediary to generate a second set of terms comprises allowing
the intermediary to generate a different set of terms for each
party to whom an order is communicated.
7. In a computerized system for trading of fixed income securities,
a method for facilitating execution of a financial transaction
based upon an order communicated by a first investor, the method
comprising: presenting an order to a broker dealer arising from the
order communicated by the first investor; allowing the broker
dealer to decide, among other possible choices, whether to match
the presented order or communicate an order relating to the
financial transaction to a plurality of other parties using the
system; if the broker dealer decides to match the presented order,
executing the financial transaction by at least executing the
presented order and the order communicated by the first investor;
and if the broker dealer decides to communicate the order,
communicating the order to the one or more other parties.
8. The method of claim 7, comprising allowing the broker dealer to
further decide to submit a counteroffer to the order and
communicating the counteroffer.
9. The method of claim 7, comprising allowing the first investor to
select whether the order is a live, executable order or a subject
order.
10. The method of claim 7, wherein the order communicated by the
first investor is a live, executable order, and wherein the step of
communicating the order from the broker dealer comprises
communicating a live, executable order.
11. The method of claim 7, wherein the step of executing the
financial transaction comprises automatically executing the
financial transaction upon a match between the order communicated
by the first investor and a matching live, executable order.
12. The method of claim 7, wherein the order communicated by the
first investor is an order subject to satisfaction of a condition,
and wherein the step of executing the financial transaction
comprises executing the financial transaction only if the condition
is satisfied.
13. At least one storage medium containing one or more computer
programs operable to cause a computerized system to facilitate
execution of a financial transaction between a first party and a
second party through a plurality of intermediaries, the
computerized system being operable under control of the program to
carry out actions comprising, for each intermediary involved in the
financial transaction: presenting to the intermediary an order
received by the intermediary relating to the financial transaction;
storing information for identifying a list of other parties in a
memory accessible to the intermediary; displaying the list to the
intermediary; allowing the intermediary to select one or more
parties from the list to which the intermediary can communicate an
order relating to the financial transaction; and communicating the
order from the intermediary to the one or more selected parties.
Description
CROSS REFERENCE TO RELATED APPLICATIONS
[0001] This application is a continuation application of U.S.
patent application Ser. No. 11/742,608, filed May 1, 2007, entitled
METHOD AND SYSTEM FOR REBROKERING ORDERS IN A TRADING SYSTEM, which
is a divisional application of U.S. patent application Ser. No.
09/706,678, filed Nov. 6, 2000, entitled METHOD AND SYSTEM FOR
REBROKERING ORDERS IN A TRADING SYSTEM, now U.S. Pat. No.
7,231,363, which claims priority to the following provisional
patent applications: Application No. 60/173,581, entitled SYSTEMS
AND METHODS FOR DIRECT TRADING AND ANONYMOUS ORDER MATCHING, filed
Dec. 29, 1999; Application No. 60/178,049, entitled SYSTEMS AND
METHODS FOR DIRECT TRADING AND AUTOMATED BROKERAGE, filed Jan. 24,
2000; and Application No. 60/201,599, entitled SYSTEMS AND METHODS
FOR DIRECT TRADING AND ANONYMOUS ORDER MATCHING, filed May 3,
2000.
[0002] The content of all of the above cited (U.S. patent
application Ser. Nos. 11/742,608; 09/706,678; 60/173,581;
60/178,049 and 60/201,599) are incorporated by reference in their
entirety and are not admitted to be prior art with respect to the
present invention.
COPYRIGHT NOTICE
[0003] A portion of the disclosure of this patent document contains
material which is subject to copyright protection. The copyright
owner has no objection to the facsimile reproduction by anyone of
the patent document or the patent disclosure, as it appears in the
Patent and Trademark Office patent files or records, but otherwise
reserves all copyright rights whatsoever.
BACKGROUND OF THE INVENTION
[0004] The invention disclosed herein relates generally to
computerized trading methods and systems. More particularly, the
present invention relates to computerized trading methods and
systems which facilitate enhanced and anonymous trading through the
systematic use of broker-dealers.
[0005] The use of computerized systems to facilitate commercial
transactions has increased drastically over the past few years.
Such systems range from private networks for use by subscribers to
open systems available over public networks such as the Internet.
These systems are being used for many different types of
transactions, including the sale and purchase of airline tickets,
cars, and homes, auctions and reverse auctions of various
merchandise and services, and the trading of securities such as
stocks and bonds. In a large number of cases, these systems are
designed to eliminate intermediaries, such as agents and brokers,
who were traditionally involved in executing these transactions.
Indeed, these systems are touted for providing this feature,
especially since it thereby eliminates the cost associated with
such intermediaries.
[0006] However, by eliminating the role of intermediaries, these
systems also lose out on the benefits provided by such
intermediaries. Agents, brokers, and other intermediaries typically
play a critical role in their respective markets. Among other
things, they cultivate relationships with clients that lend
stability to the overall market and leverage knowledge of the
market to help clients achieve the desired results.
[0007] This issue becomes pronounced in the market for fixed income
securities or bonds. The U.S. fixed income market is the most
liquid, largest, and best established in the world, due in no small
part to the role of intermediaries such as broker-dealers.
Broker-dealers provide liquidity and perform many settlement
requirements for each trade, including credit guarantees and
storage of dollars. Broker-dealers also perform a key function in
the bond markets by shouldering the regulatory burden which, under
SEC regulations, requires broker-dealers to register, maintain
specific records, and provide various reports on a regular basis.
Moreover, broker-dealers have substantial expertise and experience
which is brought to bear in the bond trading process. Fixed income
securities are highly complex, with 4.4 million different fixed
income securities outstanding, each having distinct structures,
credit ratings, coupons, maturities, payment schedules, and
features.
[0008] Certain systems, such as so-called "cross-matching systems,"
essentially eliminate the use of intermediaries and thereby lose
all the benefits provided by broker-dealers. Other existing
electronic transaction systems provide a limited role for
broker-dealers. For example, certain proprietary systems, sometimes
referred to as "dealer systems," allow investors to trade
electronically with a specific broker-dealer or group of dealers.
However, these systems do not provide investors with electronic
access to market participants beyond the specific participating
broker-dealers. Also, because each of these proprietary systems is
limited to specific participating broker-dealers, they fail to
automate interaction between broker-dealers and require investors
to use different systems for each broker-dealer.
[0009] Other systems, such as so-called "inter-dealer systems,"
allow broker-dealers to trade with one another only. However, these
systems do not allow interaction with investors, the ultimate
buyers and sellers of the securities. Clearly, a need exists for a
comprehensive and effective trading system which allows
intermediaries to participate and provide the benefits of their
participation.
[0010] In addition, the inventors recognize a need and opportunity
to improve the traditional role of broker-dealers through the use
of an improved computerized trading system. Currently, fixed income
transactions between broker-dealers and their customers are
executed through multiple voice exchanges of information. An
institutional fixed income investor will typically relay a verbal
order to a salesperson at a broker-dealer. The salesperson will
then verbally relay the customer's order to a trader at the
broker-dealer who makes markets in that particular security.
Negotiations, information requests, and eventual execution of the
transaction are all done either verbally or, more recently, through
electronic messaging.
[0011] While a simple execution in a liquid security, such as a
treasury security, may take less than a minute from the initial
call placed by the investor to the consummation of the trade, an
execution in a less liquid bond can take days if the broker-dealer
is bidding a bond that it wishes to own, or offering a bond that it
currently owns. Likewise, transactions can take considerable time
to consummate if the broker dealer needs to find a buyer of the
bond that the client wishes to sell or if the broker dealer must
find somebody who owns the bond and is willing to sell it. Traders
and salespeople at broker dealers have to prioritize their time and
attention to make sure that the most valuable trades get done. A
single salesperson will have many accounts to cover, but can only
conduct one transaction at a time, thus many potential buyers do
not even learn about bonds that a particular broker dealer may have
for sale.
[0012] There is thus a need for improved computerized trading
methods and systems which facilitate the role of broker-dealers in
trades and take better advantage of the benefits which can be
provided by broker-dealers and other intermediaries.
BRIEF SUMMARY OF THE INVENTION
[0013] It is an object of the present invention to solve the
problems outlined above in existing trading systems.
[0014] It is another object of the present invention to enhance the
roles of broker-dealers in securities trading systems.
[0015] It is another object of the present invention to support
anonymous trading between investors through broker-dealers in a
computerized trading system.
[0016] It is another object of the present invention to proliferate
orders in a trading system as quickly and completely as desired by
the parties involved to thereby increase the chances of achieving a
desired trade.
