Sistema e método de troca de blocos

Sistema e método de troca de blocos
O presente pedido reivindica o benefício do Pedido de Patente Provisório dos EUA Ser. No. 60 / 772,066, arquivado em 10 de fevereiro de 2006, que é aqui incorporado por referência.
CAMPO DE INVENÇÃO.
A presente invenção relaciona-se, em geral, com a negociação eletrônica de mercados financeiros e, mais especificamente, com sistemas de negociação eletrônica e métodos que facilitam a negociação de blocos de instrumentos derivados.
ANTECEDENTES DA INVENÇÃO.
Os sistemas de negociação eletrônica fornecem plataformas baseadas em computador para combinar compradores e vendedores de instrumentos financeiros. Nos últimos anos, o uso de sistemas eletrônicos de negociação revolucionou a indústria, uma vez que os comerciantes preferiram cada vez mais o comércio eletrônico sobre os métodos comerciais tradicionais. Os sistemas de negociação eletrônica oferecem muitas vantagens, incluindo custos de transação reduzidos, maior precisão, horários de negociação ampliados e ampla disseminação de informações de mercado em tempo real.
Os sistemas de negociação eletrônica agora são comuns na maioria dos mercados financeiros. No mercado de ações, por exemplo, o NASDAQ usa um sistema de entrada e execução de pedidos conhecido como SuperMontage para todas as transações de valores mobiliários. No mercado cambial, a Reuters e a EBS operam sistemas de negociação on-line. BrokerTec e eSpeed ​​desenvolveram sistemas de negociação eletrônica para o mercado de títulos entre negociantes.
Muitos sistemas de comércio eletrônico recebem pedidos de compra e venda de comerciantes e imediatamente publicam as informações de pedidos para cada comerciante em um livro de encomendas. Esta rápida disseminação de informações traz problemas, no entanto, quando os negócios de blocos (negócios com tamanho de ordem relativamente grande) estão envolvidos. Por exemplo, quando ordens de bloco grandes aparecem no livro de pedidos da troca, é comum que outros comerciantes respondam tomando ações que levam a movimentos de preços adversos para o comerciante de blocos. Muitas das dificuldades associadas aos sistemas eletrônicos de negociação de blocos são explicadas na Publicação de Patente U. S. Nº 2004/0059666, publicada em 25 de março de 2004, e aqui incorporada por referência.
Uma solução para o problema da disseminação da informação é segmentar a ordem do bloco em porções menores para negociação como unidades individuais. Muitas vezes, apenas um segmento é exibido no livro de pedidos ao mesmo tempo, permitindo a execução seqüencial dos segmentos de ordem de bloco sem divulgar a ordem de bloco para outros comerciantes. Embora outros comerciantes apenas vejam as pequenas encomendas, os comerciantes experientes podem identificar uma tentativa de executar uma grande ordem de bloco em segmentos, particularmente quando os segmentos são relativamente grandes.
Outra abordagem é uma ordem "All or None" (AON), que é preenchida na íntegra ou não. Se um pedido AON for exibido imediatamente, o mercado pode ser afastado do comerciante da AON. Em outra abordagem, um pedido AON não é exibido no catálogo de pedidos até que partes suficientes estejam disponíveis para preencher o pedido. Quando suficientes partes disponíveis estão disponíveis, a ordem AON é adicionada ao livro e a ordem é executada. Desta forma, as informações relativas a uma ordem de bloco AON pendente não são divulgadas a outros comerciantes. Uma desvantagem de uma ordem AON é que a ordem pode não ser executada enquanto as ordens menores continuam a negociar.
Nos mercados de derivativos, surgem questões adicionais, incluindo os custos transacionais do processamento de negociações e uma falta geral de liquidez para determinados derivativos. Ao contrário dos valores mobiliários, os derivados de balcão externo (OTC) são contratos bilaterais que não são fungíveis e possuem custos de processamento significativos associados a cada transação. Por exemplo, cada contrato de opção de propriedade de um comerciante expirará a menos que seja exercido pela data de vencimento. O comerciante é responsável por monitorar o status da opção, decidindo se deve exercer a opção e tomar as medidas necessárias para exercer a opção, se desejar. Como resultado, um comerciante de derivativos geralmente prefere executar um pequeno número de grandes negócios, em oposição a inúmeros negócios menores, para reduzir os custos de processamento em andamento. A negociação eletrônica, no entanto, levou a uma diminuição no tamanho médio do comércio em comparação com abordagens tradicionais, levando a custos de processamento e transação potencialmente maiores.
Os comerciantes que trazem grandes ordens de bloco para o mercado raramente querem que suas ordens sejam preenchidas através de uma série de transações muito pequenas e geralmente preferem manter suas ordens de bloqueio em confiança para evitar a manipulação de preços por outros comerciantes. Tendo em vista o acima exposto, é necessário um sistema e método de negociação de blocos para derivativos e outros instrumentos financeiros que protejam a confidencialidade das ordens de grandes blocos, garanta a negociação eficiente de ordens de bloco e reduz os custos de transação associados. É desejável que esse sistema, ao mesmo tempo, suporte os comerciantes que trazem ordens de volume menores para o mesmo livro de pedidos.
SUMARIO DA INVENÇÃO.
O presente invento é um sistema de comércio eletrônico e método para facilitar o bloqueio de negociação de instrumentos financeiros, como derivativos. Num aspecto do presente invento, um método de negociação de blocos inclui o estabelecimento de uma pluralidade de intervalos de negociação de blocos em camadas, cada intervalo de negociação de bloco em camadas com um limite inferior e um tamanho de ordem mínimo para preenchimento de negociações de bloco dentro do respectivo intervalo de negociação de bloco em camadas, recebendo um primeira ordem de bloco para um instrumento financeiro, a primeira ordem de bloco tendo um tamanho de bloco dentro de um primeiro intervalo de negociação de blocos em camadas e executando a primeira ordem de bloco de acordo com o respectivo tamanho mínimo de ordem associado ao primeiro intervalo de negociação de blocos em camadas.
Noutro aspecto da presente invenção, o método de negociação de blocos inclui ainda a recepção de uma pluralidade de ordens de bloco para o instrumento financeiro, sendo as ordens de bloco uma prioridade de execução de primeiro a primeiro lugar. As ordens de bloco associadas dentro de cada intervalo de negociação em camadas são executadas de acordo com a prioridade de execução. Desta forma, uma ordem de bloco recebida após uma ordem de bloco de prioridade mais elevada será executada antes do bloco de prioridade mais alta se tiver prioridade dentro do seu intervalo de negociação em camadas.
Num aspecto alternativo da presente invenção, o método de negociação de blocos inclui ainda a recepção de uma pluralidade de ordens de bloco para o instrumento financeiro, as ordens de bloco com uma prioridade de execução de primeiro e primeiro lançamento. As ordens de bloco associadas são executadas de acordo com a prioridade de execução, de modo que pelo menos uma ordem de bloco de prioridade inferior avança em torno de uma ordem de bloco de prioridade mais alta com base no tamanho da ordem de bloco.
Em outro aspecto da presente invenção, o sistema de negociação eletrônica é adaptado para identificar negócios executados com partes correspondentes e instrumentos financeiros, combinar cada conjunto de negociações de correspondência em uma única ordem de negociação, reverter os negócios de correspondência individuais, executar a única ordem de negociação agregada para cada conjunto de negócios de correspondência e transmitir dados correspondentes aos negócios executados para as partes de transação ou uma entidade de compensação.
Uma compreensão mais completa da presente invenção será proporcionada aos especialistas na técnica, bem como a realização de vantagens adicionais e seus objetos, considerando a descrição detalhada a seguir. Será feita referência às folhas de desenhos anexas, que serão descritas em breve.
BREVE DESCRIÇÃO DOS DESENHOS.
As características, objetos e vantagens da presente invenção tornar-se-ão mais evidentes a partir da descrição detalhada apresentada abaixo quando tomada em conjunto com os desenhos em que os caracteres de referência semelhantes se identificam de forma correspondente em toda e em que:
FIG. 1 é um diagrama de blocos que ilustra uma concretização de um sistema de comércio eletrônico;
FIG. 2 é um diagrama de blocos que ilustra uma forma de realização do sistema de comércio intermediário e do terminal de comércio da FIG. 1;
FIG. 3 é um fluxograma ilustrando uma concretização de um método para negociação de blocos usando intervalos de negociação de blocos em camadas;
FIG. 4 é uma tabela exemplar que ilustra três intervalos de negociação de blocos em camadas;
FIG. 5 ilustra uma tela de negociação de acordo com uma forma de realização da presente invenção;
FIG. 6 é um fluxograma ilustrando uma forma de realização de um método para reduzir os custos de transação associados à negociação de blocos;
FIGS. 7 a-b ilustram intervalos de negociação de blocos em camadas exemplares e um caderno de pedidos associado;
FIG. 8 é um diagrama de fluxo ilustrando e encarnando a lógica de correspondência de ordem para preencher ordens de preenchimento e armazenamento e preenchimento e extinção; e.
FIG. 9 é um fluxograma que ilustra uma forma de realização da lógica de correspondência de ordem para preencher ordens de preenchimento ou morte.
DESCRIÇÃO DETALHADA DAS FORMAS DE REALIZAÇÃO PREFERIDAS.
Uma forma de realização exemplar da presente invenção será agora descrita com referência à FIG. 1. Um sistema de comércio intermediário 10 é adaptado para se comunicar com uma pluralidade de dispositivos comerciais 12, tal como através de uma linha privada 14, rede privada virtual 16 e a Internet 18. O sistema intermediário de comércio 10 pode incluir um ou mais sistemas informáticos convencionais incluindo um microprocessador, uma memória, um dispositivo de armazenamento de dados e um dispositivo de comunicação. Cada dispositivo comercial 12 pode ser qualquer dispositivo adaptado para se comunicar com o sistema intermediário de negociação 10, como um computador pessoal, um assistente digital pessoal (PDA) ou outro dispositivo de rede. Em operação, cada dispositivo de negociação 12 pode estar associado a uma pessoa ou entidade (por exemplo, um corretor ou gerente de ativos) autorizado a negociar instrumentos financeiros através do sistema intermediário de negociação 10. Um servidor de compensação 20 é adaptado para receber informação de execução de ordens do sistema intermediário de negociação 10 e facilitar transferências de fundos entre comerciantes.
Referindo-se à FIG. 2, cada dispositivo comercial 12 inclui uma exibição 40, um dispositivo de entrada de usuário 42 e uma lógica de programa 44. Em uma concretização, a lógica do programa é implementada como uma interface de programa de aplicativo cliente (API) 44 que facilita uma interface de usuário gráfica (GUI) através da qual um comerciante se interage com o sistema intermediário de negociação 10. A API 44 facilita ainda mais a recuperação e exibição de preços dos instrumentos financeiros, originação e rastreamento de pedidos e outras funções, conforme descrito neste documento.
O sistema de negociação intermediário 10 inclui um servidor de aplicação 50 adaptado para se comunicar com o dispositivo de negociação 12 através de um gateway de rede 52. Numa concretização, o servidor de aplicação 50 é um servidor web e a GUI no dispositivo de negociação 12 inclui uma interface de navegador de internet. Uma extremidade traseira do mercado 54 recebe dados da ordem do dispositivo comercial 12 e armazena os dados em um meio de armazenamento eletrônico 56. Na concretização exemplar, a extremidade traseira 54 do mercado inclui um módulo 62 de mecanismo comercial adaptado para executar trocas e um módulo 64 de livro de pedidos adaptado para manter um livro de encomendas para divulgação ao dispositivo comercial 12. Uma divulgação de informações back-end 58 dissemina informações de negociação para o dispositivo comercial 12. Um módulo de captura de agendamento 60 coleta e armazena no meio de armazenamento eletrônico 66 todas as transações executadas no sistema intermediário 10 e encaminha os dados da transação para o servidor de limpeza.
Em operação, um comerciante insere um pedido em um formulário de pedido gráfico no dispositivo comercial 12 que encaminha a ordem para o sistema intermediário de negociação 10. O módulo do livro de pedidos 64 adiciona a ordem ao livro de pedidos e transmite o livro de pedidos atual para o dispositivo de negociação 12. Se a ordem pode ser preenchida, o mecanismo de negociação 62 executa a ordem e encaminha os dados de execução comercial para o módulo de captura de negócios 60. Depois que um comércio é executado, a ordem é removida da lista de pedidos atual e o servidor intermediário notifica o dispositivo comercial 12. Depois que o comércio é concluído e foi devidamente documentado, o clearing é tratado pela instituição de compensação 20. A instituição de compensação 20 verifica a precisão de cada comércio, notifica cada comerciante de suas obrigações e providencia a transferência de fundos e instrumentos financeiros apropriados.
Referindo-se à FIG. 3, será descrita uma encarnação para facilitar negociações de blocos para instrumentos financeiros. Conforme utilizado aqui, os instrumentos financeiros podem incluir, sem limitação, ações, títulos, futuros e derivativos. Na etapa 100, o sistema intermediário de negociação 10 estabelece intervalos de negociação diferenciados para negociações de blocos. Em uma concretização, três camadas são definidas. Cada nível possui um menor limite de volume para ordens de bloco. Cada nível também especifica um tamanho de comércio mínimo para preencher as ordens de bloco que se enquadram nesse nível, contra ordens de contador. Em uma concretização, o tamanho mínimo de comércio para preencher as ordens de bloco em uma camada pode ser o valor que representa a parte inferior do intervalo de volume, ou seja, o menor limite de volume. Em outra forma de realização, o tamanho mínimo de comércio para preencher as ordens de bloco em uma camada pode ser menor que o limite de volume inferior. Por exemplo, uma camada definida por volume varia de 1 a 5 milhões (ou seja, em que o limite de volume inferior é 1 milhão) poderia ter um tamanho de comércio mínimo associado de 500.000.
Referindo-se à FIG. 4, uma tabela exemplar 114 ilustra as camadas da presente forma de realização. Sem o sistema em camadas, aplica-se o tamanho mínimo de comércio da troca, o que pode resultar em um pequeno tamanho médio de comércio para a execução de transações de bloco e, conseqüentemente, maiores custos de processamento e transações para o comerciante. Será apreciado que os intervalos de negociação de blocos em camadas da presente forma de realização são exemplificativos e que podem ser utilizados mais de três intervalos de negociação de blocos em camadas e outros limites inferiores podem ser definidos para cada camada.
