U.S. patent application number 14/155473 was filed with the patent office on 2014-05-08 for electronic trading system.
This patent application is currently assigned to EBS GROUP LIMITED. The applicant listed for this patent is EBS GROUP LIMITED. Invention is credited to Peter R. Horsfall.
Application Number | 20140129419 14/155473 |
Document ID | / |
Family ID | 25478051 |
Filed Date | 2014-05-08 |
United States Patent
Application |
20140129419 |
Kind Code |
A1 |
Horsfall; Peter R. |
May 8, 2014 |
Electronic Trading System
Abstract
An anonymous trading system comprises one or more matching
engines, one or more market distributors and one or more trader
terminals for input of orders from institutions trading on the
system. The trader terminals are connected to the system through
bank nodes. A broker terminal is connected through a bank node and
enables voice brokers to trade on the system on behalf of client
traders. The voice brokers terminal can be configured for any
client trader and will display the market view for that trader.
Trades in which the broker terminal participates are not concluded
until a manual credit check has been performed.
Inventors: |
Horsfall; Peter R.; (Jersey
City, NJ) |
|
Applicant: |
Name |
City |
State |
Country |
Type |
EBS GROUP LIMITED |
London |
|
GB |
|
|
Assignee: |
EBS GROUP LIMITED
London
GB
|
Family ID: |
25478051 |
Appl. No.: |
14/155473 |
Filed: |
January 15, 2014 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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13466818 |
May 8, 2012 |
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14155473 |
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12565067 |
Sep 23, 2009 |
8195544 |
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13466818 |
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09942426 |
Aug 29, 2001 |
7613640 |
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12565067 |
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Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 40/00 20130101;
G06Q 40/04 20130101; G06Q 30/08 20130101 |
Class at
Publication: |
705/37 |
International
Class: |
G06Q 40/04 20120101
G06Q040/04 |
Claims
1. A computerized trading system for trading instruments between
parties including a plurality of order input terminal for inputting
bid and offer orders on behalf of traders, a matching engine
computer for matching bids and offers input by traders and, where
matches are made, for executing deals, and one or more market
distributor computers for distributing details of at least a
portion of the bids and offers in the market to traders, wherein
the order input terminals comprise trader order input terminals and
at least one broker order input terminal for entering bids and
offers into the system on behalf of traders operating outside the
system wherein the trader order input terminals communicate to
traders the amount of the market in the instrument being traded
that has been input from the at least one broker order input
terminal.
2. A system according to claim 1, wherein the traders operating
outside the system comprise voice traders.
3. A system according to claim 2, wherein orders input at the
broker terminal are owned by a broker.
4. A screen display for a trader terminal of an electronic trading
system in which electronic orders are input by traders via the
trader terminals and by brokers on behalf of third parties via
broker terminals, the screen display communicating to the trader
order information received from other traders and brokers via a
network, the screen further including an indication of the
proportion of a given market that has been entered into the system
by one or more brokers.
Description
CROSS REFERENCE TO RELATED APPLICATIONS
[0001] This application is a divisional of U.S. application Ser.
No. 13/466,818, filed May 8, 2012, which is a continuation of U.S.
application Ser. No. 12/565,067, filed Sep. 23, 2009, now U.S. Pat.
No. 8,195,544, which is a divisional of U.S. application Ser. No.
09/942,426, filed Aug. 29, 2001, now U.S. Pat. No. 7,613,640. The
contents of all these applications are incorporated herein by
reference.
FIELD OF THE INVENTION
[0002] This invention relates to an electronic trading system, and
in particular, but not exclusively, to systems for trading
financial instruments, including, but not limited to, forward rate
agreements (FRAs), Spot F/X and swaps. It is also concerned with
commodity trading systems.
BACKGROUND TO THE INVENTION AND DESCRIPTION OF PRIOR ART
[0003] Traditionally, financial instruments such as foreign
exchange and forward rate agreements were traded through voice
brokers. Traders would call their voice broker with a bid or offer
and the broker would attempt to find a match with a counterparty.
The voice broker would not necessarily reveal the identity of the
counterparty at the earliest stage of the deal but would ensure
that each of the parties extended to the other sufficient lines of
credit for a deal to be completed. Where a trader trades through a
given broker frequently, the broker will get to know with what
counterparties the trader has a line of credit and, empirically,
will filter out bids or offers of which he is aware if he considers
that there is little or no likelihood of the trader being able to
trade with the counterparty in question.
[0004] With the advent of computerized trading systems, the
importance of voice brokers has diminished and much of the trades
executed, for example on the F/X spot market, are conducted through
anonymous trading systems or electronic conversational systems
which attempt to mimic the role of the voice broker. However, voice
brokers have not been entirely replaced by electronic systems and
they still play an important role in the market.
[0005] A number of anonymous trading systems have been proposed and
introduced into the market. At present, two systems, provided by
Reuters Limited of London England and EBS Dealing. Resources, Inc.,
of New York, N.Y. are prevalent in the foreign exchange spot (F/X
spot) trading market. Both of these systems are anonymous in that
traders enter bids and offers anonymously and see prices entered
into the system by potential counterparties but not the identity of
those counterparties. The identities of the parties are only
revealed when the deal has been completed. To ensure that deals are
not effected between parties which do not have a sufficient line of
credit with each other for the deal, a complex credit checking
operation is performed before deal completion. If there is
insufficient credit the deal is either rejected or only partially
completed.
[0006] A version of the EBS System is described in U.S. Pat. No.
5,375,055, the disclosure of which is incorporated herein by
reference. In this system, credit limits set by the potential
parties to transactions are stored at Market Access Nodes to which
workstations are connected. An institution will set and store a
credit limit for each potential counterparty with which it is
prepared to deal. The Market Access Nodes are linked to one or more
Market Distributors and one or more Arbitrators. The Market
Distributors distribute prices of bids and offers using a
pre-authorized matrix derived from the credit limits stored at the
Market Access Nodes. The pre-authorization matrix is used to
inhibit trades between incompatible counterparties and to screen
bids and offers prior to display so that each trader workstation
displays only those bids and offers submitted by counterparties
with whom he has credit. Thus, all displayed prices are
dealable.
[0007] The arbitrators' function is to match bids and offers and to
resolve possible contentions in trades which could arise due to the
nature of the system.
[0008] The Reuters system is exemplified in EP-A-0,399,850,
EP-A-0,406,026 and EP-A-0,411,748.
[0009] Both the systems identified above have been accepted by the
financial markets and have been very successful. However, they
suffer from the disadvantage that they are separated from the rest
of the institutions' trading operations. Thus, only those
institutions which have installed one of the systems can trade
using it. Trades are limited to the amount of credit which has been
assigned. This credit cannot be used for other trades, for example
outside the system fur different instruments, even if made with the
same counterparty. This restriction can reduce liquidity. The
existing systems also have the disadvantage that traders are
limited to trading the specific instruments provided for by the
systems.
SUMMARY OF THE INVENTION
[0010] The present invention aims to address the disadvantages of
existing systems mentioned above and to provide a more flexible
electronic trading system.
[0011] In its broadest form, the invention resides in the
incorporation of voice broking functions into an electronic or
anonymous trading system.
[0012] More specifically, there is provided a computerized trading
system for trading instruments between trading parties, comprising:
a communications network for transmitting electronic messages; a
plurality of trader order input devices connected to the
communications network, each for generating electronic orders
including bid and/or offer orders and for communication to traders
of order information received from other input devices over the
network; at least one broker order input device connected to the
communications networks for generating electronic orders including
bid and/or offer orders on behalf of a selected one of a plurality
of client traders and for communication to a broker of order
information received from other input devices over the network; at
least one matching engine connected to the network for matching bid
and offer orders input into the system from the order input devices
and for executing deals where prices are matched; and a market
distributor connected to the network for distributing order price
messages to the order input devices, the market distributor being
responsible to the order messages and the matching engine.
