U.S. patent application number 14/514205 was filed with the patent office on 2015-01-29 for process and apparatus for conducting auctions over electronic networks.
The applicant listed for this patent is MuniAuction, Inc.. Invention is credited to Myles C.S. HARRINGTON, Robert M. PANOFF, Daniel J. VERES.
Application Number | 20150032564 14/514205 |
Document ID | / |
Family ID | 26725547 |
Filed Date | 2015-01-29 |
United States Patent
Application |
20150032564 |
Kind Code |
A1 |
HARRINGTON; Myles C.S. ; et
al. |
January 29, 2015 |
PROCESS AND APPARATUS FOR CONDUCTING AUCTIONS OVER ELECTRONIC
NETWORKS
Abstract
An apparatus and process for conducting auctions, specifically
municipal bond auctions, over electronic networks, particularly the
Internet, is disclosed. The auctioneer maintains a web site from
which information about bonds to be auctioned can be obtained. A
user participates in the auction by accessing the web site via a
conventional Internet browser and is led through a sequence of
screens that perform the functions of verifying the user's
identity, assisting the user in preparing a bid, verifying that the
bid conforms to the rules of the auction, displaying to the user
during the course of the auction selected bid information regarding
bids received and informing the bidder how much time remains in the
auction. The user may be given the option of confirming the
accuracy of his bid before submitting the bid. The auctioneer is
able to review bidding history, determine the winner and notify the
winner over the network, and display selected auction results to
bidders and observers over the network.
Inventors: |
HARRINGTON; Myles C.S.;
(Pittsburgh, PA) ; VERES; Daniel J.; (West View,
PA) ; PANOFF; Robert M.; (Durham, NC) |
|
Applicant: |
Name |
City |
State |
Country |
Type |
MuniAuction, Inc. |
Pittsburgh |
PA |
US |
|
|
Family ID: |
26725547 |
Appl. No.: |
14/514205 |
Filed: |
October 14, 2014 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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12169410 |
Jul 8, 2008 |
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14514205 |
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10613319 |
Jul 7, 2003 |
7523063 |
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12169410 |
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09666559 |
Sep 21, 2000 |
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10613319 |
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09087574 |
May 29, 1998 |
6161099 |
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09666559 |
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60047876 |
May 29, 1997 |
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Current U.S.
Class: |
705/26.3 |
Current CPC
Class: |
G06Q 40/00 20130101;
G06Q 30/08 20130101; G06Q 40/04 20130101; G06Q 40/06 20130101 |
Class at
Publication: |
705/26.3 |
International
Class: |
G06Q 30/08 20060101
G06Q030/08 |
Claims
1-64. (canceled)
65. A bidder's computer connected to an auctioneer computer via an
electronic network, the bidder's computer comprising: a security
processor for providing a bidder identifier and password; an
information presenter processor that selectively presents auction
terms and conditions, and a description of a financial instrument
being auctioned; an electronic verifier processor, in response to
bidder input, provides electronic verification indicating that the
bidder has read and agrees to certain legal terms associated with
auctioning the financial instrument; a real-time auction user
interface processor configured to enable the bidder to participate
in a real time auction of the financial instrument over the
electronic network, the real-time auction user interface including:
user bid processor, provided on the bidder's computer in the form
of downloaded applets, configured to present the bidder with a
series of screens to guide the bidder through a bidding process and
provide the bidder with computational assistance in preparing a
bid, the software including a bid formulator that enables the
bidder to prepare a tentative bid, review it and modify it before
submitting it, including recalculating and refreshing display of
aspects of the bid, including calculated yield or prices associated
with bid entries before submitting them as a bid; a bid submitter
that enables the bidder to submit the bid; a notification interface
receiver that, in response to received notification information,
automatically notifies the bidder in real time when a submitted bid
does not conform to issuer's specifications in a Notice of Sale
with a description of any non-conforming entry; an auction clock
display processor that receives official auction time over the
Internet and graphically displays information keeping the bidder
informed in real time of time remaining in the auction; and a
communication processor communicating with the security processor,
electronic verifier processor and the bid submitter, the
communication processor communicating the bidder identifier and
password, the electronic verification and the bid over the
electronic network to the auctioneer computer.
Description
[0001] This application claims the benefit under 35 U.S.C.
.sctn.119(e) of co-pending provisional application Ser. No.
60/047,876 entitled "PROCESS FOR CONDUCTING AUCTIONS OVER
ELECTRONIC NETWORKS" filed May 29, 1997, which is incorporated
herein by reference.
BACKGROUND OF THE INVENTION
[0002] 1. Field of the Invention
[0003] The present invention relates to a method of conducting
auctions, particularly original issuer municipal bond auctions,
over electronic networks, particularly the Internet.
[0004] 2. Description of the Prior Art
[0005] A conventional auction is a prior art process in which bids
from bidders are received by an auctioneer for an item to be sold.
The bidder whose bid is the highest at the termination of the
auction (the "successful bidder") becomes the purchaser of the
item.
[0006] Auctions may be conducted in a variety of ways. In the
"silent real-time" auctions bidders are made aware at all times of
the magnitude of the current highest bid but do not know the
identity of the highest bidder. So long as the auction is still in
progress, the bidders may increase their bids. Silent real-time
auctions generally end at a specific announced time and any bid
submitted by that time is considered in determining the successful
bidder.
[0007] Another style is the "public real-time" auction, in which
bidders are made aware both of the current highest bid and the
identity of the bidder. Public real-time auctions are
conventionally held by open verbal outcry and are terminated by the
fall of the auctioneer's hammer after warning is given to the
bidders of the imminent close of the auction.
