U.S. patent application number 12/958486 was filed with the patent office on 2011-11-10 for automated trading system.
This patent application is currently assigned to EBS GROUP LIMITED. Invention is credited to John Edward Schoen.
Application Number | 20110276455 12/958486 |
Document ID | / |
Family ID | 34980401 |
Filed Date | 2011-11-10 |
United States Patent
Application |
20110276455 |
Kind Code |
A1 |
Schoen; John Edward |
November 10, 2011 |
AUTOMATED TRADING SYSTEM
Abstract
An anonymous trading system is configured to receive a price
stream from a bank or other institution. The price stream is
converted into a quote stream and input into the trading system via
an automated trading interface. The quote stream has its own deal
code. The deal code credit limits are set so that the only parties
that have credit with the deal code are other deal codes of the
same institution. At least one of these deal codes represents a
prime broker bank and prime broker customers therefore have access
to the institution's price stream to the exclusion of other parties
trading on the system. A distributor distributes the quotes from
the trading system to the prime broker customers' traders, to prime
broker customer automated trading interfaces, and to prime broker
customer deal feed systems for logging of deal tickets and
communication of those deal tickets to back office systems.
Inventors: |
Schoen; John Edward; (New
York, NY) |
Assignee: |
EBS GROUP LIMITED
London
GB
|
Family ID: |
34980401 |
Appl. No.: |
12/958486 |
Filed: |
December 2, 2010 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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11202856 |
Aug 12, 2005 |
7865421 |
|
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12958486 |
|
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60601558 |
Aug 13, 2004 |
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Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 40/04 20130101;
G06Q 40/00 20130101; G06Q 40/025 20130101 |
Class at
Publication: |
705/37 |
International
Class: |
G06Q 40/00 20060101
G06Q040/00 |
Claims
1. A system for trading products between parties, comprising: a
matching system for matching quotes submitted by counterparties for
execution of trades in a product between the parties, wherein
parties trading on the system each have a unique deal code to
identify them to other parties on the system; a quote stream
provided by a party trading on the system, the quote stream being
provided to the matching system and having a unique deal code on
the matching system; wherein the matching system further comprises
a credit system for storing credit limits for trades between each
party trading the system and each possible counter party, and
wherein the quote stream deal code assigns credit only to selected
other deal codes, whereby access to the quote stream is
restricted.
2. A system according to claim 1, wherein the quote stream deal
code assigns credit only to other deal codes of the same
institution.
3. A system according to claim 2 wherein the other deal codes of
the same institution includes at least one deal code through which
third parties can trade using the institution as a prime
broker.
4. A system according to claim 3, comprising a distributor
receiving quotes from the trading system specific to the other deal
codes of the institution and distributing those quotes to customers
of the prime broker.
5. A system according to claim 4 wherein the quotes are distributed
to customer trader terminals.
6. A system according to claim 4, wherein the quotes are
distributed to at least one customer automated trading
interface.
7. A system according to claim 1, comprising a plurality of
streaming quotes each from a different institution.
8. A system according to claim 1, further comprising a stream of
quotes input into the trading system from a remote trading system,
the quote stream from the remote system having a unique deal code
on the trading system.
9. A system according to claim 1, comprising a market distributor
for distributing quotes to counterparties, the market distributor
distributing to a given counterparty only quotes fro mother
counterparties with whom the given counterparty has credit.
10. An automated trading system for trading products between
parties, comprising: a matching engine for matching quotes
submitted by counterparties for execution of trades, each
counterparty having a deal code identifying the counterparty; a
credit module for storing credit limits for trades between each
deal code and each other possible deal code of the system; a market
distributor for distributing to counterparties quotes submitted to
the matching engine, the market distributor distributing to a given
counterparty only quotes from counterparties with whom the given
counterparty has credit; a quote stream from a third party, the
quote stream being provided to the matching engine and having a
unique deal code; wherein the quote stream deal code assigns credit
only to selected other deal codes thereby limiting access to the
quote stream.
11. An automated trading system, comprising: a matching engine for
matching quotes submitted by counterparties for executed of trades;
a credit module for storing credit limits for trades between
counterparties; a market distributor for distributing to
counterparties only quotes submitted by other counterparties with
whom they have credit; a quote stream from a remote source, the
quote stream being provided to the matching engine; and wherein the
credit store includes an assignment of credit from the quote stream
to selected counterparties, whereby access to the quote stream by
counterparties is limited.