[0017] It is another object of the present invention to facilitate
trading of securities through automated rebrokering of orders by
broker-dealers.
[0018] Some of the above and other objects are achieved by a method
and system for executing a transaction in a computerized system,
the transaction based upon an order communicated by a first
ordering party. The method includes allowing each of a plurality of
parties receiving an order related to the transaction to designate
a plurality of other parties with whom to communicate orders
relating to the transaction and to communicate orders with such
designated other parties using the system. In certain contexts,
such communication of further orders is sometimes referred to
herein as rebrokering. Following placement of various orders, the
system determines whether a match occurs on the order communicated
by the first ordering party and on an order communicated by a
second ordering party, and executes the transaction relating to the
matched orders at least by executing orders communicated by the
first and second ordering parties.
[0019] The methods and system may advantageously be used for
trading and order matching of financial instruments, such as fixed
income securities, also referred to as bonds, or currencies and
foreign exchanges, as well as many other electronic commerce
systems which involve the buying, selling or auctioning of
commodities or services. Participants in these systems include
buyers who submit orders to purchase goods or services, sellers who
submit orders to sell goods or services, and intermediaries such as
broker-dealers or agents. In the case of securities, the orders
constitute offers to sell securities and bids to purchase them. In
accordance with an advantageous feature of embodiments of the
present invention as explained further herein, participants may
serve in several such roles in any given transaction. For example,
a broker-dealer may serve as an intermediary by passing along an
order relating to a transaction or as a buyer or seller by opting
instead to submit an appropriate matching or counteroffer
order.
[0020] In some embodiments, the first ordering party can
communicate orders with a plurality of parties, only one of which
is selected for execution of the transaction. That is, the selected
party is the one who submits a matching order or acts as an
intermediary to submit a further order which is matched or
precipitates further orders one of which ultimately matches the
original order. In embodiments for the trading of bonds, a broker
dealer receiving an order from an investor to buy or sell bonds
checks whether it has received a matching order from another
investor or broker dealer and, if not, proceeds to rebroker the
order according to instructions from the investor, stored rules, or
both. The multiple orders submitted by the first ordering party may
either have the same or different sets of terms, such as price,
amount, allowable counterparties, acceptable variances in terms,
etc.
[0021] Orders may also be of several different types, including
live or subject. If the first ordering party sets an order as live,
subsequent parties submitting orders relating to the transaction
may also submit live orders. When a match occurs between live
orders, the system automatically executes the transaction including
the orders submitted by the first ordering party, by the second
ordering party which submitted the matching live order, and by any
parties in between the first and second parties. When an order is
made subject by the first ordering party, the system determines
whether a condition is satisfied to which the order is subject
before executing the transaction. An exemplary condition is
approval of the first ordering party.
[0022] In some embodiments, each party using the system is
associated with or has access to a list of other parties with whom
the party can communicate orders. This list may be generated by the
party itself, or may be generated by the system using a set of
rules and information such as the identity and any restrictions
placed by the first ordering party. The list may be displayed to
the party in relation to a specific transaction, and the party can
select one or more parties from the list with whom to communicate
an order. The terms of the order which the party can communicate,
such as the price, may be limited by the set of rules or
restrictions set by the company or group to which the party
belongs.
[0023] Various aspects of embodiments of the present invention may
be illustrated through the following exemplary scenarios in which
parties are designated by letters for simplicity. In a first
example, a first ordering party A submits an order for a
transaction, such as an offer to sell bonds at a set price, to
party X. X may be a broker-dealer. X designates one or more other
parties Y.sub.1, Y.sub.2, . . . Y.sub.n, to whom to communicate an
order relating to the bonds. For each party Y, the order may be at
the set price or at a markup. Of the parties Y receiving the order
from X, some may be serving as intermediaries who are allowed to
rebroker their orders and others may be serving as end parties who
can only accept the order by submitting a matching order or submit
a counteroffer.
[0024] Eventually, some party B submits an order which is
determined to match the order it received from one of the
intermediaries. For the sake of clarity, party B could be: party X
submitting an order matching the one received from A; one of the
parties Y submitting an order matching the order received from X;
another counterparty who received an order from one of the parties
Y; or another party who can submit orders to broker dealer X. In
any event, the system executes the transaction by executing all
orders between A and B. For example, if B received an order from a
party Y.sub.1, the system executes the orders between B and
Y.sub.i, between Y.sub.i and X, and between X and A. As a result,
the transaction is executed between A and B, e.g., bonds are sold
indirectly from A to B, without A and B knowing one another.
Indeed, A is only aware of the execution of its transaction with X
and B is only aware of the execution of its transaction with
Y.sub.1.
[0025] In a further example, A may submit multiple orders to
multiple parties X.sub.1, X.sub.2, . . . X.sub.n, who may each
submit further, possibly altered orders to a number of other
parties Y. To the extent any given party Y receives orders relating
to the transaction from multiple parties X, the party Y may choose
the order having the most favorable financial terms, e.g., the best
price or least restrictions, or, for identical orders, either of
such orders. Some or all of parties Y may further serve as
intermediaries by submitting orders to parties Z, and so on. As can
be seen, the number of parties receiving and submitting orders in
this fashion relating to the transaction can quickly and
exponentially proliferate, thus drastically increasing the chances
of a quick, successful match.
[0026] In accordance with an advantageous feature of embodiments of
the present invention, the communication or rebrokering of orders
by intermediaries is performed on a fully or semi-automated basis
in accordance with sets of rules determined by the parties. That
is, each intermediary may have an associated stored set of rules
which govern, according to a set of conditions, whether to rebroker
any given order, to whom such order should be rebrokered, and the
terms of such rebrokered orders. When an order is placed, the
system processes the various rules of all affected parties to
determine the orders presented to all parties following all
rebrokerage arrangements.
[0027] Using the illustrative examples given above, if A submits an
order to party X, X's set of stored rules and any restrictions
placed in the order by A, such as counterparties to whom further
orders may be placed, are processed by the system. X may have rules
providing that it will rebroker all orders to party Y.sub.1 at a
first price markup, will rebroker all orders to party Y.sub.2 at a
second, higher price markup, will not rebroker orders received from
party A to party Y.sub.3, and will rebroker orders to party Y.sub.4
with a restriction on counterparties to whom Y.sub.4 may rebroker
the order. The system processes the rules to generate a set of
orders from X. Rather than immediately communicating these orders,
the system determines what each of the parties Y receiving the
orders may do, in part based on their rules, and generates a set of
orders based on those rules. This process continues until all
orders are generated or the number of parties in the chain reaches
predefined limits. The generated orders are then communicated to
the identified parties, who can act on them accordingly.
[0028] In some embodiments of the invention, the first ordering
party specifies an amount of items he wants to trade and may
further specify how much variance in the amount is acceptable for a
matching order. In addition, the ordering party may specify an
additional amount of items which are available for trading and
which should be associated with the order but kept hidden from
other parties. The system uses this information in determining
whether a match is found and for how many items. For example, if
the ordering party specifies 100 items in the order with an
allowable variance of 25 and a hidden inventory amount of 50, the
system can match the order with orders ranging in amount from 75 to
150.
[0029] Some of the above and other objects of the present invention
are also achieved by a method and system for facilitating execution
of a transaction in a computerized system, the transaction being
based upon an order communicated by a first ordering party. The
method includes allowing each of a plurality of parties using the
system and receiving an order relating to the transaction to
communicate orders relating to the transaction with a plurality of
other parties using the system, determining whether a match occurs
on the order communicated by the first ordering party and an order
communicated by a second ordering party, and identifying a chain of
parties between the first and second ordering parties who have
communicated orders relating to the matched orders. In accordance
with the present invention, the identities of the parties in the
chain are not solely determined by parameters set by the first and
second ordering parties. Further, the transaction may be executed
by executing orders communicated by the parties in the chain.
[0030] Using the illustrative examples established above, a party A
submits orders to multiple parties X which can each submit
rebrokered orders to one or more parties Y. One such party,
Y.sub.4, receives two orders relating to the transaction from
parties X.sub.1 and X.sub.5, selects one of such orders, e.g., the
order from X.sub.1 as the order having the more favorable terms,
and submits a rebrokered order to party B. If party B accepts the
order or submits a matching order, the method and system identifies
the chain of parties involved in the transaction. In this example,
the chain identified by the system includes party B, party Y.sub.4,
party X.sub.1, and party A. Alternatively, the system tracks with
the order the parties in the chain of the order as the order is
passed along, e.g., in this case, the order received by B contains
a path stored with the order (although preferably not visible to
party B) listing Y.sub.4, X.sub.1, and A. In either case, the
identification of parties X.sub.1 and Y.sub.4 is not solely as
determined by parameters set by A and B, in that their selection is
partly due to decisions made by these intermediaries themselves as
to whom to communicate orders with and under what terms. If
additional intermediaries were involved between parties X and Y,
the identification of these additional intermediaries would also be
at least partly independent of decisions made by end parties A and
B.