[0008] Other types of auctions are known. In a sealed-bid auction,
bidders are given the chance to make only one secret bid. They do
not know either the current highest bid or the identity of the
current highest bidder. In a "silent and blind auction" the
specific bids and identity of the bidders is maintained in secret
until close of the auction. Yet other types of auctions differ from
the foregoing in that offers to sell may be made by the auctioneer
in decreasing price increments, the first buyer to accept a bid
being the winner. This type of auction is also known as a "Dutch
flower auction." In another type, the winner is the party who makes
the highest bid, but he pays the amount bid by the second-highest
bidder. Many variations on these auctions are also known.
[0009] It is a drawback of the above types of auctions that the
bidders must either gather together in the same physical location
with the auctioneer or remain in contact with the auctioneer by
telephone or video conference facility. Bidders who are in the
physical presence of the auctioneer may have an advantage because
they are able to respond to the auctioneer's reaction to a bid more
rapidly than those at remote locations are.
[0010] A variety of electronic auctioning and trading systems have
been developed, including electronic auction systems relating to
financial instruments. Examples of these can be seen in U.S. Pat.
No. 5,640,569 to Miller et al, U.S. Pat. No. 5,375,055 to Togher et
al, U.S. Pat. No. 5,243,515 to Lee, U.S. Pat. No. 5,136,501 and
U.S. Pat. No. 5,077,665 to Silverman, et al, U.S. Pat. No.
4,980,826 and U.S. Pat. No. 4,903,201 to Wagner, U.S. Pat. No.
4,789,928 to Fujisaki and U.S. Pat. No. 3,581,072 to Nymeyer.
[0011] The Miller patent is directed to an electronic "auctioning"
system specifically directed to allocating computer resources such
as transmission bandwidth of a multiplicity of network links
interconnecting the users. The system uses a type of second price
sealed bid method. The system allocates resources to maximum
declared values based upon the second highest bid such that
successful bidders are charged what is referred to as an
opportunity costs for the goods.
[0012] The Togher et al patent discloses a credit management system
for an electronic brokerage system. The brokerage system disclosed
involves a communications network for facilitating the buying and
selling of large blocks of foreign currency. In particular the
system provides that each bid or offer for bid for a particular
type of financial instrument is prescreened by the system for
compatibility with limited credit information. The system
identifies that, at least in currency, the resulting price may be
based upon a composite of bids for small sizes or lots of the
currency in question.
[0013] The Lee patent discloses a secure teleprocessing bidding
system relating to a secret bidding process. The system maintains
the bids secret from other bidders until after the period for
bidding is closed. The system is intended to eliminate bid
procedure violations and provides an electronic record of the bids
received.
[0014] The Silverman et al patents disclose an electronic trade
matching system for trading instruments in which bids are
automatically matched against offers for the given trading
instruments. The system uses a network to connect the host computer
with bidding and offering clients of the system.
[0015] The Wagner patents disclose a voice actuated futures trading
exchange. The system is described as a computerized public outcry
exchange system for transacting sales of a particular futures
commodity contract by members of a futures trading exchange wherein
bids to purchase or offers to sell the particular commodity are
made by members through remote terminals and the exchange computer
automatically matches offers and bids to complete the transaction.
The system provides that the offers may be orally entered into the
system.
[0016] The Fujisaki patent discloses an auction information
transmission processing system that sets up a hierarchical system
of host and server computers, which are configured to minimize the
data transmitted between computers during an auction. The system is
designed to allow auction participants to be spread out over a wide
area. The system was directed to auctioning of specific items such
as used cars.
[0017] None of the above described patents are directed to original
issuer auctions of financial instruments. With auctions of various
financial instruments there is a significant difference between the
original issuer and subsequent resale of portions of this
instrument in the secondary market. Once in the secondary market
the financial instrument or portions thereof become fungible
commodities appropriate for trading in various trading forums
including some of the electronic trading systems described above.
The present invention is directed to original issuer auctions,
which involve distinctly different issues than those associated
with the secondary market.
[0018] None of the existing electronic trading or auctioning
systems addresses the needs of original issuer auctions of
financial instruments, such as municipal bonds. In the domain of
original issuer municipal bond auctions, conventionally competitive
bids for new municipal bond offerings are submitted to the issuer
via fax machine or US mail or in person and qualified bids must be
for all of the bonds in the issue ("all-or-none"). In addition to
fax submissions, 21.sup.st Century Municipals, Inc. has developed a
modem based electronic bid submission system using a computer
network and sold under the trademark PARITY. The PARITY bid
submission system allows bidders who have previously obtained and
installed appropriate software to electronically submit bids in an
auction over a computer network. The PARITY system is designed to
be used together with fax and other bid submission methods during
an auction. The PARITY system is designed as a sealed bid system
such that the bids received are not reviewed until after the
auction closes, and there is no feedback to the bidders during the
auction.
[0019] In a conventional original issuer municipal bond auction,
there is a fixed time (e.g. 10:30 a.m., EST) on a predetermined
date ("sale date") that bids must be delivered to the issuer.
Because bidders are sensitive to on-going interest rate movements
in the capital markets while preparing their bid, they prefer to
wait until the last minute before submitting the bid to be as
competitive as possible and avoid the risk that other bidders will
learn the details of their bid before the deadline. This system
essentially mimics a sealed bid arrangement in this respect.