[0013] The invention also provides a computerized trading system
for trading instruments between parties comprising: a plurality or
order input devices for entering order information into the system,
the order input devices including a plurality of trader input
devices for inputting order from traders, and at least one broker
order input device for trading on behalf of a plurality of clients;
at least one matching engine connected to the network for matching
bid and offer orders input into the system and for executing deals
where orders are matched; and a market distributor for distributing
order price messages to the order input devices, the market
distributor being responsible to the order messages and the
matching engine, wherein trades conducted between trader order
input devices are anonymous as to the parties until completion of a
trade, and trades to which the broker order input device is a party
require disclosure of the parties to the trade prior to completion
of the trade.
[0014] The invention further comprises a computerized trading
system for trading instruments between parties including a
plurality of order input devices for inputting bid and offer orders
on behalf of traders, a matching engine for matching bids and
offers input by traders and, where matches are made, for executing
deals, and a market distributor for distributing details of at
least a portion of the bids and offers in the market to traders,
wherein at least one of the order input devices comprises a broker
terminal for entering bids and offers into the system on behalf of
traders operating outside the system.
[0015] Embodiments of the invention have the advantage that they
enable voice traders to be linked into an automated trading system
so enabling trades involving voice traders to contribute to the
liquidity of the trading system.
[0016] Preferably, the automated trading system is an anonymous
system but trades involving a voice trader or voice broker are not
anonymous.
BRIEF DESCRIPTION OF DRAWINGS
[0017] Embodiments of the invention will now be described, by way
of example only, and with reference to the accompanying drawings in
which:
[0018] FIG. 1 is a screen shot of a known FRA trading screen;
[0019] FIG. 2 shows a Tenor Detail Panel of the screen illustrated
in FIG. 1;
[0020] FIG. 3 shows an Order Request Panel of the screen
illustrated in FIG. 1;
[0021] FIG. 4 is an overview of the system architecture, in
particular the communications network and the various workstations
and processing nodes associated with it;
[0022] FIG. 5 is an overview of an embodiment of the present
invention;
[0023] FIG. 6 is a flow chart showing a process where a voice
broker submits an order to the system;
[0024] FIG. 7 is a screen shot showing an offer being entered by
the voice trader on behalf of a client;
[0025] FIG. 8 is a screen shot showing the market from the Trader's
client's point of view after the offer from him has been
submitted;
[0026] FIG. 9 is a flow chart showing the process when an
electronic trader hits the offer submitted by the voice trader;
[0027] FIG. 10 is a screen shot of the voice broker's workstation
after the electronic trader has hit the offer;
[0028] FIG. 11 is a screen shot of the broker's work station after
the broker's client has accepted the electronic trader's hit;
[0029] FIG. 12 is a screen shot of the Broker's workstation when
the electronic trader's hit has timed out;
[0030] FIG. 13 is a screen shot of the Broker's workstation once
the deal has been completed;
[0031] FIG. 14 is a flow chart showing the process when a trader
calls the voice broker with a price request;
[0032] FIG. 15 is a flow chart showing the process when a broker
hits a price from an electronic trader;
[0033] FIG. 16 is a flow chart showing how the electronic trader is
required to disclose his identity in the process of FIG. 15;
[0034] FIG. 17 is a screen shot showing the electronic trader's
workstation after the trader accepts a hit from the broker and
allowing the accepted amount to be adjusted;
[0035] FIG. 18 is a flow chart showing the process when the broker
hits a price from another voice trader operating on the anonymous
trading system;
[0036] FIG. 19 is a flow chart showing the process where a broker
hits a price from a call for a price from outside the trading
system; and
[0037] FIG. 20 is a screen shot of the Broker's workstation showing
how the amounts available are shown apportioned between voice
broker's and electronic traders.
DETAILED DESCRIPTION OF THE INVENTION
[0038] The following description is given with respect to an
exemplary FRA (Forward Rate Agreement) trading system. It is to be
understood that this has been chosen only to exemplify the
invention and that the invention is not limited to any particular
financial instrument or even to financial instrument trading
systems. For example, the invention may be embodied in other
financial trading systems for trading instruments such as F/X spot,
F/X forwards and swaps or in commodities trading systems. This list
is not to be construed as limiting.
[0039] WO00/16224 of EBS Dealing Resources, Inc. describes a
Forward Rate Agreement trading system. The contents of that
document are incorporated herein by reference.
[0040] A Forward Rate Agreement (FRA) is a contract between two
parties to lock in a forward interest rate, for a period, starting
at a specific date in the future. Each FRA contract can be
categorized as a spot FRA, an IMM FRA or a broken date FRA. The
system to be described is only intended to trade spot FRAs and IMM
FRAs although trading of broken date FRAs is within the scope of
the invention. IMM is the abbreviation which has become customary
to refer to an instrument traded on one of the International
Monetary Market dates. In brief, IMM FRAs are traded for the four
International Monetary Market (IMM) dates. Spot FRAs are traded for
dates associated with today's spot date.
[0041] A FRA trading screen 10, is shown in FIG. 1. The FRA trading
workstation presents a set of FRA contracts that may be traded in
an electronically brokered format. Each type of contract is known
as a tenor. Price information for a particular tenor is displayed
on a tenor line 12. For each tenor line, the dealing system
presents the best credit-screened bid and offer prices of all
active quotes. Upon selection of the tenor line, the workstation
presents a detailed view of the associated tenor showing contract
dates and additional market view information.
[0042] A trader may select a tenor line and then submit one of four
order types (Bid, Offer, Buy or Sell). Each type of order requires
the trader to specify an interest rate notional amount for a
particular tenor. Once submitted, new orders are matched with
outstanding orders in price/time priority. Compatible orders are
matched resulting in the execution of deals. In order to encourage
market making a trader can submit and adjust bids and offers for
several tenors at a time.
[0043] For non-standard FRAs, a price inquiry function allows the
trader to issue a system-wide broadcast to request a price for a
broken date FRA. A trader may respond to a price inquiry by
selecting the entry in the bulletin board.
[0044] The credit facility uses pre-screened prices. Trading Floor
Administrators (TFAs) at the trading floors enter credit limits for
each counterparty group of trading floors. Dealable prices are
distributed to those floors that have credit with the price
maker.
[0045] The trading screen shown in FIG. 1 provides traders with the
facility to enter bids, offers, buy or sell orders by selecting
buttons, 14, 16, 18, 20 on a toolbar at the top of the screen. The
best bid/offer prices are displayed for tenors of various lines in
one window 12 and deals done by the trader and on the system as a
whole are displayed in other windows 22, 24. The display is better
understood with reference to an example of a FRA deal.
[0046] As mentioned above, a Forward Rate Agreement (FRA) is a
contract between two parties to lock in a forward interest rate,
for a period, staring at a specific date in the future.
[0047] For example, a 6.times.9 FRA is a contract covering a period
that beings 6 months from now and ends 9 months from now. The
"term" or "gap" of such a contract is 3 months. The two
counterparties, one buyer and one seller, settle by cash payment at
the start of the contract (in this case 6 months from now).
[0048] The buyer of a FRA will be compensated if future interest
rates rise. The seller of a FRA will be compensated if future
interest rates fall.
[0049] Settlement is based on the difference between the actual
interest rate prevailing on the fixing date and the rate specified
in the contract, for a specific notional amount stated in the
contract. Settlement takes place at the beginning of the term.