[0031] Some of the above and other objects are also achieved by a
method and system for facilitating execution of a transaction
between a first party and a second party through a plurality of
intermediaries. The method includes, for each intermediary involved
in the transaction, presenting to the intermediary an order
received by the intermediary relating to the transaction. A list of
other parties is stored in a memory accessible to the intermediary,
and the list is displayed to the intermediary. The intermediary is
allowed to select one or more parties from the list to which the
intermediary can communicate an order relating to the transaction,
and the order from the intermediary is communicated to the one or
more selected parties. As with the embodiments described above, the
intermediary party may communicate orders with different terms to
different parties from the list, and may define in the order
whether each such other party may rebroker the order or only accept
the order.
[0032] In a further aspect of the present invention, a method is
described for facilitating execution of a transaction based upon an
order communicated by a first ordering party, the method including
presenting to a second party an order received by the second party
relating to the transaction, and allowing the second party to
decide whether to match the presented order or communicate an order
relating to the transaction to one or more other parties. If the
second party decides to match the presented order, the transaction
is executed by at least executing the presented order and the order
communicated by the first party. If the second party decides to
communicate the order, the order is communicated to the one or more
other parties.
[0033] In accordance with one or more further aspects of the
invention, methods and apparatus provide for: receiving a first
order from a first ordering party, the first order including at
least one bid or offer relating to a financial instrument to permit
execution of a serial chain of transactions in a computerized
system, based on the first order; receiving one or more
intermediate orders, including at least one offer or bid relating
to said financial instrument, from at least one of a plurality of
intermediate parties using the computerized system, at least one of
the intermediate orders being placed by the at least one
intermediate party in response to the first order; receiving a
second order, including at least one offer or bid relating to said
financial instrument, from a second ordering party using the
computerized system, the second order being placed by the second
ordering party in response to one or more of the intermediate
orders; identifying the serial chain of transactions using the
first order, at least one received intermediate order, and the
second order; and executing at least one transaction within the
serial chain of transactions, where the serial chain of
transactions comprises a transfer of said financial instrument
between the first ordering party and a first intermediate party,
and a transfer of said financial instrument between the second
ordering party and a last intermediate party, and where the first
intermediate party and the last intermediate party are different
parties or the same party.
[0034] In accordance with one or more further aspects of the
invention, in a computerized system, a method for facilitating
execution of a transaction between a first party and a second party
through a plurality of intermediaries includes, for each
intermediary involved in the transaction: presenting to the
intermediary an order received by the intermediary relating to the
transaction; storing information for identifying a list of other
parties in a memory accessible to the intermediary; displaying the
list to the intermediary; allowing the intermediary to select one
or more parties from the list to which the intermediary can
communicate an order relating to the transaction; and communicating
the order from the intermediary to the one or more selected
parties.
BRIEF DESCRIPTION OF THE DRAWINGS
[0035] The invention is illustrated in the figures of the
accompanying drawings which are meant to be exemplary and not
limiting, in which like references are intended to refer to like or
corresponding parts, and in which:
[0036] FIG. 1 is block diagram showing a trading system in
accordance with one embodiment of the present invention;
[0037] FIGS. 2A-2B contain a flow chart showing a process of
generating orders through broker dealers using the system of FIG. 1
in accordance with one embodiment of the present invention;
[0038] FIGS. 3A-3B contain a flow chart showing an alternative
process of generating orders using stored rules in accordance with
one embodiment of the present invention;
[0039] FIG. 4 is a flow chart showing the processing of orders in
accordance with another embodiment of the present invention;
[0040] FIGS. 5-7 are flow diagrams showing exemplary trading
scenarios involving broker dealers using the system and methods of
FIGS. 1-4;
[0041] FIG. 8 is a flow chart showing a process for matching orders
executed in the system of FIG. 1 in accordance with one embodiment
of the present invention;
[0042] FIGS. 9-18 are exemplary screen displays used in one
implementation of the present invention to display and collect
information and actions by users of the system of FIG. 1; and
[0043] FIG. 19 is a block diagram showing an object model
supporting one embodiment of the present invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
[0044] Embodiments of the present invention are now described with
reference to the drawings in the Figures. The primary embodiments
described below include a computerized trading system for the
trading of bonds among parties using broker dealers as
intermediaries. The system contains software and data structures
which, among other things, support anonymous trading through broker
dealers, allow parties to have a high degree of control over the
trading process, and substantially automate the trading process. As
will be recognized, the system may alternatively be used for the
trading of many other types of products or services in a
computerized environment.
[0045] With reference to FIG. 1, one preferred embodiment of the
bond trading system 10 of the present invention contains an order
processing server 12 connected directly or over a telecommunication
link 14 such as the Internet to a number of investor client
computers 16 and broker dealer client computers 18. Investors
utilize the investor client computers 16 to place orders such as
bids or offers to other parties using the order processing system
12 through a graphical user interface 20. Similarly, broker dealers
use broker dealer computers 18 running the program generating the
graphical user interface 20 to receive orders from investors
through the order processing system 12 and rebroker the orders to
counterparties or other broker dealers.
[0046] The order processing server 12 is a computerized device
having a processor 22, a number of volatile and nonvolatile memory
devices 24, input/output devices 26, and a communication interface
28 for receiving and transmitting messages over the
telecommunication link 14. In accordance with the invention, the
order processing server 12 has a database management program 30
which manages one or more databases stored in the memory devices 24
for storing data used in order processing. The databases include:
user information files 32 storing registration and authentication
data; order files 34 storing detail and status data regarding
orders placed on the system 10; rule files 36 storing rebrokerage
rules used in determining whether and how to rebroker orders for
each broker dealer; and trade files 38 storing information
regarding matched orders that have been executed as trades. These
data structures are described in greater detail below.
[0047] The order processing server 12 also contains a number of
software programs or routines for performing various functions
needed to process orders. These routines include: a user
authentication routine 40 for providing access to the system to
users based on data in the user information files 32; an order
processing routine 42 for receiving orders from users and updating
the data in the order files 34; an order matching routine 44 for
determining when two orders entered on the system are matching and
should be executed and entered in the trades file 38; a rules
processing routine 46 for processing the stored rules 36 in the
context of specific orders and determining what additional orders
should be generated as a result; and a message router 48 for
routing messages among the users of the system. The operation of
these software routines is described in greater detail below.
[0048] In some embodiments, the database management system is an
object oriented relational database system which is implemented
utilizing commercially available software and uses standard query
language. Database software is commercially available from Oracle,
Microsoft and others. The processor in the order processing server
12 comprises the central processing unit of a computer, e.g. an
Intel, Motorola, or AMD microprocessor. The message router 48 may
be implemented utilizing software or hardware, and commercially
available software for routing messages includes software from
Microsoft, Oracle and others.
[0049] The system of the present invention may be implemented as a
"virtual" system, for example as a site on a computer network such
as the world wide web, a corporate intranet, a government/military
network, or the like. For ease of access to the widest number of
participants, the virtual community is implemented in one
embodiment as a world wide web site. Currently available hardware
platforms, including PC's, Minicomputers and mainframes, and
currently available operating systems, including UNIX, MS Windows,
Mac OS and Linux, may be utilized to host the site.
[0050] In embodiments in which the system is implemented to operate
over the Internet using web protocols, messages to and from users
are in Extensible Markup Language (XML) format. Users run web
browsers on their client computers 16, 18 and download the
graphical user interface components as XML markup pages from the
server 12. Users then transmit order data and request services via
XML messages, and responses are likewise provided via XML messages.
All messages to and from the processor may also be encrypted using
SSL. These messages can thus be sent and received from any XML
compatible platform. A programmatic API (application program
interface) may be provided to facilitate the formulation of XML
message requests and the handling of XML message responses. The API
is used to communicate with the order processing site 12. The
structure and use of the XML format for messages in the present
system are described in greater detail below, and exemplary XML
message formats for various functions supported by the bond order
system are contained in an Appendix attached hereto and forming
part hereof.
