U.S. patent application number 13/912453 was filed with the patent office on 2014-03-27 for systems and methods for vending and acquiring order priority.
The applicant listed for this patent is BGC Partners, Inc.. Invention is credited to Howard W. Lutnick, Michael Sweeting.
Application Number | 20140089160 13/912453 |
Document ID | / |
Family ID | 37568748 |
Filed Date | 2014-03-27 |
United States Patent
Application |
20140089160 |
Kind Code |
A1 |
Lutnick; Howard W. ; et
al. |
March 27, 2014 |
SYSTEMS AND METHODS FOR VENDING AND ACQUIRING ORDER PRIORITY
Abstract
Systems and methods for vending and acquiring of trading
priority in electronic trading systems are provided. The systems
and method preferably provide for vending and acquiring priority in
any suitable electronic trading system. Such suitable electronic
trading systems include, but are not limited to, hit/lift exclusive
priority systems, price time priority systems, order allocation
systems, and request for quote systems.
Inventors: |
Lutnick; Howard W.; (New
York, NY) ; Sweeting; Michael; (Aldershot,
GB) |
|
Applicant: |
Name |
City |
State |
Country |
Type |
BGC Partners, Inc. |
Wilmington |
DE |
US |
|
|
Family ID: |
37568748 |
Appl. No.: |
13/912453 |
Filed: |
June 7, 2013 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
|
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11168253 |
Jun 28, 2005 |
8463690 |
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13912453 |
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Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 40/04 20130101 |
Class at
Publication: |
705/37 |
International
Class: |
G06Q 40/00 20120101
G06Q040/00 |
Claims
1-57. (canceled)
58. A system for trading an item comprising: a server comprising: a
server storage device; a server processor connected to the server
storage device, the server storage device storing a server program
for controlling the server processor; and the server program, when
executed by the processor, directs the server processor to: receive
a plurality of trading orders from a plurality of trading
participants via a corresponding plurality of trading terminals in
electronic communication with the server; match trades between the
plurality of trading participants in accordance with a
predetermined trading algorithm for matching trading orders;
arrange at least a first and a second one of the plurality of
trading orders in a stack according to priority rules such that the
first trading order has a more senior position in the stack than
the second trading order; cause a vending of trading priority from
a priority vendor associated with the first order to a priority
acquirer associated with the second order, wherein the priority
vendor comprises a trader having a first trading order in the
stack, and wherein the vending of said trading priority includes
awarding an incentive to the priority vendor based on the priority
vendor vending the trading priority to the priority acquirer,
wherein the incentive awarded to the vendor is provided as a
reduction in one of brokerage, trading fees, and clearing fees; and
modify the position in the stack of the second trading order based
on the act of causing the vending of the trading priority.
59. The system of claim 58, wherein the predetermined trading
algorithm is a hit/lift trading algorithm for matching orders, and
in which the act of modifying the position in the stack of the
second trading order comprises moving the position of the second
trading order to a position of higher trading priority.
60. The system of claim 58, wherein the predetermined trading
algorithm is for matching market maker, professional trader and
public customer orders and quotations with incoming orders and
quotations, and wherein the server program, when executed by the
processor, further directs the server processor to: modify the
position of the first trading order based on the act of causing the
vending and acquiring of trading priority.
61. The system of claim 58, wherein the predetermined algorithm for
matching trading orders is a price and time priority trading
algorithm.
62. The system of claim 58, wherein the predetermined algorithm for
matching trading orders is a pro-rata sharing trading
algorithm.
63. The system of claim 58, wherein the predetermined algorithm for
matching trading orders is a request for quote trading
algorithm.
64. The system of claim 58, wherein the server program, when
executed by the processor, further directs the server processor to
communicate information indicating that trading priority is
available for acquisition.
65. The system of claim 64, further comprising a plurality of
workstations, each of the plurality of workstations operative to
communicate with the server, each of the workstations comprising: a
workstation storage device; a workstation processor connected to
the workstation storage device, the workstation storage device
storing a workstation program for controlling the workstation
processor; and the workstation program, when executed by the
workstation processor, directs the workstation processor to:
display transaction information to trading participants; receive
information indicating that trading priority is available for
acquisition; and display, to the plurality of trading participants,
information indicating that trading priority is available for
acquisition.
66. The system of claim 65, wherein the transaction information
relating to the trading priority is displayed to show a price and
size available for trading.
67. The system of claim 65, wherein the transaction information
relating to the trading priority is displayed to show one of a bid,
buy, offer, or sell side for which trading priority may be
acquired.
68. The system of claim 58, wherein the incentive awarded to the
vendor is provided as a reduction in brokerage.
69. The system of claim 58, wherein the incentive awarded to the
vendor is provided as a reduction in trading fees.
70. The system of claim 58, wherein the incentive awarded to the
vendor is provided as a reduction in clearing fees.
71. The system of claim 58, wherein the incentive awarded to the
vendor is sourced from a priority acquirer.
72. The system of claim 71, wherein the incentive sourced from a
priority acquirer is provided as one of an increase in brokerage
and an increase in trading fees.
73. (canceled)
74. The system of claim 71, wherein the incentive sourced from a
priority acquirer is provided as an increase in clearing fees.
75. The system of claim 58, wherein the vending of trading priority
by the priority vendor occurs automatically at a conclusion of a
trading session of the priority vendor without any instruction by
the priority vendor to vend trading priority.
76. The system of claim 58, wherein the vending of trading priority
by the priority vendor is implemented by said priority vendor
sending an instruction to vend trading priority.