[0020] It is a drawback of bids submitted by mail that the bids
must be submitted too far in advance to competitively reflect the
market conditions when the bid is due.
[0021] It is a drawback of fax auction methods that faxed bids are
transmitted after the deadline, fax clocks are not set properly and
record the incorrect time in fax headers, fax transmission
interruptions outside the control of the sender and receiver and
machine malfunctions such as paper misfeeds occur.
[0022] It is a drawback of in-person bidding methods that bidders
have difficulty locating the place where bids are to be delivered
or may experience traffic or other delays in submitting bids. Also,
because the most frequent participants in competitive bids for new
issues are located in New York City and the issuers are in other
parts of the country, it is extremely difficult for many bidders to
deliver their bids in person.
[0023] It is a drawback of the PARITY bid submission system that to
use electronic bid submission the bidders must previously obtain
and install the appropriate software, resulting in essentially a
closed computer network. An additional drawback with the PARITY
system is that no feedback is provided to the bidders. The system
incorporates all of the drawbacks inherent in these other bid
submission systems.
[0024] It is a drawback of prior art bidding methods for original
issuer auctions of financial instruments that frequently bids are
not submitted in conformity with issuers' specifications as set
forth in a Notice of Sale or similar solicitation document. It is a
drawback of fax bid methods that faxes may not be legible at the
receiving end. These problems can create controversy between
bidders and embarrass municipal officials and their financial
advisors conducting original issuer municipal bond auctions. They
can also cost the issuer money (e.g. if the best bid has to be
disqualified as a result of one of these malfunctions or
mistakes).
[0025] Further drawbacks of prior art bidding methods in original
issuer municipal bond auctions are:
1. Bidders cannot see bids submitted by other bidders and are thus
precluded from using this information to make their bids more
competitive; 2. Once having submitted a bid, a bidder is not given
an opportunity to correct or improve their bid in the event it does
not conform in some way to the issuer's bids specifications; 3.
Bidders cannot submit bids for selected bond maturities; bids must
be "all-or-none"; meaning they must purchase every single maturity
in the issue or none of them; 4. Regional and small underwriters
are precluded from submitting bids because they do not have
sufficient capital or desire to purchase every maturity in an issue
(i.e. all-or-none); 5. Institutional investors and other bidders
who are not underwriters do not submit bids because they desire
only selected maturities rather than all of the bonds in an issue;
6. There is a delay after bids are submitted and before awarding a
contract to the successful bidder because it is necessary for the
issuer to transcribe the bids into a computer spreadsheet or other
program that computes which bid is the best one; furthermore, it is
usually necessary to resize the principal maturity amounts after
determining the winning bid, which results in further delays before
the sale is made; 7. There is no effective security mechanism to
reassure issuers that bids submitted via fax or other method are
bona fide offers from qualified bidders; 8. There is no built-in
safeguard that alerts bidders before submitting their bid when they
attempt to make a bid which does not conform to the issuer's
specifications (e.g., exceeding the issuer's premium or discount
limitations, interest rate coupons which are not multiples of a
predetermined percentage, etc.).
[0026] The prior art does not disclose a method of conducting
original issuer municipal bond auctions mediated by computer in
which the bidders may be distributed in different physical
locations yet by which either a silent real-time auction or a
public real-time auction may be conducted.
SUMMARY OF THE INVENTION
[0027] According to one embodiment, the present invention is
directed to a computer implemented process comprised of the steps
of: establishing communications over a network between an
auctioneer's computer and a plurality of bidders' computers;
providing information regarding financial instruments to be sold to
potential bidders; submitting at least one of a maturity by
maturity bid or an all-or-none bid via the bidder's computer;
accepting one or more of the submitted bids; and displaying the
current best bid while the auction is in process. Information in
addition to the current best bid which may be displayed includes
the identity of the bidder, showing the status of a plurality of
bidders, or showing a no-bid status on a portion of the financial
instrument.
[0028] The present invention also provides for selectively
displaying selected auction and bid status information during the
course of the auction to non-bidding observers of the auction via
the network on the observers' computers. This allows for third
party observation of the auction in real time. The present
invention can selectively provide information concerning the
auction to participants and observers from the auctioneer's
computer via the network after the closing of the auction.
[0029] The present invention also provides for verifying that each
bid is in conformance with predetermined bid parameters and gives
the bidder an opportunity to review and confirm bids prior to the
bids being actually recorded on the auctioneer's computer. The bid
verification may include automatically refusing acceptance of
submitted bids that do not conform to predetermined bid parameters,
and providing feedback to the bidder of a proposed bid by providing
the bidder with a summary of the proposed bid prior to bid
submission. The present invention also screens bidders via the
network to qualify bidders to submit bids and provides
documentation of the qualification of the individual bidders.
[0030] The present invention includes an electronic bid calculation
sheet, which is supplied to the bidder over the network, wherein
the electronic bid calculation sheet allows each bidder to prepare
proposed bids including calculation of the cost of a proposed bid,
and calculation of the various components of that cost including
commissions, concessions, etc., prior to submission of the bid. The
electronic bid calculation sheet is adapted to selectively display
the bidder's last submitted bid without disturbing proposed bid
information on the spreadsheet.