Na FIG. 4, o menor limite de volume e o tamanho mínimo de comércio são os mesmos para cada nível. Aplicando os níveis a uma ordem de bloco, nenhum comércio pode ser executado em uma ordem de bloco abaixo do menor limite de volume associado ao nível mais baixo, nível T 1. Além disso, as ordens de bloqueio dentro de uma das camadas T 1, T 2 ou T 3 não podem ser executadas através de negociações com tamanhos de ordem inferiores ao tamanho mínimo comercial correspondente da respectiva camada, que neste caso é igual ao menor limite de volume do respectivo nível: as ordens de bloqueio do nível T 1 podem negociar em incrementos de 1 milhão de contratos ou maiores; as ordens de bloqueio dentro do nível T 2 podem negociar em incrementos de 5 milhões de contratos ou maiores; e as ordens de bloqueio dentro do nível T 3 podem negociar em incrementos de 25 milhões de contratos ou maiores. Por exemplo, se uma ordem de bloco de 20 milhões de contratos cair no nível T 2, a ordem do bloco não será preenchida através de um tamanho de comércio, incluindo 1 milhão de contratos, e uma ordem de bloco de 150 milhões de contratos que se enquadram no nível T 3 só será negociada em quantidades de 25 milhões ou mais.
Numa concretização, os níveis são definidos manualmente através do sistema intermediário de negociação 10 e armazenados no sistema intermediário de negociação 10. Em outra forma de realização, podem ser estabelecidos intervalos de negociação de blocos em camadas separados para instrumentos financeiros individuais com base em uma análise estatística do instrumento financeiro e no histórico de negociação do instrumento financeiro no mercado, incluindo fatores como o tamanho médio da negociação, os custos de transação e a liquidez. Os intervalos em camadas e os tamanhos de negociação mínimos associados são preferencialmente selecionados para fornecer um equilíbrio entre facilitar o cumprimento da ordem e minimizar os custos de transação.
Referindo-se de volta à FIG. 3, no passo 102, uma tela de entrada de pedido é lançada no dispositivo comercial 12. Uma tela de entrada de ordem exemplar 116 é ilustrada na FIG. 5. Através da tela de entrada da ordem, o comerciante possui uma visão das ordens pendentes 120, incluindo as quantidades 122 e os preços 124 das ordens de compra pendentes e as quantidades 128 e os preços 126 dos instrumentos financeiros oferecidos para venda. O comerciante pode inserir informações de ordem em uma janela de entrada de pedido 130, incluindo uma quantidade 140 de instrumentos financeiros a serem negociados, um preço 142 para a ordem e se o pedido é uma ordem total ou nenhuma 144. A janela de entrada da ordem 130 inclui botões de ação que permitem ao comerciante comprar 134, vender 132, oferecer 136 ou oferecer 138 a ordem exibida. A janela de entrada da ordem 130 é preenchida com as opções de negociação de blocos em camadas disponíveis no passo 106. Na forma de realização exemplar, a janela de entrada de pedido 130 exibe uma pluralidade de opções de negociação de bloco 146. Conforme ilustrado, o comerciante pode instruir o sistema a executar a ordem usando os níveis padrão (por exemplo, as camadas mostradas na figura 4, a primeira com um menor limite de volume para ordens de bloco e um tamanho de comércio mínimo para negociações com pedidos de contador ambos iguais a 1 milhão, o segundo dos quais tem um menor limite de volume para ordens de bloco e um tamanho de comércio mínimo para negociações com contra-pedidos igual a 5 milhões e a terceira com menor limite de volume para ordens de bloco e um comércio mínimo tamanho para negociações com pedidos de contador equivalentes a 25 milhões), insira valores de camada personalizados e tamanhos de negociação mínimos para cada nível ou remova os limites de negociação.
No passo 108, o sistema de negociação intermediário 10 recebe a ordem, incluindo os intervalos de negociação de volume em camadas e tamanhos mínimos de ordem que regem a execução da ordem. Na etapa 110, o pedido é processado de acordo com os intervalos de negociação em camadas recebidos e os tamanhos mínimos de pedidos. Na forma de realização exemplar, as ordens pendentes 120 são exibidas e os intervalos de negociação padrão em camadas são presumidos para ordens de bloqueio. Um código 148 notifica o comerciante de negócios que não cumprem os intervalos de negociação padrão em camadas. Numa concretização, o código 148 pode incluir um número que indique o tamanho mínimo de comércio para preencher a ordem ou outro símbolo que identifique outras opções selecionadas pelo comerciante, como uma ordem de todos ou nenhuns (por exemplo, "a") ou que todos os limites foram removidos (por exemplo, "r").
Outra forma de realização para reduzir os custos de transação é ilustrada na FIG. 6. A forma de realização da FIG. 6 podem ser utilizados no lugar de, ou em conjunto com, os intervalos de negociação de blocos em camadas descritos acima. Ao contrário das ações, um derivado é um contrato que está em andamento até que seja encerrado, cancelado ou expirado. Cada contrato exige gerenciamento e, em algum momento, ação potencialmente atempada de uma ou mais das partes no contrato. Para reduzir o número de contratos entre partes, o sistema intermediário de negociação 10 agrega ordens como descrito na FIG. 6. No passo 150, no final do dia de negociação, o módulo de captura de negócios 60 (Figura 2) procura as negociações executadas no dia para transações envolvendo o mesmo par de partes e o mesmo instrumento derivado. Na etapa 152, essas transações são agregadas em uma única ordem comercial. No passo 154, a pluralidade de pedidos de correspondência é revertida para fora do sistema. Na etapa 156, as ordens de negociação agregadas são executadas pelo mecanismo de negociação 62 como transações individuais. Na etapa 158, os negócios executados, incluindo os negócios agregados, são transmitidos ao servidor de limpeza 20. Desta forma, um comerciante pode comprar e vender o dia todo, mesmo em pequenas quantidades, e no final do dia, o sistema de negociação intermediário 10 reconcilia negócios combinados como uma única transação entre as partes. A execução das ordens como um contrato de derivativo único reduz os custos de processamento de manter os contratos de derivativos separados de cada comércio separado.
Referindo-se às FIGS. 7 a - b, 8 & amp; 9, uma forma de realização da lógica de correspondência de ordem para um sistema de negociação de blocos em camadas será agora descrita. Nesta modalidade, o motor de negociação 62 (veja a figura 2) está adaptado para executar operações em uma primeira entrada, primeira saída (FIFO), de modo que as ordens com o melhor preço sejam executadas na ordem recebida. Os motores de negociação convencionais da arte anterior operam em uma base FIFO para que a segunda ordem de chegada não será executada até que a ordem anterior seja executada. Por exemplo, se uma pequena ordem de 1.000 contratos for recebida após uma ordem maior de 100.000 contratos, ambos com o mesmo preço, a pequena ordem não seria preenchida até a ordem maior. De acordo com a forma de realização exemplificativa, o mecanismo de negociação 62 é ainda adaptado para preencher uma ordem de bloqueio agressiva, combinando a melhor ordem na lista de pedidos para um intervalo de negociação de blocos em camadas, passando por pedidos em outros níveis que tenham prioridade FIFO.
Por exemplo, referindo-se às FIGS. 7 a - b, uma ordem de bloqueio agressivo com um volume de 10 milhões cai no segundo bloco de negociação T 2 e será combinada com ordens contrárias com um tamanho de ordem mínimo de 5 milhões. Se uma ordem de contador plausível existir no livro de pedidos com um volume maior do que o tamanho mínimo do comércio, mas com uma prioridade menor do que as ordens de contador pendentes com volume menor do que o tamanho mínimo de comércio, a ordem de bloqueio agressivo combinará com a ordem do contador de prioridade mais baixa. Como ilustrado na FIG. 7 b, uma ordem de bloco agressiva com um volume de 10 milhões e um preço de oferta de US $ 9 será comparado com a ordem do contador 190 com a maior prioridade para preencher pedidos dentro do intervalo de negociação em camadas correspondente. Depois que uma ordem de bloco agressiva é combinada contra a ordem do contador, o saldo restante da ordem de bloco agressivo é preenchido da mesma maneira. Em uma concretização, se o saldo remanescente tiver um volume inferior ao tamanho mínimo de negociação para o nível de negociação, em seguida, dependendo da preferência do usuário, (i) será aplicado o nível de negociação correspondente ao volume do saldo remanescente ou (ii) o saldo remanescente é removido do livro de pedidos sem preencher o pedido.
Referindo-se à FIG. 8, é ilustrada uma forma de realização da lógica de correspondência de ordem para executar ordens de "preencher e armazenar" e "preencher e matar". Uma ordem de preenchimento e armazenamento (FaS) é executada pelo mecanismo de negociação 62 na medida em que as ordens de correspondência são encontradas na caderneta, com o saldo da ordem restante aberta até a ordem expirar. Uma ordem de preenchimento e morte (FaK) é executada na medida em que as ordens de correspondência são encontradas na lista de pedidos, com o saldo da ordem a ser cancelado automaticamente. No passo 200, uma ordem FaS ou FaK é recebida de um dispositivo comercial. No passo 202, o mecanismo de negociação determina o nível de negociação de blocos e o volume de negociação mínimo para se aplicar à ordem. Na etapa 204, o mecanismo comercial procura no caderno de pedidos uma ordem de contrapartida com um volume maior que o volume de negociação mínimo associado. Se for encontrada pelo menos uma ordem de contrapartida, então, no passo 206, a ordem é compatível com a ordem de contrapartida com a prioridade mais alta. No passo 208, se a ordem foi parcialmente preenchida, o mecanismo de negociação tentará encontrar outra ordem de contrapartida na etapa 204. O processo continua até que a ordem seja preenchida ou não forem encontradas mais ordens de contrapartida. Se o pedido for preenchido parcialmente, o restante da ordem será excluído (etapas 210 e 212), se a ordem for uma ordem FaK ou armazenada no livro de pedidos no passo 214 se a ordem for uma ordem FaS.
Referindo-se à FIG. 9, é ilustrada uma forma de realização da lógica de correspondência de ordem para executar ordens de preenchimento ou matar. Em uma ordem de preenchimento ou matar (FoK), o mecanismo de negociação 62 tenta executar a ordem completa e, se a ordem não puder ser preenchida na íntegra, o mecanismo de negociação excluirá a ordem FoK sem executar uma troca. Na etapa 300, uma ordem FoK é recebida de um dispositivo comercial. Na etapa 302, o mecanismo de negociação determina o nível de negociação de blocos e o volume de negociação mínimo para se aplicar à ordem. Na etapa 304, o mecanismo comercial procura no caderno de pedidos uma ordem de contrapartida com um volume maior que o volume de negociação mínimo associado. Se for encontrada pelo menos uma ordem de contrapartida, então, no passo 306, o mecanismo de negociação determina se a ordem pode ser completada na sua totalidade. Se o pedido puder ser preenchido, então, no passo 308, o mecanismo de negociação executa a ordem, combinando-o com as ordens de contraparte de maior prioridade que tenham volumes que excedam o volume de negociação mínimo para o intervalo. Se existirem pedidos de contrapartida insuficientes para preencher a ordem FoK, a ordem FoK é eliminada no passo 310.
Tendo descrito assim várias formas de realização da presente invenção, deve ser evidente para os especialistas na técnica que foram alcançadas certas vantagens do sistema descrito dentro. Também deve ser apreciado que várias modificações, adaptações e suas formas de realização alternativas podem ser feitas dentro do alcance e espírito da presente invenção.

REFERÊNCIA CRUZADA À APLICAÇÃO RELACIONADA.
Esta aplicação é uma divisão do pedido de patente de invenção norte-americana Ser. No. 11/821988, arquivado em 26 de junho de 2007. Este pedido reivindica o benefício abaixo de 35 U. S.C. sctn.119 (e) do Pedido Provisório dos EUA No. 60 / 830.320 arquivado em 12 de julho de 2006 e o ​​Pedido Provisório dos Estados Unidos N ° 60 / 841.508 arquivado em 31 de agosto de 2006. Este aplicativo é uma continuação em parte do pedido de patente dos EUA Ser. No. 11 / 191,046, arquivado em 28 de julho de 2005. Esta aplicação também reivindica o benefício abaixo de 35 U. S.C. §119 (e) do Pedido Provisório U. S. No. 60 / 639.374, arquivado em 23 de dezembro de 2004. Este aplicativo também é uma continuação em parte do pedido de patente de invenção norte-americana Ser. No. 10/840, 378, arquivado em 7 de maio de 2004. Este aplicativo também é uma continuação em parte do pedido de patente de invenção norte-americana Ser. No. 10 / 730.360, arquivado em 9 de dezembro de 2003, que reivindica o benefício sob 35 U. S.C. §119 (e) do Pedido Provisório dos EUA No. 60 / 431.913, arquivado em 9 de dezembro de 2002. O pedido de patente de invenção norte-americana Ser. No. 10/840, 378 e pedido de patente de invenção norte-americana Ser. N ° 10 / 730.360 são aqui incorporados por referência, como se fossem repetidos aqui na sua totalidade, incluindo os seus desenhos. A especificação deste aplicativo é idêntica ao pedido de patente Ser. No. 11 / 821,988. Nenhuma modificação na especificação foi feita além do número reduzido de reivindicações e a re-numeração das reivindicações.
AVISO DE COPYRIGHT.
Uma parte da divulgação deste documento de patente contém material sujeito a proteção de direitos autorais. O proprietário dos direitos autorais não tem objeção à reprodução de fac-símile por qualquer um do documento de patente ou divulgação de patentes conforme aparece no arquivo ou registro de patentes do Patent and Trademark Office, mas, de outra forma, reserva todos os direitos de autor de qualquer tipo.
ANTECEDENTES DA INVENÇÃO.
Compradores e vendedores de grandes quantidades de títulos devem ter extremo cuidado em adquirir ou descartar seus grandes blocos de ações.
Um dos métodos de negociação mais populares utilizados para negociação de blocos é colocar ordens de limite em pools de liquidez escuras. Essas ordens esperam por contra ordens do mesmo valor para entrar nos bancos de liquidez em que eles geralmente são correspondidos em ou perto do ponto médio entre o NBBO. Geralmente, menos de 10% das ordens de bloco podem ser cruzadas usando este método devido ao desequilíbrio no interesse comercial. Os desequilíbrios no interesse comercial são o que move os preços. O movimento de preços gera liquidez.