77. A method for trading an item comprising: receiving, by at least
one processor, a plurality of trading orders from a plurality of
trading participants via a corresponding plurality of trading
terminals in electronic communication with the server; matching, by
the at least one processor, trades between the plurality of trading
participants in accordance with a predetermined algorithm for
matching trading orders; arranging, by the at least one processor,
at least a first and a second one of the plurality of trading
orders in a stack according to priority rules such that the first
trading order has a more senior position in the stack than the
second trading order; causing, by the at least one processor, a
vending of trading priority between a priority vendor associated
with the first order and priority acquirer associated with the
second order, wherein the priority vendor comprises a trader having
a first trading order in the stack, and wherein the vending and
acquiring of said trading priority includes awarding an incentive
to the priority vendor based on the priority vendor vending the
trading priority to the priority acquirer, wherein the incentive
awarded to the vendor is provided as a reduction in one of
brokerage, trading fees, and clearing fees; and modifying, by the
at least one processor, the position in the stack of the second
trading order based on the act of causing the vending of the
trading priority.
78. A non-transitory machine-readable medium having instructions
stored thereon which, when executed by at least one processor,
direct the at least one processor to: receive a plurality of
trading orders from a plurality of trading participants via a
corresponding plurality of trading terminals in electronic
communication with the server; match trades between the plurality
of trading participants in accordance with a predetermined trading
algorithm for matching trading orders; arrange at least a first and
a second one of the plurality of trading orders in a stack
according to priority rules such that the first trading order has a
more senior position in the stack than the second trading order;
cause a vending of trading priority from a priority vendor
associated with the first order to a priority acquirer associated
with the second order, wherein the priority vendor comprises a
trader having a first trading order in the stack, and wherein the
vending of said trading priority includes awarding an incentive to
the priority vendor based on the priority vendor vending the
trading priority to the priority acquirer, wherein the incentive
awarded to the vendor is provided as a reduction in one of
brokerage, trading fees, and clearing fees; and modify the position
in the stack of the second trading order based on the act of
causing the vending of the trading priority.
Description
INTRODUCTION
[0001] The present invention relates to an electronic system for
trading order priority in accordance with specific protocols.
BACKGROUND OF THE INVENTION
[0002] Electronic trading systems provide a forum for buyers and
sellers to share price information about traded goods and thereby
facilitate efficient marketplace transactions. Sellers and buyers
alike may be permitted access to market information to make
informed decisions about pricing and volume. Host computers may run
a number of applications including order-matching, maintaining
order books and positions, price information, and managing and
updating databases while trading is being effected. Other data
processing may be effected after close of trading, for example
creating or maintaining an audit trail. Additionally, some trading
interfaces (such as Application Program Interfaces) may allow other
computers to act on behalf of users. Such computers may be
programmed with statistical models for program trading. Trades may
be transacted upon a matching of contra orders, i.e., orders on the
opposite sides of a transaction.
[0003] One important component of electronic trading systems is
order priority. Order priority is the mechanism by which systems
determine which orders are matched first, second, etc. To
facilitate orderly and market-efficient transactions, electronic
trading systems may establish rules or combinations of rules to
determine which buyers and which sellers can trade with each other
at a given time.
[0004] Priority rules may be based on both price, time or other
suitable criteria. Typically, buyers and sellers place bids and
offers for a defined class of traded goods. Each trading
participant may place a bid or offer at a select price and volume.
Priority may be awarded to the best or highest bid price from a
trading participant who wants to buy the traded good, as well as to
the best or lowest offer price from a trading participant who wants
to sell the traded good. If multiple competing orders are resident
in the system at the same price, then priority may be awarded to
the earliest in time order among the competing orders. As such, a
queue (or "stack") of bids and offers develops in price and time
order.
[0005] In some trading systems, once the queue forms, trading may
begin only by an affirmative action on the part of a trading
participant. This is sometimes knows as hit--i.e., an acceptance of
a pending bid--and lift (or, "take")--i.e., an acceptance of a
pending offer--trading. In hit and lift trading, the trading
participant who takes affirmative action to enact a trade--i.e., he
either hits a bid or lifts an offer--may be known as the "active"
participant. The trading participant whose bid was hit or whose
offer was lifted may be known as a "passive" participant. The first
of such active and passive trading participants in line to trade
may be referred to herein as "current" participants. The current
participants may trade while the other participants remain queued
up in the stack below waiting to trade.
[0006] During some types of hit and lift trading, initial priority
may be awarded to the first trading participant that actively hit a
bid or lifted an offer and to the first passive participant on the
contra side of the trade. These trading participants may therefore
transact trades further between each other and then subsequently
with more contra counterparties before other participants on their
same side who did not initially act affirmatively to trade or may
not have participated passively on the contra side of the
trade.
[0007] In some embodiments of hit and lift trading, once a trade
has been transacted, the current participants may be allowed
priority to trade additional volume a predetermined time period or
some other suitable time period. A hit and lift system that
includes the ability for current participants to transact
additional volume once an initial trade has been transacted is
described in detail in U.S. Pat. No. 6,560,580. The additional time
period grants the current participants preferably time-limited
exclusivity and allows the current participants at least one period
of time to trade exclusively at that price.
[0008] After the current trading participants who have initial
priority are finished, or, alternatively "done", trading, trading
may continue down the stack in price and time order, or "priority".
Price and time priority trading rewards priority to same price
orders that are submitted earliest in time.
[0009] Typically, price/time priority trading participants may not
move up the stack and into a current priority trading position. As
long as the current trading participants are benefiting from their
respective priority, the rest of the participants in the stack have
to wait. If the current trading participants complete their
transactions before their priority ends, valuable trading time may
go to waste as price/time trading participants wait in line. Also,
the current priority holders, when finished, may wish to make their
remaining priority time available for other traders to use, in
return for a financial compensation.