[0051] Referring now to FIGS. 2A-2B, one generalized process for
generating orders using the trading system of FIG. 1 begins when an
investor generates an order, step 70. As explained further below,
the investor generates the order by completing information
requested in an XML page downloaded from the order processing
server 12. The order information includes: the identity of the bond
being traded, e.g., the CUSIP; the terms of the order including
pricing information, whether the order is live or subject, minimum
and maximum price amounts which would be accepted for a match, a
tail, whether the order can be partially matched and whether the
system should generate a new order with any remainder; authorized
counterparties who may or should receive the order; and authorized
broker dealers and any restrictions on the ability of the broker
dealers to submit orders of their own or rebroker the order to
others. The order is transmitted over the Internet to the server,
step 72, which validates the order and posts it to the order file,
step 74. The order is now available for viewing by all authorized
counterparties and broker dealers.
[0052] When an authorized counterparty or broker dealer accesses
order data from the server, the new order is transmitted from the
server and displayed in the list of orders for that party, step 76.
These recipients may then, among other things, submit orders
relating to this transaction in similar fashion. This includes
broker dealers, unless the investor has limited in the original
order the ability of the broker dealer to submit orders. The order
matching routine regularly polls pending orders, searches for
matching orders, step 78, and executes the transaction if matching
orders are found, step 80.
[0053] If a party receiving the order via the order files is a
broker dealer authorized by the investor to rebroker the order,
step 82, the broker dealer is presented on the order listing with
the option to rebroker the order. If the broker dealer decides to
rebroker the order, step 84, an XML web page is downloaded to the
broker dealer computer from the server and presented to the broker
dealer, step 86. The server also generates a list of parties to
which the broker dealer may rebroker the order by retrieving the
identities of parties with which the broker dealer is authorized to
transact business stored in the user information files, step 88,
and modifying the list in accordance with any restrictions placed
by the investor in the order, step 90. The list of authorized
parties is supplied in advance by the broker dealer when
registering with the bond trading system, and may vary depending
upon the particular employee within the broker dealer who is
accessing the system.
[0054] The broker dealer receives the rebroker page and list of
available rebrokerage target parties and completes information
requested in the page, including a selection of counterparties from
the list to which the order is rebrokered, step 92, and the terms
of the rebrokered order, step 94. The terms may include a change in
price of the order due to a markup imposed by the broker dealer.
The completed information is transmitted to the server, step 96,
which generates one or more orders based on the completed
information, step 98. The generated orders are posted to the order
file, step 100. The process then continues when the recipients of
the brokered orders download updated order information from the
order file.
[0055] As can be seen, this process allows an order to be brokered
and rebrokered to any number of parties and counterparties. When an
order is matched, either between a party and a counterparty, which
may be a broker dealer, or between a broker dealer and a
counterparty, the order processing system identifies the chain of
parties having matched orders by processing the orders file to
follow each order in the transaction relating to the identified
bond back up to the original investor submitting the first order.
The individual orders between each party are each executed as
separate portions of the overall transaction.
[0056] The process of proliferating orders in the system as set
forth in FIGS. 2A-2B is performed without the use of the rules file
and rules processing software component. An alternative for
proliferating orders in a highly automated process using these
components is set forth in FIGS. 3A-3B. As before, the process
begins with an investor generating an order and transmitting it to
the server, step 110. The server posts the order in the order file,
step 112. The rules processing software running on the server then
parses the order to retrieve the list of counterparties in the
order, step 114. For each counterparty, the rules processor
determines if the party is a broker dealer and is authorized in the
order to rebroker the order, step 116. If the party is not
authorized to rebroker, the order is simply posted in the order
file as a straight order, step 118.
[0057] If the party is authorized to rebroker, the rules processor
determines whether the party has already received another order
from a different source relating to this transaction, step 120.
Such a prior order could have been received if the order under
consideration is not directly from the investor but from another
intermediary party. If such an order was received, the software
determines whether the terms of the prior order, e.g., the price,
are better than the terms of the current order, step 122. If so,
the current order is ignored, step 124, on the theory that the
broker dealer would always prefer to deal with the more favorable
order as between conflicting orders for the same trade.
[0058] The rules processor retrieves the broker dealer's rules from
the rules file, step 126. The specific nature of the rules which
may be set by broker dealers is described in greater detail below.
Among other things, the rules can set trading limits for a given
broker dealer or employee within a broker dealer's organization and
can specify customers or investors whose orders can be rebrokered
or to which orders can be rebrokered. The rules processor thus
checks based on the rules whether the broker dealer's trading
limits have been reached, step 128. If the limits have been
reached, the broker dealer is informed that it cannot engage in
trading over this order, step 130, and the order is ignored, step
124.
[0059] If the trading limits have not been reached, the rules
processor determines from the rules whether the broker dealer is
allowed to rebroker orders received from the investor or other
customer (which may be another broker dealer), step 132. If no
rebrokering is permitted, the order is posted to the order file for
this broker dealer with a notation that rebrokering is not
available, step 134. If rebrokering is permitted, the rules
processor iterates over the list of counterparties contained in the
broker dealer's stored list, step 136, and determines for each
whether the counterparty is a permissible trading partner with the
investor or customer which generated the order under consideration,
step 138. This determination is made based on the customer's stored
rules, the counterparties' stored rules, and/or any restrictions
imposed in the order itself.
[0060] For each counterparty to whom rebrokering is permitted, an
order is generated by the order processing server, step 140. The
order contains the terms from the order received by the
broker-dealer, e.g., the identity of the bond(s) in question and
whether the order is live or subject, modified in accordance with
any rules from the broker dealer's rule file. These modifications
include, for example, a markup on the price in the order associated
in the rules file with the respective counterparty. When all such
counterparties have been considered for the broker dealer, step
142, the system returns to consider the next pending order in
similar fashion. When all such orders have been processed in this
fashion, step 144, the generated orders are posted to the order
file, step 146, so that they are accessible to the users of the
system.
[0061] As can be seen, using this process the order processing
server has preprocessed all orders in accordance with the rules to
generate a set of resulting orders which are then communicated to
the parties. The parties receiving these orders can then submit
counter orders, from which the order matching software will locate
any matches, in accordance with a process described more fully
below. Because the process described with reference to FIGS. 3A-3B
is automated, a risk exists that a combinatorial explosion could
occur while the system is proliferating orders. To prevent this,
the order processing server imposes a braking mechanism on the
iterations that stops further proliferation of orders. In one
embodiment, the server tracks the number of parties in a chain of
orders starting with the investor submitting the initial order
through the various broker dealers who received the order. This
tracking may be performed by appending each step in the pathway
taken by an order to the order data entry. The system then ignores
any orders once a threshold number of parties in the pathway or
chain has been reached, e.g., three. The server would then
terminate the order at that broker dealer and not allow any further
rebrokering. Other braking mechanisms may be used as would be
understood by one skilled in the art depending upon the expected
trading volume in the system and the extent of automation in the
process.
[0062] FIGS. 2A-2B and 3A-3B set forth substantially non-automated
and substantially automated processes, respectively, for generating
orders through rebrokering. FIG. 4 shows the processing of orders
in a further embodiment of the system. The process shown in FIG. 4
provides for broker dealers to check for matches on existing orders
it received before implementing the stored rules for automated
rebrokering of a new order, including matches on orders placed by
the broker dealers themselves. Referring to FIG. 4, the process
begins as before with a new order submitted to a broker dealer,
step 170, which is checked for validity, step 172. The order
includes various information as described further herein, including
a list of counterparties to which the order initiator wants to have
the order sent and whether the order may be matched internally by
another order originated from the same company as the current
order. If the order is invalid, a message to that effect is
provided to the submitter, step 174. The system also checks whether
the user sending the order has rights to send the order to each
counterparty specified in the order, based for example on a check
of the counterparties against the sector of the order, and stores
the order details for a valid order and for acceptable
counterparties in the order file, step 176. The party creating the
order is notified that it has been successfully entered on the
system and whether it does not have rights to send the order to any
of the specified parties, step 178.
[0063] If the order specified that matches on internal orders were
permitted, step 180, the system attempts to match the current order
with orders from the same company as the current order, step 182.
The logic for finding matching orders is described in greater
detail below with reference to FIG. 8.
[0064] The existing order may be an order which has been rebrokered
by a broker dealer with a markup to others in the system, step 184.
If no counterparties are specified in the original or rebrokered
order, or any listed counterparties were eliminated in the sector
check described above, step 186, the order is not rebrokered and
the process stops, step 188. For each counterparty specified in the
original or rebrokered order, the order processing server
determines whether the broker dealer has a relationship with the
counterparty, step 190, and is thus permitted to trade with the
counterparty. This determination is made based on the broker
dealer's user information stored in the system. If not, no order is
generated for this counterparty, step 192, and the system proceeds
to consider the next counterparty in the order.
[0065] If trading is permitted, the server stores the order for the
counterparty and captures the path that the order takes across each
rebrokerage and applies the markup indicated by the broker dealer
to determine and store the price, step 194. The counterparty is
notified that the order has been brokered to him, step 196. This
notification occurs when the counterparty accesses the order file
as described above or through a messaging system.