Description
CROSS-REFERENCE TO RELATED APPLICATIONS
[0001] This Application is a continuation of U.S. application Ser.
No. 11/202,856, filed Aug. 12, 2005, which claims benefit under 35
U.S.C. 119(e) to U.S. Provisional Patent Application No.
60/601,558, filed Aug. 13, 2004, the entirety of each of which is
incorporated by reference herein.
FIELD OF THE INVENTION
[0002] This invention relates to automated trading systems for
trading products such as, but not limited to, commodities or
financial instruments. It is particularly concerned with automated
trading systems that integrate two or more sources of liquidity to
improve the quality of quotes that are presented to a user.
BACKGROUND TO THE INVENTION
[0003] Automated trading systems have been used for many years to
trade a wide range of products including to financial products
including commodities such as precious metals and various financial
instruments including equities and foreign exchange (FX) products
such as FX spot. Within the FX spot market, there are two major
types of system: direct dealing systems where deals are concluded
by exchange of conversation electronically between traders; and
anonymous systems in which traders submit quotes into a system
anonymously and quotes are matched, subject to parameters such as
credit limits. The identity of parties to a deal are only given up
to the traders when the deal is completed.
[0004] Anonymous systems are one example of matching systems in
which quotes submitted by parties are matched to make a deal.
Typically, visible bids and offers are entered into the system
which are matched by invisible hits or takes from traders. The
success of any such system is dependent on the liquidity of the
fungible that is being traded. Liquidity is directly dependent on
the number of quotes in the system. Liquidity is crucial to the
success of a trading system as it affects the ability of parties to
trade and the price at which they can trade. In the FX spot market,
the majority of liquidity in various currency pairs is concentrated
in a single system. The effect is one of positive feedback; once a
degree of liquidity is established traders know that they can
execute deals at the best prices on that system and therefore place
orders on that system so further increasing the liquidity in the
system.
[0005] In the interbank FX spot market the majority of anonymous
deals are done either on the Reuters Dealing 3000 Spot Matching
system provided by Reuters plc of London UK or on the EBS Spot
Matching system provided by EBS Group Limited of London UK. The
market in particular currency pairs is concentrated on one or other
of these systems depending upon which has the majority of the
liquidity in the currency pair.
[0006] An enhancement to the EBS system, available to the market as
EBS Prime, is described in WO 2004/40422, which is a counterpart of
U.S. appln. Ser. No. 10/694,758, the contents of each of which are
incorporated herein by reference in their entirety. This document
discloses the use of prime brokers to give access to smaller
financial institutions who would not otherwise be able to trade on
the EBS system, or would only have access to limited prices as many
parties trading on the system would not extend them credit. Smaller
banks can trade via a prime broker bank and the counterparty to any
prime broker trade is unaware that they have traded with anyone
other than the prime broker bank. The prime broker bank and the
customer bank will conclude a deal for the same amount but at a
price which may favour the prime broker bank. The use of prime
brokerage is advantageous to the customer bank as it gives them
access to a pool of liquidity to which they would not otherwise
have access; it is advantageous to the prime broker banks as it
enables them to profit from third parties using their credit; and
it is advantageous to the system operator and to all parties
trading on the system as it increases the number of quotes in the
system, and, therefore the liquidity in the instruments being
traded.
[0007] Another approach that has been taken to increase liquidity
is to make different liquidity pools available to customers through
a single interface. This does not increase the liquidity of any
particular system but gives the customer access to a number of
different systems simultaneously, so increasing their chances of
seeing the best available prices in the market. An example of this
type of system is offered by FX Alliance LLC under the trade mark
FXAII Quotes which displays to customers a blended rate taken from
a number of liquidity providers. This system is a portal which
aggregates prices from various institutions and presents the best
prices to the user. Another example is provided by Lava Trading Inc
under the trade mark Lava Colorbook.RTM. and disclosed in U.S. Pat.
No. 6,278,982. Other portal type systems are provided by Currenex
Inc under the trade mark FX Trades and State Street Corporation of
Boston Mass. under the trade mark FX Connect.RTM.
[0008] We have appreciated that there is a need to increase further
the liquidity of automated trading systems such as anonymous
matching systems. However, the approach taken by portal systems is
not suitable and will not enhance the prices that are available to
customers already on the anonymous matching system. The portal
approach would integrate a bank's streaming prices directly into
the anonymous matching system. However, the banks that would
provide such price streams already trade on the matching system and
the net effect would not be advantageous to the bank as there no
additional benefit to the bank.