Outro método é que um cliente dê a ordem para ser trabalhado por seu corretor. Em outro método, a ordem do bloco é dividida em ordens menores e entrou no mercado ao longo do tempo. Existem problemas com esse método; Os programas de computador podem detectar o fluxo de pedidos das pequenas encomendas no mercado e rotear ordens similares do mesmo lado, o que aumenta os custos de negociação. Também pode ser muito caro se o mercado se mover contra o comerciante enquanto ele está trabalhando um pedido.
O objetivo principal de um comerciante de blocos é conseguir um bom preço de execução médio para o bloco de ações, a um preço menos impactado pelo interesse comercial gerado pelo funcionamento de seu bloco. Seu objetivo é comunicar com eficiência sua ordem para outros naturais, sem perder o interesse comercial para terceiros não planejados.
Os sistemas de negociação oferecem descontos aos provedores de liquidez que fornecem ordens limitadas aos seus livros de encomendas. Esses descontos são estabelecidos pelos sistemas de negociação com base no valor da liquidez que é fornecido pelo provedor de liquidez. Com esses sistemas de negociação, os provedores de liquidez são incapazes de definir seus próprios descontos.
Quando os pedidos de grandes limites são exibidos em livros de pedidos, ele cria uma oportunidade de negociação rentável para os comerciantes que colocam ordens limitadas menores, que são ligeiramente melhores do que as ordens de maior limite. Isso obriga os comerciantes que colocam grandes ordens de limite a quebrar suas ordens de limite em ordens menores, ou colocar suas ordens de grande limite em uma caderneta, mas apenas exibem uma pequena parcela de suas ordens no mercado. Se os sistemas de negociação atuais pudessem impedir o "salto de moeda de um centavo", isso permitiria aos comerciantes mostrar pedidos muito maiores.
A maioria dos sistemas de negociação, ao aceitar uma ordem de limite negociável com preços abaixo do mercado, geralmente varre o livro até o preço limite ser atingido ou o pedido seja preenchido. Ao realizar a varredura, esses sistemas de negociação incluem todos os tamanhos de ordens limitadas usando a prioridade de preço e não segmentam ordens limitadas de tamanho igual ou maior.
Há uma necessidade na arte para um sistema de comércio que pode trocar ordens de bloco de forma mais eficiente.
SUMARIO DA INVENÇÃO.
Consequentemente, em uma concretização, os provedores de liquidez podem determinar sua própria taxa por cada ordem limite que eles colocam no sistema comercial. Quando uma troca é executada, o sistema de negociação cobra a taxa do tomador de liquidez e credita o provedor de liquidez. Isso adiciona um componente em dinheiro a uma ordem limite. "Vou negociar com você a um preço determinado, desde que você me pague 15 centavos por ação." O valor da taxa é diretamente proporcional ao nível de risco de comprar ou vender uma posição no mercado e, em geral, quanto maior a taxa, maior o tamanho. Isso cria um mercado de ordens de limite contendo diferentes tamanhos e níveis de taxas.
A invenção permite que um provedor de liquidez estabeleça sua própria taxa por ação (unidade), que é cobrada ao comprador de liquidez e paga ao provedor de liquidez quando uma operação é executada. O fornecedor de liquidez introduz um valor em dólares, por exemplo, 3 centavos por ação, que ele precisa ser creditado em sua conta se sua ordem limite for executada. O componente de caixa é incorporado na ordem limite.
O sistema de negociação reduz a volatilidade criada pelo impacto no mercado de grandes pedidos que entram no mercado. Isso ocorre porque o dinheiro é trocado por liquidez em vez de interação forçada no mercado para obter liquidez.
Os corretores possuem taxas de comissão diferentes para diferentes clientes. Em muitos casos, quando os pedidos são recebidos em corretores, seus sistemas internos marcam o valor do cliente para a empresa e, em seguida, as ordens recebem um sim ou um não do sistema de negociação comercial interno da empresa se a empresa assumir o outro lado do comércio com o dinheiro da empresa. O sistema de negociação proprietário do corretor identifica oportunidades de negociação à medida que as ordens do cliente fluem através dele. Uma das vantagens da invenção é que muitos sistemas de negociação proprietária de corretores já calculam a receita de comissão prevista (a taxa de comissão específica para cada cliente) no processo de tomada de decisão, se o corretor quiser levar o outro lado do comércio. Com a invenção, os corretores podem anunciar abertamente os interesses comerciais gerados pelos seus sistemas de negociação proprietários. Isso permite que os corretores anunciem a liquidez latente que estabelece em seus sistemas de negociação para não clientes e ganham o mesmo nível de receita para fornecer liquidez aos seus próprios clientes. Isso abre uma nova janela para liquidez adicional para o mercado.
In another embodiment of the invention provides for a system and method that allows traders to place and trade a new type of limit order which reduces slippage while providing an incentive to place and show size. An additional embodiment allows the liquidity provider to offer liquidity to the market, priced inferior to the NBBO, in exchange for receiving instant profits on at least a portion of his order.
Accordingly in one embodiment, a trading system receives a buy limit order from a liquidity provider. The buy limit order contains a number of shares and a desired profit margin. The liquidity offered by the buy limit order is combined with the aggregate liquidity in the market to create a combined quote.
The trading system calculates the price of the combined quote by meeting the liquidity provider's preset profit margin based on the displayed and estimated hidden liquidity in the market. The shares of liquidity provider's limit order are added to all the aggregated total displayed shares in buy limit orders displayed throughout the market, priced from the national best bid price down to the price of the liquidity provider's buy limit order. The sum of the shares of the liquidity provider's buy order and the displayed shares are combined into one quote which is displayed in the trading system. The price and size of the combined quote floats at different price levels below the NBBO, depending on the amount of profit that can be made by an intermarket multi-priced sweep of all equal and better priced buy limit orders compared to the fixed price and shares of the combined quote.
When the trading system matches the combined quote with an order sent by a liquidity taker, the trading system initiates a multi-priced intermarket sweep sending sell orders to all known market centers which are displaying buy limit orders at prices equal or greater than the liquidity provider's buy order. The number of shares swept is up to the total amount of the shares in the combined quote. The sweeping techniques of the trading system may include estimating hidden liquidity in different market centers and waiting for confirmations to come back to the trading system before routing additional orders where liquidity was located.
In another embodiment of the invention the trading system continually tracks all displayed quotes which are equal to or better priced than the liquidity provider's combined quote price. After an intermarket sweep is conducted, the trading system scans the market to determine if any of the quotes used in the construction of the combined quote were not obtained in the sweep. If any of the quotes used to construct the combined quote were not obtained in the sweep, then the fills obtained in the sweep are credited to the liquidity taker, not the liquidity provider, and no execution occurs with the combined quote. The amount of shares contributed to the combined quote by the liquidity provider is dependent on the success of the intermarket sweep. The more shares found in reserves during the intermarket sweep, the fewer shares the liquidity provider will need to contribute to the transaction, and the more profit he makes by flipping the shares to the liquidity taker at a single price of the combined quote. It is possible that the liquidity provider may not have to contribute any shares to the combined quote if there are enough shares found in the reserves during the intermarket sweep. Once the trading system has matched a liquidity-taking quote with a combined quote, the trading system may delay the execution while it scans the market to determine if the liquidity taker is simultaneously routing liquidity-taking orders. If it is determined that simultaneous orders are entering the market the matched orders of the liquidity taking quote and the combined quote will cancel the execution and attempt to match the orders again providing the new prices fall within the price boundaries of the buyer's and seller's orders.
Another embodiment of the invention (the trading system) counts up the shares obtained in the sweep and counts up the shares of the quotes used in the construction of the combined quote. If the number of shares obtained in the sweep is less than the number of shares of the quotes used in the construction of the combined quote, the fills obtained from sweep are credited to the liquidity taker. In general, analyzing the results of a sweep can determine if liquidity provider or the liquidity taker is credited with the sweep. This can be used for general pegging of orders that are priced inferior to those marked up to the NBBO. If the quote or quotes used to determine the price point of the peg are not obtained by the sweep, then the fills of the sweep are credited to the liquidity taker, thus preventing the liquidity taker from executing with one of the trading system's quotes. These embodiments in the invention afford the liquidity providers the ability to condition the execution of their quotes based on a stable market. It creates an unwritten agreement between the buyer and seller, i. e., “I will provide size to you at a preset price providing you give me first access to the market at the same time or immediately after we trade.”
The number of shares contributed to the combined quote by the liquidity provider is dependant on the success of the intermarket sweep. The more shares found in reserves during the inter-market sweep, the fewer shares the liquidity provider will be obligated to contribute to the transaction, and the more profit he makes by flipping the shares to the liquidity taker at a single price of the combined quote. It is possible that the liquidity provider may not have to contribute any shares to the combined quote if there are enough shares found in the reserves during the intermarket sweep. A buy combined quote is always priced inferior to the NBBO. Executions occur generally in a few seconds, but could occur in a number of milliseconds, depending on how fast confirmations are received from the various market centers. It is also possible executions could occur over several minutes if the trading system extends the matching and execution process.
The trading system sweeps the market at multiple prices for the liquidity provider and the liquidity provider resells all the purchased shares at one price to the liquidity taker. The liquidity provider gets instant profits for providing additional liquidity to the market. In some cases the liquidity provider will be able to purchase enough reserve shares in the sweep to flip his entire order to the liquidity taker and make an instant profit without providing any liquidity at all.
Example: The liquidity taker identifies a buy combined quote priced inferior to the NBBO that he wants. He understands he will be trading at an inferior price to the NBBO. In order for him to trade with the combined quote, he must not simultaneously route same-side sell orders throughout the market. If he does, the trading system will fail to get the minimum amount of shares in the intermarket sweep required to complete his execution with the combined quote. A liquidity taker only hurts himself if he tries to game the trading system.
The invention allows liquidity providers to speculate on the hidden liquidity in the market and gives liquidity takers access to quotes which are larger than what are available in the market.
The invention provides a new way for deep pocket quantitative “informed” traders to communicate to large buy-side institutions and large speculative traders.
Accordingly in one embodiment, a trading system receives from a liquidity provider a buy limit order consisting of a share quantity range, estimated reserve percentage and target profit percentage. The trading system dynamically adjusts the shares and price of the combined quote so that the target profit percentage can be efficiently achieved on all obtained shares. The ultimate goal of pricing the combined quote is to insure that after a trade has been completed, the liquidity provider retains a number of shares within or below the designated share quantity range, and that the target profit percentage is achieved on all of the retained shares.
In order to achieve a profit on this type of transaction, the shares must be priced outside the NBBO. Once a trade is matched for execution outside the NBBO, a profit can be made by sweeping some or all of the shares to be delivered from orders displayed in any market that are priced closer to the NBBO than the trade execution price of the combined quote. Obtaining these shares at different prices from other markets is referred to as a “multi-priced intermarket sweep.” In addition to the displayed liquidity, profits can also be produced when hidden reserve shares are encountered during the intermarket sweep. The liquidity provider designates the estimated reserve percentage during order entry. The reserve percentage is the percentage of the estimated shares that are hidden, divided by the total displayed shares. Given these displayed shares and their estimated reserves, the system calculates the optimal price and shares to achieve the target profit percentage on all retained shares. This optimal share quantity may be capped below the optimal level based on the designated share range and the displayed liquidity. While this adjustment does limit the liquidity provider's risk, this share maximum creates a slightly non-optimal price/share combination.
The result of the trading system's dynamic order algorithm is a combined quote (a very large limit order) at the optimal price and shares that will allow the system to obtain sufficient shares through a multi-priced intermarket sweep to fill a liquidity taker's order, while leaving the liquidity provider with a number of shares within or below the designated share range, all obtained at a profit equal to or better than the designated profit percentage—provided the estimated reserves are found.
When the trading system receives a liquidity-taking order, it matches against the orders displayed by both price and shares. The system chooses the best priced single order that will completely fill the liquidity taking order. When the system matches price and shares of a buy limit order with a sell order sent by a liquidity taker, the first step in executing the order is to attempt to obtain the maximum shares available in all markets at prices better than or equal to the limit price through a multi-priced intermarket sweep, sending sell orders to all known market centers to obtain the displayed buy orders, but also to discover any buy orders with hidden reserves. Depending on the result of this sweep, the transaction will produce different outcomes.
If the estimated reserve percentage is approximately correct, then the trade completes as expected. The liquidity provider sweeps a quantity of shares from all markets, adds his own shares and fills the liquidity taker's order. The resulting position by the liquidity provider is taken at a net discount to the NBBO such that his target profit percentage is achieved and his share range is not exceeded.
If the estimated reserve percentage is too low, then the trade completes with an added benefit to the liquidity provider. The liquidity provider sweeps more shares than expected from all markets, such that the total sweep shares are sufficient to fill the liquidity taker's order without an additional liquidity added. The liquidity provider retains no position, but does retain the cash profit generated by the difference between the limit price of the order and the average execution price of the sweep.
If the estimated reserve percentage is too high, the trade then completes, but the liquidity provider does not achieve his target profit. Due to the incorrect reserve estimates, the liquidity provider is able to fill the liquidity taker's order, but is unable to sweep sufficient better priced shares in other markets to achieve the profit required. The resulting position by the liquidity provider is still taken at a net discount to the NBBO, but not at a sufficient discount to meet his target profit percentage.
If the liquidity fluctuates such that the intermarket sweep does not generate sufficient shares to allow the liquidity provider to only retain shares within the designated share range, then the liquidity provider is omitted from the transaction. Instead of the liquidity provider obtaining the shares, adding his own, and using them to fill the liquidity taker's order, the entire quantity of sweep shares is given to the liquidity taker without any additional shares from the liquidity provider. This mechanism prevents the liquidity taker from harming the liquidity provider by simultaneously sweeping the same markets.
In another embodiment of the invention, other formulas can be used to determine the number of shares to be displayed to the market.
In yet another embodiment of the invention the limit price of the intermarket sweep may not be the limit price of the liquidity provider's order. The limit price of the intermarket sweep can be determined using multiple formulas based on criteria entered by the liquidity provider or inherent in the trading system's order type offerings.
Dummy Orders.