[0066] The system attempts to match the order with other orders in
the system received from the counterparty or submitted by the
broker dealer itself, step 198. The process for finding a match is
described in greater detail below with reference to FIG. 8. If no
match is found, step 200, the rules set by the broker dealer
receiving the order are accessed to determine whether and how the
order may be rebrokered automatically, step 202, as explained
above. If the criteria for rebrokering the order are met, the
system creates a rebrokered order or orders in accordance with the
rules, including the predefined markup for each potential
counterparty, step 202. The order is then processed in accordance
with the procedure for other orders, as just described.
[0067] In this embodiment, then, the rules for rebrokerage are
checked, and automated rebrokering occurs, when no matches are
found in pending orders for a given broker dealer though manual
entry of orders or rebrokered orders. In another embodiment, the
system waits a preset period of time for counterparties to receive
the notification of the order and submit orders which may match the
orders, or for the broker dealer to submit such a counterorder.
Following this period, the system rechecks for matches and
implements the business rules for rebrokerage if matching orders
are still not found.
[0068] If an internal match is found, step 183, or a counterparty
or broker dealer order match is found, step 200, the system checks
whether the order has been set (by the original ordering party) as
subject or live, step 206. If set as subject, the system notifies
the counterparties, including the original ordering party and the
counterparty (either an investor or broker dealer) who submitted
the matching order that a match has occurred and if the orders were
changed to live the trade would occur, step 208. If the parties
proceed to change the order to live, or if the order was originally
set as live or to change into a live order after a given period of
time, the system continues to process the transaction by
determining whether the matched orders are for the same number of
items or for a partial fill of the original order, step 210.
Handling of partial fills, remainders, and tails are described more
fully below.
[0069] The system creates the trade and updates all the orders
relating to the transaction to indicate that they have been traded
as well as the information for each party in the chain involved in
the trade, step 212. This is accomplished through use of the path
information stored with the order to identify the chain of parties
involved in the transaction. A notification of the trade is sent to
the parties involved in the trade, step 214. The system further
cancels all orders that are in the path of the order that matched,
step 216. With this done, the system can also cancel all orders
which branched off the cancelled orders, thus revising the order
table to reflect that those resulting orders are now inactive.
[0070] If the matched orders resulted in a partial fill and the
original ordering party specified that a new order should be
generated from the remainder or unfilled portion, step 218, the
system generates such new order and submits it as a new order, step
170. Otherwise, processing for this transaction is stopped, step
220. As a result, a transaction relating to the original order has
been executed, and the parties involved in each stage of the
transaction can then proceed to arrange for settlement and payment.
Embodiments of the trading system of the present invention are
designed to interface with existing settlement and payment systems,
such as the Thomson Financial system or the OASIS system using the
SWIFT protocol, through the use of an application programming
interface which facilitates integration of the systems.
[0071] Several illustrations presented in FIGS. 5-7 will assist in
the understanding of the operation of the bond trading and order
processing systems of various embodiments as described herein.
Referring to FIG. 5, a customer 5A submits an offer to sell one or
more bonds at $101/each to three broker dealers 5B, 5C, and 5D. The
order specifies that broker dealer 5B is not permitted to rebroker
the offer but can submit bids to match the order. Broker dealers 5C
and 5D are permitted to rebroker the order and do so manually or
automatically using the bond trading system of the present
invention at a markup. Broker dealer 5C sets a markup of $0.03125,
for a total price of $101.03125, and rebrokers the order by issuing
new orders at that price to counterparties 5E, 5F, and 5G. These
counterparties may be customers or other broker dealers, and in all
cases can submit orders relating to the transaction which could be
matched with the orders they received. Broker dealer 5D sets a
different markup of $0.0625, and thus rebrokers its order at
$101.0625 to counterparties 5H and 5I.
[0072] In accordance with aspects of the invention, original
ordering party 5A chose not to send its order to broker dealers 5J
and 5K. Similarly, counterparties 5L and 5M did not receive
rebrokered orders for one of several possible reasons, including in
various embodiments that: they were not eligible to receive orders
from the given sector; they do not qualify based upon parameters
set by party 5A; they are not customers of the broker dealers 5C or
5D; or that the rebrokerage rules of broker dealers 5C or 5D
preclude rebrokering of orders received from customer 5A to these
parties.
[0073] FIG. 6 illustrates other aspects of the bond trading system
of the present invention. In the scenario illustrated in FIG. 6,
customer 6A submits over the system an offer to sell a bond to
broker dealers 6B and 6C at $101. Either through a manual decision
or the application of its rules, broker dealer 6B rebrokers the
offer to broker dealer 6C at a markup of $0.09375. Thus, broker
dealer 6C receives two orders relating to the same transaction, in
this case, the same bond(s), one from customer 6A at the base price
and one from broker dealer 6B at the marked-up price of $101.09375.
The marked-up offer would naturally be ignored in favor of the
offer at the base price (which in this case is the better price),
either manually by the employee acting on behalf of broker dealer
6C, or by the system in the automated rebrokerage embodiment. In
other embodiments, the system would post both orders to broker
dealer 6B so they are visible and available to the broker dealer,
in case the broker dealer would prefer to rely on factors other
than price to make the decision which order to rebroker.
[0074] In addition, both broker dealers 6B and 6C rebroker the
offer to a third broker dealer 6D, the offer from broker dealer 6B
being at a marked-up price of $101.09375 and the offer from broker
dealer 6C being at a marked-up price of $101.0625. These offers may
specify that broker dealer 6D has the right to further rebroker the
order to counterparties. The availability to one party of multiple
orders relating to the same transaction and that party's ability to
resolve such multiple orders in its favor is an important feature
provided by the system of the present invention.
[0075] Furthermore, the three broker dealers receiving orders in
FIG. 6 rebroker the orders to other counterparties. Broker dealer
6B rebrokers the order at a markup of $0.0625 to its customers 6E.
This markup is lower than the markup of $0.09375 applied to in the
order sent to broker dealers 6C and 6D, which was a decision set by
broker dealer 6B in its rules or manually to preclude the broker
dealers from undercutting the price to customers. Broker dealer 6C
rebrokers the order it received from customer 6A to broker dealers
6F, without the right to rebroker, and to customers 6G. Here, too,
the markup used by broker dealer 6C for customers is lower than for
the order sent to broker dealers, $0.03125 as compared to
$0.0625.
[0076] Broker dealer 6D also rebrokers the order to customers 6H,
applying a markup of $0.03125 to the order of $101.0625 it received
from broker dealer 6C for a total offer at $101.09375. Other broker
dealers 61 and customers 6J who are registered with the bond
trading system have not received any orders in this transaction and
thus do not participate.
[0077] If one of customers 6H submits an order which the system
determines to match the order it received from broker dealer 6D,
the system identifies the parties to be involved in the transaction
by tracing the connection from broker dealer 6D to the party who
sent it the order its rebrokered order was based upon, in this case
broker dealer 6C who provided a better offer, and by further
tracing the transaction back from broker dealer 6C to customer 6A
who originated the offer. In one embodiment as further described
below, this path is stored in the order file as part the order data
for the order to customer 6H. Thus, the system identifies the chain
6A-6C-6D-6H for the transaction, and executes the orders between
each pair of parties in the chain, i.e., between 6A and 6C at $101,
between 6C and 6D at $101.0625, and between 6D and 6H at
$101.09375.
[0078] This example illustrates several advantages provided by the
system. First, a willing trading partner for the offer made by
customer 6A was located in customer 6H with whom it might not
otherwise have conducted business. In addition, such transaction
was accomplished transparently to both customers 6A and 6H, who
only are aware of dealing with their broker dealers. The
transaction was also anonymous as between the customers.
[0079] FIG. 7 illustrates the transaction shown in FIG. 6 as
implemented in a full or partially automated embodiment in which
rules are used to rebroker orders. In this case, customer 6A sends
its offer via the Internet 14 to the order processing server 12,
which validates and stores the order. The order processing server
12 then applies the stored rules to determine the rebrokered orders
which should be generated based upon the order from customer 6A.
The resulting orders, determined using the logic shown in FIG. 6
and stored rules for markups, are then stored in the order table
and made available to all the broker dealers 6B, 6C, 6D, and 6F and
to customers 6E, 6G, and 6H.
[0080] In the scenarios illustrated above, the business rules of
the broker dealer are set to provide a given markup for given
counterparties and to select orders from two parties on the same
bond based on price. In other embodiments, the rules may be set to
provide other changes in order parameters or to use other order
parameters for selecting among two or more orders on the same bond.