[0050] As an example, consider a USD 6.times.9 FRA trade for $100
million (US) at an agreed upon rate of 5.5675 executed on Sep. 9,
1997. The deal has the following characteristics:
[0051] Trade Date: Sep. 9, 1997
[0052] Spot Date: Sep. 11, 1997
[0053] Fixing Date: Mar. 9, 1998
[0054] Settlement Date: Mar. 11, 1998
[0055] Maturity Date: Jun. 11, 1998
[0056] Contract Rate: 5.5675
[0057] Notional Amount: 100 million (US$)
[0058] Reference Rate: LIBOR
[0059] The period of this deal begins on Mar. 11, 1998 (the
settlement date) and ends on Jun. 11, 1998 (the maturity date). On
March 9.sup.th, sometime after 11:30 AM London time, the back
office personnel at each bank will look on the appropriate Reuters
page to read the 3-month LIBOR (London InterBank Offer Rate) posted
for March 9.sup.th. If, for example, this rate is 5.5800, then
between the trade date and the fixing date, the interest rate has
risen 0.0125 percent or 11/4 basis points. Therefore, settlement
amount must be calculated based on this reference rate of 5.58%.
The settlement amount is the amount on the check paid by the seller
to the buyer. The settlement amount is calculated using the
following formula:
[0060] Settlement Amount Calculation Example
Fixing Rate - ( Contract rate ) .times. ( Days in Period ) .times.
( Notional Amount ) ( 360 .times. 100 ) + ( Fixing Rate ) .times.
100 .times. ( Days in Period ) ##EQU00001## ( 5.85 - 5.5675 )
.times. ( 92 ) .times. ( 100 , 000 , 000 ) ( 360 .times. 100 ) + (
5.58 .times. 100 .times. ( 92 ) ) ##EQU00001.2## 115 , 000 , 000 87
, 336 ##EQU00001.3## $1 , 315.76 _ ##EQU00001.4##
[0061] Note that if interest rates had fallen, then the buyer of
the FRA must pay the seller.
[0062] FRAs serve as both a hedging and a speculative instrument. A
bank may use a FRA to hedge against future inflows and outflows of
cash on its balance sheet, or a bank may use a FRA to speculate in
the future movement of interest rates. By definition, a FRA trade
is over-the-counter. The resultant contract is between two parties
and is therefore dissimilar to a futures contract which is traded
via an exchange.
[0063] FRAs for EBS can be split into the following categories:
[0064] IMM FRAs
[0065] SPOT FRAs
[0066] Broken Date FRAs
[0067] The present embodiment is described in relation to IMM FRAs;
that is FRAs which are based on the International Monetary Market
dates.
[0068] FRAs are distinguished by the dates of the contract, the
reference rate, and the contract currency. Each type of FRA
contract is called a tenor. Some examples tenors are listed
below:
[0069] Examples of FRA Tenors:
TABLE-US-00001 Cash 3 month Cash 6 month Cash 12 month USD 1
.times. 4 DEM 1 .times. 7 USD 1 .times. 13 USD 3 .times. 6 USD 2
.times. 8 DEM 2 .times. 14 JPY 6 .times. 9 JPY 6 .times. 12 USD 12
.times. 24 IMM FRAs with a Broken IMM FRAs 6 month gap Data FRAs
USD September 1997 USD June 1997-6 USD 3 .times. 6(12) USD December
1997 USD September 1998-6 DEM 2 .times. 14(10) JPY March 1998 JPY
September 1998-6 USD 0 .times. 3(3)
[0070] If the tenor is selected with a mouse or keypad, then the
details of the FRA tenor line are presented in the top section of
the screen. The detail area shows the best dealable, EBS best, and
best regular prices for the selected tenor. The fixing date,
settlement date, and maturity date of the active tenor are shown as
well.
[0071] Turning again to FIG. 1, the screen can now be better
understood. The Tenor Detail Panel 26 provides a detailed view of
tenor line information and transaction activity. The Tab Controls
28 allow a user to select one of several user-defined tab sheets.
The user may designate the tab sheet properties and components. The
Tenor Line shows a tenor indicator, best bid and offer prices, best
amount available for bid and offer and a big figure. The TFA
Messages area 29 shows messages relating to Trading Floor
Administration, such as credit notifications, deal recovery, help
desk message broadcasts. The EBS Deals Listbox 24 shows deals
completed on the EBS system. The Trade Deals Listbox 22 shows deals
completed by the trader using the screen, and the Toolbar 30 allows
the trader to select common trading commands. The screen also
includes a multi tenor order limit panel 31 in which single bid and
offer amounts may be specified to limit exposure across multiple
tenors.
[0072] A number of tenor lines (more than fifty) may be visible on
the screen concurrently. There may be additional tenor lines that
are not visible on the screen due to space constraints, but can be
easily be brought into view. The screen also allows the trader to
elect to show fewer tenors (as few as eight) depending upon the
trader's preference.
[0073] The Tenor Detail Panel is shown in FIG. 2 and shows a
selected Tenor Line in more detail. It includes:
[0074] Tenor Identification 32 (currency and description);
[0075] Tenor Date Information (Fixing Date 34a, Settlement Date 34b
and Maturity Date 34c);
[0076] Regular Dealable Bid and Offer Prices for "regular" amounts
36, 37 satisfying credit screening (A "regular" amount is an amount
at least equal to a system default value representative of a
typical trade in a particular currency, and may for example be 50M
pounds). The amount is shown at 38, 39;
[0077] Best Dealable Bid and Offer Prices 40, 41 (the best price
available after credit screening for any amount) along with the
total quantity ("Best Bid 42 and Offer 43 Amounts") available at
those prices;
[0078] EBS Best Bid and Offer Prices 42 (the best price available
on the whole system regardless of credit (though this may not be
available to the trader)) if this differs from the corresponding
Best Dealable Prices; the Best Bid amount 43 and Best Offer Amount
45, which show the total amounts available at the best dealable bid
or offer price for all bids or offers satisfying credit
restrictions; and
[0079] The "Big Figure" 44 which is the most significant digit in
the price.
[0080] Note that much of this information is also shown in each
Tenor Line of each Tab Sheet (FIG. 1).
[0081] To the left of FIG. 2 is a bid/buy Order Status indicator 46
showing the amount requested and obtained for an open Order. The
order price 48 for an open order submitted by a dealer is shown to
the right of the order amount. If an Offer/Sell Order was pending,
its status would be displayed on the right.
[0082] Note that the bid (buy) prices are on the left, and the
offer (sell) prices are on the right, and that all displayed prices
are arranged in ascending order from left to right. The EBS Best
Bid Price (if shown) will always be better than the Best Dealable
Bid Price. This is because the credit granting entity for this
trading floor may not have extended sufficient credit to the
counterparty offering the Best Bid Price (or vice versa).
Similarly, the Best Dealable Bid Price will always be at least as
good as the Regular Dealable Bid Price. In the particular example
shown in FIG. 2, the Best Dealable Bit Amount is 120 which is
larger than the "Regular" amount of 50, and consequently the same
price (5.4774) is shown as the Regular Dealable Bid Price and the
Best Dealable Bid Price.
[0083] To the right of the panel are shown the three last prices
paid or given 50 together with the deal time 52.
[0084] FIG. 3 shows the Offer Order Request Panel 58 which appears
on the right side of the Tenor Detail Panel when a particular Tenor
has been selected and either the Offer or Sell key has been
activated. (A similar Bid Order Request Panel appears on the left
side of the Tenor Detail Panel when a particular Tenor has been
selected and either the Bid or Buy key has been activated). The
Order Request Panel includes an Amount Entry Field 60 and a Price
Entry Field 62 both of which include up and down spin buttons for
adjusting the respect entries up or down, as well as a Send
Pushbutton 64 for submitting the order (assuming appropriate
validation checks are positive) and a Quit Pushbutton 66 which
dismisses the Order Request Panel without any action being taken.
As previously indicated with respect to FIGS. 1 and 2, once a valid
order has been submitted, its status is displayed on both the Tenor
Detail Panel (FIG. 3) and in the corresponding Tenor Line (FIG. 2),
with the latter showing only the Amount Remaining in the
outstanding order (i.e., the difference between the Amount
Requested and the Amount Obtained shown in the Tenor Detail
Panel).