In still another embodiment, buy and sell trading interests are neutralized by the presence of dummy orders in the trading system. Dummy orders reduce market impact because market participants cannot tell the difference between a genuine order and a dummy order. Only when a firm order attempts to trade with a dummy order is the side revealed, and only to the party hitting the order. There are numerous ways dummy orders could be created, in one method the trading system can set a ratio of good orders to dummy orders, e. g., 10% of all orders in the order book are dummy orders. Even a small percentage of dummy orders can deter third parties from attempting to profit from the trading interest that is displayed in order books.
To prevent gaming, dummy orders can have a minimum fill requirement. This protects orders from being pinged from smaller orders which are used only to reveal the side of the larger order.
In a further embodiment, a computer program generates none or any number of dummy orders based on a number of market criteria such as number of orders already entered into the trading system, the size and symbol of the first party's order, volume, time of day price is pegged in relationship to the best ask price, and the dummy order price is pegged in relationship to the best bid price. The computer program can determine the number, size and price of dummy orders based in direct relationship to the orders already in the system. Dummy orders can be used to correct imbalances of trading interest that is displayed in the order book of the trading system. A computer program of the trading system can determine the generation of dummy orders when orders are entered into the trading system by trading participants.
Another embodiment of the invention,—trading participants of the trading system can create their own dummy orders.
In further embodiment of the invention is a trading system that ignores better priced orders and only will match a liquidity taking order with a contra order of equal or greater in size that is sitting in the trading system. This creates a new way of prioritizing orders based on their size rather than price as with current systems. It also prioritizes orders marked “trade at market” on what contra orders can be matched to them. It provides a means to match single limit orders that possess unique execution conditions with single individual liquidity taking contra orders.
Another embodiment of the invention is a computer-implemented method for trading above the market. The trading system receives from a first party a sell order at a price above the market value of a financial instrument, the market value based on an established market value indicator. First party's orders are displayed to the market and displayed via a user interface to a second party. The trading system receives a buy order by the second party at a particular price, equal to or greater than the price of the first party's sell order. The trading system completes the order by first party, buying at least one third party buy order at market value. The market value is based on the best offer in the market, but in different scenarios it could be based on the best bid or midpoint of the NBBO. In another embodiment the price of first party's order is pegged at a price distance away from the bid, ask or midpoint of the NBBO (National Best Bid and Offer).
In another embodiment of the invention, orders of the liquidity provider and liquidity taker are matched, but the actual trade does not occur until the trading system can verify that the liquidity taker did not conduct simultaneous trading in the same financial instrument at the moment he is matched with the liquidity provider. During the matching process the trading system scans the market for activity that would indicate simultaneous trading by the liquidity taker.
In another embodiment of the invention, the trading system will not execute a trade if the number of shares contained in the liquidity taking order is less than the displayed shares in various market centers at equal or better prices. This feature protects the liquidity taker from a bad fill.
Several embodiments of the invention are specifically illustrated and/or described herein. However, it will be appreciated that modifications and variations of the invention are covered by the above teachings and within the purview of the appended claims without departing from the spirit and intended scope of the invention. All buy transactions in the invention can be inversed to accommodate sell transactions and vice versa.

CROSS REFERENCE TO RELATED APPLICATION.
The present application claims the benefit of U. S. Provisional Patent Application Ser. No. 60/772,066, filed Feb. 10, 2006, which is incorporated herein by reference.
FIELD OF THE INVENTION.
The present invention relates generally to electronic trading in financial markets and, more particularly, to electronic trading systems and methods that facilitate block trading of derivative instruments.
BACKGROUND OF THE INVENTION.
Electronic trading systems provide computer-based platforms for matching buyers and sellers of financial instruments. In recent years, the use of electronic trading systems has revolutionized the industry as traders have increasingly favored electronic trading over traditional trading methods. Electronic trading systems offer many advantages including reduced transaction costs, increased accuracy, expanded trading hours and the wide dissemination of real time market information.
Electronic trading systems are now common in most financial markets. In the equities market, for example, NASDAQ uses an order entry and execution system known as SuperMontage for all securities transactions. In the Foreign Exchange market, Reuters and EBS operate online trading systems. BrokerTec and eSpeed have developed electronic trading systems for the inter-dealer bond market.
Many electronic trading systems receive buy and sell orders from traders and immediately publish the order information to each trader in an order book. This fast dissemination of information poses problems, however, when block trades (trades having a relatively large order size) are involved. For example, when large block orders appear on the exchange's order book, it is common for other traders to respond by taking actions that lead to adverse price movements for the block trader. Many of the difficulties associated with electronic block trading systems are explained in U. S. Patent Publication No. 2004/0059666, published Mar. 25, 2004, and incorporated herein by reference.
One solution to the information dissemination problem is to segment the block order into smaller portions for trading as individual units. Often, only one segment is displayed in the order book at a time, allowing sequential execution of the block order segments without disclosing the block order to other traders. Although other traders will only see the small orders, savvy traders may be able to identify an attempt to execute a large block order in segments, particularly when the segments are relatively large.
Another approach is an “All or None” (AON) order, which is either filled in its entirety or not at all. If an AON order is immediately displayed, the market may be driven away from the AON trader. In another approach, an AON order is not displayed on the order book until enough shares are available to fill the order. When enough shares are available, the AON order is added to the book and the order is executed. In this manner, information regarding a pending AON block order is not disseminated to other traders. One drawback of an AON order is that the order may not get executed while smaller orders continue trading.
In derivatives markets, additional issues arise including the transactional costs of processing trades and a general lack of liquidity for certain derivatives. Unlike securities, over-the counter (OTC) derivatives are bi-lateral contracts which are nonfungible and have significant processing costs associated with each transaction. For example, each option contract owned by a trader will expire unless exercised by the maturity date. The trader is responsible for monitoring the status of the option, deciding whether to exercise the option and taking the necessary steps to exercise the option if desired. As a result, a trader of derivatives typically prefers to execute a small number of large trades, as opposed to numerous smaller trades, to reduce the ongoing processing costs. Electronic trading, however, has led to a decrease in the average trade size as compared to traditional approaches, leading to potentially higher processing and transaction costs.
The traders that bring large block orders to the market seldom want their orders to be filled through a series of very small transactions and generally prefer to maintain their block orders in confidence to avoid price manipulation by other traders. In view of the above, there is a need for a block trading system and method for derivatives and other financial instruments that protects confidentiality of large block orders, provides efficient trading of block orders and reduces associated transaction costs. It is desirable that such a system would, at the same time, support traders that bring smaller volume orders to the same order book.
SUMMARY OF THE INVENTION.
The present invention is an electronic trading system and method for facilitating block trading of financial instruments such as derivatives. In one aspect of the present invention, a block trading method includes establishing a plurality of tiered block trading ranges, each tiered block trading range having a lower limit and a minimum order size for filling block trades within the respective tiered block trading range, receiving a first block order for a financial instrument, the first block order having a block size within a first tiered block trading range, and executing the first block order in accordance with the respective minimum order size associated with the first tiered block trading range.
In another aspect of the present invention, the block trading method further includes receiving a plurality of block orders for the financial instrument, the block orders having a first-in, first-out execution priority. The associated block orders within each tiered trading range are executed in accordance with the execution priority. In this manner, a block order received after a higher priority block order will be executed prior to the higher priority block if it has priority within its tiered trading range.
In an alternative aspect of the present invention, the block trading method further includes receiving a plurality of block orders for the financial instrument, the block orders having a first-in, first-out execution priority. The associated block orders are executed in accordance with the execution priority, such that at least one lower priority block order steps around a higher priority block order based on block order size.
In another aspect of the present invention, the electronic trading system is adapted to identify executed trades with matching parties and financial instruments, combine each set of matching trades into a single trading order, reverse out the individual matching trades, execute the single aggregate trading order for each set of matching trades, and transmit data corresponding to the executed trades to the transacting parties or a clearing entity.
A more complete understanding of the present invention will be afforded to those skilled in the art, as well as a realization of additional advantages and objects thereof, by a consideration of the following detailed description. Reference will be made to the appended sheets of drawings, which will first be described briefly.
BRIEF DESCRIPTION OF THE DRAWINGS.
The features, objects, and advantages of the present invention will become more apparent from the detailed description set forth below when taken in conjunction with the drawings in which like reference characters identify correspondingly throughout and wherein:
FIG. 1 is a block diagram illustrating an embodiment of an electronic trading system;
FIG. 2 is a block diagram illustrating an embodiment of the intermediary trading system and trading terminal of FIG. 1;
FIG. 3 is a flow chart illustrating an embodiment of a method for block trading using tiered block trading ranges;
FIG. 4 is an exemplary table illustrating three tiered block trading ranges;
FIG. 5 illustrates a trading screen in accordance with an embodiment of the present invention;
FIG. 6 is a flow chart illustrating an embodiment of a method for reducing transaction costs associated with block trading;
FIGS. 7 a - b illustrate exemplary tiered block trading ranges and an associated order book;
FIG. 8 is a flow chart illustrating and embodiment of order matching logic for filling fill-and-store and fill-and-kill orders; e.
FIG. 9 is a flow chart illustrating an embodiment of order matching logic for filling fill-or-kill orders.
DETAILED DESCRIPTION OF PREFERRED EMBODIMENTS.
An exemplary embodiment of the present invention will now be described with reference to FIG. 1. An intermediary trading system 10 is adapted to communicate with a plurality of trading devices 12 , such as through a private line 14 , virtual private network 16 , and the Internet 18 . The intermediary trading system 10 may include one or more conventional computer systems including a microprocessor, a memory, a data storage device and a communications device. Each trading device 12 may be any device adapted to communicate with the intermediary trading system 10 , such as a personal computer, personal digital assistant (PDA) or other network device. In operation, each trading device 12 may be associated with a person or entity (e. g., a broker-dealer or asset manager) authorized to trade financial instruments through the intermediary trading system 10 . A clearing server 20 is adapted to receive order execution information from the intermediary trading system 10 and facilitate funds transfers between traders.
Referring to FIG. 2, each trading device 12 includes a display 40 , a user input device 42 and program logic 44 . In one embodiment, the program logic is implemented as a client application program interface (API) 44 that facilitates a graphical user interface (GUI) through which a trader interfaces with the intermediary trading system 10 . The API 44 further facilitates the retrieval and display of financial instrument prices, order origination and tracking, and other functions as described herein.
The intermediary trading system 10 includes an application server 50 adapted to communicate with the trading device 12 through a network gateway 52 . In one embodiment, the application server 50 is a web server and the GUI on the trading device 12 includes a web browser interface. A marketplace back end 54 receives order data from trading device 12 and stores the data in an electronic storage medium 56 . In the exemplary embodiment, the marketplace back end 54 includes a trading engine module 62 adapted to execute trades and an order book module 64 adapted to maintain an order book for dissemination to the trading device 12 . An information dissemination back end 58 disseminates trading information to the trading device 12 . A deal capture module 60 collects and stores in electronic storage medium 66 all transactions executed on the intermediary system 10 and forwards the transaction data to the clearing server.
In operation, a trader enters an order into a graphical order form on the trading device 12 which forwards the order to the intermediary trading system 10 . The order book module 64 adds the order to the order book and transmits the current order book to the trading device 12 . If the order can be filled, the trading engine 62 executes the order and forwards the trade execution data to the deal capture module 60 . After a trade is executed, the order is removed from the current order book and the intermediary server notifies the trading device 12 . After the trade is completed and has been properly documented, clearing is handled by the clearing institution 20 . The clearing institution 20 verifies the accuracy of each trade, notifies each trader of its obligations and arranges for the transfer of appropriate funds and financial instruments.
Referring to FIG. 3, an embodiment for facilitating block trades for financial instruments will be described. As used herein, financial instruments may include, without limitation, stocks, bonds, futures and derivatives. In step 100 , the intermediary trading system 10 establishes tiered trading ranges for block trades. In one embodiment, three tiers are defined. Each tier has a lower volume limit for block orders. Each tier also specifies a minimum trade size for filling the block orders falling within that tier, against counter orders. In one embodiment, the minimum trade size for filling the block orders in a tier may be the value representing the bottom of the volume range, that is to say, the lower volume limit itself. In another embodiment, the minimum trade size for filling the block orders in a tier may be lower than the lower volume limit. For example a tier defined by volume ranges from 1 to 5 million (i. e., in which the lower volume limit is 1 million) could have an associated minimum trade size of 500,000.
Referring to FIG. 4, an exemplary table 114 illustrates the tiers of the present embodiment. Without the tiered system, the exchange's minimum trade size applies which may result in a small average trade size for executing block trades and consequently higher processing and transactions costs to the trader. It will be appreciated that the tiered block trading ranges of the present embodiment are exemplary and that more than three tiered block trading ranges may be used and other lower limits may be set for each tier.
In FIG. 4, the lower volume limit and the minimum trade size are the same for each tier. Applying the tiers to a block order, no trade can be executed on a block order below the lower volume limit associated with the lowest tier, tier T 1 . In addition, block orders falling within one of the tiers T 1 , T 2 or T 3 cannot be executed through trades having order sizes that are less than the corresponding minimum trade size of the respective tier, which in this case is equal to the lower volume limit of the respective tier: block orders falling within tier T 1 can trade in 1 million contract increments or greater; block orders falling within tier T 2 can trade in 5 million contract increments or greater; and block orders falling within tier T 3 can trade in 25 million contract increments or greater. For example, if a block order of 20 million contracts falls within tier T 2 , the block order will not be filled through a trade size including 1 million contracts, and a block order of 150 million contracts falling within tier T 3 will only be traded in amounts of 25 million or more.
In one embodiment, the tiers are set manually through the intermediary trading system 10 and stored at the intermediary trading system 10 . In another embodiment, separate tiered block trading ranges may be established for individual financial instruments based on a statistical analysis of the financial instrument and the trading history of the financial instrument in the market including factors such as average trade size, transaction costs and liquidity. The tiered ranges and associated minimum trading sizes are preferably selected to provide a balance between facilitating order fulfillment and minimizing transaction costs.