[0031] The operation of the present invention includes a plurality
of computers that are connected to an electronic network, in
particular the Internet. Each bidder may use their own personal
computer. The bidders' computers are provided with commercially
available browser software that communicates through the network
with an auctioneer's server. Auction terms and conditions, and a
description of the instruments to be auctioned, are broadcast or
otherwise made available by the auctioneer's server to the bidders'
computers. During the auction the auctioneer's server broadcasts or
otherwise makes available selected bid information such as bidder
status leader or not leader), or the current highest bid and, if
desired, the identity of the current highest bidder. Software on
the server, or perhaps on the bidders' computers in a JAVA
implementation, guides the bidders through the bidding process and
provides computational assistance in preparing their bids and
comparing them to the current highest bid. The bidder may prepare a
tentative bid, review it and modify it before submitting it. A
confirmation step may be implemented to insure that the bid is
correct before it is submitted. When a bid is "submitted", it is
compared with the current highest bid. If the submitted bid is
higher than the current highest bid, it becomes the new current
highest bid and, if desired, is made available to all bidders. At
the close of the auction, the auctioneer's computer notifies the
bidders' computers of the successful bid. The auctioneer's computer
also maintains a database of all bids which can be accessed by
interested parties for their own use. Those and other advantages
will be clarified in the description of the preferred embodiment
together with the attached figures in which like reference numbers
represent like elements throughout.
BRIEF DESCRIPTION OF THE DRAWINGS
[0032] For the present invention to be easily understood and
readily practiced, preferred embodiments will now be described, for
purposes of illustration and not limitation, in conjunction with
the following figures:
[0033] FIG. 1 illustrates a network over which the present
invention may be practiced;
[0034] FIG. 2 illustrates an example of a home page from one
implementation of the present invention;
[0035] FIG. 3a is a flow chart illustrating the overall process
flow of the present invention from a home page;
[0036] FIG. 3b is a flow chart illustrating the overall process
flow with respect to the preparation and submission of a bid;
[0037] FIG. 3c illustrates the options available from an
administration menu;
[0038] FIG. 4 illustrates a Series of questions which may form a
portion of the registration process;
[0039] FIG. 5 illustrates an example of a selections page;
[0040] FIG. 6 illustrates an example of an observation page;
[0041] FIG. 7 illustrates an example of a log-in page;
[0042] FIG. 8 illustrates an example of an acknowledgment page;
[0043] FIG. 9 illustrates an example of a verification page;
[0044] FIGS. 10 and 11 illustrate two examples of bid
preparation/submission pages;
[0045] FIG. 12 illustrates an example of an error page;
[0046] FIG. 13 illustrates an example of a confirmation page;
and
[0047] FIGS. 14 and 15 illustrate two examples of administration
pages.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
[0048] The present invention concerns original issuer municipal
bond auctions in which a municipality ("Issuer") offers its bonds
to purchasers, generally underwriters who resell them to the
public. The present invention is also applicable to corporate
commercial paper, corporate bonds and notes, U.S. Treasury
auctions, equity offerings, and, in general, any financial
instrument. In a municipal bond auction, the municipality desires
to raise the greatest possible amount of money for its bonds and
therefore desires a large number of competitive bidders. Bids in
municipal bond auctions may be complex because of the need to bid
on a package of multiple bonds having differing principal amounts
and maturity dates. Comparing one's prospective bid against the
current highest bid involves more than a simple comparison of two
numbers. It is difficult to do this comparison rationally in
real-time without computational assistance.
[0049] Bonds are offered to underwriters ("bidders") by means of
two official documents prepared by the Issuer: a Notice of Sale and
a Preliminary Offering Statement ("POS" or "Prospectus"). The
Notice of Sale describes the terms of the offering in detail. The
POS describes the bonds being issued in detail, including such
terms as the legal authority of the Issuer to issue them, a
description of the security being offered to the purchaser, and the
like. The terms of both the Notice of Sale and the POS are
essential to the preparation of a bidder's bid.
[0050] In a preferred embodiment, the auction is conducted by an
auctioneer hired by the Issuer to solicit and receive bids. As
shown schematically in FIG. 1, in a preferred embodiment, the
auctioneer is provided with a computer/server 10 connected to a
network such as the Internet 12. The auctioneer maintains a web
site on the Internet through the server that may be accessed by
users. As used herein, the term "user" means any person who
accesses the auctioneer's web site, including the auctioneer,
bidder, Issuer, Issuer's financial advisor or auction
administrator. In a preferred embodiment, each user may use his or
her own personal computer 14 connected to the Internet 12.
Computers 14 are provided with conventional web browsing software
to obtain access to the auctioneer's web site. A portion of one
example of the home page 16 of the auctioneer's website is
illustrated in FIG. 2.
[0051] The user is presented with a series of screens to guide him
through the bidding process, illustrative examples of which are
shown throughout the figures. In a preferred embodiment, the source
code implementing these screens resides entirely in the
auctioneer's computer 10 and is downloaded as HTML to the user's
computer 14 as each screen is accessed. In an alternative
embodiment, portions of the source code implementing certain
features remains resident on the user's computer, e.g. in the form
of applets written in the JAVA language. In the preferred
embodiment, the source code that supports operation of the
auctioneer's web site is written in HTML (Hypertext Markup
Language), PERL 5, and Mini SQL (Structured Query Language).
[0052] In a preferred embodiment, for security reasons each user
must either register or make arrangements in advance with the
auctioneer to receive an identification number ("ID") to obtain
access to auction information and to enter or review bids.
Registration is schematically illustrated as elements 18 and 20 in
FIG. 3a.
[0053] The applicant's website, in particular the home page 16, can
be accessed by any interested person using URL
http://www.muniauction.com.
[0054] The user who "visits" the auctioneer's web site is led
through a sequence of web pages and may prepare and submit bids by
typing entries and using conventional mouse clicks as in accessing
a typical web site.