[0085] In the described embodiment, the trading system is an
electronic brokerage system having a communication network for
facilitating the buying and selling of FRAs by traders each
associated with his own Workstation (WS) 77 located at a trading
floor of a subscriber bank (client site). The hardware used in the
system has similarities to the current EBS system for foreign
exchange to which reference may be made, for example as described
in U.S. Pat. No. 5,375,055.
[0086] As shown in FIG. 4, each client site has a dedicated client
computer 78 ("Market Access Node", or "MAN") under the control of a
Floor Administrator, which maintains transaction records, credit
limits, and other confidential information originating with its
associated trading floor. The WS's and the MAN associated with each
trading floor are connected via a conventional self-repairing DEC
VAX network to a nearby distribution node ("Market Distributor" or
"MD") computer 79, which typically analyses and distributes current
market data by means of dedicated permanent communication links to
one or more associated MAN's in a particular city (or other local
region), and which may also provide administrative functions for
the communication network.
[0087] The communication network comprises a credit store, stored
at each MAN, for storing an indication of the credit available from
the group of terminals associated with that MAN to other groups. As
previously explained, a group may be one or more terminals, but is
preferably one or more trading floors. The function of distributing
prices is fulfilled by the Market Distributors. The Market
Distributors also include a credit filter comprising a yes/no
Pre-Authorization Matrix from which it is determined whether prices
should be transmitted to the trader terminals for display.
[0088] Although not considered critical to the present invention, a
group of MD's is preferably supplemented by common trading region
processing node 80 ("Arbitrator Node" or "ARB"), with the ARB
performing those functions (such as identifying potential matches
between buyers and sellers, and other aspects of the "Deal
Matching" process that require coordination with more than one
client site) which make the most efficient use of the communication
network if done centrally or regionally, while the MD's perform
those functions (such as generation of separate Dealable price
information for each individual client site) which are readily
implemented in parallel in a distributed processing network and
which make most efficient use of the communication network if done
locally or in close proximity to the individual client sites.
[0089] In that regard, it is possible to have more than one ARB,
with each ARB having primary responsibility for trades initiated by
Market Makers in the ARB's own trading region, and being connected
to all the MAN's and MD's of that trading region as well as to the
other ARB's in other trading regions be permanent dedicated links
of the communication network. In the majority of deals, it is
anticipated that both the Maker and the Taker will be within the
same trading region and this will be directly linked to the same
ARB which can therefore identify a potential match and coordinate
its final execution without any communication with the other ARB's;
at the same time, the other ARB's can simultaneously be processing
deals related to other traders in other regions. Alternatively, a
single arbitrator could be dedicated to all trades involving a
discrete subset of the available financial instruments. In a
presently contemplated commercial embodiment, a single central
Arbitrator is dedicated to FRA trades, while several regional
Arbitrators are collectively dedicated to spot FX trades.
[0090] Whether the communication links between nodes are pennanent
(maintained indefinitely between two network components) or
temporary (established dynamically for a short period of time) they
are preferably "logical links" which have the property that
messages sent in a certain order over the same logical link are
guaranteed to reach their destination in the same order. Moreover,
the communication network is preferably provided with sufficient
error detection error correction, and network self-repair
capability to guarantee that messages sent via these logical links
are error free.
[0091] In summary, each MAN is connected to other MAN's by a robust
communication network which connects the various trading floors and
which supplements the MAN's with a number of processing nodes
(preferably in the form of MD's and ARB's) to facilitate the
distribution of price quotations and other market data and to
execute transaction by matching eligible Market Makers with
eligible buyers and sellers and by monitoring the transactions
until they have been completed or aborted, with the MAN's being
responsible for trading floor specific tasks such as logging the
completed transaction and updating the credit limit that was
previously available to the counterparty trading floor.
[0092] Although described above in terms of a distributed
architecture, it should be noted that a single central computer
system could be used to implement the various functions described
above. The system of this alternative embodiment would thus
comprise a plurality of workstations connected by a network to a
central computer system. The central system would include the
credit store, distributor and credit filter arranged to filter
prices for distribution to the workstations. This is a simpler, but
non-preferred, implementation. The distributed embodiment described
is considered to be a more robust and secure design.
[0093] A system embodying the invention enables the system
described, and further detailed in WO00/16224, to be configured to
enable voice institutions to take part in the electronic broking
process. This enables institutions and other customers who do not
use the anonymous trading system described to participate in it
through a voice broker. Thus, it broadens the scope of the market
to which they have access without them having to switch from the
traditional mode of broking via a voice broker.
[0094] FIG. 5 shows a revised version of FIG. 4 in which a number
of Voice Broker Workstations VWS 81 are included in the system. It
is through these workstations VWS that the voice brokers
communicate with the anonymous trading system. A number of voice
broker workstations may be attached to the network.
[0095] The system supports both voice traders who also subscribe to
the anonymous system as well as voice traders who act through the
intermediary of a voice broker.
[0096] The voice brokers, while appearing as any other workstation
to the network are treated as a special case. The VWS are supplied
with the whole market book for specific tenors in price/time order
rather than just the top of the market. The voice broker enters
orders on behalf of voice traders but orders submitted by a voice
broker are owned by that broker. In the existing system, such as
described in WO00/16224, the order is owned by the trader who
inputs the order into the system.
[0097] The traders, be they voice traders acting outside the
anonymous trading system or electronic traders on the system, can
call the voice broker on a "price for a call". This is a well
understood term in the financial markets meaning that a trader is
asking the broker for a price for a particular amount.
[0098] The voice broker, in response to a request for price for a
call, can look at a price on the anonymous system but may also work
outside the trading system by calling a number of makers to get two
sided prices; that is, buy and sell prices. The voice broker can
then select the best bid and best offer and quote that to the
trader regardless of whether it originated on or off the anonymous
trading system.
[0099] Traders on the system can call the voice brokers to place an
order as a bid or offer. The voice broker submits the quote,
including the price, size and name, to the market established by
the anonymous trading system on the trader's behalf. The quote from
the trader is included in the calculation of the credit-screened
market view that is prepared for each of the traders on the system.
Thus, if the quote is from a counterparty with which a given
trader's institution has a line of credit, it will be visible to
that trader. Traders on the system can hit the quote submitted by
the voice broker in the same manner as a conventional process
although the deal completion process is different as will be
described. Voice broker input quotes can also be hit by voice
traders acting through voice brokers.
[0100] The voice broker is in full control of the quotes that he
has submitted to the anonymous trading system. He can reject or
confirm deals against his quotes, for example from on-system hits.
This is different from quotes input from traders on the anonymous
system and is necessary as the voice broker may be working manually
on a portion of the quote.
[0101] A trader can call a voice broker to buy or sell a certain
amount at a certain price. The voice broker has the option of
executing that order either manually or via the anonymous trading
system. If it is to be executed manually, the deal is completed
over the phone and is then entered as a done deal into the system.
It should be noted that although completed outside the anonymous
trading system, the presence of the deal in the system can still
affect the system, for example, the deal particulars will be seen
by other traders and may affect their bid and offer process.
[0102] If the voice broker executed the deal electronically the
order is entered into the system as a bid or sell order. The broker
then sees the market from that trader or trading floor's point of
view. That is the market view he sees is pre-screened for credit to
filter out quotes from counterparties with which the trader cannot
deal. However, the credit screening is not for credit within the
anonymous trading system but external credit. That is, there is a
check for credit apart from the credit apportioned to the anonymous
trading system, between the trader's institution and possible
counterparties.
[0103] The voice broker can select quotes to be matched against
orders received from the trader and may assist in deals. In that
case, the deal is no longer anonymous, names are submitted and a
manual credit check is made on the side which called for broker
assistance. The voice broker has the power to reject the deal if
credit is unavailable.