[0010] It would be desirable to provide a system that allows for
participants that desire to trade during the otherwise-wasted time
to have access to the time period of limited trading
exclusivity.
[0011] It would, therefore, be desirable to provide a system and
methods of electronic trading that support the acquiring and
vending of trading priority.
[0012] Electronic exchanges and trading systems that provide such
functionality may allow a trader to significantly improve his own
or his firm's bottom line or profitability. These qualities,
arising out of the technical way such priority situations are
handled, may make such exchanges and interfaces desirable.
[0013] Furthermore, Exchanges and trading systems that allow quick
and economic use of such functionality may allow a trader an
advantageous ability to maximize opportunity in fast moving
markets.
SUMMARY OF THE INVENTION
[0014] It is an object of this invention to provide a system that
allows for participants that desire to trade during the otherwise
wasted time to have access to the time period of limited trading
exclusivity.
[0015] It is also an object of this invention to provide a system
and methods of electronic trading that support the acquiring and
vending of trading priority.
[0016] It is a still further aspect of this invention is to allow
other trading participants to partake of the limited exclusivity
that initial hit and lift trading participants may benefit
from.
[0017] In one embodiment of the systems and methods of the
invention, priority is awarded to trading participants for a
particular period of time. Thus, the priority takes on the
characteristics of an option to purchase or sell a certain item in
a given time frame. An option, by nature, has value and can,
therefore, be acquired or vended (sold) for value.
[0018] It is an object of this invention to provide systems and
methods of electronic trading that support the acquiring and
vending of trading priority.
[0019] One embodiment of the above-mentioned electronic trading
system includes (1) a server with a storage device and one or more
server processors that store a server program for controlling the
storage device connected to the server storage device; (2) the one
or more server processors operating with the server program to
transact the vending and acquisition of priority between a
plurality of trading participants, including a priority vendor and
a priority acquirer; (3) a plurality of workstations that
communicate with the server, having a storage device and a
processor connected to the storage device, where the storage device
stores a workstation program for controlling the workstation
processor; (4) the workstation processor operating with the
workstation program to (a) display transaction information relating
to the traded priority to trading participants, (b) receive a bid
or offer entered by a first trading participant at a select price
or volume, (c) execute a transaction in accordance with a command
entered by a second participant to trade the item at the select
price, (d) enable the first and second trading participants to
continue to trade volume at the select price, and (e) enable the
first and second trading participants to vend priority; and (f)
enable subsequent trading participants to acquire priority (5) a
clearing center operating to communicate with the server, wherein
the clearing center includes a storage device and at least one
processor connected to the clearing storage device that stores a
clearing program for controlling the clearing processor; and (6)
the clearing processor operating with the clearing program to cause
the transactions to be completed and cleared and to verify that the
transactions are completed and cleared.
[0020] One embodiment of the above-mentioned method for electronic
trading includes (1) storing a server program for controlling at
least one server processor; (2) communicating with the server by a
plurality of workstations, that include storing a workstation
program for controlling at least one workstation processors; (3)
displaying transaction information relating to the traded priority
to trading participants; (4) receiving a bid or offer entered by a
first trading participant at a select price or volume; (5)
executing a transaction in accordance with a command entered by a
second participant to trade the item at the select price; (6)
enabling the first and second trading participants to continue to
trade volume at the select price; (7) enabling the first and second
trading participants to vend priority; (8) enabling subsequent
participants to acquire priority and (89) communicating with the
server by a clearing center that stores a clearing program for
controlling a clearing processor for causing the transactions to be
completed and cleared and to verify that the transactions are
completed and cleared.
[0021] One embodiment of the above-mentioned electronic trading
system includes a computer-readable medium with instructions for
(1) storing a server program for controlling at least one server
processor; (2) communicating with the server by a plurality of
workstations, that include storing a workstation program for
controlling a workstation processor; (3) displaying transaction
information relating to the traded priority to trading
participants; (4) receiving a bid or offer entered by a first
trading participant at a select price or volume; (5) executing a
transaction in accordance with a command entered by a second
participant to trade the item at the select price; (6) enabling the
first and second trading participants to continue to trade volume
at the select price; (7) enabling the first and second trading
participants to vend priority; (8) enabling subsequent participants
to acquire priority and (9) communicating with the server by a
clearing center that stores a clearing program for controlling a
clearing processor for causing the transactions to be completed and
cleared and to verify that the transactions are completed and
cleared.
BRIEF DESCRIPTION OF THE DRAWINGS
[0022] Further features of the invention, its nature and various
advantages will be apparent from the following detailed description
of the preferred embodiments, taken in conjunction with the
accompanying drawings, in which like reference characters refer to
like parts throughout, and in which:
[0023] FIG. 1 is an illustration of an electronic implementation of
a system in accordance with some embodiments of the present
invention;
[0024] FIG. 2 is an illustration, in greater detail, of an
electronic implementation of a system in accordance with some
embodiments of the present invention; and
[0025] FIG. 3 is an illustration of an electronic trading interface
in accordance with some embodiments of the present invention.
DETAILED DESCRIPTION OF THE INVENTION
[0026] Trading priority has value to trading participants, both
those who are enjoying a trading priority position, and those who
wish to obtain priority outside of the standard priority rules to
improve their respective position on the buy or sell list. On the
other hand, trading priority may be of no value to other trading
participants, for example, those who have enjoyed priority but who
have finished trading, or those who connect their trading models
via an automated program via an application programming interface
(API) that may not recognize, or, alternatively, take advantage of,
priority. These differing interests in priority create a
marketplace for the sale and purchase of trading priority, wherein
participants who do not use their trading priority can effectively
sell ("vend") their unused priority to those who desire to purchase
("acquire") it, and receive value in return.