Referring back to FIG. 3, in step 102 an order entry screen is launched at the trading device 12 . An exemplary order entry screen 116 is illustrated in FIG. 5. Through the order entry screen, the trader is provided with a view of pending orders 120 including quantities 122 and prices 124 of pending purchase orders and quantities 128 and prices 126 of financial instruments offered for sale. The trader may enter order information into an order entry window 130 , including a quantity 140 of financial instruments to be traded, a price 142 for the order, and whether the order is an all-or-none order 144 . The order entry window 130 includes action buttons allowing the trader to buy 134 , sell 132 , offer 136 or bid 138 the displayed order. The order entry window 130 is populated with available tiered block trading options in step 106 . In the exemplary embodiment, the order entry window 130 displays a plurality of block trading options 146 . As illustrated, the trader can instruct the system to execute the order using the default tiers (e. g., the tiers shown in FIG. 4, the first of which has a lower volume limit for block orders and a minimum trade size for trades with counter orders both equal to 1 million, the second of which has a lower volume limit for block orders and a minimum trade size for trades with counter orders both equal to 5 million and the third of which has a lower volume limit for block orders and a minimum trade size for trades with counter orders both equal to 25 million), enter custom tier values and minimum trading sizes for each tier, or remove trading limits altogether.
In step 108 , the intermediary trading system 10 receives the order, including the tiered volume trading ranges and minimum order sizes that govern the execution of the order. In step 110 , the order is processed in accordance with the received tiered trading ranges and minimum order sizes. In the exemplary embodiment, pending orders 120 are displayed and default tiered trading ranges are presumed for block orders. A code 148 notifies the trader of trades that do not comply with the default tiered trading ranges. In one embodiment, the code 148 may include a number indicating the minimum trade size for filling the order or another symbol identifying other options selected by the trader such as an all-or-none order (e. g., “a”) or that all limits have been removed (e. g., “r”).
Another embodiment for reducing transaction costs is illustrated in FIG. 6. The embodiment of FIG. 6 may be used in place of, or in conjunction with, the tiered block trading ranges described above. Unlike stocks, a derivative is a contract that is ongoing until it is terminated, cancelled or expired. Each contract requires management and, at some point, potentially timely action by one or more of the parties to the contract. To reduce the number of contracts between parties, the intermediary trading system 10 aggregates orders as described in FIG. 6. In step 150 , at the end of the trading day the deal capture module 60 (FIG. 2) searches the day's executed trades for transactions involving the same pair of parties and same derivative instrument. In step 152 , these transactions are aggregated into a single trading order. In step 154 , the plurality of matching orders are reversed out of the system. In step 156 , the aggregated single trading orders are executed by the trading engine 62 as individual transactions. In step 158 , the executed trades, including the aggregated trades, are transmitted to the clearing server 20 . In this manner a trader can buy and sell all day, even in small quantities, and at the end of the day, the intermediary trading system 10 reconciles matching trades as a single transaction between the parties. Execution of the orders as a single derivative contract reduces the processing costs of maintaining the separate derivative contracts from each separate trade.
Referring to FIGS. 7 a - b , 8 & 9 , an embodiment of order matching logic for a tiered block trading system will now be described. In this embodiment, the trading engine 62 (see FIG. 2) is adapted to execute trades on a first in, first out (FIFO) basis such that orders having the best price are executed in the order received. Conventional prior art trading engines operate on a FIFO basis so that the second to arrive order will not execute until after the prior order is executed. For example, if a small order of 1,000 contracts is received after a larger order of 100,000 contracts, both having the same price, the small order would not be filled until after the larger order. In accordance with the exemplary embodiment, the trading engine 62 is further adapted to fill an aggressive block order by matching the best order in the order book for a tiered block trading range, stepping around orders in other tiers that have FIFO time priority.
For example, referring to FIGS. 7 a - b , an aggressive block order having a volume of 10 million falls within the second block trading tier T 2 and will be matched with counter orders having a minimum order size of 5 million. If a plausible counter order exists in the order book with volume larger than the minimum trade size, but at lower priority than pending counter orders with volume less than the minimum trade size, the aggressive block order will match against the lower priority counter order. As illustrated in FIG. 7 b , an aggressive block order having a volume of 10 million and a bid price of $9 will be matched against the counter order 190 having the highest priority for filling orders within the corresponding tiered trading range. After an aggressive block order is matched against the counter order, the remaining balance of the aggressive block order is filled in the same manner. In one embodiment, if the remaining balance has a volume that is less than the minimum trade size for the trading tier then, depending on user preference, either (i) the trading tier corresponding to the volume of the remaining balance will be applied, or (ii) the remaining balance is removed from the order book without filling the order.
Referring to FIG. 8, an embodiment of order matching logic for executing “fill and store” and “fill and kill” orders is illustrated. A fill and store (FaS) order is executed by the trading engine 62 to the extent matching orders are found in the order book, with the balance of the order remaining open until the order expires. A fill and kill (FaK) order is executed to the extent matching orders are found in the order book, with the balance of the order to be automatically canceled. In step 200 , a FaS or FaK order is received from a trading device. In step 202 , the trading engine determines the block trading tier and minimum trading volume to apply to the order. In step 204 , the trading engine searches the order book for a counterpart order having a volume greater than the associated minimum trading volume. If at least one counterpart order is found, then in step 206 the order is matched against the counterpart order having the highest priority. In step 208 , if the order was only partially filled, then the trading engine attempts to find another counterpart order in step 204 . The process continues until the order is filled or no more counterpart orders are found. If the order is only partially filled, then the remainder of the order is either deleted (steps 210 and 212 ), if the order is a FaK order, or stored in the order book in step 214 , if the order is a FaS order.
Referring to FIG. 9, an embodiment of order matching logic for executing fill or kill orders is illustrated. In a fill or kill order (FoK), the trading engine 62 attempts to execute the entire order, and if the order cannot be filled in its entirety, the trading engine will delete the FoK order without executing a trade. In step 300 , a FoK order is received from a trading device. In step 302 , the trading engine determines the block trading tier and minimum trading volume to apply to the order. In step 304 , the trading engine searches the order book for a counterpart order having a volume greater than the associated minimum trading volume. If at least one counterpart order is found, then in step 306 the trading engine determines whether the order can be completed in its entirety. If the order can be filled, then in step 308 the trading engine executes the order by matching it with the highest priority counterpart orders having volumes that exceed the minimum trading volume for the range. If insufficient counterpart orders exist to fill the FoK order, then the FoK order is deleted in step 310 .
Having thus described various embodiments of the present invention, it should be apparent to those skilled in the art that certain advantages of the within described system have been achieved. It should also be appreciated that various modifications, adaptations, and alternative embodiments thereof may be made within the scope and spirit of the present invention.

System and method for block trading.
Imagens.
Classifications.
G — PHYSICS G06 — COMPUTING; CALCULATING; COUNTING G06Q — DATA PROCESSING SYSTEMS OR METHODS, SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL, SUPERVISORY OR FORECASTING PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL, SUPERVISORY OR FORECASTING PURPOSES, NOT OTHERWISE PROVIDED FOR G06Q40/00 — Finança; Seguro; Tax strategies; Processing of corporate or income taxes G06Q40/06 — Investment, e. g. financial instruments, portfolio management or fund management G — PHYSICS G06 — COMPUTING; CALCULATING; COUNTING G06Q — DATA PROCESSING SYSTEMS OR METHODS, SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL, SUPERVISORY OR FORECASTING PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL, SUPERVISORY OR FORECASTING PURPOSES, NOT OTHERWISE PROVIDED FOR G06Q40/00 — Finança; Seguro; Tax strategies; Processing of corporate or income taxes G06Q40/04 — Exchange, e. g. stocks, commodities, derivatives or currency exchange.
Descrição.
This application is a division of U. S. patent application Ser. No. 11/821,988, filed Jun. 26, 2007 now U. S. Pat. No. 7,921,054. This application claims the benefit under 35 U. S.C. sctn. 119(e) of U. S. Provisional Application No. 60/830,320 filed Jul. 12, 2006 and U. S. Provisional Application No. 60/841,508 filed Aug. 31, 2006. This application is a continuation-in-part of U. S. patent application Ser. No. 11/191,046, filed Jul. 28, 2005 now U. S. Pat. No. 7,769,668. This application also claims the benefit under 35 U. S.C..sctn. 119(e) of U. S. Provisional Application No. 60/639,374, filed Dec. 23, 2004. This application is also a continuation-in-part of U. S. patent application Ser. No. 10/840,378, filed May 7, 2004. This application is also a continuation-in-part of U. S. patent application Ser. No. 10/730,360, filed Dec. 9, 2003 now U. S. Pat. No. 7,076,461, which claims the benefit under 35 U. S.C..sctn. 119(e) of U. S. Provisional Application No. 60/431,913, filed Dec. 9, 2002. U. S. patent application Ser. No. 10/840,378 and U. S. patent application Ser. No. 10/730,360 are hereby incorporated by reference, as if repeated herein in their entirety, including their drawings. The specification of this application is identical to patent application Ser. No. 11/821,988. No modifications in the specification have been made other than the reduced number of claims and the re-numbering of the claims.
A portion of the disclosure of this patent document contains material that is subject to copyright protection. The copyright owner has no objection to the facsimile reproduction by anyone of the patent document or patent disclosure as it appears in the Patent and Trademark Office patent file or records, but otherwise reserves all copyright rights whatsoever.
BACKGROUND OF INVENTION.
Buyers and sellers of large amounts of securities must use extreme care in acquiring or disposing of their large blocks of equities.
One of the more popular trading methods used for block trading is placing limit orders in dark liquidity pools. These orders wait for contra orders of the same security to enter into the liquidity pools at which they are generally matched at or near the midpoint between the NBBO. Generally less than 10% of block orders can be crossed using this method because of the imbalance in trading interest. Imbalances in trading interest is what moves prices. The movement of prices generates liquidity.
Another method is for a customer to give the order to be worked by his broker. In another method the block order is broken up into smaller orders and entered into the market over time. There are problems with this method; computer programs can detect the order flow of the small orders coming into the market and route similar orders on the same side which increases trading costs. It also can be very costly if the market moves against the trader while he is working an order.
The main goal of a block trader is to achieve a good average execution price for his block of shares, at a price which has been least impacted by the trading interest generated by the working of his block. His goal is to efficiently communicate his order to other naturals without leaking his trading interest to unintended third parties.
Trading systems offer rebates to liquidity providers that supply limit orders to their order books. These rebates are set by the trading systems based on the amount of liquidity that is provided by the liquidity provider. With these trading systems the liquidity providers are-unable to set their own rebates.
When large limit orders are displayed in order books, it creates a profitable trading opportunity for traders who place smaller limit orders which are slightly better priced than the larger limit orders. This forces traders who place large limit orders to break their limit orders into smaller orders, or place their large limit orders into an order book, but only display a small portion of their orders to the market. If current trading systems could prevent “penny jumping, ” it would allow traders to show much larger orders.
Most trading systems, when accepting a marketable limit order priced below market, will generally sweep down the book until the limit price is reached or the order is filled. In conducting the sweep these trading systems include all sizes of limit orders using price priority and do not target limit orders of equal or greater in size.
There is a need in the art for a trading system that can trade block orders more efficiently.
SUMMARY OF THE INVENTION.
Accordingly in one embodiment liquidity providers are able to determine their own fee for each limit order they place in the trading system. When a trade is executed, the trading system collects the fee from the liquidity taker and credits the liquidity provider. This adds a cash component to a limit order. “I will trade with you at a given price providing you pay me 15 cents a share. ” The amount of fee is directly proportional to the level of risk of buying or selling a position in the market, and generally the higher the fee, the greater the size. This creates a marketplace of limit orders containing different sizes and levels of fees.
The invention allows a liquidity provider to set his own fee on a per share (unit) basis which is charged to liquidity taker and paid to the liquidity provider when a trade is executed. The liquidity provider enters a dollar amount, e. g., 3 cents per share which he needs to be credited to his account if his limit order is executed. The cash component is incorporated into the limit order.
The trading system reduces volatility created by market impact of large orders entering the market. This occurs because cash is exchanged for liquidity instead of forced market interaction to obtain liquidity.
Brokers have different commission rates for different customers. In many cases when orders are received at brokers, their internal systems score the value of the customer to the firm, and then the orders receive a yes or no from the firm's internal proprietary trading system if the firm will take the other side of the trade with the firm's money. The broker's proprietary trading system identifies trading opportunities as customer's orders flow through it. One advantage of the invention, is that many brokers' proprietary trading systems already calculate anticipated commission revenue (the commission rate specific to each customer) into the decision-making process, if the broker wants to take the other side of the trade. With the invention, brokers could openly advertise the trading interest generated by their proprietary trading systems. This allows brokers to advertise the latent liquidity that sets in their trading systems to non-customers and earn the same level of revenue for supplying the liquidity to their own customers. This opens a new window to additional liquidity for the market.
In another embodiment of the invention provides for a system and method that allows traders to place and trade a new type of limit order which reduces slippage while providing an incentive to place and show size. An additional embodiment allows the liquidity provider to offer liquidity to the market, priced inferior to the NBBO, in exchange for receiving instant profits on at least a portion of his order.
Accordingly in one embodiment, a trading system receives a buy limit order from a liquidity provider. The buy limit order contains a number of shares and a desired profit margin. The liquidity offered by the buy limit order is combined with the aggregate liquidity in the market to create a combined quote.
The trading system calculates the price of the combined quote by meeting the liquidity provider's preset profit margin based on the displayed and estimated hidden liquidity in the market. The shares of liquidity provider's limit order are added to all the aggregated total displayed shares in buy limit orders displayed throughout the market, priced from the national best bid price down to the price of the liquidity provider's buy limit order. The sum of the shares of the liquidity provider's buy order and the displayed shares are combined into one quote which is displayed in the trading system. The price and size of the combined quote floats at different price levels below the NBBO, depending on the amount of profit that can be made by an intermarket multi-priced sweep of all equal and better priced buy limit orders compared to the fixed price and shares of the combined quote.
When the trading system matches the combined quote with an order sent by a liquidity taker, the trading system initiates a multi-priced intermarket sweep sending sell orders to all known market centers which are displaying buy limit orders at prices equal or greater than the liquidity provider's buy order. The number of shares swept is up to the total amount of the shares in the combined quote. The sweeping techniques of the trading system may include estimating hidden liquidity in different market centers and waiting for confirmations to come back to the trading system before routing additional orders where liquidity was located.