For example, the broker dealer may set in its rules that the
minimum amount be increased if below a certain threshold, perhaps
to avoid doing business on orders which are too small. The increase
would still need to be below the maximum amount. In this case, a
comparison of two orders would factor both price and minimum
amounts, and the recipient would consider both parameters in
selecting one of the orders. Alternatively, the rules may be set to
change the descriptive data or certain other parameters in the
order.
[0081] Similarly, the broker dealer in some embodiments may set in
its business rules which parameters should be used to select among
orders. The broker dealer could select, for example, for the system
to select orders based on price, as above, or based on the range in
amounts between minimum and maximum, the counterparties specified,
whether the order is live or subject, whether the order is based on
price or spread, etc.
[0082] An exemplary process by which the order processing system
matches orders is illustrated in FIG. 8. The matching process is
performed for broker dealers, that is, for bids and offers received
by a broker dealer. The system performs the matching by first
generating a list of candidate offers that partially match a
specific order based on, in one embodiment, CUSIP and price, step
240, accounting in price for any markup applied by that broker
dealer to the specific counterparty submitting each candidate
offer. If the list of candidate offers contains only one offer,
this offer is deemed to match and the system updates the order and
trade files accordingly to reflect that a trade has occurred, step
262. If the offer was subject, the parties are first notified and
confirmation is requested before the trade is executed, as
explained above.
[0083] If the candidate list contains multiple orders, one of such
orders must be selected. In some embodiments, the party that
generated the original order can specify whether it prefers a match
to occur on price or on amount of securities in the trade. If the
user specified a match on price, step 244, the candidate list is
searched for one or more orders at the best price, step 246. If
multiple such orders at the best price are found, step 248, the
system selects the one of such orders having the largest amount of
securities, step 250. Otherwise, the order at the best price is
selected from the list, step 252. If the user specified a match
based upon amount, the candidate list is searched for orders at the
highest amount, step 254. If multiple such orders at the highest
amount are found, step 256, the order with the best price is
selected, step 258; otherwise, the order at the highest amount is
selected, step 260. If in either instance after narrowing the list
based on price and amount the candidate list still contains
multiple orders, one of the orders is selected at random or based
on an earlier time of receipt of the order. The selected order is
used for the transaction, and the order files and trade files are
updated accordingly to reflect that the transaction has occurred,
step 262.
[0084] As mentioned above and explained more fully below, the
ordering party may specify that a matching order must exactly match
the number or amount of items being offered, or may specify that a
partial fill is acceptable with a displayed amount, a minimum and
maximum acceptable amounts, and a tail amount which identifies the
minimum amount which must be left over following a partial fill.
Since the matching process of one embodiment as just described
involves comparing amounts contained in two orders, it involves
comparing orders which may vary with respect to these user
settings.
[0085] For example, if one order is specified as an exact match,
the displayed amount of that order must be equal or higher than the
other order's minimum amount and either equal to the maximum amount
or less than or equal to the maximum amount minus the tail amount.
If this condition is satisfied, the displayed amount is selected as
the trade amount. If both orders have a user setting of partial
fill, the system checks whether the maximum amount of the order
with the lowest maximum amount is equal or higher than the other's
minimum amount and either equal to the maximum amount or less than
or equal to the maximum amount minus the tail amount. If that
condition is satisfied, the maximum amount of the order with the
lower maximum amount is selected as the trade amount. Stated
another way, the amounts set in each order define a set including
the interval [min, max-tail] and an extra point at the maximum
amount. In the case of an exact match, of course, the set consists
only of the displayed amount. The system tries to intersect the
respective sets to find a match in amounts.
[0086] In some embodiments, the failure to satisfy these conditions
results in a finding of no match on amount. In other embodiments,
if these conditioned are not satisfied, the system selects the
smallest value between the differences of maximum amount minus tail
amount of the two orders. That amount, sometimes referred to herein
as the try out amount, is selected as an amount to be considered
for trading. The parties would then be given the option to pursue a
transaction on that amount.
[0087] In some embodiments, a user may further specify a hidden
maximum amount for an order, which is a higher maximum amount the
user would be willing to trade than actually displayed as the
displayed exact amount or displayed maximum amount. This hidden
maximum amount would then be used in the matching process described
above instead of the displayed exact or maximum amount.
[0088] Further embodiments provide for orders to be based not only
on price but on spread. Spread in the bond market is understood as
yield spread to a reference security, calculated by subtracting the
yield in basis points (each point being 1/100.sup.th percent) of
the reference instrument from the yield of a bond. The instrument
may be a treasury, an interpolated point on the treasury yield
curve, or a specific term of LIBOR. The yield spread allows the two
parties in a transaction to negotiate a trade without having to
change prices each time the market goes up or down, but rather to
agree on the spread, the reference instrument, and the yield at the
time of the trade. The price can then be calculated based on this
yield as understood by those skilled in the art.
[0089] When specifying an order based on yield, the ordering party
must make the order subject, so that a price can be computed from
agreed upon spread terms before a transaction is executed. In
addition, the ordering party specifies spread in basis points and
reference instrument. Preferably, the system stores a list of
standard instruments from which users may select in order to
maintain consistency in representations to drive matches. The
system matches two spread orders having the same CUSIP, settlement
dates, spread in basis points, and reference instruments, and
compatible amounts. When a match is found between two spread
orders, the system notifies the parties of the match and their need
to change the subject, spread based orders to live, price based
orders in order to complete a trade. To allow matching to occur at
a broker dealer for both types of orders, broker dealers would set
their markups in terms of both price and spread at the time such an
order is rebrokered or as part of the stored rules.
[0090] Details of one specific implementation of the bond trading
system of the present invention are now described, including
exemplary screen displays shown in FIGS. 9-12, the data structures
supporting orders and parties involved in the system, and the XML
format used to support the transfers of data and notifications of
parties. It will be understood by one skilled in the art that these
details describe one particular implementation in a given computing
environment, and that many alternatives are available to provide
substantially the same functionality as described herein.
[0091] As explained above a graphical user interface is presented
to clients as markup documents readable in clients' browser
programs. Such a GUI includes screens for submitting orders,
rebrokering orders, displaying orders which may be rebrokered, and
displaying all or subsets of orders available to a party. An
ordering screen is shown in FIG. 9. The screen contains an input
field 300 for entry of a bond's CUSIP, and input fields 302 for
additional bond data including issuer data, coupon, and maturity
and settlement dates. In one embodiment, the system stores a
database of bonds and related data, and the input CUSIP can be used
by activating a "Load CUSIP Data" icon 304 to query the database
and retrieve the remaining bond information for automatic filling
of the other input fields 302.
[0092] The screen in FIG. 9 further contains fields for selecting
the type of order 306 and the initial order price or spread 308.
Depending upon whether a live or subject bid/offer is selected, the
screen displays an input field 310 for allowing the user to set a
time period after which the order will go from being live or
subject to subject or live, respectively. The user enters the
amount information in amount fields 312, including a displayed
amount and, if an exact match is not requested, minimum, maximum
and tails. If a displayed amount is input as well as minimum and
maximums, these latter values are kept hidden and used for matching
purposes.
[0093] A partial fill field 314 allows the user to select how an
order will be adjusted in response to execution of a transaction in
amounts less than the maximum amount. The drop down list values are
None (meaning that partial fills are now allowed, which causes the
GUI program to disable the input fields for minimum and maximum
amounts); With New Order (which allows partial fills based on
minimum amount and directs the system to automatically generate a
new order with the remainder and carrying over the user set terms,
as discussed above); and Without New Orders (which allows partial
fills but does not direct the system to generate new orders with
any remainder).
[0094] An Adjust Price with Treasury field 316 allows a user to
specify whether the price will be adjusted according to continually
updated CMT yields. When the field 316 is checked, additional
fields are presented which allow the user to specify: the value of
one basis point change in treasury yield, which represents the
ratio of CMT movements to price movements; the yield shift in basis
points, which may be positive or negative; the treasury maturity,
in years; and an initial treasury yield, representing the initial
percentage rate of return.
[0095] Box 318 in FIG. 9 presents the user with the user's list of
counterparties and broker dealers to whom it may communicate
rebrokered orders. As described above, this list is stored in the
system database and retrieved for presentation to the user. The
user selects one of the names in the list in box 318, and selects
either the "private" button 320 to designate this counterparty as
receiving the order but only to submit counter orders and not to
rebroker, or the "brokerage" button 322 to designate the selected
party for rebrokering of the order to others. The selected party is
then listed in the "send order to" box 326. A "remove" button 324
is used to delete previously selected names from the "send order
to" box.