[0027] In one embodiment of the invention a trading participant who
has completed trading may choose to vend his priority in order to
receive a price reduction in brokerage fees or commissions. A
trading participant may choose to acquire the unused priority to
improve his respective position in the buy or sell stack and thus
increase the chances of trading more volume sooner. The trading
participant may pay value for such an improvement of position in
the form of increased trading fees--e.g., brokerage fees, clearing
fees or trading system fees.
[0028] One example of a user who has indicated his desire for
priority, or alternatively, his desire to trade the item, is
disclosed in U.S. patent application Ser. No. 10/678,582. Such a
desire is identified therein as attributed to a user who has
elected to pay slightly more to buy, or receive slightly less to
sell (sometimes known as "price improvement" or "PI") in order to
move ahead in the stack. Trading participants who elect to use
price improvement may move ahead in the stack of those who have
not, to improve the chances that they execute their trades. Trading
participants who do not pay the extra brokerage may be known as
"regular users."
[0029] The following definitions of trading participants are used
throughout the description to more easily define the concepts of
the invention. Nevertheless, the invention is not limited to these
particular trading participants and may apply to any suitable
trading participant.
[0030] a) Market Makers: Trading Participants that support a
trading instrument by making regular bids and offers to support
liquidity in that instrument.
[0031] b) Priority vendor: Trading participants that show an intent
by some suitable action to vend priority. One embodiment of a
priority vendor may be an API participant that trades on electronic
trading systems. These API participants may not recognize and may
not take advantage of priority rules and therefore may prefer to
pay less brokerage on the volume already traded by vending their
priority to another trading participant.
[0032] c) Priority acquirer: Trading participants that show an
intent by some suitable action to acquire trading priority when
made available by a priority vendor. Examples include but are not
limited to trading participants that (1) use price improvement; (2)
pay extra brokerage; and (3) are market makers.
[0033] Referring to FIG. 1, exemplary system 100 for implementing
the present invention is shown. As illustrated, system 100 may
include one or more workstations 101. Workstations 101 may be local
or remote, and are connected by one or more communications links
102 to computer network 103 that is linked via communications links
105 to server 104. Server 104 is linked via communications link 110
to back office clearing center 112.
[0034] In system 100, server 104 may be any suitable server,
processor, computer, or data processing device, or combination of
the same. Server 104 and back office clearing center 112 may form
part of the electronic trading system. Furthermore, server 104 may
also contain an electronic trading system and application
programming interface and merely transmit a Graphical User
Interface or other display screens to the user at the user
workstation, or the Graphical User Interface may reside on
Workstation 101.
[0035] Computer network 103 may be any suitable computer network
including the Internet, an intranet, a wide-area network (WAN), a
local-area network (LAN), a wireless network, a digital subscriber
line (DSL) network, a frame relay network, an asynchronous transfer
mode (ATM) network, a virtual private network (VPN), or any
combination of any of the same. Communications links 102 and 105
may be any communications links suitable for communicating data
between workstations 101 and server 104, such as network links,
dial-up links, wireless links, hard-wired links, etc.
[0036] Workstations 101 may be personal computers, laptop
computers, mainframe computers, dumb terminals, data displays,
Internet browsers, Personal Digital Assistants (PDAs), two-way
pagers, wireless terminals, portable telephones, programmed
computers having memory, the programmed computer using the memory
for implementing trading models, etc., or any combination of the
same. Workstations 102 may be used to implement the electronic
trading system application and application programming interface
according to the invention.
[0037] Back office clearing center 112 may be any suitable
equipment, such as a computer, a laptop computer, a mainframe
computer, etc., or any combination of the same, for causing
transactions to be cleared and/or verifying that transactions are
cleared. Communications link 110 may be any communications links
suitable for communicating data between server 104 and back office
clearing center 112, such as network links, dial-up links, wireless
links, hard-wired links, etc.
[0038] The server, the back office clearing center, and one of the
workstations, which are depicted in FIG. 1, are illustrated in more
detail in FIG. 2. Referring to FIG. 2, workstation 101 may include
processor 201, display 202, input device 203, and memory 204, which
may be interconnected. In a preferred embodiment, memory 204
contains a storage device for storing a workstation program for
controlling processor 201. The storage device may include software
stored on a suitable storage medium such as a disk. Memory 204 also
preferably contains an electronic trading system application 216
according to the invention.
[0039] Electronic trading system application 216 may preferably
include application program interface 215, or alternatively, as
described above, electronic trading system application 216 may be
resident in the memory of server 104. In this embodiment, the
electronic trading system may contain application program interface
215 as a discrete application from the electronic trading system
application which also may be included therein. The only
distribution to the user may then be a Graphical User Interface
which allows the user to interact with electronic trading system
application 216 resident at server 104.
[0040] Processor 201 uses the workstation program to present on
display 202 electronic trading system application information
relating to market conditions received through communication link
102 and trading commands and values transmitted by a user of
workstation 101. Furthermore, input device 203 may be used to
manually enter commands and values in order for these commands and
values to be communicated to the electronic trading system.
Priority Vending by Default
[0041] The following defines specific priority passage rules that
may be implemented according to the invention.
[0042] In one embodiment of the invention, trading participants may
set default trading parameters such that when they have priority,
it will automatically vend to the next willing priority acquirer.