[0104] When a deal is complete it is logged into a trade database
and passed to back office settlement systems.
[0105] The manner in which voice brokers interact with the
anonymous trading system will now be described in the context of
the FRA Trading System described with reference to FIGS. 1 to
5.
[0106] The or each voice broker is treated as an institution and as
such is assigned a bank ID. The voice broker has its own market
access node as described with reference to FIG. 5 and is visible to
the trading floor administrator. Existing trading floors on the
system then can assign credit to the voice institution as if it
were any other institution with which they may wish to trade. Until
that credit information has been entered, a given trading floor
cannot see quotes input by the voice institution.
[0107] The voice institution then needs to enter its credit matrix
on the anonymous system. Rather than assigning an individual credit
amount to each institution it indicates either that it may trade or
that it will not trade. All trades are subject to final
confirmation by the voice institution and the credit matrix may be
updated periodically, for example on a daily basis.
[0108] FIG. 6 illustrates the process which occurs when a voice
broker submits an order to the anonymous trading system on behalf
of a voice trader.
[0109] At step 100 the trader, who may be a voice or electronic
trader, calls the voice broker with an offer request. The voice
broker enters the offer onto the anonymous trading system including
the price, the size and the counterparty, at step 102. At 104 the
voice broker then announces the best price on the anonymous system
which is received at 106 by all voice traders.
[0110] When the price is submitted to the anonymous trading system
is it distributed to the traders at 108. A given electronic trader
will see the price as a dealable price, at 110, if he has credit
with counterparty otherwise he sees the best price on the anonymous
trading system.
[0111] FIG. 7 shows the screen of the voice broker's workstation
showing an offer being entered on behalf of a trader from an
institution identified by the four letter code CITL. The screen is
similar to that of FIG. 1 with the various FRA tenors shown at the
left hand side of the screen and the tool bar across the top. The
center window 112 is configured to show an overview of all quotes
in the system and the right hand window is split onto a column 114
showing bids and a column 116 showing offers. It will be noted that
this display is a little different from that shown in FIG. 1 and
appreciated that the exact display is a matter of design
choice.
[0112] In the toolbar 30, the institution CITL (at 118) has been
set. As a result, the broker is trading on behalf of that
institution and the market view is the credit screened view
appropriate to that institution and the book is the book for that
institution.
[0113] The voice broker then uses his mouse to check the offer
button 120 on the tool bar causing the order request or quote panel
122 to be displayed. The voice broker enters the details of the
offer in the queue panel, which is very similar to that shown in
FIG. 3 with the amount being entered in the box 60 and the price in
the box 62. To send the order to the system the voice broker hits
the SEND button 64 after which the panel is automatically
dismissed. To dismiss the quote panel without SEND, the broker hits
QUIT button 66.
[0114] Turning now to FIG. 8, the quote received from the voice
broker is included in dealable, that is credit screened, prices
distribution to floors who may be able to trade with that
counterparty. However, unlike credit information entered by trading
floors, the credit information entered by the voice broker only
indicates that an institution may wish to trade. Therefore, a
trader hitting the quote cannot be certain that the price is
dealable or that his hit will be accepted. The screen shown in FIG.
8 is the broker's workstation showing the market from the CITL
trader's point of view after the offer has been submitted from him.
The order can be seen at 124 as the latest quote in the quote
overview window and as the only offer in the traders market panel
114/116. The market panel shows quotes supporting tenor prices in
price/time order and are shown highlighted or in a different color
if there is no credit.
[0115] In the tenor detail panel the quote is shown as entered
against the selected tenor and is also displayed against that tenor
in the tenor line. It will be seen that up to three quotes can be
entered against any given tenor.
[0116] At this stage, the voice broker announces the ATS (Anonymous
Trading System) best price to all his traders some of which may
also be electronic traders.
[0117] FIG. 9 illustrates the process which occurs when an
electronic trade hits a broker assisted offer which has been
submitted as described with reference to FIGS. 5 to 8.
[0118] At step 200, the electronic trader hits a price on his
screen. If there is credit, the price will appear black, although
this is a perfectly arbitrary choice of color. At step 202, the
anonymous trading system (ATS) suspends the quote that has been hit
and notifies the voice broker. At step 204 the voice broker checks
the status of the order that has been hit and at step 206 checks
credit with the maker. At 208 the trader, who may be voice or
electronic, checks his institution's credit with the electronic
trader's institution and, if there is sufficient credit tells the
voice broker the amount at 210. At 212 the broker enters the amount
of the deal to be done into the ATS system and at 214 the system
checks the taker's credit (the taker is the electronic trader who
hit the price). If the system finds sufficient credit it subtracts
the deal amount from the quote and then reactivates it at step 216
unless the order has been fulfilled. At step 218 a done deal is
acknowledged at the electronic trader and at step 220 the broker, a
notification from the system notifies the done deal to the voice
trader who receives the acknowledgement at 222.
[0119] FIGS. 10 to 12 show broker workstation screen shots for the
process of FIG. 9.
[0120] When the quote is hit, the quote entry in the overview panel
112 will change in appearance, for example it will change to green.
In the example the quote that has been hit is the quote 124 input
in the previous example. By double clicking the line 124 the broker
ensures that CITL is selected in the combo box and that USD-L
September 2000 is the active tenor. In addition the quote overview
caption flashes green when there is a hit and the quote status
information in the Tenor Line and the Tenor Detail Panel also are
displayed in green, or some other color. The status panel in the
Tenor Detail Panel then expands to display at 230 "CPTY for nnn?"
where CPTY is the four letter code for the counterparty who has hit
the quote and nnn is the amount. "Yes" and "No" response buttons
232, 234 are also displayed to enable the voice broker to respond.
The Tenor Sheet Caption also flashes green such that, if it is not
the active one in the column, the broker receives an indication
that there is a hit at a hidden tenor. The highlighting of the
tenor line and tenor detail only occur when the appropriate
institution, in this example, CITL, has been selected in the combo
box on the tool bar 30 by the voice broker. If a different
institution is selected, the overview sheet caption and the quote
124 will still be highlighted to alert the voice broker to the
list.
[0121] When the hit is received, the broker informs the trader who
submitted the quote of the attempted hit. The trader checks that
his institution has credit with the electronic trader's institution
for all or a portion of the amount and tells the broker the amount.
These steps are performed outside the anonymous trading system. If
credit is available, the broker clicks the yes button 232.
[0122] It will be appreciated that the trade ceases to be anonymous
as soon as the taker hits the quote. The taker is necessarily
identified to the voice broker as the maker has to perform a credit
check which is external to the anonymous trading system.
[0123] FIG. 11 shows the broker's workstation after the broker has
hit the yes button. A hit confirmation panel 240 appears in the
tenor detail panel which identifies the counterparty (MGTL) and the
amount. At this stage the amount is displayed in a panel next to a
scroll bar enabling the broker to vary the amount. The confirmation
panel also shows the price and has send and quit buttons 242, 244.
The broker confirms the deal by clicking the send button 242.
[0124] If there is an amount of the quote remaining in the system
the suspended quote is reactivated. While the quote is suspended it
is temporarily withdrawn from the market but retains its position
in the queue which is price/time based.
[0125] The hit from the electronic trader will time out if not
attended to by the broker within a certain time. This is
illustrated in FIG. 12 where the quote status panel changes from
green to another color such as grey. The broker can reactivate the
hit by clicking the "no" button.
[0126] FIG. 13 shows the Broker Workstations Screen showing the
market views and book, credit screened for institution CITL once
the deal has been completed. The quote 124 which has been traded is
shown in the quote overview panel as being of an amount 150/300
indicating that of the 300 original offer amounts, 150 has been
fulfilled. The other panel also shows that the amount offered is
now 150, reduced from the original 300.