In another embodiment of the invention the trading system continually tracks all displayed quotes which are equal to or better priced than the liquidity provider's combined quote price. After an intermarket sweep is conducted, the trading system scans the market to determine if any of the quotes used in the construction of the combined quote were not obtained in the sweep. If any of the quotes used to construct the combined quote were not obtained in the sweep, then the fills obtained in the sweep are credited to the liquidity taker, not the liquidity provider, and no execution occurs with the combined quote. The amount of shares contributed to the combined quote by the liquidity provider is dependent on the success of the intermarket sweep. The more shares found in reserves during the intermarket sweep, the fewer shares the liquidity provider will need to contribute to the transaction, and the more profit he makes by flipping the shares to the liquidity taker at a single price of the combined quote. It is possible that the liquidity provider may not have to contribute any shares to the combined quote if there are enough shares found in the reserves during the intermarket sweep. Once the trading system has matched a liquidity-taking quote with a combined quote, the trading system may delay the execution while it scans the market to determine if the liquidity taker is simultaneously routing liquidity-taking orders. If it is determined that simultaneous orders are entering the market the matched orders of the liquidity taking quote and the combined quote will cancel the execution and attempt to match the orders again providing the new prices fall within the price boundaries of the buyer's and seller's orders.
Another embodiment of the invention (the trading system) counts up the shares obtained in the sweep and counts up the shares of the quotes used in the construction of the combined quote. If the number of shares obtained in the sweep is less than the number of shares of the quotes used in the construction of the combined quote, the fills obtained from sweep are credited to the liquidity taker. In general, analyzing the results of a sweep can determine if liquidity provider or the liquidity taker is credited with the sweep. This can be used for general pegging of orders that are priced inferior to those marked up to the NBBO. If the quote or quotes used to determine the price point of the peg are not obtained by the sweep, then the fills of the sweep are credited to the liquidity taker, thus preventing the liquidity taker from executing with one of the trading system's quotes. These embodiments in the invention afford the liquidity providers the ability to condition the execution of their quotes based on a stable market. It creates an unwritten agreement between the buyer and seller, i. e., “I will provide size to you at a preset price providing you give me first access to the market at the same time or immediately after we trade. ”.
The number of shares contributed to the combined quote by the liquidity provider is dependant on the success of the intermarket sweep. The more shares found in reserves during the inter-market sweep, the fewer shares the liquidity provider will be obligated to contribute to the transaction, and the more profit he makes by flipping the shares to the liquidity taker at a single price of the combined quote. It is possible that the liquidity provider may not have to contribute any shares to the combined quote if there are enough shares found in the reserves during the intermarket sweep. A buy combined quote is always priced inferior to the NBBO. Executions occur generally in a few seconds, but could occur in a number of milliseconds, depending on how fast confirmations are received from the various market centers. It is also possible executions could occur over several minutes if the trading system extends the matching and execution process.
The trading system sweeps the market at multiple prices for the liquidity provider and the liquidity provider resells all the purchased shares at one price to the liquidity taker. The liquidity provider gets instant profits for providing additional liquidity to the market. In some cases the liquidity provider will be able to purchase enough reserve shares in the sweep to flip his entire order to the liquidity taker and make an instant profit without providing any liquidity at all.
The liquidity taker identifies a buy combined quote priced inferior to the NBBO that he wants. He understands he will be trading at an inferior price to the NBBO. In order for him to trade with the combined quote, he must not simultaneously route same-side sell orders throughout the market. If he does, the trading system will fail to get the minimum amount of shares in the intermarket sweep required to complete his execution with the combined quote. A liquidity taker only hurts himself if he tries to game the trading system.
The invention allows liquidity providers to speculate on the hidden liquidity in the market and gives liquidity takers access to quotes which are larger than what are available in the market.
The invention provides a new way for deep pocket quantitative “informed” traders to communicate to large buy-side institutions and large speculative traders.
Accordingly in one embodiment, a trading system receives from a liquidity provider a buy limit order consisting of a share quantity range, estimated reserve percentage and target profit percentage. The trading system dynamically adjusts the shares and price of the combined quote so that the target profit percentage can be efficiently achieved on all obtained shares. The ultimate goal of pricing the combined quote is to insure that after a trade has been completed, the liquidity provider retains a number of shares within or below the designated share quantity range, and that the target profit percentage is achieved on all of the retained shares.
In order to achieve a profit on this type of transaction, the shares must be priced outside the NBBO. Once a trade is matched for execution outside the NBBO, a profit can be made by sweeping some or all of the shares to be delivered from orders displayed in any market that are priced closer to the NBBO than the trade execution price of the combined quote. Obtaining these shares at different prices from other markets is referred to as a “multi-priced intermarket sweep. ” In addition to the displayed liquidity, profits can also be produced when hidden reserve shares are encountered during the intermarket sweep. The liquidity provider designates the estimated reserve percentage during order entry. The reserve percentage is the percentage of the estimated shares that are hidden, divided by the total displayed shares. Given these displayed shares and their estimated reserves, the system calculates the optimal price and shares to achieve the target profit percentage on all retained shares. This optimal share quantity may be capped below the optimal level based on the designated share range and the displayed liquidity. While this adjustment does limit the liquidity provider's risk, this share maximum creates a slightly non-optimal price/share combination.
The result of the trading system's dynamic order algorithm is a combined quote (a very large limit order) at the optimal price and shares that will allow the system to obtain sufficient shares through a multi-priced intermarket sweep to fill a liquidity taker's order, while leaving the liquidity provider with a number of shares within or below the designated share range, all obtained at a profit equal to or better than the designated profit percentage—provided the estimated reserves are found.
When the trading system receives a liquidity-taking order, it matches against the orders displayed by both price and shares. The system chooses the best priced single order that will completely fill the liquidity taking order. When the system matches price and shares of a buy limit order with a sell order sent by a liquidity taker, the first step in executing the order is to attempt to obtain the maximum shares available in all markets at prices better than or equal to the limit price through a multi-priced intermarket sweep, sending sell orders to all known market centers to obtain the displayed buy orders, but also to discover any buy orders with hidden reserves. Depending on the result of this sweep, the transaction will produce different outcomes.
If the estimated reserve percentage is approximately correct, then the trade completes as expected. The liquidity provider sweeps a quantity of shares from all markets, adds his own shares and fills the liquidity taker's order. The resulting position by the liquidity provider is taken at a net discount to the NBBO such that his target profit percentage is achieved and his share range is not exceeded.
If the estimated reserve percentage is too low, then the trade completes with an added benefit to the liquidity provider. The liquidity provider sweeps more shares than expected from all markets, such that the total sweep shares are sufficient to fill the liquidity taker's order without an additional liquidity added. The liquidity provider retains no position, but does retain the cash profit generated by the difference between the limit price of the order and the average execution price of the sweep.
If the estimated reserve percentage is too high, the trade then completes, but the liquidity provider does not achieve his target profit. Due to the incorrect reserve estimates, the liquidity provider is able to fill the liquidity taker's order, but is unable to sweep sufficient better priced shares in other markets to achieve the profit required. The resulting position by the liquidity provider is still taken at a net discount to the NBBO, but not at a sufficient discount to meet his target profit percentage.
If the liquidity fluctuates such that the intermarket sweep does not generate sufficient shares to allow the liquidity provider to only retain shares within the designated share range, then the liquidity provider is omitted from the transaction. Instead of the liquidity provider obtaining the shares, adding his own, and using them to fill the liquidity taker's order, the entire quantity of sweep shares is given to the liquidity taker without any additional shares from the liquidity provider. This mechanism prevents the liquidity taker from harming the liquidity provider by simultaneously sweeping the same markets.
In another embodiment of the invention, other formulas can be used to determine the number of shares to be displayed to the market.
In yet another embodiment of the invention the limit price of the intermarket sweep may not be the limit price of the liquidity provider's order. The limit price of the intermarket sweep can be determined using multiple formulas based on criteria entered by the liquidity provider or inherent in the trading system's order type offerings.
In still another embodiment, buy and sell trading interests are neutralized by the presence of dummy orders in the trading system. Dummy orders reduce market impact because market participants cannot tell the difference between a genuine order and a dummy order. Only when a firm order attempts to trade with a dummy order is the side revealed, and only to the party hitting the order. There are numerous ways dummy orders could be created, in one method the trading system can set a ratio of good orders to dummy orders, e. g., 10% of all orders in the order book are dummy orders. Even a small percentage of dummy orders can deter third parties from attempting to profit from the trading interest that is displayed in order books.
To prevent gaming, dummy orders can have a minimum fill requirement. This protects orders from being pinged from smaller orders which are used only to reveal the side of the larger order.
In a further embodiment, a computer program generates none or any number of dummy orders based on a number of market criteria such as number of orders already entered into the trading system FIG. 1 (step 1), the size and symbol of the first party's order, volume, time of day price is pegged in relationship to the best ask price, and the dummy order price is pegged in relationship to the best bid price. The computer program can determine the number, size and price of dummy orders based in direct relationship to the orders already in the system FIG. 1 (step 2). Dummy orders can be used to correct imbalances of trading interest that is displayed in the order book of the trading system FIG. 1 (step 3). A computer program of the trading system can determine the generation of dummy orders when orders are entered into the trading system by trading participants.
Another embodiment of the invention, —trading participants of the trading system can create their own dummy orders.
In further embodiment of the invention is a trading system that ignores better priced orders and only will match a liquidity taking order with a contra order of equal or greater in size that is sitting in the trading system. This creates a new way of prioritizing orders based on their size rather than price as with current systems. It also prioritizes orders marked “trade at market” on what contra orders can be matched to them. It provides a means to match single limit orders that possess unique execution conditions with single individual liquidity taking contra orders.
Another embodiment of the invention is a computer-implemented method for trading above the market. The trading system receives from a first party a sell order at a price above the market value of a financial instrument, the market value based on an established market value indicator. First party's orders are displayed to the market and displayed via a user interface to a second party. The trading system receives a buy order by the second party at a particular price, equal to or greater than the price of the first party's sell order. The trading system completes the order by first party, buying at least one third party buy order at market value. The market value is based on the best offer in the market, but in different scenarios it could be based on the best bid or midpoint of the NBBO. In another embodiment the price of first party's order is pegged at a price distance away from the bid, ask or midpoint of the NBBO (National Best Bid and Offer).
In another embodiment of the invention, orders of the liquidity provider and liquidity taker are matched, but the actual trade does not occur until the trading system can verify that the liquidity taker did not conduct simultaneous trading in the same financial instrument at the moment he is matched with the liquidity provider. During the matching process the trading system scans the market for activity that would indicate simultaneous trading by the liquidity taker.
In another embodiment of the invention, the trading system will not execute a trade if the number of shares contained in the liquidity taking order is less than the displayed shares in various market centers at equal or better prices. This feature protects the liquidity taker from a bad fill.
Several embodiments of the invention are specifically illustrated and/or described herein. However, it will be appreciated that modifications and variations of the invention are covered by the above teachings and within the purview of the appended claims without departing from the spirit and intended scope of the invention. All buy transactions in the invention can be inversed to accommodate sell transactions and vice versa.
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Owner name : DEEP LIQUIDITY, INC., TEXAS.
Free format text : ASSIGNMENT OF ASSIGNORS INTEREST;ASSIGNOR:BALABON, SAM;REEL/FRAME:032376/0227.

CROSS REFERENCE TO RELATED APPLICATION.
This application is a division of U. S. patent application Ser. No. 11/821988, filed Jun. 26, 2007. This application claims the benefit under 35 U. S.C. sctn.119(e) of U. S. Provisional Application No. 60/830,320 filed Jul. 12, 2006 and U. S. Provisional Application No. 60/841,508 filed Aug. 31, 2006. This application is a continuation-in-part of U. S. patent application Ser. No. 11/191,046, filed Jul. 28, 2005. This application also claims the benefit under 35 U. S.C. §119(e) of U. S. Provisional Application No. 60/639,374, filed Dec. 23, 2004. This application is also a continuation-in-part of U. S. patent application Ser. No. 10/840,378, filed May 7, 2004. This application is also a continuation-in-part of U. S. patent application Ser. No. 10/730,360, filed Dec. 9, 2003, which claims the benefit under 35 U. S.C. §119(e) of U. S. Provisional Application No. 60/431,913, filed Dec. 9, 2002. U. S. patent application Ser. No. 10/840,378 and U. S. patent application Ser. No. 10/730,360 are hereby incorporated by reference, as if repeated herein in their entirety, including their drawings. The specification of this application is identical to patent application Ser. No. 11/821,988. No modifications in the specification have been made other than the reduced number of claims and the re-numbering of the claims.
COPYRIGHT NOTICE.
A portion of the disclosure of this patent document contains material that is subject to copyright protection. The copyright owner has no objection to the facsimile reproduction by anyone of the patent document or patent disclosure as it appears in the Patent and Trademark Office patent file or records, but otherwise reserves all copyright rights whatsoever.
BACKGROUND OF INVENTION.
Buyers and sellers of large amounts of securities must use extreme care in acquiring or disposing of their large blocks of equities.
One of the more popular trading methods used for block trading is placing limit orders in dark liquidity pools. These orders wait for contra orders of the same security to enter into the liquidity pools at which they are generally matched at or near the midpoint between the NBBO. Generally less than 10% of block orders can be crossed using this method because of the imbalance in trading interest. Imbalances in trading interest is what moves prices. The movement of prices generates liquidity.
Another method is for a customer to give the order to be worked by his broker. In another method the block order is broken up into smaller orders and entered into the market over time. There are problems with this method; computer programs can detect the order flow of the small orders coming into the market and route similar orders on the same side which increases trading costs. It also can be very costly if the market moves against the trader while he is working an order.
The main goal of a block trader is to achieve a good average execution price for his block of shares, at a price which has been least impacted by the trading interest generated by the working of his block. His goal is to efficiently communicate his order to other naturals without leaking his trading interest to unintended third parties.
Trading systems offer rebates to liquidity providers that supply limit orders to their order books. These rebates are set by the trading systems based on the amount of liquidity that is provided by the liquidity provider. With these trading systems the liquidity providers are-unable to set their own rebates.
When large limit orders are displayed in order books, it creates a profitable trading opportunity for traders who place smaller limit orders which are slightly better priced than the larger limit orders. This forces traders who place large limit orders to break their limit orders into smaller orders, or place their large limit orders into an order book, but only display a small portion of their orders to the market. If current trading systems could prevent “penny jumping,” it would allow traders to show much larger orders.
Most trading systems, when accepting a marketable limit order priced below market, will generally sweep down the book until the limit price is reached or the order is filled. In conducting the sweep these trading systems include all sizes of limit orders using price priority and do not target limit orders of equal or greater in size.
There is a need in the art for a trading system that can trade block orders more efficiently.
SUMMARY OF THE INVENTION.