SUMMARY OF THE INVENTION
[0009] The invention aims to address this problem. The invention
provides a system and method in which quotes derived from an
institution's streaming prices are fed into the trading system.
This may be via an automated trading interface. The streaming
quotes are assigned a deal code. Credit limits for that deal code
are set to zero for all counterparties trading on the system to
whom the institution does not want to make its streaming prices
available. This may exclude all parties other than other deal codes
of the streaming prices institution. The institution providing the
streaming prices also has a deal code providing prime brokerage to
customers. These customers therefore have access to the
institution's streaming prices to the exclusion of other parties
trading on the system.
[0010] More specifically, there is provided a system for trading
products between parties, comprising: a matching system for
matching quotes submitted by counterparties for execution of trades
in a product between the parties, wherein parties trading on the
system each have a unique deal code to identify them to other
parties on the system; a quote stream provided by a party trading
on the system, the quote stream being provided to the matching
system and having a unique deal code on the matching system;
wherein the matching system further comprises a credit system for
storing credit limits for trades between each party trading the
system and each possible counter party and wherein the quote stream
deal code assigns credit only to selected other deal codes, whereby
access to the quote stream is restricted.
[0011] Embodiments of the invention have the advantage that
institutions providing prime brokerage are encouraged to make their
own proprietary price streams available to the system as it
increases the attractiveness of their own prime broker services.
This benefits the system as a whole as it increases the overall
liquidity of the system. The customers benefit as they have access
to aggregated prices via a single interface rather than requiring
separate interfaces for the trading system and the institution's
price stream.
[0012] Preferably, a plurality of institution provide price streams
into the system. Each of these providers may also be a prime broker
bank and customers may be customers of more than one prime broker
bank, further increasing the quality of prices available to prime
broker customers.
BRIEF DESCRIPTION OF DRAWINGS
[0013] Embodiments of the invention will now be described, by way
of example only, and with reference to the accompanying drawings,
in which:
[0014] FIG. 1 is a schematic overview of a system embodying the
invention; and
[0015] FIG. 2 is an enhancement to the system of FIG. 1.
DESCRIPTION OF PREFERRED EMBODIMENT
[0016] An example of a price feed that is produced by a bank is the
Autobahn price feed produced by Deutsche Bank. The Autobahn
Electronic Trading system provides Deutsche Bank clients with
real-time tradable prices, across numerous fixed-income sectors.
This feed includes a stream of FX spot prices that are converted
into quotes and then integrated into the EBS spot matching system.
The manner in which a stream of prices may be converted into a
stream of quotes is disclosed in our application WO2004/012032
entitled Automated Trading System, which is a counterpart of U.S.
appln. Ser. No. 10/205,535, the contents of each of which are
incorporated herein by reference in their entirety. By application
of the techniques described in this application, the streaming
prices received from this, or any other bank or other institution,
may be converted into a stream of quotes.
[0017] Referring now to the figure, the converted streaming quotes
10 from the institution are fed directly into the EBS system 12.
This is achieved by assigning a deal code to the streaming quotes.
In the EBS system, each trading floor is assigned a dealing code.
This code may be real or virtual in that it may refer to a physical
dealing floor comprising a number of trader terminals, or a virtual
trading floor, such as may be used by a prime broker bank to
differentiate between prime broker trades and trades by its own
traders. The deal code is a four-figure code that is used in all
transactions by the trading floor in question. Thus a completed
deal, and the deal ticket generated by that deal, identifies the
counterparty as a particular deal code.
[0018] An anonymous trading system such as the EBS system requires
participants to assign credit to potential counterparties with
which it may trade on the system. The use of credit limits enable a
party trading on the system to control with whom it trades even
though it does not know the identity of the party submitting a
quote into the system. If a party does not wish to trade with
another party, for example because they consider them to be too
great a risk, then they assign no credit to that counter party. In
a preferred embodiment of the invention, all quotes that are shown
to a given party are pre-screened for credit against a yes/no
credit matrix so that the only quotes that the party sees, and
therefore the only quotes that the traders can attempt to hit or
take, have been submitted by counterparties with whom the party has
extended credit and to whom credit has been extended by the
counterparty. Before the deal can actually take place a further
credit check takes place to ensure that there is sufficient actual
bilateral credit remaining for the proposed trade. This approach to
credit screening is disclosed in U.S. Pat. No. 5,375,055
(Togher).