[0055] The site's home page 16, shown in FIG. 2, offers three
links, an information link 22a to brochure 24 (FIG. 3a), a
registration link 22b to registration pages 18, 20 (FIG. 3a) and
auction link 22c to a selections page 26 (FIG. 3a).
[0056] The "Brochure" pages 24 are a description of the electronic
auction, why it is useful, how it works, its benefits to issuers
and bidders, special features and where to call for an on-line
demonstration.
[0057] The "Registration" pages 18 and 20 contain appropriate forms
to be completed by those interested in submitting bids. A portion
of a web page 28 shown in FIG. 4 may be part of the registration
page 18 shown in FIG. 3a. Parties must register so that their
credentials can be verified prior to issuance of security
information enabling them to make legitimate bids. Registration is
necessary to prevent unauthorized persons from interfering with, or
obtaining information about, the auction.
[0058] The "Auction" link 22c of home page 16 leads to the
selections page 26 from which a user may enter the auction. An
example of the selections page 26 is shown in FIG. 5.
[0059] The selections page 26 lists the bond auctions which are
either completed, in progress, or anticipated. The auctions may be
trial auctions in which users can view and practice bidding or real
auctions. The listing may include the name of issuer, the state
where the issuer is located, a brief description of the bonds being
sold, the size of the issue, the scheduled auction date, and start
time. Each possible auction may have a group of selections such as
"Enter Action" for auctions upcoming or in progress, "Observe
Results" for completed auctions, "View Notice of Sale", View
Amendments", and "View POS". If the "Observe Results" option is
chosen, the user is directed through branch 30 to page 32 (See FIG.
3a) in which the user may view the auction results which the issuer
chooses to make available. See FIG. 6 for an example of an
observation page 32. For example, the issuer may choose to show
only the amount and name of winning bidders or may choose to
display complete bid histories for the auction. Preferably the
information to be made available after the auction will be
disclosed in advance to the auction participants.
[0060] When an upcoming or current auction is selected at
selections page 26, the user is directed through current auctions
branch 34 to a login page 36 (See FIG. 3a). If the user selects
"Enter Auction" for a trial auction, trial auction branch 38 takes
the user to login page 40. The login page 40 may appear as shown in
FIG. 7.
[0061] In the selections page 26, the user is provided with the
multiple linked options "View Notice of Sale," "View Amendments",
etc. Depending upon which issue is selected, the corresponding
document will be displayed. That is shown collectively as "View
Documents" 42 in FIG. 3a.
[0062] The "View Notice of Sale" option causes the complete text of
the Notice of Sale to be displayed to the user. The Notice of Sale
is provided to the auctioneer in advance by the Issuer, typically
in machine-readable form, is converted to HTML or Adobe Acrobat,
and stored on the auctioneer's web server for access by users.
[0063] The "View POS" option takes the user to an acknowledgment
page shown in FIG. 8. To view the POS, the user must first
acknowledge that the user is eligible to bid. If the user indicates
that the user is not eligible, then the user returns to the
selections page 26. Selection of the "eligible" option causes the
complete text of the Preliminary Official Statement for the issue
selected to be displayed. The POS is supplied to the auctioneer
typically in machine-readable form by the Issuer, converted to HTML
text or Adobe Acrobat, and then stored on the auctioneer's web
server for access by users. Because the POS is a multi-page
document, the auctioneer may create hypertext links to various
parts of the POS from the items listed in the related table of
contents to facilitate quick access by the user to selected
portions of the document or rapid review and retrieval of
information.
[0064] A "View Rules of Auction" link (not shown) may be provided
which causes a text document stipulating the rules and conventions
that all bidders must acknowledge or agree to abide by when
participating in the auction. It also explains how disputes, if
any, will be resolved, how bids are sequenced (e.g., first-in,
first-out) and processed by the source code, what mathematical
formulas and conventions are used to calculate prices and yields,
and how purchase amounts may be altered after the auction to
accommodate re-sizing.
[0065] The log-in page 36 is used to ensure that the user is
identified and is verified to be legitimate. It requires the user,
as a condition to entering the specific auction chosen, to enter
its company identification number (ID) assigned by the auctioneer
and their password, which is predetermined by the user. If the ID
number or password is not correct as shown at step 44, the user
will link automatically to an Error message (not shown) explaining
that one (or both) is incorrect and that they should click the BACK
button to return to the log-in page 36. After a correct log-in of a
registered user is checked at step 44, the system checks at step 46
to determine if this registered user is admitted or allowed to
participate in the selected auction, and verifies their status at
step 48. If properly registered and admitted, the user is directed
to verification page 50.
[0066] The verification page 50, an example of one type of which is
shown in FIG. 9, is used as a double check on the identity of the
user and to verify that the user, if bidding, agrees to abide by
the rules of the auction. It contains a list of questions that must
be answered affirmatively by clicking the "yes" response option
after each one before the user can proceed to the auction page. If
any of the questions is not answered or answered "no" as verified
at step 52, the user will be linked to an error message 54
identifying the question (or questions) which has not been answered
properly and directing the user to either contact the Administrator
(by e-mail link) for assistance or click the BACK button to return
to the verification page 50. The verification procedure provides a
documented history that the user has reviewed the relevant
materials including the Notice of Sale and POS. If an
acknowledgement from the user, i.e. answering yes to all the
questions, is not received, step 52 prevents the user from
participating in the auction.