When a priority vendor by default is first in the line of trading
participants, the following trading priority rules may be
implemented:
[0043] (i) For any first participant in a trade, the system may
store a "priority vendor tally" for each of the participant's
transactions.
[0044] The tally may be preferably participant specific and may
record the amount traded by each participant. The system does not,
however, change any active trading parameters--i.e., nothing
different is done regarding vending priority until a period of
active priority trading occurs.
[0045] (ii) If a trading participant hits a bid for the bid volume
or for a higher volume than the existing bid, that active
participant and passive, counter participant may become the current
participants with trading rights. The system may update the
priority vendor tally with respect to the current participants by
the amount of the full initial trade executed by the current
participants. The tally may also include subsequently traded volume
where the priority traders become the priority participants during
a then extended priority trading session with each other. In one
embodiment of the invention, the tally may reset to zero when each
participant loses their respective priority. In another embodiment,
the tally may be stored and updated throughout the course of the
trading day.
[0046] (iii) At inception of the trade, if a current participant is
a priority vendor the participant may continue to enjoy priority in
the traditional way, trading as much volume as he desires, and is
available, on the contra side. According to the invention, the
following three scenarios may occur: the priority vendor may (1)
carry on as the current participant (when there is no priority
acquirer on the same side of the trade), (2) vends the priority to
the first priority acquirer who subsequently joins the trade on the
same side as the priority vendor, or (3) becomes finished or "done"
in the traditional fashion--i.e., either because he elects to end
his trading session, or times out (the priority period ends
according to the timing of the trading logic). In this embodiment,
the current participant's priority vendor tally may reset to zero,
as no successful vending of priority was transacted.
[0047] (iv) Where the conditions of trading priority exist and the
priority vendor has no more size left to trade, a subsequent
priority acquirer may take the place of the priority vendor as the
current worker, and the priority vendor becomes "done" and is thus
removed from the buy or sell stacks. The priority acquirer then
becomes ready to trade additional volume and inherits whatever
priority opportunities and time left over from the priority
vendor.
[0048] (v) A priority acquirer that subsequently joins the trade on
the same side as a priority vendor who still has more to trade may
be allowed to become the current participant alongside but after
any priority vendor size still unfilled. When there is subsequently
no further volume to be traded from the priority vendor, the
priority acquirer may become the sole current participant on that
side of the trade, immediately trading any active contra current
volume without being "done," and enjoying whatever priority
opportunities and time is left to trade more. Any volume
subsequently added to trade by the priority vendor, during the
trade but after priority is transferred to the priority acquirer,
may fall to the bottom of the buy or sell stack in price and time
priority order, in accordance with the priority vendor having
effectively passed priority to the priority acquirer.
[0049] (vi) The priority acquirer tally is preferably updated to
include the full amount traded by the successful priority acquirer
after priority acquisition for the duration of the trade as a
result of acquiring priority, not including volume traded before
that point.
[0050] (vii) If any contra current participant's priority ends
while the priority acquirer is still the current participant on
their side of a trade, the priority acquirer may immediately trade
any other contra size that was waiting to trade, but previously
held from trading according to the priority trading rules.
[0051] (viii) In one embodiment of the invention, after trading (or
trade matching) ceases at a particular price level, the priority
vendor receives an incentive in the form of a reduction in
brokerage or trading fees on the size he has traded, as a result of
the sale of his priority. Brokerage or trading fees for the
priority vendor may be reduced by a dollars per million rate,
applied to an amount that may be limited by the smaller of: 1) The
priority vendor amount traded tally traded before priority vending
(the volume the priority vendor traded before his trading priority
was passed to the priority acquirer); 2) the priority acquirer
amount tally traded after priority acquisition (the volume the
priority acquirer subsequently traded due to acquiring trading
priority); and 3) The actual monetary amount of brokerage or
trading fee reduction the trading system may award to the priority
vendor this may also be limited to that subsequently achieved from
the priority acquirer.
[0052] For Example:
A Priority Vendor by default, "PV1" bids [0053] 100.12 for 10
million ("million" is hereinafter designated by "m") A Regular
User, RU1 bids [0054] 100.12 for 2 m A Contra Trading participant,
CT1, offers 100.12 for 14 m and thus hits both bids, selling to
fulfill both buying interests with 2 m more remaining for sale.
(PV1 retains trading priority albeit without yet showing additional
size--PV1 has a priority time period to return and trade the extra
2 m available should he wish to).
[0055] The screen shows 100.12 HIT 12 0.times.2 (the zero
designates the bid side of the stack, and the 2 designates the
offer side of the stack in millions).
[0056] Another Regular User, "RU2" bids 100.12 for 5 m, and the
screen shows
100.12 HIT 12 0.times.2
[0057] 5
(the RU2 bid is held below the first position during the time the
PV1 user has trading priority still, and this is denoted by the
continued existence of the 0 m in front of (above) the 5 m.)
[0058] If a Priority Acquirer user "PA3" then bids 100.12 for 6 m
then as a result, PV1 vends priority to PA3. The priority vendor
tally for PV1 becomes 10 m.
[0059] Due to Priority Acquisition, PA3 immediately advances in
position in front of the RU2 bid for 5 m and buys the 2 m for sale.
PA3's priority acquirer tally accrues to 2 m.
CT1 now has the trading priority opportunity to sell additional
volume to meet PA3's remaining unfilled bid (4 m still
outstanding).