[0127] FIG. 14 shows the process which occurs when a trader calls
the voice broker with a price request. The trader may be a voice or
an electronic trader. The trader at step 300 calls the broker with
a price request. The amount need not be specified. In FIG. 14 the
call is shown as made by the voice trader but it could come from an
electronic trader. At 302, the broker enters into the ATS the
trader's bank code, which is the four digit identifier such as CITL
referred to in previous examples. At 303 the anonymous trading
system displays the credit screened book for the trade requesting
the price with the order book being displayed in price/time order.
At step 304 the broker may put out a call for a price to selected
voice traders and at step 306 the broker pieces together various
information he has gathered to provide the trader with a two sided
price. A two sided price is the buy price and the sell price. This
price will be deduced from quotes available on the anonymous
trading system and prices provided by other traders and will be the
best that is available from the two sources. At 308 this best price
is received by the trader.
[0128] The following example considers the case where the broker
makes a "buy" request on behalf of a trader, who may be voice or
electronic. There are three possible scenarios: that the price the
broker hits is from an electronic trader; that the price hit is
from a voice trader operating on the anonymous trading system
through a voice broker; or that the broker hits a price from a call
for a price received from outside the anonymous trading system.
FIG. 15 shows the process where the price hit is provided by an
electronic trader. At 400, the voice trader calls the voice broker
and informs the broker that he wants to buy at a certain place. At
402 the broker enters the traders four letter code into the window
on his toolbar and at 404 the ATS provides a credit screened book
for the traders institution to the voice brokers workstation.
[0129] The book is displayed in price/time order with quotes
appearing in black being dealable and quotes appearing in red not
being dealable.
[0130] At 406, the broker hits the price ordered by the trader. In
this case the price has been input into the system by an electronic
trader. At 408, the ATS reserves the deal amount and at 410
performs a credit check against credit limits stored in the system
in the manner described in WO00/16224 and U.S. Pat. No. 5,375,055.
If there is not bilateral credit then, at 412, the ATS suspends the
quote and enters a manual confirmation mode. At this point, at 414,
the electronic trader is provided with the identity of the
counterparty on behalf of whom the voice trader is acting and is
left to perform their own credit check external to the anonymous
trading system. The electronic trader replies "yes" or "no"
following the credit check. If the reply is "yes" at step 415 the
ATS updates the broker's workstations asking for confirmation. At
418, the broker discloses the identity of the counterparty to the
voice trader and asks whether he has credit with that institution.
At 420, the trader performs a credit check and provides an answer
to the voice broker. If there is credit and the voice trader can do
the deal the broker sends, at 422 an acknowledgement to the system
with a "done deal" message. At 424, the ATS subtracts the done
amount, and if there is any amount left, reactivates the quote. The
system then updates all the trader workstations. Finally, at 426,
the done deal is acknowledged by the system to the electronic
trader.
[0131] FIG. 16 shows a trader workstation screen shot when there is
insufficient credit within the anonymous trading system to complete
a hit from a voice broker. It will be noted that this screen is
essentially the same as that of FIG. 1. The screen includes,
additionally, a quote overview panel 430 arranged below the trader
deals panel. When the voice broker hits a price, that price is
highlighted on the trader's workstations. In this case the quote
432 is the only quote the trader has in the market and the quote
turns green in his quote overview panel. The quote in the tenor
line is also highlighted in green as is the sheet 434 in which the
tenor is located. For example, if the trader had a GBP-L quote in
the market but was displaying the USD-L tenor line, the flashing
green GBP-L sheet would show him that there as a hit on a tenor on
the GBP-1 tenor line. By double clicking the quote in the quote
overview, the trader ensures that the quote is the active quote.
The status panel in the Tenor Detail Panel is then displayed which
identifies the counterparty and the amount and gives the trader the
option of accepting or declining or accepting for a reduced amount.
It should be understood that if that this status panel only appears
if there is insufficient credit within the system for the proposed
trade; the trader is being asked for to rectify that there is
sufficient additional credit external to the system.
[0132] Multiple quotes are ordered in Price/Time order from the
middle of the panel outwards and change color depending on their
status. A Blue quote is a quote that is in the market; a Red quote
is the best in the market, a Grey quote is a done quote and a Green
quote is a hit quote. The status of the quote is displayed in the
expanded version of this in the Tenor detail panel. The status
information reflects the quote currently selected. This quote has a
depressed border around the sub-filed at the bottom of each quote.
These amount sub-fields act like radio buttons.
[0133] To accept the hit, the trader clicks on the yes button and
then enters the amount. If there is insufficient credit for the
full amount, the trader may enter a lesser amount.
[0134] FIG. 17 shows the trader workstations after the trader has
accepted the hit from the broker acting on behalf of CITL and
showing how the amount accepted can be adjusted.
[0135] This is within the list continuation panel 440. When the
amount is decided the trader then hits the send button 442. The
system will then update the voice brokers workstation with a
request for acknowledgement that a deal can be done. The broker
asks the voice trader whether he can deal with that counterparty
and, if he can, the broker acknowledges the deal to the system
which then performs steps 424 and 426 of FIG. 15.
[0136] FIG. 18 shows the process where the price hit has been
submitted by a voice broker trading as the anonymous trading
system. Steps 500, 502 and 504 are the same as steps 400-404 in
FIG. 15. At step 506, the price that voice trader 1 has asked the
broker to hit has been submitted by another voice trader, voice
trader 2. In the following discussion it will be assumed that voice
trader 2 is acting through a separate voice broker, voice broker
although he could be acting through the same voice broker as voice
trader 1.
[0137] At 508, the ATS suspends the quote that has been hit and
sends a message to the voice broker 2 that there has been a hit,
identifying the counterparty and the amount. At 510 the second
voice broker identifies the hit to voice trader 2 and enquires
whether he wishes to do the deal. At 512 trader 2 checks his credit
with trader 1's institution and responds to the voice broker. If
there is no credit, the second voice broker records a "deal
refused" message in the system at 514. The credit matrix is then
updated at 514 to disable temporarily credit between these two
traders or trading floors. If trader 2 accepts the deal, voice
broker 2 confirms the deal to the system at 518 and, at 520 the
system updates the first brokers workstation and asks for
confirmation. At 522 the first broker then asks his trader if he
has credit, which involves disclosing the identity of the
counterparty and the amount. At 524 the first trader performs his
own external credit check and responds yes or no to his voice
broker. If the response is no, the broker enters this into the
trading system at 526 and at 528 the credit matrix is disable
temporarily between the two trading floors party to the deal. If
there is credit, the voice broker at 530 sends an acknowledgement
message to the system that the deal is done and at 532 the system
subtracts the done amount, reactivates the quote if it is not
completely filled and updates all the trader workstations. At 534
the done deal is acknowledged by the first voice broker to the
second voice broker who informs the second voice trader who in turn
receives the done deal acknowledgement at 536.
[0138] The final case is where a trader calls the voice broker for
a price and the broker hits a price on the trading system. The
mechanism for this was described with respect to FIG. 14. Referring
to FIG. 19, at 600 a trader informs the voice broker that he wants
to buy an amount at a price after the broker has given him the best
two-way price.
[0139] That price has been offered by another voice broker in this
example and the process followed is the regular deal making process
between two voice brokers. At 602, the second trader decides to hit
the call for a price. At 604 the second trader confirms that he can
do the deal and the first either accepts or refuses. If he refuses
the process stops. If he accepts, the broker confirming with the
first trader at 606. At 608 the first trader confirms that he can
do the deal having made the necessary credit checks and the second
trader responds with a yes or no. If the answer is a yes, the
broker at 610 confirms the deal is done with trader 2 and enters
the deal into the anonymous trading system. At 612 the system
distributes the deal information to other traders where it will
appear in their deals panel. The second trader then receives the
deal confirmation at 614.