[0067] As shown in FIG. 9, three Of the questions contain direct
links to the Notice of Sale and Amendments, POS, and Rules of
MuniAuction, respectively, which the bidder can view if the bidder
has not already done so.
[0068] Although not currently implemented, the verification page 50
could also allow bidders to select the bid format they would like
to use on the bid preparation and submission page 56 which follows,
choosing either to enter the price and coupon combination or coupon
and yield combination.
[0069] The bid preparation and submission page 56 is an electronic
spreadsheet, or bid preparation sheet, representative examples of
which are shown in FIGS. 10 and 11 and are labeled "Auction." The
bid preparation and submission page 56 displays a schedule of the
principal maturity amounts 66 and due dates 68 for the issue to be
auctioned as well as selected bid information 70 associated with
the bid for each maturity.
[0070] The selected bid information 70 is predetermined by the
issuer prior to the auction and is updated continuously throughout
the auction. By displaying a current best bid, which is optional,
an open bid auction may be implemented. The bid status information
which is displayed to each of the users may include, for example,
one or more of the following: the yield of a leading bid, the
identity of leading bidders, the status of the bidders (i.e.,
"Leader/Not Leader"), or a "no bid" status on a portion of the
financial instrument. Any other appropriate information relating to
the bids or the auction may also be included.
[0071] FIG. 10 illustrates a blank form upon which a user may
prepare a proposed maturity by maturity bid. The user enters a
coupon and price, or yield, for each principal maturity it wants to
purchase. To determine the yield associated with the price and
coupon combination (or the price associated with their coupon and
yield combination) without actually submitting a bid, the user can
click the "Calculate/Refresh" button 72, which calculates the yield
(or price) without actually submitting it. If the user submits a
bid and it results in a yield lower than the "best yield", whether
shown or not, for that maturity, the user may choose to click the
"Submit Bid" button 74 and become the new "Leader" with the "best
yield" for that maturity (provided time remains before the auction
ends). In a maturity by maturity auction only, if no other bidder
submits a better bid before the auction ends, then the leader
becomes the successful bidder or "Winner" of the auction for the
relevant maturity or maturities.
[0072] FIG. 11 illustrates a blank form upon which the user may
prepare a proposed all-or-none bid. The user enters a coupon for
each maturity and an aggregate purchase price 77, and at the
Issuer's option, a price or yield for each maturity. To determine
the true interest cost (TIC) associated with the aggregate purchase
price 77 and coupons combination without actually submitting a bid,
the user can click the "Calculate/Refresh" button 72 which
calculates the TIC without actually submitting it. If the result is
a TIC lower than the "best TIC" shown, if shown, the user may
choose to click the "Submit Bid" button 74 and become the new
"Leader" with the "best TIC" (provided time remains before the
auction ends). In an all-or-none auction only, if no other bidder
submits a better bid before the auction ends, then the leader
becomes the successful bidder or "Winner" of the auction.
[0073] In a maturity by maturity versus all-or-none auction, FIGS.
10 and 11 apply to maturity by maturity and all-or-none bidders;
respectively. The process of calculating and submitting bids is the
same, but in this format, the best maturity by maturity TIC (i.e.,
the aggregate TIC associated with the best yields for each maturity
submitted by one or more bidders) is compared with the best
all-Or-none TIC (submitted by one bidder) and the lowest TIC of the
two determines which bidder(s) is(are) the leader(s) or winner(s),
during or once the auction is over, respectively.
[0074] The Calculate/Refresh 72 function is of great convenience.
It can be implemented either in spreadsheet mode which a
calculate/refresh operation is performed each time any entry is
changed), or in delayed mode (in which calculate/refresh is
performed only on demand by the user). Additionally, the
spreadsheet may display the last submitted bid in field 76, which
displays to the user the last submitted bid by that user. In FIG.
10, field 76 is above a column that displays this information
without overwriting the remaining sections of the spreadsheet. The
electronic spreadsheet is therefore adapted to display the users
last submitted bid simultaneously with the bid information on the
spreadsheet. In another embodiment, the bid preparation and
submission page 56 may optionally assist the user in optimizing his
bid.
[0075] According to one embodiment of the invention, and at the
option of the Issuer, if the user attempts to submit a bid which
results in a higher yield than a bid it has already submitted which
became the current leading bid, it is linked to an error message
page (not shown) indicating that the user is attempting to submit a
bid which is worse than one they have already submitted. At that
point the user should click the BACK button to return to the bid
preparation and submission page 56.
[0076] Users may submit bids for one or more of the maturities
listed or none at all. If a user submits a bid which does not
conform to the specifications in the Notice of Sale (e.g.,
minimum/maximum price per maturity or coupon multiple parameters),
it is linked to an error message page, an example of which is shown
in FIG. 12, describing which parameter is improper and instructing
the user to click the BACK button to return to the bid preparation
and submission page 56.
[0077] All bids must be submitted before the auction ends. The
"Start" time, "End" time and current time or "Time of Last Update"
may be shown at the top of the bid preparation and submission page
56. Whenever users click the "Calculate/Refresh" button 72 or
"Submit Bids" button 74, "Time of Last Update" is updated to the
current time so that the user can keep track of how much time
remains before the auction ends. In an alternative embodiment,
"Time of Last Update" is updated automatically at brief intervals,
for example, at one-second intervals.
[0078] After a user selects the submit button 74 and the bid is
verified as conforming to the bid parameters, the bidder is
presented with a confirmation screen, an example of which is shown
in FIG. 13, to confirm the bid prior to submission. As shown in
FIG. 13, a summary of the bid is presented to the user in this
confirmation. If confirmed, the bid will be electronically
submitted to the auctioneer computer 10. The confirmation gives a
safety check to users to help them avoid the submission of
erroneous or undesired bids.