Accordingly in one embodiment liquidity providers are able to determine their own fee for each limit order they place in the trading system. When a trade is executed, the trading system collects the fee from the liquidity taker and credits the liquidity provider. This adds a cash component to a limit order. “I will trade with you at a given price providing you pay me 15 cents a share.” The amount of fee is directly proportional to the level of risk of buying or selling a position in the market, and generally the higher the fee, the greater the size. This creates a marketplace of limit orders containing different sizes and levels of fees.
The invention allows a liquidity provider to set his own fee on a per share (unit) basis which is charged to liquidity taker and paid to the liquidity provider when a trade is executed. The liquidity provider enters a dollar amount, e. g., 3 cents per share which he needs to be credited to his account if his limit order is executed. The cash component is incorporated into the limit order.
The trading system reduces volatility created by market impact of large orders entering the market. This occurs because cash is exchanged for liquidity instead of forced market interaction to obtain liquidity.
Brokers have different commission rates for different customers. In many cases when orders are received at brokers, their internal systems score the value of the customer to the firm, and then the orders receive a yes or no from the firm's internal proprietary trading system if the firm will take the other side of the trade with the firm's money. The broker's proprietary trading system identifies trading opportunities as customer's orders flow through it. One advantage of the invention, is that many brokers' proprietary trading systems already calculate anticipated commission revenue (the commission rate specific to each customer) into the decision-making process, if the broker wants to take the other side of the trade. With the invention, brokers could openly advertise the trading interest generated by their proprietary trading systems. This allows brokers to advertise the latent liquidity that sets in their trading systems to non-customers and earn the same level of revenue for supplying the liquidity to their own customers. This opens a new window to additional liquidity for the market.
In another embodiment of the invention provides for a system and method that allows traders to place and trade a new type of limit order which reduces slippage while providing an incentive to place and show size. An additional embodiment allows the liquidity provider to offer liquidity to the market, priced inferior to the NBBO, in exchange for receiving instant profits on at least a portion of his order.
Accordingly in one embodiment, a trading system receives a buy limit order from a liquidity provider. The buy limit order contains a number of shares and a desired profit margin. The liquidity offered by the buy limit order is combined with the aggregate liquidity in the market to create a combined quote.
The trading system calculates the price of the combined quote by meeting the liquidity provider's preset profit margin based on the displayed and estimated hidden liquidity in the market. The shares of liquidity provider's limit order are added to all the aggregated total displayed shares in buy limit orders displayed throughout the market, priced from the national best bid price down to the price of the liquidity provider's buy limit order. The sum of the shares of the liquidity provider's buy order and the displayed shares are combined into one quote which is displayed in the trading system. The price and size of the combined quote floats at different price levels below the NBBO, depending on the amount of profit that can be made by an intermarket multi-priced sweep of all equal and better priced buy limit orders compared to the fixed price and shares of the combined quote.
When the trading system matches the combined quote with an order sent by a liquidity taker, the trading system initiates a multi-priced intermarket sweep sending sell orders to all known market centers which are displaying buy limit orders at prices equal or greater than the liquidity provider's buy order. The number of shares swept is up to the total amount of the shares in the combined quote. The sweeping techniques of the trading system may include estimating hidden liquidity in different market centers and waiting for confirmations to come back to the trading system before routing additional orders where liquidity was located.
In another embodiment of the invention the trading system continually tracks all displayed quotes which are equal to or better priced than the liquidity provider's combined quote price. After an intermarket sweep is conducted, the trading system scans the market to determine if any of the quotes used in the construction of the combined quote were not obtained in the sweep. If any of the quotes used to construct the combined quote were not obtained in the sweep, then the fills obtained in the sweep are credited to the liquidity taker, not the liquidity provider, and no execution occurs with the combined quote. The amount of shares contributed to the combined quote by the liquidity provider is dependent on the success of the intermarket sweep. The more shares found in reserves during the intermarket sweep, the fewer shares the liquidity provider will need to contribute to the transaction, and the more profit he makes by flipping the shares to the liquidity taker at a single price of the combined quote. It is possible that the liquidity provider may not have to contribute any shares to the combined quote if there are enough shares found in the reserves during the intermarket sweep. Once the trading system has matched a liquidity-taking quote with a combined quote, the trading system may delay the execution while it scans the market to determine if the liquidity taker is simultaneously routing liquidity-taking orders. If it is determined that simultaneous orders are entering the market the matched orders of the liquidity taking quote and the combined quote will cancel the execution and attempt to match the orders again providing the new prices fall within the price boundaries of the buyer's and seller's orders.
Another embodiment of the invention (the trading system) counts up the shares obtained in the sweep and counts up the shares of the quotes used in the construction of the combined quote. If the number of shares obtained in the sweep is less than the number of shares of the quotes used in the construction of the combined quote, the fills obtained from sweep are credited to the liquidity taker. In general, analyzing the results of a sweep can determine if liquidity provider or the liquidity taker is credited with the sweep. This can be used for general pegging of orders that are priced inferior to those marked up to the NBBO. If the quote or quotes used to determine the price point of the peg are not obtained by the sweep, then the fills of the sweep are credited to the liquidity taker, thus preventing the liquidity taker from executing with one of the trading system's quotes. These embodiments in the invention afford the liquidity providers the ability to condition the execution of their quotes based on a stable market. It creates an unwritten agreement between the buyer and seller, i. e., “I will provide size to you at a preset price providing you give me first access to the market at the same time or immediately after we trade.”
The number of shares contributed to the combined quote by the liquidity provider is dependant on the success of the intermarket sweep. The more shares found in reserves during the inter-market sweep, the fewer shares the liquidity provider will be obligated to contribute to the transaction, and the more profit he makes by flipping the shares to the liquidity taker at a single price of the combined quote. It is possible that the liquidity provider may not have to contribute any shares to the combined quote if there are enough shares found in the reserves during the intermarket sweep. A buy combined quote is always priced inferior to the NBBO. Executions occur generally in a few seconds, but could occur in a number of milliseconds, depending on how fast confirmations are received from the various market centers. It is also possible executions could occur over several minutes if the trading system extends the matching and execution process.
The trading system sweeps the market at multiple prices for the liquidity provider and the liquidity provider resells all the purchased shares at one price to the liquidity taker. The liquidity provider gets instant profits for providing additional liquidity to the market. In some cases the liquidity provider will be able to purchase enough reserve shares in the sweep to flip his entire order to the liquidity taker and make an instant profit without providing any liquidity at all.
Example: The liquidity taker identifies a buy combined quote priced inferior to the NBBO that he wants. He understands he will be trading at an inferior price to the NBBO. In order for him to trade with the combined quote, he must not simultaneously route same-side sell orders throughout the market. If he does, the trading system will fail to get the minimum amount of shares in the intermarket sweep required to complete his execution with the combined quote. A liquidity taker only hurts himself if he tries to game the trading system.
The invention allows liquidity providers to speculate on the hidden liquidity in the market and gives liquidity takers access to quotes which are larger than what are available in the market.
The invention provides a new way for deep pocket quantitative “informed” traders to communicate to large buy-side institutions and large speculative traders.
Accordingly in one embodiment, a trading system receives from a liquidity provider a buy limit order consisting of a share quantity range, estimated reserve percentage and target profit percentage. The trading system dynamically adjusts the shares and price of the combined quote so that the target profit percentage can be efficiently achieved on all obtained shares. The ultimate goal of pricing the combined quote is to insure that after a trade has been completed, the liquidity provider retains a number of shares within or below the designated share quantity range, and that the target profit percentage is achieved on all of the retained shares.
In order to achieve a profit on this type of transaction, the shares must be priced outside the NBBO. Once a trade is matched for execution outside the NBBO, a profit can be made by sweeping some or all of the shares to be delivered from orders displayed in any market that are priced closer to the NBBO than the trade execution price of the combined quote. Obtaining these shares at different prices from other markets is referred to as a “multi-priced intermarket sweep.” In addition to the displayed liquidity, profits can also be produced when hidden reserve shares are encountered during the intermarket sweep. The liquidity provider designates the estimated reserve percentage during order entry. The reserve percentage is the percentage of the estimated shares that are hidden, divided by the total displayed shares. Given these displayed shares and their estimated reserves, the system calculates the optimal price and shares to achieve the target profit percentage on all retained shares. This optimal share quantity may be capped below the optimal level based on the designated share range and the displayed liquidity. While this adjustment does limit the liquidity provider's risk, this share maximum creates a slightly non-optimal price/share combination.
The result of the trading system's dynamic order algorithm is a combined quote (a very large limit order) at the optimal price and shares that will allow the system to obtain sufficient shares through a multi-priced intermarket sweep to fill a liquidity taker's order, while leaving the liquidity provider with a number of shares within or below the designated share range, all obtained at a profit equal to or better than the designated profit percentage—provided the estimated reserves are found.
When the trading system receives a liquidity-taking order, it matches against the orders displayed by both price and shares. The system chooses the best priced single order that will completely fill the liquidity taking order. When the system matches price and shares of a buy limit order with a sell order sent by a liquidity taker, the first step in executing the order is to attempt to obtain the maximum shares available in all markets at prices better than or equal to the limit price through a multi-priced intermarket sweep, sending sell orders to all known market centers to obtain the displayed buy orders, but also to discover any buy orders with hidden reserves. Depending on the result of this sweep, the transaction will produce different outcomes.
If the estimated reserve percentage is approximately correct, then the trade completes as expected. The liquidity provider sweeps a quantity of shares from all markets, adds his own shares and fills the liquidity taker's order. The resulting position by the liquidity provider is taken at a net discount to the NBBO such that his target profit percentage is achieved and his share range is not exceeded.
If the estimated reserve percentage is too low, then the trade completes with an added benefit to the liquidity provider. The liquidity provider sweeps more shares than expected from all markets, such that the total sweep shares are sufficient to fill the liquidity taker's order without an additional liquidity added. The liquidity provider retains no position, but does retain the cash profit generated by the difference between the limit price of the order and the average execution price of the sweep.
If the estimated reserve percentage is too high, the trade then completes, but the liquidity provider does not achieve his target profit. Due to the incorrect reserve estimates, the liquidity provider is able to fill the liquidity taker's order, but is unable to sweep sufficient better priced shares in other markets to achieve the profit required. The resulting position by the liquidity provider is still taken at a net discount to the NBBO, but not at a sufficient discount to meet his target profit percentage.
If the liquidity fluctuates such that the intermarket sweep does not generate sufficient shares to allow the liquidity provider to only retain shares within the designated share range, then the liquidity provider is omitted from the transaction. Instead of the liquidity provider obtaining the shares, adding his own, and using them to fill the liquidity taker's order, the entire quantity of sweep shares is given to the liquidity taker without any additional shares from the liquidity provider. This mechanism prevents the liquidity taker from harming the liquidity provider by simultaneously sweeping the same markets.
In another embodiment of the invention, other formulas can be used to determine the number of shares to be displayed to the market.
In yet another embodiment of the invention the limit price of the intermarket sweep may not be the limit price of the liquidity provider's order. The limit price of the intermarket sweep can be determined using multiple formulas based on criteria entered by the liquidity provider or inherent in the trading system's order type offerings.
Dummy Orders.
In still another embodiment, buy and sell trading interests are neutralized by the presence of dummy orders in the trading system. Dummy orders reduce market impact because market participants cannot tell the difference between a genuine order and a dummy order. Only when a firm order attempts to trade with a dummy order is the side revealed, and only to the party hitting the order. There are numerous ways dummy orders could be created, in one method the trading system can set a ratio of good orders to dummy orders, e. g., 10% of all orders in the order book are dummy orders. Even a small percentage of dummy orders can deter third parties from attempting to profit from the trading interest that is displayed in order books.
To prevent gaming, dummy orders can have a minimum fill requirement. This protects orders from being pinged from smaller orders which are used only to reveal the side of the larger order.
In a further embodiment, a computer program generates none or any number of dummy orders based on a number of market criteria such as number of orders already entered into the trading system, the size and symbol of the first party's order, volume, time of day price is pegged in relationship to the best ask price, and the dummy order price is pegged in relationship to the best bid price. The computer program can determine the number, size and price of dummy orders based in direct relationship to the orders already in the system. Dummy orders can be used to correct imbalances of trading interest that is displayed in the order book of the trading system. A computer program of the trading system can determine the generation of dummy orders when orders are entered into the trading system by trading participants.
Another embodiment of the invention,—trading participants of the trading system can create their own dummy orders.
In further embodiment of the invention is a trading system that ignores better priced orders and only will match a liquidity taking order with a contra order of equal or greater in size that is sitting in the trading system. This creates a new way of prioritizing orders based on their size rather than price as with current systems. It also prioritizes orders marked “trade at market” on what contra orders can be matched to them. It provides a means to match single limit orders that possess unique execution conditions with single individual liquidity taking contra orders.
Another embodiment of the invention is a computer-implemented method for trading above the market. The trading system receives from a first party a sell order at a price above the market value of a financial instrument, the market value based on an established market value indicator. First party's orders are displayed to the market and displayed via a user interface to a second party. The trading system receives a buy order by the second party at a particular price, equal to or greater than the price of the first party's sell order. The trading system completes the order by first party, buying at least one third party buy order at market value. The market value is based on the best offer in the market, but in different scenarios it could be based on the best bid or midpoint of the NBBO. In another embodiment the price of first party's order is pegged at a price distance away from the bid, ask or midpoint of the NBBO (National Best Bid and Offer).
In another embodiment of the invention, orders of the liquidity provider and liquidity taker are matched, but the actual trade does not occur until the trading system can verify that the liquidity taker did not conduct simultaneous trading in the same financial instrument at the moment he is matched with the liquidity provider. During the matching process the trading system scans the market for activity that would indicate simultaneous trading by the liquidity taker.
In another embodiment of the invention, the trading system will not execute a trade if the number of shares contained in the liquidity taking order is less than the displayed shares in various market centers at equal or better prices. This feature protects the liquidity taker from a bad fill.
Several embodiments of the invention are specifically illustrated and/or described herein. However, it will be appreciated that modifications and variations of the invention are covered by the above teachings and within the purview of the appended claims without departing from the spirit and intended scope of the invention. All buy transactions in the invention can be inversed to accommodate sell transactions and vice versa.

CROSS REFERENCE TO RELATED APPLICATION.