[0140] The broker workstation has a done deal button on the Tenor
Detail Panel. Clicking the done deal button displays a deal entry
panel which collects information from the broker as to whether the
deal is paid or given, the identity of the counterparty, the amount
and the price.
[0141] FIG. 20 shows how the display may highlight prices made by
voice brokers as opposed to electronic traders by showing these
prices in a different color, for example in pink on the screen.
Although hard to discern from FIG. 21, the final quote 710 in the
quote overview column has been submitted by a voice broker and is
shown in a different color. This quote is shown in the final tenor
at 700 again in a different color. Also shown in the list of tenors
are best prices which are from voice brokers, again in a different
color. It will be appreciated that both sides of the penultimate
tenor and the left side of the fourth tenor are from voice
brokers.
[0142] As can be seen from the tenors for December 2001, March 2002
and September 2002, the Best Dealable price shown is dual color.
The left hand segment, which may be colored pink, for example,
indicates the proportion of the prices in the market that have been
entered by voice brokers. Thus, for example, the pink (left hand)
portion of the March 2002 Tenor Panel shows a greater proportion of
dealable prices provided through voice brokers. It follows
therefore that the remainder of the market has been provided by
electronic trades. This may conveniently be shown in cyan.
[0143] The manner in which credit processing is performed within
the anonymous trading system will now be described.
[0144] The credit processing performed for interest rate futures
and other derivatives in general, and FRAs in particular, differs
significantly from credit processing for spot FX trading. While
spot FX is concerned with settlement risk, for FRAs market risk is
the primary concern. For this reason, the technical considerations
in implementing the system differ.
[0145] For Forward Rate Agreements, three factors are used to
calculate credit utilization;
1. The time between the trade date and the settlement date (start
of the contract period), hereinafter called the TTS (Time To
Settlement). 2. The volatility of interest rates in the currency of
the FRA. 3. The time between the settlement date and the maturity
date, i.e., the gap of the FRA.
[0146] The actual liability for a FRA is not fixed at the time the
price is taken because, as can be seen from the formulae above, the
actual liability will depend on the difference between the interest
rates at the trade and settlement dates. For this reason, a Credit
Utilization formula has been devised and implemented as
follows:
Credit utilization=(Deal size).times.(TTS factor).times.(#
months/3).times.(Interest rate volatility factor).times.(CCY
conversion rate).
[0147] The TTS Factor is a Time to Settlement Factor assigned to
every month between 0 and 24. When credit is calculated, the
workstation will use the TTS Factor assigned to the TTS month. The
workstation will calculate the number of months between the Trade
Date and Settlement Date to find the TTS Month. The Credit
Utilization calculation will then use the TTS Factor assigned to
that month. This allows the TFA to factor into the Credit
Utilization calculation the time between the Trade and Settlement
Dates.
[0148] The TTS factor is used in the credit calculation. This is a
nonlinear calculation method for the time between trade date and
settlement date. A table is produced, initially ranging from 0-36
months, of TTS values to be used in the credit utilization formula.
The factors in the table must be able to be set by the TFA. The
table is to be pre-populated with factors calculated by taking the
square root of the TTS. The initial values of the table for the 0
and 1 month TTS are to be 1.
TABLE-US-00002 Example of pre-populated TTS table: TTS 0 1 2 3 6 9
12 15 18 36 Factor 1 1 1.414 1.732 2.449 3 3.464 3.872 4.242 6
[0149] The currency volatility parameter must be able to be entered
and modified online via the TFA for each FRA currency traded on the
local floor. And as previously explained, the linear calculation
method for the contract period or "gap" (the "three month
equivalent") is a fixed formula that can't be modified online:
3 mo. Equivalent factor=(# of mos in gap)/3
[0150] # of Months in Gap/3--All IMM tenors have a 3 month gap
between the Settlement and Maturity Dates. So this value is
calculated as 3/3 or 1.
[0151] Interest Rate Volatility Factor--The IR Volatility Factor is
a percent value assigned to each currency. The system will store
the value as a percentage number.
[0152] CCY Conversion Rate--The currency conversion rate between
the Credit Limit Currency and the currency for which the deal is
done.
[0153] As an example, a USD June 2000 FRA traded Jun. 16, 1998 for
100 million has the following characteristics:
[0154] Trade Date: Jun. 16, 1998
[0155] Fixing Date: Jun. 19, 1998
[0156] Settlement Date: Jun. 21, 2000
[0157] Maturity Date: Sep. 20, 2000
[0158] Tenor Cap: Jun. 21, 2000 to Sep. 20, 2000 (91 days or 3
Month Gap)
[0159] Deal Size: $100,000,000
[0160] Factors are assigned by the TFA along with the Credit Limit
Currency which is assigned on the Market Access Node. In this
example, the Credit Limit Currency is USA. The factors that would
be used for the above example are derived using the above
table.
[0161] Using the above formulae, the credit utilization is:
(Deal Size).times.(TTS Factor).times.(# of Months in
Gap/3).times.(Interest Rate Volatility Factor).times.(CCY
Conversion Rate)=Credit Utilization
(100,000,000).times.(4.89898).times.(3/3).times.0.0014.times.(1.000)=$68-
,586=Credit Utilization.
[0162] In implementing credit limits on the FRA system, the Trading
Floor Administrator (TFA) has the ability to set and adjust the
various parameters from which matching criteria are derived.
[0163] A credit utilization notification is included which issues
low credit warning at the trader's WS when the available credit for
a counterparty falls below a percentage that is defined via the
TFA. An out of credit message is also displayed at the trader's WS
when credit is exhausted for a particular counterparty. Prices from
that counterparty, for all tenors, will no longer be displayed. A
credit utilization report may be initiated, on demand, via the TFA
for both screen and hard copy output.
[0164] Parameters Used in the System
[0165] Banks initially define, and modify online, the following
parameters which are stored at the local MAN for their local
trading floor via the TFA facility;
a) credit limit currency--Market Access Node b) a separate credit
limit currency conversions rate parameter for each currency traded
on the system. c) a parameter related to the nature of at least one
financial instrument in the form of a currency volatility credit
utilization factor for each currency traded on the system. The
currency volatility factor is indicative of the risk associated
with each financial instrument assessed by the TFA. d) Time to
Settlement credit utilization factors for the currencies traded on
the local floor. The TTS factor is preferably non-linear and also
not specific to any financial instrument traded.
[0166] Each credit group preferably comprises a plurality of
trading floors. Anyone credit granting entity (which itself could
be a trading floor) may trade with a trading floor of a group
defined by the TFA if sufficient credit is available.
[0167] Banks also define the following for each counterparty
(credit group) that they trade which are also stored at the local
MAN:
a) available credit b) low credit warning percentage.
[0168] Banks also have the following options for resetting credit
utilization to zero:
a) Automatically at the end of the trading day, as is currently
done for spot. The time of the end of the trading day from FRAs is
preferably definable separately from that for FX spot. b) On demand
via the TFA (1) for an individual credit group (2) for all credit
groups.
[0169] The TFA also has the ability to disallow particular floors
within a credit group. If a floor is disallowed, it does not take
part in the credit of that group.
[0170] To be compatible, each of the two parties must make
sufficient credit available to the other party to complete a trade
for a least the predetermined minimum size deal in any available
currency (i.e., available credit at least equal to the minimum
credit threshold established by the respective credit granting
entity).
[0171] The calculation is thus:
Minimum credit threshold=Maximum of {(minimum 3 month equivalent
amount).times.(credit TTS utilization factor).times.(# of months in
gap).times.(Interest rate volatility factor).times.(conversion
rate)} for each currency.