[0019] Credit is assigned for a given party by a trading floor
administrator (TFA) who assigns credit for that deal code to each
possible counterparty deal code. Thus, as the streaming quotes 10
received from the bank are assigned to a deal code, it will be
necessary for credit to be assigned by a TFA for the streaming
prices to all possible counterparties on the system. Credit is only
assigned to trading floors that belong to the same institution.
These may be trading floors in various geographical locations
around the world and may include one or more prime broker deal
codes. It will be appreciated that as the trading system
pre-screens all quotes for credit, and does not display quotes to
parties with whom there is no credit, the institution that streams
its quotes into the system controls who can see those quotes by
setting credit limits to zero for all parties whom it does not want
to see, or deal the quotes.
[0020] In a preferred embodiment, the credit limits for the
streaming price deal code are set to zero for all counterparties
except deal codes that belong to the institution providing the
streaming prices. Thus, these prices are only available to the
bank's own trading community. As well as the bank's own traders, if
this bank is also a prime broker bank which makes its credit
available to prime broker customers, so the streaming quotes will
also be available to the prime broker customers as the prime broker
customer logs onto the system as the prime broker bank as disclosed
in WO 2004/40422 referred to above. The result of this approach is
that the institution's own customers, trading on the system through
the institution as a prime broker, see all the quotes that they
would normally see if they were trading directly on the anonymous
matching system with the prime broker's credit relationships, and
additionally see the prime broker institution's own quote stream.
This is highly advantageous to the prime broker bank as it enhances
the attractiveness of the prime broker bank to potential customers.
Not only will those customers have access to quotes that they would
not see if they traded directly on the anonymous matching system,
they will also have access to quotes that other parties trading on
the anonymous matching system are not able to see. Third parties
trading on the system will be aware that there are sources of
liquidity to which they do not have access as the EBS system always
displays the best quote in the market as well as the best quote
that is dealable by a particular trading floor. It is a feature of
the EBS system that all traders can see the EBS Best' price. That
price is the best price that is in the market for the instrument
being traded. This is attractive to the bank providing the price
stream as it encourages others to sign up as prime broker
customers.
[0021] Referring back to FIG. 1 the stream of prices 10 from the
institution is first converted into a stream of quotes via an
automated trading interface ATI 11 before being submitted to the
anonymous trading system 12 as quotes originating from the same
deal code 1XYZ. The quotes are then treated in the same way as any
other quotes in the system but are only shown to trading floors of
institution XYZ by selection of credit limits as discussed above.
This is represented in FIG. 1 by the arrow extending between deal
code 1XYZ and deal code XYZA. Here deal code XYZA represents a
generic deal code under which sit all institution XYZ's trading
deal codes. The use of hidden deal codes is disclosed in our
co-pending provisional patent application US Number unknown
entitled Trading Systems the content of which are incorporated
herein by reference in its entirety.
[0022] From deal code XYZA, quotes and deal information are sent to
a distributor 14 which distributes the quotes to prime broker
customers PBC, to automated trading interfaces ATI and to deal feed
clients which receive deal ticket information relating to deals. A
deal feed connection DF 16 is provided between the anonymous
trading system and the distributor 14. Deal Feed is a solution
provided by EBS Group Ltd to generate and distribute deal tickets
to back office systems for settlement when deals have been
completed. The distributor may be a part of the existing EBS system
for distributing market information to customers. Thus it may be a
market distributor as disclosed, for example, in U.S. Pat. No.
5,373,055 or it may a broking node as described in WO 01/98960,
which is a counterpart of U.S. appln. Ser. No. 09/603,523, the
contents of each of which are incorporated herein by reference. Any
other convenient financial data distribution system may be
used.
[0023] FIG. 2 shows a further embodiment of the invention. In this
embodiment there are several prime broker banks each of which
supply their streaming prices into the system. Thus each of the
three deal codes shown: 1XYZ, 1UVW and 1RST is a deal code that
receives a stream of quotes from its own institution and which
makes those quotes available on the anonymous trading system only
to its own trading floors and its prime broker customers by setting
credit limits to zero for all other counterparties on the system.
The distributor 14 receives all the quotes for the XYZA, UVWA and
RSTA families of deal codes and distributes them to their customers
in the manner described with reference to FIG. 1. However, many of
the customers will be prime broker customers of two or more of the
banks and the distributor also functions to blend the prices so
that the prime broker customers only see the best prices that are
available to them.