[0079] The bid preparation process and submission process described
above is summarized in the flow chart in FIG. 3b. Beginning with
the bid preparation and submission page 56, the user can select
"calculate/update" 72, "submit bid" 74 or "retrieve bid" 76 as
described above. Additionally the user may save a proposed bid at
step 78 in which case the user is asked to name the file at step 80
for future recovery of the bid. Previously saved proposed bids may
be viewed by selecting "view bid" 82 in which case the user is
prompted to identify the file containing the saved bid at 84 and
the file is retrieved and displayed at step 86.
[0080] In selecting the calculate/update option 72 a check is made
at step 88 to determine if the calculation is meaningful in the
context of the given auction. If the calculation is meaningful the
displayed bid is updated at step 90. If the calculation is not
meaningful, the nature of the error is determined at step 92 and
the bidder is informed of the error with proposed corrections at
step 94 unless the auction is over in which case the user is taken
to the observation page at step 96. The proposed corrections to an
error in the bid will allow the user to restore a previous correct
bid at step 98 or go back to allow the user to correct the current
proposed bid at 100.
[0081] In a similar fashion to the calculation/update process, the
submit bid process verifies that the bid to be submitted it
meaningful and in accordance with the appropriate predetermined bid
parameters for this auction at step 102. If an error is present in
the bid, the error is examined at step 104 in the same manner as
step 92 of the calculation/update process. Thereafter, the process
proceeds with either step 94 or 96 as discussed above. If the bid
was valid at step 102, then confirmation is requested at step 106
wherein the user is displayed a summary of the bid prior to bid
submission as described above. If the bid is confirmed by the user
at step 108 it is submitted and recorded by the auctioneer's
computer 10 at step 110.
[0082] Returning to FIG. 3a, the Observation mode 112 provides a
special page for the Issuer and Issuer's financial advisor, or
appropriate third party observers, to view the auction in progress.
It shows the selected bid information of bids submitted. The
observer can view a running list of best bids 114, individual bids
116 and cover (i.e., second place) bids 118. Such information may
be displayed in a manner very similar to that shown in FIG. 6. As
with the observe results page 32, the information illustrated on
the relevant pages 114, 116, and 118 regarding the bids is
predetermined before the auction. A particular Issuer may not wish
to have all the bid information, such as non-winning bid histories,
listed. The observation pages are updated throughout the auction by
clicking the "Refresh" button. In an alternative embodiment, the
observation pages are continuously updated. The observation page
may be automatically accessed by. Issuer and Issuer's financial
advisor when "Enter Auction" is clicked and after these users enter
a special ID number and password at the login page 36. The
observation mode 112 also accommodates other requests of
information stored in the database from users as schematically
illustrated at element 120 in FIG. 3a.
[0083] The Observation mode may show the true interest cost of
individual bids when there are bids for every maturity in the issue
and winning bids and cover bids. It also may show the "resized"
principal maturity amounts that coincide with the Notice of Sale
parameters, the Issuer's objectives (e.g., level annual debt
service), and a summary of all bids submitted by bidders.
[0084] The trial auction branch 38 leads to the login page 40 and a
verification page 124 which operate similar to the login page 36
and verification page 50, respectively, previously described except
that the login page 40 allows any user to select whether they want
to go to the trial auction page 126 where they can practice bidding
or the observation page 112 where they can observe bids. The trial
auction 126 is one or more screens which simulate a real auction
such that a bidder can become accustomed to the operating system
without entering into an actual auction. From the trial auction
page 126 the user is provided with a plurality of options such as
viewing various documents, returning to the home page, etc.
[0085] The Administration menu 128 is for use by the technical
staff of the auctioneer to create, modify or terminate auctions,
add or remove bidders, allow user access to applicable pages (e.g.,
bidders to the auction page and Issuers to the observation page),
and view auctions in progress. The operation of the administration
menu 128 is schematically illustrated in the flow chart of FIG. 3c
and two of the web pages accessible therefrom are shown in FIGS. 14
and 15. These pages may also show the true interest cost of the
winning bids and the resized principal amounts as described
above.
[0086] In FIG. 3c, the administrator can list registrants at step
123, add/delete registrants at step 125, or modify registrant
information at step 127 as shown in FIG. 14. The administrator can
view an ongoing auction at 129, release selected auction data for
completed auctions at step 130, create or modify up-corning
auctions at step 132 as shown in FIG. 15, delete an auction at step
134, restart an auction at step 136, view and/or set permission
parameters at step 138, and open/close trial auctions at step 140.
In the viewing of the auction at 129, the administrator may select
best bids at 142, cover bids at 144, individual bids at 146, or a
summary at 148 for viewing. In creating or modifying up-coming
auctions at step 132, the administrator may choose to create or
modify existing documents at 150 which will take him to the
selected document at step 152, or may choose to set and or change
auction parameters at 154 and/or maturity dates and amounts at
156.
[0087] At the end of an action, all winning bidders will
automatically receive preliminary e-mail confirmations of their
winning bids and purchase amounts (as resized), as well as a
reminder that when the Issuer has made the formal award of bonds,
they will receive another, final, e-mail confirmation 130.
[0088] A bidders log is provided containing a record of every bid
submitted by every bidder during an auction. It identifies the
bidder, the ID number and password entered by the bidder, the
responses by that bidder to the questions on the verification page
and the entries made by the bidder which were submitted as bids,
whether winning bids or not.