[0172] Derivation of the Pre-Authorization Matrix
[0173] The exemplary Pre-Authorization Matrix shown in FIG. 20 is
derived from the various parameters defined by the Trading Floor
Administrator (TFA). In the example shown, each group comprises one
trading floor.
[0174] Certain prices are said to be dealable, which means that
they are pre-screened for credit. A dealable process means that
sufficient bilateral credit is available with the counterparty
making the price to execute at least one minimum size trade in the
tenor that utilizes the most credit.
[0175] The concept of dealable prices for FRAs is based on credit
compatibility for all tenors. Therefore two trading floors are said
to be credit compatible if they have bilaterally allocated enough
credit to each other to execute one minimum size trade in the tenor
that utilizes the most credit available on the system.
[0176] For each FRA currency a 3 month minimum notional amount is
set as a system parameter. The formula to calculate the minimum
size for any tenor is;
minimum size=(3 month minimum notional amount)/(# months in
gap/3)
Example
[0177] EBS has defined the 3 month minimum notional amount=USD 50
mill
[0178] The minimum size for a USD June 1998=(50 mill)/(3/3)=USD 50
mill. The minimum size for a USD September 1998-6=(50
mill)(6/3)=USD 25 mill
[0179] Since credit utilization is a function of;
1. Time between trade date and settlement date (TTS) 2. Time
between settlement and maturity (gap) 3. The volatility of interest
rates in the currency of the FRA then for two floors to be credit
compatible they must have sufficient credit available to execute a
trade for a minimum size in the tenor with the highest calculated
utilization. This should mean that, subject to credit changing
during deal completion, the two parties will be able to complete a
deal in any currency at least of minimum size.
[0180] A trading floor can control, to an extent, the minimum
credit threshold necessary to display dealable prices by modifying
time to settlement factors with times to settlement that utilize
the most credit. For example, a floor can specify time to
settlement factors which do not increase for those factors beyond
where they want to trade. Also, a floor can set the currency
conversion to zero for particular currencies thus electing not to
trade in volatile currencies offered, thus reducing the credit
availability necessary to see prices in less volatile
currencies.
Example
[0181] The system of the present embodiment allows trading in tenor
ranging from 0.times.1 out to 24.times.27 in USD, GBP and JPY. The
minimum trade size defined is set as USD 50 million (3 month
equivalent notional value).
[0182] In the following case, for floor A to see dealable prices
from floor B they must allocate sufficient credit to execute one
trade in USD for a minimum notional size 50 million.
[0183] Trading floor A uses USD as their credit limit currency.
[0184] Trading floor A is only trading USD FRAs.
[0185] Trading floor A has assigned a currency volatility factor to
USD of 0.5%.
[0186] For floor A to see prices from floor B, it must allocate
sufficient credit to floor B to execute on USD March 2000 (24
months away) for USD 50 mil.
[0187] The minimum credit is calculated as follows (the TTS factor
is assumed to be the square root of the TTS): minimum available
credit=(4,4889)*(0.005)*(50,000000)=$1,122,225.
[0188] Having calculated the minimum credit threshold, the Market
Access Node then calculates for each potential counterparty whether
at least the minimum order seize could be dealt by checking against
the credit limit available for the Credit Group associated with
that counterparty, and transmits a CreditUpdate message to the
affected Arbitrator(s) and Market Distributor(s) containing a
simple binary indication of whether credit is currently available
or not available to each designated potential counterparty in an
amount at least equal to the calculated minimum credit threshold
established by the credit granting entity associated with that
Market Access Node. Provided that the relevant threshold has been
met, the Arbitrator(s) and Market Distributor(s) receiving the
CreditUpdate message place a "1" in the associated cell of their
Pre-Authorization Matrix. Conversely, if the CreditUpdate message
indicates that the available credit is below the relevant
threshold, the Arbitrator(s) and Market Distributor(s) receiving
the CreditUpdate message place a "0" in the associated cell.
[0189] The Pre-Authorization Matrix is then used in known fashion
to pre-screen distributed buy/sell orders so that only "dealable"
prices are shown to traders.
[0190] The foregoing discussion excluded, for simplicity, the
handling of credit as between the broker workstation and other
institutions.
[0191] As will be clear from the previous discussion, the voice
broker can submit to the trading system the identity of a client
institution. The system then displays at the broker's workstation
credit-screened prices and a credit-screened view of the book,
based on the credit matrix for the selected counterparty. Thus, the
broker workstation provides a plurality of trading parties and the
broker can select a market view for a given trading party.
[0192] The broker workstation can display dealable prices and the
best price on the system (which may be from a counterparty with
whom there is no credit) for each instrument traded on the system.
These prices are displayed din the same way as the regular trader
workstations if the institution ID entered by the broker were on
the matrix system. The broker workstation also shows all dealable
quotes in the market for each instrument traded on the system.
These quotes are sorted in price/time order and indicate the
originating bank ID. These quotes are color coded according to the
credit matrix with black indicating that credit is available and
red that no credit is available.
[0193] The broker workstation can also display a complete view of
the book with no credit screening. This enables the broker to see a
complete view of the market across its depth when he is not acting
on behalf of a particular trader.
[0194] The broker workstation shows all deals in which the broker
has been involved, but unlike trader workstations both parties are
disclosed and the deals information can be filtered by voice trader
or institution.
[0195] As shown in FIG. 4, the broker workstations are connected to
a market access node, these may be a number of market access nodes
each with one or more broker workstations attached. The market
access node for the broker workstations performs a number of
functions as follows:
1. Submission of broker quotes to the arbitrator. 2. Cancellation
of broker quotes. 3. Reception of whole book for a specific tenor
and transmission to a broker workstation. 4. Reception of the
credit matrix and update for a specific floor from the market
distributor. 5. Reception of the system market view for each trader
on whose behalf the voice broker can act. 6. Submission of hits
from the voice broker to the arbitrator against a specific quote.
7. Rejection or confirmation of deals. 8. Logging of deals in a
trade database. 9. Printing and reprinting of deal tickets. 10.
Hand off to the voice broker and customer's back office
systems.
[0196] Our earlier application WO00/16224 describes the message
flow around the network of the type described in FIG. 4. For
reasons of brevity, that will not be repeated reference is directed
to that publication. The inclusion of the broker workstation(s) and
associated one or more market access nodes gives rise to a number
of additional broker related messages as follows.
[0197] A Broker Quote message is used to submit a hit entered by
the broker. The message also contains the quote targeted by the hit
and is sent by the broker's market access node to the
arbitrator.
[0198] A Broker Hit Notify message is sent by the arbitrator to the
maker market access node (that is the node from which the quote
that been hit originated) to notify that node about the broker
deal. It also causes the market access note to display a message of
the maker trader workstations that a manual credit check is
required.
[0199] Broker deal status (Maker/Taker) is a pair of messages which
informs the components involved in a deal (maker and taker) about
the broker deal.
[0200] A Broker Hit Processed message informs various components
about the deals done by the voice broker manually. It is by means
of this message that deals conducted outside the system are entered
into the system. This is an important aspect of the embodiment
described as it enables the electronic trading system to have a
more complete view of the market and so offer traders a more
transparent environment within which to operate.
[0201] It will be appreciated that the embodiment of the invention
described is only one of many embodiments of the invention. The
description has been given with specific reference to FRAs but it
will be appreciated that the invention is applicable not only to
other financial instruments such as F/X spot etc. but also to other
fungible products such as metals, pork bellies and other
commodities. The manner in which credit limits are determined will
vary depending on the nature of the instrument or commodity being
traded but the principle of automated credit checking for wholly
anonymous deals with manual checking for voice broker assisted
deals remains unchanged.
[0202] The network described has a lot of distributed
functionality. Other network configurations are possible. For
example, a centralized network with a trader and broker terminals
connected to a host completer would be possible. In such an
arrangement, matching, credit checking and the assembling of market
views would all take place at the host.
* * * * *