[0060] The screen shows 100.12 HIT 14 4.times.0
[0061] If CT1 sells just another 1 m, then CT1 would be immediately
finished /"done" because they chose to not sell the full size of
the remaining 4 m buy order such that CT1's trading priority ends
and the screen then shows that 15 m have traded and 8 m more are
bid for:
100.12 HIT 15 3 5 .times. ##EQU00001##
(15 m have traded, PA3 has 3 m more to buy in the priority trading
position, and RU2 has 5 m to buy underneath--there are no further
sellers or trading priority on the seller's side of the trade).
[0062] If another contra participant sells another 1 m, the stack
looks like:
100.12 HIT 16 2 _ 5 .times. ##EQU00002##
(16 m have traded, PA3 has 2 m more to buy in the priority trading
position, and RU2 has 5 m to buy underneath--there are no further
sellers or trading priority on the sellers side of the trade).
PA3's priority acquirer tally accrues to 4 m.
[0063] At this point in the example, PV1 had a priority vendor
tally of 10 the end of his trade. As a result of vending his
priority, PA3 was able to trade 4 m in additional volume that he
would not have done without acquiring priority. Thus, PV1 has
received a discount towards the brokerage or trading fees that he
paid on 4 m and no discount for the brokerage on 6 m (this is
because the discount is limited as well by the priority acquirer
tally, which is only 4 m). PA3, on the other hand, may pay extra
brokerage or trading fees for his entire volume. Alternatively, PA3
may pay slightly more in price for his volume traded, in the form
of price improvement as disclosed in U.S. patent application Ser.
No. 10/678,582.
[0064] Other types of electronic trading systems may include an
automated system for matching market maker, professional trader and
public customer orders and quotations with incoming orders and
quotations on an exchange for securities. A market maker may be a
professional user of an exchange with certain duties to maintain a
bid and an offer in a security, either during certain periods or
when required to do so ad hoc by trading system prompts.
[0065] A professional trader may be a trader with the same
professional status of a market maker, but without any
responsibilities towards maintaining liquidity on the exchange.
[0066] A public customer may be a non-professional or
semi-professional investor user of the trading system, or indeed
anyone other than a market maker or a professional trader. A new
incoming order may be executed first against public customer orders
and then filled against market maker and professional trader orders
and quotations. The distribution of the incoming order with respect
to the market maker and professional trader orders and quotations
may be on a pro rata basis based on the size of the market maker
and professional trader orders or quotations. An automated system
for matching previously entered orders and quotations with incoming
orders and quotations on an exchange for securities is described in
detail in U.S. Pat. No. 6,618,707, which is incorporated herein by
reference in its entirety.
[0067] In some embodiments of this system, a specialist (who may be
responsible for maintaining an orderly market and providing
liquidity and who accept orders, establish prices for a particular
series of options and allocate trades among market professionals)
may receive a relatively higher portion of the pro rata order
volume (in return for accepting the aforementioned
responsibilities, specialists oftentimes are assured minimum
participation rights in the trading activity that occurs in the
pit). For example, the "sell" or "offer" side of the trading book
may be characterized in part by a public customer offer of 10
contracts from a public customer at a price of 31/2, a primary
market maker (i.e., specialist) offer for 20 contracts at 31/2, and
a professional trader offer for 5 contracts at 31/2. Thereafter, an
order to buy 30 contracts at 31/2 may be sent to a bid matching
process. The bid matching process may match 10 contracts with the
public customer order to sell 10 contracts at 31/2 because public
customer orders may be matched first. Then the bid matching process
may determine that there are 20 contracts of the incoming order
remaining.
[0068] In order to match the remaining portion of the buy order
with the remaining offers, a predetermined number may be
established called the primary market maker ("PMM") small order
preference size. If the size of the original order is less than the
PMM small order preference size, then a PMM may trade for the
remaining portion of the buy order. In some embodiments, after the
public customer orders are matched, the bid matching process may
then determine that the original size of the incoming order was
greater than the PMM small order preference size, thereby allowing
the remaining 20 contracts to be traded according to an allocation
algorithm.
[0069] According to this example, a determination may be made that
there is one professional trader along with the PMM at the best
offer price. The remaining incoming order of 20 contracts may be
allocated such that the PMM receives the greater of either 60% of
the incoming order (12 contracts in this example), or the
percentage of the PMM's order with respect to the entire
outstanding order with which the incoming order matches. According
to this example, the PMM's may be entitled to trade 16 of the
remaining contracts because the PMM has 80% (20 of the 25) of the
offered contracts at the best price.
[0070] The PMM therefore, in some embodiments of this electronic
trading system, may have priority with respect to a certain portion
of incoming orders over and above other trading participants. This
priority may be vended to a priority acquirer in accordance with
the present invention. The PMM may accept a lesser proportion of
execution for their orders by vending priority to a professional
trader priority acquirer, also with a subsequent re-adjustment of
brokerage or trading fees.
[0071] In another type of trading system, trading priority may take
the form of simply price and time priority. The sequence in which
orders are matched first according to best price, and, when two
orders have the same price, according to the earliest timestamp an
order is given as it is received by the trading system. Orders at
the same price may be matched "oldest first," but although
sponsoring traders who are supporting the trading system may add
orders to help liquidity, they may actually be less interested to
trade. Such sponsoring traders (and the trading system provider)
may prefer to allow other traders to trade before the sponsoring
traders (or "market makers" as they may often be called),
irrespective of order timestamps. Sponsoring traders may have a
particular trading account that is set up to vend time priority to
other traders at the same price and on the same side (buy or bid;
sell or offer) to aid trading on the system. Monetary adjustment in
the form of (but not limited to) brokerage or trading fee
adjustments may be applied as disclosed herein, whereby the
sponsoring trader may receive trading fee or brokerage reductions
on subsequent trades for giving up trade opportunities to other
traders.