[0024] It will be appreciated that the embodiments described enable
the additional liquidity achieved by the use of prime brokers and
disclosed in WO2004/40422 to be further enhanced by making banks
own price streams available to their prime broker customers for
trading via the anonymous trading system. From the customers' point
of view this is highly desirable as they are assured of the best
possible prices whilst trading on a single system, so avoiding the
need to use, monitor and subscribe to several systems
simultaneously. From the prime broker banks' point of view it is
advantageous as it enhances the value of its prime broker service
and can therefore increase revenue. From the system operator's
point of view it is advantageous as it introduces increased
liquidity for selected customers who are largely customers who
would normally be unable to trade on the system for lack of credit.
This increases the volume of quotes in the system and so increases
liquidity for all users in the system and revenue to the system
operator and thus increases the quality of prices available on the
system.
[0025] In the system described with respect to FIGS. 1 and 2, the
quotes received by the institution's customers are aggregated by
the distributor so that the customer sees only the best price,
whatever its source. The institution's own prices are given time
priority so that if the matching system's prices are the same as
the institution's own prices, the institution's prices are dealt
first. In the FIG. 2 embodiment two or more institution price
streams may have the best price. In this case, the customer may
select a preferred prime broker bank.
[0026] In the embodiments described, it is possible that prices
could become inverted leaving the institution supplying its
streaming prices to the system open to an arbitrage. This may
occur, for example, if the price stream received from the
institution runs somewhat slower than the anonymous matching
system. The matching system is configured to ensure that exposure
to arbitrage is minimised. This situation arises if the institution
streaming bid is less than the best dealable offer on the trading
system or the institution's streaming offer is less than the
trading system's best dealable bid. The arbitrage possibility is
removed simply by removing the institution's bid or offer in these
circumstances.
[0027] Prime broker banks may have view-only access to the prices
passed to prime broker customers via the distributor. The display
to prime brokers indicates the best prime broker customer bid and
offer.
[0028] In a further embodiment of the invention, other pools of
liquidity may be introduced into the system in the manner described
above. These liquidity pools may not only be price streams from
institutions that also act as prime brokers on the system but also
may be price streams from other institutions or even quotes from
other trading systems.
[0029] It should be appreciated that the distributor, which may
function to aggregate prices as well as distributing them to prime
broker customers, does not perform any matching. Matching of quotes
is still performed by the anonymous trading system in the same
manner as in conventional systems.
[0030] It will be apparent that the distributor is not able to
enforce credit rules and merely passes deal attempt messages and
rejection messages between the trading system and the prime broker
customers. However, within the trading system the institutions'
streaming prices are subject to the same credit rules as other
parties to the system. It will be appreciated that the use of
credit limits is key to being able to show prices only to the
institutions' customers. Trades on streamed prices are subject to
the same post matching credit checks as conventional trades on the
system. In the same manner, the system does not distinguish between
different quote sources when producing deal tickets after trades
have been completed.
[0031] In an alternative embodiment of the invention, the price
streams from the institutions are fed directly to the distributor.
While this approach retains the advantages of being able to
distribute streamed prices only to the institution's customers, it
cannot service a global market from a single price stream. In
practice it is necessary to locate a separate distributor in each
major market, e.g. London, New York and Tokyo. In the embodiments
of FIGS. 1 and 2 a single price feed into the trading system via an
ATI to convert the prices into quotes is sufficient as the
mechanism of the trading system is designed to distribute quotes to
traders around the world. In the EBS system, a clique of
arbitrators each having associated broker nodes including market
distributors is used. One version of this system is disclosed in
U.S. Pat. No. 5,375,055 (Togher) the content of which is
incorporated herein by reference. If the price feed is fed directly
to the distributor then a separate feed is needed for each
distributor which is not preferred.
[0032] The system has been described in the context of an FX Spot
matching system. However the invention is not limited to such a
system and may be used with any system in which credit limits or
other parameters are assigned to prevent some parties to the system
seeing and dealing quotes input by other parties to the system.
Such a system need not be anonymous. The invention is not limited
to any particular financial instruments but is applicable to any
product that can be traded on an automated trading system.
[0033] The conversion of a price stream to a quote stream is not
always essential. In some instances, the institution will be able
to output a quote stream in which case no further conversion is
required by the system.
[0034] Many alternatives and modifications to the embodiments
described are possible within the scope of the invention and will
occur to those skilled in the art. The scope of the invention is
limited only by the following claims.
* * * * *