[0096] Once the order form is completed and the user selects the
submit button, a client API made with COM components formulates an
XML message. The client API formulates the message using either the
Microsoft XML parser or string concatenation. The API sends
messages to the system one of two ways, depending on the way the
XML message is formed. If the parser is used, the XML HTTP object
will be used to post the message to an ASP object. If the parser
not used, the XML message will be posted to an ASP page via a form
submit. Once the message is processed, a valid XML message will be
returned as a response to the client. The API will then populate
the response collection of the API based on the contents of the
return message.
[0097] An example of an XML schema definition for a SubmitOrder
document and a sample document are set forth below:
TABLE-US-00001 <SubmitOrdertype="1"> <!-- Type: Offer=1
Bid=2 MakeOffer=3 MakeBid=4 --> <Security>
<UserName>Kenjon</UserName>
<Password>pwd</Password> </Security>
<Cusip>CUSIPA</Cusip> <Amounts>
<Displayed>10000</Displayed>
<Minimum>5000</Minimum>
<Maximum>20000</Maximum> </Amounts> <Price>
<Amount> 100.625</Amount>
<Currency>USD</Currency> </Price>
<SettlementDate>02/15/2000</SettlementDate>
<BrokerDealers> <BrokerDealer> <BrokerDealerUserId
Rebroker="1">1</BrokerDealerUserId> <!-- Rebroker
Rebroker=1 Private=2 Rebroker/Counter=3 Private/Counter=4 -->
</BrokerDealer> <BrokerDealer> <BrokerDealerUserId
Rebroker="3">2</BrokerDealerUserId> </BrokerDealer>
</BrokerDealers> <Alert>Pager</Alert>
<Comment>This is a sample comment.</Comment>
<Optional> <CMT>
<InitialCMTYield>1</InitialCMTYield>
<AdjustWithCMT> <CMTMaturity>20</CMTMaturity>
<PriceAdjust1BPCMTYieldChange>1</PriceAdjust1BPCMTYieldChange>-
; </AdjustWithCMT> </CMT> <LiveSubject>
<Subject>
<TimeToGoSubject>1Hour</TimeToGoSubject>
<BeforeGoingSubject> <MinCmtYield>1</MinCmtYield>
<MaxCmtYield>2</MaxCmtYield>
</BeforeGoingSubject> </Subject> </LiveSubject>
<PartialFills>No</PartialFills> </Optional>
</SubmitOrder>
[0098] Submitted orders are written into two tables in the
database. The order table holds the general order information and a
BrokerDealerOrder table is populated with the IDs of the
broker/dealers for which the order was submitted. For a single
customer this will be just one broker/dealer; however, a master
customer could submit the order to several different
broker/dealers. Once the order is written to the appropriate tables
the broker/dealers may be required to approve the order for
rebrokering. Once this approval is completed the internal rebroker
and matching methods are called.
[0099] The rebroker method populates a SubOrder table that is used
for order viewing. This table contains the ID of the order, the
route number, the broker/dealer the order was rebrokered to, and
the updated price. This table is used for efficient order viewing.
When viewing an order, the SubOrder table is queried for the
customer's broker/dealer. The SubOrder table is populated by
querying CounterPartyOrderSituation and Path tables, described in
greater detail below. Once a component has been rebrokered the
matching process is called to determine if there are two orders
that qualify as a match. Once a match occurs the route number is
used to notify all parties involved in the match. This includes the
buying and selling customer. All intermediaries are notified of any
markup or commission received on the match. The order is then
marked as inactive and a record is written to the match table to
record the matching transaction.
[0100] A customer or broker/dealer can view an order if they have
the appropriate relationship with the submitting broker/dealer.
Customer preferences are also used to filter the orders that are
returned during a viewing operation.
[0101] In the currently described implementation, the database is
an object oriented relational database such as is available from
Oracle. Orders are stored as objects in this database which are
created by the order processing component. The order objects
include the following methods and properties:
TABLE-US-00002 Orders Methods Add Add an Order to the collection.
This returns a reference to the new Order object. Remove Remove an
Order from the collection. This is based on index, or possibly a
key (username). Item Returns an Order object based on index or key
(username). Orders Properties Count The number of Order objects in
the collection. This is read-only and is set by calling Add and
Remove. Cusip The Cusip identification of the bond. OrderType Type
of the order: Offer = 1 Bid = 2 Make Offer = 3 Make Bid = 4 Live A
match is found by X Bond and is executed. Subject Finds a pending
match and the user is notified. DisplayAmount Par amount of the
bond that is displayed to authorized users. ParMinAmount Minimum
par amount that a user will execute, displayed to authorized users.
ParMaxAmount Maximum par amount that a user will execute, not
displayed to authorized users. Price Order price executed by the
user. SettlementDate Date on which the user will deliver or receive
the bonds in exchange for payment. BrokerDealers A collection of
Broker Dealer objects representing participating broker dealers
authorized to view trade order as well as specific options for each
individual broker dealer. Broker Dealer Methods Add Add a Broker
Dealer to the collection. This returns a reference to the new
Broker Dealer object. Remove Remove a Broker Dealer from the
collection. This is based on index, or possibly a key (username).
Item Returns a Broker Dealer object based on index or key
(username). Count The number of Broker Dealer objects in the
collection. This is read-only and is set by calling Add and Remove.
Broker Dealer Properties Id The broker dealer identification
number. Rebroker Rebrokering setting. CustGroups Collection of
pre-defined customer groups and price information that a
participating broker dealer authorizes to view the trade order.
This applies only to participating broker dealers. AlertMethod
Method of notification (i.e., email, instant message, page, phone
call, etc.) upon a match. Email = 1 Page = 2 Comment Selection from
approved list of verbal comments about the trade order to be
displayed to authorized viewers. Status Status of orders.
AdjWithCMT Specifies that price will be adjusted according to
continually updated Constant Maturity Treasury yield. CMTMaturity
Designation of CMT maturity. AdjPerCMTYieldChange Ratio of CMT
movements to price movements. InitialCMTYield MinCMTYieldBefore A
value that if the CMT yield drops below, the trade Subject order
becomes subject. MaxCMTYieldBefore A value that if the CMT yield
rises above, the trade Subject order becomes subject. SubjectTime A
time relative to trade order or absolute at which the live/subject
flag is set to subject. LiveTime A time relative to trade order or
absolute at which the live/subject flag is set to live.
PartialFills Selection on how order will be adjusted in response to
execution in amounts less than maximum amount.
[0102] Broker/dealers and customer can access the orders sent to
them as stored in the order tables. FIG. 10 shows an exemplary
screen display by which available orders are presented, including
bond information, order type (live bid, live offer, subject bid,
etc.), status (whether it has been matched, is still active, or has
become inactive though a change in order), and whether rebrokering
is permitted. Users can perform searches on the data in the
database by any given field to retrieve subsets of order listings.
FIG. 11 shows a screen display of one such subset, orders which
have been brokered to the broker dealer, and FIG. 12 shows a screen
display of another such subset, orders which the broker dealer has
filled.
[0103] FIG. 13 shows a screen display listing live orders viewable
by the particular party. In FIG. 13, the system displays a rebroker
field 330 indicating for the associated order whether rebrokering
is permitted, and allowing the broker dealer to rebroker the order
by selecting the rebroker indicator 332. The GUI then displays a
screen such as shown in FIG. 14. The bond and order information for
the selected order is automatically entered in various input
fields. A markup field 350 accepts the broker dealer's desired
markup for the rebrokered order. Candidate list box 352 and "send
order to" box 354 function in similar fashion to the counterpart
boxes in FIG. 9, with "add" and "remove" buttons to move names into
and out of the order list 354.
[0104] In one embodiment, the GUI generating the screen displays
discussed herein supports the ability of the user to select an
order in the listing of orders and retrieve and view all order
received relating to the selected order. For example, as shown in
FIG. 15, an expanded area 360 is displayed listing all order
activity relating to the selected bonds for A&M Assocs and
COMPAQ Computer Corp. An applet, control, or other link or program
embedded within the GUI program issues a query to the order table
at the server to retrieve the desired data. The GUI also displays
active icons indicating whether each order may be traded, countered
with a counter order, or rebrokered to other counterparties.
[0105] When rebrokering is requested, an order brokerage record is
created for every company that can see an order. This includes a
record for the originating company and one record for every company
an order is sent to. If an order is sent to a company via different
paths, one record is created for each path. The order brokerage
record contains the basic order information, including all the
information needed to make a match. This is the information
displayed to any user other than the owner of the order.