[0072] In yet another type of trading system, orders at the best
price may be matched according to a pro rata-sharing algorithm. In
these trading systems, sponsoring traders who are supporting the
trading system by adding orders to help liquidity may be also less
interested to trade, and they (and the trading system provider) may
prefer to vend priority in a pro rata-sharing algorithm to other
more interested traders at the same price and on the same side (buy
or bid side; sell or offer side). The invention as disclosed may
also be applied to these trading algorithms to redistribute volume
available to trade to those traders who need or desire it most.
Monetary adjustment in the form of (but not limited to) brokerage
or trading fee adjustments may also be applied.
[0073] Still other types of electronic trading systems may include
what is commonly referred to as an RFQ (request for quote) trading
system. In one embodiment of an RFQ system, an order entry dialog
box ("OEDB") may provide the requesting trader with various options
and entry fields. Using some of these options and entry fields, a
trader may submit non-RFQ trade commands (i.e., standard trading
commands), such as, a bid command, an offer command, a buy command,
or a sell command for any suitable instrument. When the OEDB is
activated, the fields in the OEDB may preferably be populated with
information pertaining to the instrument for which the RFQ is made
(the instrument may be selected in any suitable method). For
example, the current market price for the instrument may populate
the price and/or size field automatically, to allow a user to
quickly arrive at their required price and size variables.
[0074] The OEDB may provide an RFQ preferences field. RFQ
preferences field may be made available when the requesting trader
selects an RFQ option from the OEDB. The field may provide a trader
with an RFQ buy option, an RFQ sell option, an RFQ 2-way option,
and an RFQ BOLS (Bid/Offer liquidity spread) option, as described
below. The RFQ buy option and the RFQ sell option may provide the
requesting trader with the ability to submit an RFQ from a buyer
position (they are looking to buy a certain size of the instrument
and are requesting contra offer quotes to be shown) and an RFQ from
a seller position (they are looking to sell a certain size of the
instruments and are requesting contra bid quotes to be shown),
respectively. One option may provide the requesting trader with an
opportunity to submit an RFQ without establishing a direction of
trade (a "2-way" request for quote whereby responders are invited
to quote both a bid and an offer). This may allow the requesting
trader to receive a bid price and an offer price from a market
participant. One option may provide the requesting trader with the
ability to specify a bid/offer liquidity spread, whereby the
requestor is asking for a 2-way quote of a certain maximum
bid/offer spread.
[0075] A minimum size field, a time limit field, a BOLS field, and
a minimum number of prices field are fields that may be
incorporated in an RFQ preferences field. The requesting trader may
specify a minimum size for an instrument he or she is willing to
buy or sell. By populating a field, the requesting trader may
specify a time limit as to how long his or her RFQ is open for
receiving a quote from a market participant. If the requesting
trader desires to specify a bid/offer liquidity spread (BOLS), the
requesting trader can specify the BOLS value (the maximum bid/offer
price spread that responders should use if quoting) and select an
option. When another field is populated, the requesting trader may
have an opportunity to specify the minimum number of quotes to
receive from a market participant in response to his or her
request.
[0076] The OEDB may also provide a trade preference field. This
trade preference field may be used to indicate the trader's
preferred trade type and may allow the requesting trader to select
any type of trade that a particular exchange or trading system
supports.
[0077] The requesting trader may exercise a guarantee-to-trade
(GTT) option in a 2-way RFQ market in which a price parameter and a
BOLS parameter is provided. This is a trade type that may not
currently exist in the marketplace. GTT may be, for example, an
option provided in the trade preferences field. The GTT status of
the 2-way RFQ may be identified to the market participant in order
to allow the market participant to be aware that the requestor
promises that a trade will definitely be executed if he the
responder meets the parameters set forth by the requesting
trader.
[0078] The OEDB may also provide an auto-execution feature for an
RFQ. The auto-execution feature, when selected, may be used to
automatically respond to a market participant's quote. For example,
if a quote satisfying the requesting trader's criteria for
accepting the quote is received, an accept confirmation may be
automatically transmitted from the requesting trader and the trade
may be executed. Other various features for managing quotes
received in response to an RFQ may be incorporated into the
OEDB.
[0079] Selection Options and fields provided in the OEDB may be
reconfigured to suit any requesting trader's needs and preferences,
and reduce the time taken for users to quickly avail themselves of
the trading system functionality in fast moving markets. The
configure keypad option may provide the requesting trader with the
ability to reconfigure the OEDB. The close-on-action box, when
selected, may cause the OEDB to be automatically closed after
specified actions are performed. The close option allows the
requesting trader to close the OEDB on demand. In addition, an
assignable issue buttons field may be provided to allow the
requesting trader to have a specific set of instructions executed
by the push of a single button. Issue buttons may be configured
accordingly via the assign buttons option.
[0080] In some embodiments of an electronic trading system using
RFQ style trading as outlined above, some responders may have
priority with respect to a certain portion of incoming request for
quote orders over and above the other responding trading
participants. These responders may have responded earlier to a
request for quote and be in line for matching first: both during an
RFQ time period where the requestor may be awaiting more responding
quotes, and at the end of an RFQ period where all quotes may be
assembled and a requestor may trade (either by choice, or mandatory
in the case of a "GTT" guaranteed to trade request). As many
responders automatically respond to such request for quotes using
computer models and programs, they may be relatively uninterested
in trading with the requestor. Often in request for quote trading,
a successful responder suffers a "winner's curse" whereby the
successful response trade is actually more often a losing one
monetarily. Where a responder is in line to trade first alongside
other responders at the same price, they may be relatively
uninterested to actually trade and prefer to vend such time
priority to a priority acquirer in accordance with the present
invention.