[0089] Electronic mail (e-mail) confirmation is automatically
generated to users on the occurrence of selected events. When a
registered bidder enters its ID number and password, an e-mail
confirmation is immediately sent to confirm the fact that they have
entered an auction. If, for example an impostor somehow succeeds in
impersonating a bidder, the bidder will receive e-mail showing that
the auctioneer believes the bidder has entered the auction. This
serves as a cross-check for security purposes.
[0090] The present invention provides several advantages over the
prior art such as allowing bidders from around the world to
participate simultaneously in a real-time auction of an original
issuer financial instrument, providing bidders in an original
issuer auction with computational tools, such as spreadsheets, with
which to compose and compute associated cost values with their
bids, providing facilities for the auctioneer in an original issuer
auction to receive and evaluate bids in real-time, allowing for
anonymity in silent real-time auctions or full disclosure in open
auctions, requiring submitted bids to be within the Issuer's
parameters, and increasing the speed at which bidders may bid so
that the largest number of bids can be submitted prior to the close
of an auction.
[0091] Following are further advantages of the present invention
relating to original issuer actions of financial instruments:
1. Replacing bidding by fax, personal delivery or other methods; 2.
Providing an integrated system running on a single server that: (a)
allows bidders to prepare bids and submit them without transcribing
them or using extraneous commercial software or equipment such as
Bid Comp, Monroe Bond Calculators, Bond Buyer Worksheets,
interfaces, etc.; (b) enables issuers, financial advisors and third
party observers to view auctions in progress including selected bid
information such as winning bids and bidders; (c) may automatically
send documentation in the form of electronic confirmations of
bidder admission to auction and winning bids; (d) may calculate
true interest cost (TIC) of winning bid combinations and resize
issue without requiring the Issuer or financial advisor to run
separate software programs or customize spreadsheet programs; (e)
permits the auction administrator to create, modify and view
auctions in progress; and (f) provides one on-line location where
the Notice of Sale and Preliminary Official Statement (POS) can be
viewed (and amended by the Issuer) to assist bidders in preparing
bids; 3. Allowing primary offerings of municipal bonds to be
conducted as real-time auctions in which bidders can view selected
bid information such as the best bid for each maturity and are
given the opportunity to make a better offer while the auction is
in progress; 4. Obviating the need for special software or hardware
installation at the bidders', or Issuer's locations by allowing
bidders and Issuers to use any personal computer, any Internet
service provider and any web browser; 5. Allowing bids to be
submitted for selected bond maturities within a new issue, rather
than exclusively on an all-or-none basis; 6. Allowing an auctioneer
to conduct multiple auctions simultaneously using the same web
server and a single administrator; 7. Allowing bidders to
participate in a plurality of auctions simultaneously or
consecutively; 8. Improving the security of auctions by providing
bidders and other parties that access bidding information with
electronic signatures via an identification number and password and
to log all bids submitted by each bidder throughout an auction; 9.
Obtaining electronic verification from bidders that they have read
and agree to certain legal documents associated with a bond issue,
retaining their responses in a log, and if they answer "no" that
they have not read the documents or do not agree with them, denying
such bidders access to the auction until they answer "yes"; 10.
Providing a bidder with automatic notification describing any
non-conforming entry via error messages when a bid does not conform
to the Issuer's specifications in a Notice of Sale; 11. Providing a
built-in official auction clock that keeps bidders informed of time
remaining before the auction ends; and 12. Enabling bidders to
recalculate and refresh a display of aspects of their bids,
including calculated yield or prices associated with their entries
before submitting them as formal bids.
[0092] The above described system is intended only to be
illustrative of the present invention and not restrictive thereof.
For example, one anticipated operation of the present invention
will be to conduct all-or-none and maturity by maturity auctions
for the same Issuer where the individual bidders status is not
displayed to the bidder, but only a display of which maturities
have not yet received a bid is presented to the bidders during the
auction as the selected bid information. Additionally the present
invention may be designed to allow bids to be prepared by existing
information services and have these loadable into the present
system through steps 84/86 shown in FIG. 3b.
[0093] Another aspect of the present invention is that it allows
appropriate third parties to create and conduct auctions. If
multiple separate administrators are allowed then additional
security may be added to limit an administrator's access to only
those auctions which it is controlling.
[0094] Further options of the present system may include:
1) Saving of bids prepared on the present system for later access
and retrieval by the bidder, 2) Automatic ranking and rating of
bids received to determine the best bids, wherein numerically tied
bids may be broken by the time of receipt of the bids; 3) Allowing
institutional investors to view the contact information for bidders
who have requested access to a given auction; 4) Having bidders
select to submit bids at re-offering rates and prices; 5) Having
the auctioneer identify whether a bidder's bid is priced at yield
to call or yield to maturity, as applicable; 6) Having the
calculations be moved to the client side to reduce the hits on the
home page server and increase bidder's privacy and susceptibility
to network delays; and 7) Having bidders presented with the option
of digitally signing bids for security which would use known
standard signature schemes in either a separate or JAVA integrated
utility.
[0095] It will be appreciated that although the embodiments
described herein relate to financial instruments such as municipal
bond auctions, the disclosed process is applicable to many other
types of auctions. Various modifications may be made to the present
invention without departing from the spirit and scope thereof. It
will be apparent to those skilled in the art how to adapt the
present invention to variant types of auctions. The scope of the
present invention is to be defined by the appended claims.
* * * * *
References