[0106] The system stores certain information in association with
each order brokerage record. This includes the order brokerage path
which determines the route the order took from the originating
company to the present order. The path includes the related order
brokerage records on each hop. The order brokerage record also has
a list of companies to which the order was sent. The list has a
reference to the order brokerage record created for the other
company and the markup applied to the order.
[0107] The order brokerage record may contain a Not Send To Markup
field to be applied when receiving a matching order from a company
other than those specified in the send to list mentioned above. The
price on every order brokerage record is kept separate from the
cumulative markup. A user thus sees only one price which is the
result of adding the price and the cumulative markup values. The
price is saved on a different column, to allow for very fast
processing of price changes resulting from Treasury Feeds.
[0108] If a user modifies an order, all the order brokerage records
associated with that order are canceled. If a company deletes an
order brokerage, all the order brokerage records derived from this
one are canceled. If a company recalls the order sent to somebody
or changes the markup, all the order brokerage records derived from
that one are canceled. A change is implemented by first canceling
the pending order followed by creation of a new order. This helps
proper processing of the new order.
[0109] All the processing of an order corresponding to an
individual company is performed in one thread of execution. When an
order is sent from one company to another, a new thread (using a
queued message) processes the order for the receiving company.
[0110] As discussed above, when an order is sent to a company, that
company's rules are processed. All the active rules are processed
in order of precedence. The process stops when all the conditions
of a rule are satisfied. A rule need not have any conditions, in
which case it is always satisfied by any order. When used,
conditions in rules are expressed in the form of field names,
operators and values. In one embodiment, the possible operators
are: [0111] Equal [0112] Different [0113] Less Than [0114] Less Or
Equal Than [0115] Greater Than [0116] Greater or Equal Than [0117]
Between [0118] In Set [0119] Not In Set [0120] Contains and Starts
With
[0121] Rules specify the ID of the company or group of companies to
send an order to. Each ID has a markup associated with it. Using
the list of companies and group of companies, a list of company IDs
is produced. The associated markup is the lowest markup at which
that company was specified.
[0122] In order for anyone to trade in the system they must have a
company and an employee setup. Companies are used to set the
relationship that allows them to trade with other companies. The
system stores basic information about the company along with a
unique identifier, e.g., the tax ID of the company. An exemplary
screen display for the entry of data for a new company object is
shown in FIG. 16. The system supports three types of company data
structures: Broker-Dealers, Investment Advisors, and the System
Administrator. The System Administrator sets up Broker-Dealers who
have agreed to the terms for using the system. Broker-Dealers (and
the System Administrator) then set up their customers as Investment
Advisors. Only company administrators can create other
companies.
[0123] When creating a company, the tax ID is used to see if the
company already exists on the system. If not, the company's data
structure is generated. If the company does exist on the system,
relationships can be set up with the company. Additionally, an
administrator type employee is created when a company is created.
When a company is deleted (marked inactive), all orders and
employees of the company are deleted (marked inactive) from the
system as well.
[0124] Relationships allow companies on the system to actually
trade with each other. There are two types of relationships:
Broker-Dealer to Broker-Dealer and Broker-Dealer to Investment
Advisor. Orders cannot be sent to, rebrokered to or received from a
company unless the relationship has been setup. Then includes the
relationship from both sides. A company establishes a relationship
with another company through the screen display shown in FIG. 17.
When a company requests a relationship with another company, the
other company must confirm it. The screen display in FIG. 17 shows
fields for listing companies that a party has requested a
relationship with but that have not yet confirmed and a field for
listing companies which have requested a relationship with the
party but which the party has not yet confirmed. A relationship is
automatically set up when a Broker-Dealer creates a company. Also,
if one company ends the relationship, it is broken; therefore, when
a relationship is broken, all orders that were sent between the two
are deleted as well.
[0125] Employees are the actual users of the system, and the system
stores an object for each employee. Each company must have at least
one user on the system. New employee data is input to the system
through the screen display in FIG. 18. There are five different
types of employee users supported by the system, including
Administrator, Analyst, Assistant, Salesperson, and Trader. Each of
these types of users has different rights on the system depending
on the company and type of employee. When an employee object is
deleted (marked inactive), all orders submitted by that employee
are deleted (marked inactive). Each employee type will have a
predefined list of rights applied to the user at time of creation
of the employee object.
[0126] In accordance with another advantageous feature of the
present invention, the system support the creation and storage of
groups to make the system easier to use when a given user has a
large number of counterparties. A group is defined through an
object which stores the characteristics associated with that group.
In one embodiment, groups contain and are used for characterizing
counterparties, employees, orders, rules, or any other objects in
the system. Groups with counter parties can be added, updated and
removed from the system. Groups are mainly used when rebrokering
orders. When an order is manually rebrokered it can be sent to
individual counter parties, to groups or to both. Groups can also
be used with rules. If a rule is setup to automatically rebroker an
order, it can be to a group.
[0127] In accordance with another aspect of the present invention,
the system contains a library of subroutines used to simplify the
interface of the system with certain devices or subsystems so that
client programs can communicate with them. This library or
collection constitutes an application programming interface (API)
and is a package of COM+ components which allow client systems to
integrate with the bond order system without creating XML messages,
reducing development time and integration time significantly. The
bond system API performs a wide variety of functions, from
submitting and viewing orders, to adding companies and their
employees into the bond order system. Depending on the function,
the API programmer sets different properties for the object(s) that
the function utilizes.
[0128] The API is composed of one public component and several
internal components. The object model of one embodiment of the
present invention is illustrated in FIG. 19. As shown in the
Figure, the Connection component is the top-level component of the
bond order system API, with other components as discussed above.
The format for various, exemplary XML messages supporting various
functions relating to these components are contained in the
Appendix following the specification.
[0129] The bond order system of one embodiment has the following
levels of authorizing an operation in this order of execution:
[0130] 1. The operation must be requested by a valid system user.
(CreateCompany and CreateEmployee messages are possible exceptions
to this level.) [0131] 2. The user has the right for the desired
operation as specified in the rights list. [0132] 3. The user has
the right to trade in the given sector. The trade operation can be
constrained to a group of sectors. Sectors are defined with a
hierarchical ID. This ID natively includes the IDs of all the
parent sectors of a given sub-sector (e.g., Mortgage Back
Securities="A" and its sub-sectors Agency Task Through Pols and
Agency Remics will be assigned "AA" and "AB" respectively.) [0133]
4. The user works for the company for which he/she is trying an
operation. [0134] 5. The user has the right to view orders
belonging to a group of sectors. [0135] 6. The user has the right
to view orders received from/sent to a group of individual
companies. Company groups are created to handle view order level
authorization.
[0136] As explained above, the bond order system notifies parties
upon the occurrence of various events. In one embodiment, the
system has three general categories of notifications: Action,
Confirmation, and Information. An Action notification corresponds
to those notifications that are generated when the system records
an action that requires further processing (e.g., authorization,
confirmation, approval, etc.) These notifications are created with
a status of "Active". A Confirmation notification is generated when
an action in the system is authorizing, confirming, approving, etc.
an awaiting Action. This notification is created with a status of
"Inactive" and is also set the matching open Action notification to
"Inactive". An Information notification is for information purposes
only. This is generated as a way of keeping track of what is
happening in the system, and serves as a way of logging business
events.
[0137] Notifications are further classified by Notification Types.
These types are used as the means to associate "Action"
notifications and "Confirmation" notifications. The system keeps a
table, "NotificationType", on which it stores all the types and
associated types. Through this table it links Action notifications
with Confirmation notifications. The system generates and sends a
notification for the following scenarios: [0138] New Live order
brokered to the user. [0139] Trade. [0140] New relationship offered
to the user. [0141] Confirmation that the user have submitted an
order. [0142] Confirmation that the user has canceled an order.
[0143] Another order is placed on a CUSIP for which the user has an
outstanding order. [0144] One of the user's Live orders goes
Subject. [0145] One of the user's Subject orders goes Live. [0146]
Someone inactivates a relationship with the user. [0147] A
relationship is confirmed with the user. [0148] Treasury feed is
down.
[0149] Described herein is a comprehensive and integrated system
for the trading of financial instruments such as fixed income
securities or other tradable properties which allows for desired
participation of broker dealers and other intermediaries. The
system's advantageous data structures and messaging systems as
described herein support the real time operation of the system over
the Internet, the execution of live orders, and the integration
with other client systems.
[0150] While the invention has been described and illustrated in
connection with preferred embodiments, many variations and
modifications as will be evident to those skilled in this art may
be made without departing from the spirit and scope of the
invention, and the invention is thus not to be limited to the
precise details of methodology or construction set forth above as
such variations and modification are intended to be included within
the scope of the invention.
* * * * *