The "VEND" Key
[0081] In many embodiments of the invention, participants not set
up to vend their priority as a default may also be allowed to take
advantage of priority vending on a per order basis. Where a user
inputs a bid or offer, or buy or sell, the user may be allowed to
use a "VEND" key, which may be implemented by or on any suitable
input device such as a region on a display screen which can be
activated by a moving an indicator on the screen and pressing a
button on a mouse to activate the screen, or any type of keypad,
mouse, trackball, Blackberry.TM. or any other suitable input device
commonly found on devices that allow the participant to input
information to or select information displayed on device to
indicate the intention to vend priority. The vend key allows the
priority vendor to send the trading system an instruction to vend
priority
[0082] The "VEND" key may be used in a hit and lift system as
described above by a passive or active current participant to
become a priority vendor for that trade either (1) initially before
the conditions for a trading priority exist, or (2) subsequently,
after the conditions for a trading priority exist and the user has
finished trading and would like to see if he could vend remaining
trading priority.
[0083] Once priority is vended using the "VEND" key, the priority
rules described above preferably continue in the same manner as if
priority was vended by default.
[0084] In other trading systems, the "VEND" key may be used in the
same style. A user may decide to vend priority on an ad-hoc basis
even if not set up to do so by default.
[0085] The presence of the "VEND" functionality in a trading system
allows trading algorithms to execute matching algorithms faster
when it is used, and especially where monetary gain gives users an
incentive to use it. At some points of many trading algorithms,
trading is momentarily held up to await an expiry of a period of
time allocated to allow a user to make a trading decision. Trading
users can pre-determine their decision by pressing "VEND" to allow
priority vending at order inception, or during the period of time
by pressing "VEND" to allow immediate vending of priority
thenceforth in that trade, where trading priority is either current
to that user, or may become so during the progression of the trade
matching algorithm. This allows for a trading algorithm to process
technically faster, and increases the velocity of trading to allow
more volume to be processed by the trading system.
[0086] FIG. 3 shows an electronic trading interface 300 in
accordance with some embodiments of the present invention.
Interface 300 enables participants to enter into the system bids
and offers at select prices and volumes, to be shown for the item
being traded. The interface includes a top line 301 (alternatively
referred to herein as the touch line, or the headline.) Top line
301 shows the status of the actual aggressed trade. Top line 301
may, alternatively, be adapted to include the price that should be
initially aggressed to start a trade. In either case, top line 301
is typically located at top of the display area related to trading
of a particular instrument. The display area may be hereinafter
referred to as the "display". Top line 301 may include item 302,
price 304, last trading action 305, size traded 306, and size on
bid and offer for the current participants 307. Interface 300 also
includes market depth information 310, which shows price and size
for orders for the items that have not yet been traded consisting
of bids numerically below and offers numerically above the best
headline or touch line price (These bids numerically above, and
offers numerically below are commonly known as the order book, or
just the "book"). In systems traded as yield, the bids would be
numerically higher and the offers numerically lower than the best
headline or touch line price. Also shown in interface 300 are bid
and offer stacks 312 and 314, respectively. Bid and offer stacks
312 and 314 may indicate the size one or many market participants
are bidding or offering at the current headline price 304. Note
that price 304 (shown as 100.132) in this exemplary example is
shown in a traditional United States Government Bond pricing
format.
[0087] In many embodiments of the invention, when priority becomes
available during a trade, the system may flash a highlight (see
circle 316, which indicates a highlight as seen on one embodiment)
over which side of the market (bid, buy or offer, sell) the
available priority pertains to. The flashing may only be shown
where priority becomes available for use, and may be either shown
over the trade side (buy or sell) for which the priority may be
acquired for, or alternatively over the contra trade size over
which priority may be acquired. The highlight may disappear when
priority is acquired, or when priority is no longer available.
[0088] If the first priority acquirer subsequently presses VEND
after acquiring priority, any remaining priority may then pass to
the next potential priority acquirer in line, if there is one. Thus
the first priority acquirer may then become a priority vendor as
well. In such circumstances, the following rules may apply:
[0089] The initial priority acquirer tally (as detailed above) may
then be used as a second priority vendor tally pertaining to this
priority acquiring customer who may subsequently vend remaining
priority.
[0090] Where priority is passed to a second priority acquirer in
this manner, a second priority acquirer tally may be recorded
pertaining to this second priority acquirer.
[0091] Although the initial priority acquirer tally may dictate how
much extra brokerage fees are available to pay the initial priority
vendor, any subsequent second (or third, fourth, etc.) priority
acquirer tally may also be used cumulatively as available monies
for the initial priority vendor.
[0092] In one embodiment of the invention, when the initial
priority vendor obligations as to brokerage or trading fee
reductions are satisfied, further available priority acquirer
monies may be made available to reduce the brokerage cost of
subsequent priority vendors, i.e., those participants who were
originally priority acquirers before pressing "VEND." This means
that priority acquirers who press VEND (1) become eligible for a
priority vendor's rebate on subsequent volume traded, (2) limited
by the volume they executed, (3) and limited to the excess over and
above the volume maximum priority vendor rebate to which the
original vendor was entitled. Other suitable arrangements are also
possible.
[0093] Thus, systems and method for vending and acquiring priority
in electronic trading systems have been provided. It will be
understood that the foregoing is only illustrative of the
principles of the invention, and that various modifications can be
made by those skilled in the art without departing from the scope
and spirit of the invention.
* * * * *