This application claims the benefit under 35 U. S.C. §119(e) of U. S. Provisional Application No. 60/830,320 filed Jul. 12, 2006 and U. S. Provisional Application No. 60/841,508 filed Aug. 31, 2006. This application is a continuation-in-part of U. S. patent application Ser. No. 11/191,046, filed Jul. 28, 2005. This application also claims the benefit under 35 U. S.C. §119(e) of U. S. Provisional Application No. 60/639,374, filed Dec. 23, 2004. This application is also a continuation-in-part of U. S. patent application Ser. No. 10/840,378, filed May 7, 2004. This application is also a continuation-in-part of U. S. patent application Ser. No. 10/730,360, filed Dec. 9, 2003, now U. S. Pat. No. 7,076,461 which claims the benefit under 35 U. S.C. §119(e) of U. S. Provisional Application No. 60/431,913, filed Dec. 9, 2002. U. S. patent application Ser. No. 10/840,378 and U. S. patent application Ser. No. 10/730,360 are hereby incorporated by reference, as if repeated herein in their entirety, including their drawings.
COPYRIGHT NOTICE.
A portion of the disclosure of this patent document contains material that is subject to copyright protection. The copyright owner has no objection to the facsimile reproduction by anyone of the patent document or patent disclosure as it appears in the Patent and Trademark Office patent file or records, but otherwise reserves all copyright rights whatsoever.
BACKGROUND OF INVENTION.
Buyers and sellers of large amounts of securities must use extreme care in acquiring or disposing of their large blocks of equities.
One of the more popular trading methods used for block trading is placing limit orders in dark liquidity pools. These orders wait for contra orders of the same security to enter into the liquidity pools at which they are generally matched at or near the midpoint between the NBBO. Generally less than 10% of block orders can be crossed using this method because of the imbalance in trading interest. Imbalances in trading interest is what moves prices. The movement of prices generates liquidity.
Another method is for a customer to give the order to be worked by his broker. In another method the block order is broken up into smaller orders and entered into the market over time. There are problems with this method; computer programs can detect the order flow of the small orders coming into the market and route similar orders on the same side which increases trading costs. It also can be very costly if the market moves against the trader while he is working an order.
The main goal of a block trader is to achieve a good average execution price for his block of shares, at a price which has been least impacted by the trading interest generated by the working of his block. His goal is to efficiently communicate his order to other naturals without leaking his trading interest to unintended third parties.
Trading systems offer rebates to liquidity providers that supply limit orders to their order books. These rebates are set by the trading systems based on the amount of liquidity that is provided by the liquidity provider. With these trading systems the liquidity providers are unable to set their own rebates.
When large limit orders are displayed in order books, it creates a profitable trading opportunity for traders who place smaller limit orders which are slightly better priced than the larger limit orders. This forces traders who place large limit orders to break their limit orders into smaller orders, or place their large limit orders into an order book, but only display a small portion of their orders to the market. If current trading systems could prevent “penny jumping,” it would allow traders to show much larger orders.
Most trading systems, when accepting a marketable limit order priced below market, will generally sweep down the book until the limit price is reached or the order is filled. In conducting the sweep these trading systems include all sizes of limit orders using price priority and do not target limit orders of equal or greater in size.
There is a need in the art for a trading system that can trade block orders more efficiently.
SUMMARY OF THE INVENTION.
Accordingly in one embodiment liquidity providers are able to determine their own fee for each limit order they place in the trading system. When a trade is executed, the trading system collects the fee from the liquidity taker and credits the liquidity provider. This adds a cash component to a limit order. “I will trade with you at a given price providing you pay me 15 cents a share.” The amount of fee is directly proportional to the level of risk of buying or selling a position in the market, and generally the higher the fee, the greater the size. This creates a marketplace of limit orders containing different sizes and levels of fees.
The invention allows a liquidity provider to set his own fee on a per share (unit) basis which is charged to liquidity taker and paid to the liquidity provider when a trade is executed. The liquidity provider enters a dollar amount, e. g., 3 cents per share which he needs to be credited to his account if his limit order is executed. The cash component is incorporated into the limit order.
The trading system reduces volatility created by market impact of large orders entering the market. This occurs because cash is exchanged for liquidity instead of forced market interaction to obtain liquidity.
Brokers have different commission rates for different customers. In many cases when orders are received at brokers, their internal systems score the value of the customer to the firm, and then the orders receive a yes or no from the firm's internal proprietary trading system if the firm will take the other side of the trade with the firm's money. The broker's proprietary trading system identifies trading opportunities as customer's orders flow through it. One advantage of the invention, is that many brokers' proprietary trading systems already calculate anticipated commission revenue (the commission rate specific to each customer) into the decision-making process, if the broker wants to take the other side of the trade. With the invention, brokers could openly advertise the trading interest generated by their proprietary trading systems. This allows brokers to advertise the latent liquidity that sets in their trading systems to non-customers and earn the same level of revenue for supplying the liquidity to their own customers. This opens a new window to additional liquidity for the market.
In another embodiment of the invention provides for a system and method that allows traders to place and trade a new type of limit order which reduces slippage while providing an incentive to place and show size. An additional embodiment allows the liquidity provider to offer liquidity to the market, priced inferior to the NBBO, in exchange for receiving instant profits on at least a portion of his order.
Accordingly in one embodiment, a trading system receives a buy limit order from a liquidity provider. The buy limit order contains a number of shares and a desired profit margin. The liquidity offered by the buy limit order is combined with the aggregate liquidity in the market to create a combined quote.
The trading system calculates the price of the combined quote by meeting the liquidity provider's preset profit margin based on the displayed and estimated hidden liquidity in the market. The shares of liquidity provider's limit order are added to all the aggregated total displayed shares in buy limit orders displayed throughout the market, priced from the national best bid price down to the price of the liquidity provider's buy limit order. The sum of the shares of the liquidity provider's buy order and the displayed shares are combined into one quote which is displayed in the trading system. The price and size of the combined quote floats at different price levels below the NBBO, depending on the amount of profit that can be made by an intermarket multi-priced sweep of all equal and better priced buy limit orders compared to the fixed price and shares of the combined quote.
When the trading system matches the combined quote with an order sent by a liquidity taker, the trading system initiates a multi-priced intermarket sweep sending sell orders to all known market centers which are displaying buy limit orders at prices equal or greater than the liquidity provider's buy order. The number of shares swept is up to the total amount of the shares in the combined quote. The sweeping techniques of the trading system may include estimating hidden liquidity in different market centers and waiting for confirmations to come back to the trading system before routing additional orders where liquidity was located.
In another embodiment of the invention the trading system continually tracks all displayed quotes which are equal to or better priced than the liquidity provider's combined quote price. After an intermarket sweep is conducted, the trading system scans the market to determine if any of the quotes used in the construction of the combined quote were not obtained in the sweep. If any of the quotes used to construct the combined quote were not obtained in the sweep, then the fills obtained in the sweep are credited to the liquidity taker, not the liquidity provider, and no execution occurs with the combined quote. The amount of shares contributed to the combined quote by the liquidity provider is dependent on the success of the intermarket sweep. The more shares found in reserves during the intermarket sweep, the fewer shares the liquidity provider will need to contribute to the transaction, and the more profit he makes by flipping the shares to the liquidity taker at a single price of the combined quote. It is possible that the liquidity provider may not have to contribute any shares to the combined quote if there are enough shares found in the reserves during the intermarket sweep. Once the trading system has matched a liquidity-taking quote with a combined quote, the trading system may delay the execution while it scans the market to determine if the liquidity taker is simultaneously routing liquidity-taking orders. If it is determined that simultaneous orders are entering the market the matched orders of the liquidity taking quote and the combined quote will cancel the execution and attempt to match the orders again providing the new prices fall within the price boundaries of the buyer's and seller's orders.
Another embodiment of the invention (the trading system) counts up the shares obtained in the sweep and counts up the shares of the quotes used in the construction of the combined quote. If the number of shares obtained in the sweep is less than the number of shares of the quotes used in the construction of the combined quote, the fills obtained from sweep are credited to the liquidity taker. In general, analyzing the results of a sweep can determine if liquidity provider or the liquidity taker is credited with the sweep. This can be used for general pegging of orders that are priced inferior to those marked up to the NBBO. If the quote or quotes used to determine the price point of the peg are not obtained by the sweep, then the fills of the sweep are credited to the liquidity taker, thus preventing the liquidity taker from executing with one of the trading system's quotes. These embodiments in the invention afford the liquidity providers the ability to condition the execution of their quotes based on a stable market. It creates an unwritten agreement between the buyer and seller, i. e., “I will provide size to you at a preset price providing you give me first access to the market at the same time or immediately after we trade.”
The number of shares contributed to the combined quote by the liquidity provider is dependant on the success of the intermarket sweep. The more shares found in reserves during the inter-market sweep, the fewer shares the liquidity provider will be obligated to contribute to the transaction, and the more profit he makes by flipping the shares to the liquidity taker at a single price of the combined quote. It is possible that the liquidity provider may not have to contribute any shares to the combined quote if there are enough shares found in the reserves during the intermarket sweep. A buy combined quote is always priced inferior to the NBBO. Executions occur generally in a few seconds, but could occur in a number of milliseconds, depending on how fast confirmations are received from the various market centers. It is also possible executions could occur over several minutes if the trading system extends the matching and execution process.
The trading system sweeps the market at multiple prices for the liquidity provider and the liquidity provider resells all the purchased shares at one price to the liquidity taker. The liquidity provider gets instant profits for providing additional liquidity to the market. In some cases the liquidity provider will be able to purchase enough reserve shares in the sweep to flip his entire order to the liquidity taker and make an instant profit without providing any liquidity at all.
Example: The liquidity taker identifies a buy combined quote priced inferior to the NBBO that he wants. He understands he will be trading at an inferior price to the NBBO. In order for him to trade with the combined quote, he must not simultaneously route same-side sell orders throughout the market. If he does, the trading system will fail to get the minimum amount of shares in the intermarket sweep required to complete his execution with the combined quote. A liquidity taker only hurts himself if he tries to game the trading system.
The invention allows liquidity providers to speculate on the hidden liquidity in the market and gives liquidity takers access to quotes which are larger than what are available in the market.
The invention provides a new way for deep pocket quantitative “informed” traders to communicate to large buy-side institutions and large speculative traders.
Accordingly in one embodiment, a trading system receives from a liquidity provider a buy limit order consisting of a share quantity range, estimated reserve percentage and target profit percentage. The trading system dynamically adjusts the shares and price of the combined quote so that the target profit percentage can be efficiently achieved on all obtained shares. The ultimate goal of pricing the combined quote is to insure that after a trade has been completed, the liquidity provider retains a number of shares within or below the designated share quantity range, and that the target profit percentage is achieved on all of the retained shares.
In order to achieve a profit on this type of transaction, the shares must be priced outside the NBBO. Once a trade is matched for execution outside the NBBO, a profit can be made by sweeping some or all of the shares to be delivered from orders displayed in any market that are priced closer to the NBBO than the trade execution price of the combined quote. Obtaining these shares at different prices from other markets is referred to as a “multi-priced intermarket sweep.” In addition to the displayed liquidity, profits can also be produced when hidden reserve shares are encountered during the intermarket sweep. The liquidity provider designates the estimated reserve percentage during order entry. The reserve percentage is the percentage of the estimated shares that are hidden, divided by the total displayed shares. Given these displayed shares and their estimated reserves, the system calculates the optimal price and shares to achieve the target profit percentage on all retained shares. This optimal share quantity may be capped below the optimal level based on the designated share range and the displayed liquidity. While this adjustment does limit the liquidity provider's risk, this share maximum creates a slightly non-optimal price/share combination.
The result of the trading system's dynamic order algorithm is a combined quote (a very large limit order) at the optimal price and shares that will allow the system to obtain sufficient shares through a multi-priced intermarket sweep to fill a liquidity taker's order, while leaving the liquidity provider with a number of shares within or below the designated share range, all obtained at a profit equal to or better than the designated profit percentage—provided the estimated reserves are found.
When the trading system receives a liquidity-taking order, it matches against the orders displayed by both price and shares. The system chooses the best priced single order that will completely fill the liquidity taking order. When the system matches price and shares of a buy limit order with a sell order sent by a liquidity taker, the first step in executing the order is to attempt to obtain the maximum shares available in all markets at prices better than or equal to the limit price through a multi-priced intermarket sweep, sending sell orders to all known market centers to obtain the displayed buy orders, but also to discover any buy orders with hidden reserves. Depending on the result of this sweep, the transaction will produce different outcomes.
If the estimated reserve percentage is approximately correct, then the trade completes as expected. The liquidity provider sweeps a quantity of shares from all markets, adds his own shares and fills the liquidity taker's order. The resulting position by the liquidity provider is taken at a net discount to the NBBO such that his target profit percentage is achieved and his share range is not exceeded.
If the estimated reserve percentage is too low, then the trade completes with an added benefit to the liquidity provider. The liquidity provider sweeps more shares than expected from all markets, such that the total sweep shares are sufficient to fill the liquidity taker's order without an additional liquidity added. The liquidity provider retains no position, but does retain the cash profit generated by the difference between the limit price of the order and the average execution price of the sweep.
If the estimated reserve percentage is too high, the trade then completes, but the liquidity provider does not achieve his target profit. Due to the incorrect reserve estimates, the liquidity provider is able to fill the liquidity taker's order, but is unable to sweep sufficient better priced shares in other markets to achieve the profit required. The resulting position by the liquidity provider is still taken at a net discount to the NBBO, but not at a sufficient discount to meet his target profit percentage.
If the liquidity fluctuates such that the intermarket sweep does not generate sufficient shares to allow the liquidity provider to only retain shares within the designated share range, then the liquidity provider is omitted from the transaction. Instead of the liquidity provider obtaining the shares, adding his own, and using them to fill the liquidity taker's order, the entire quantity of sweep shares is given to the liquidity taker without any additional shares from the liquidity provider. This mechanism prevents the liquidity taker from harming the liquidity provider by simultaneously sweeping the same markets.
In another embodiment of the invention, other formulas can be used to determine the number of shares to be displayed to the market.
In yet another embodiment of the invention the limit price of the intermarket sweep may not be the limit price of the liquidity provider's order. The limit price of the intermarket sweep can be determined using multiple formulas based on criteria entered by the liquidity provider or inherent in the trading system's order type offerings.
In still another embodiment, buy and sell trading interests are neutralized by the presence of dummy orders in the trading system. Dummy orders reduce market impact because market participants cannot tell the difference between a genuine order and a dummy order. Only when a firm order attempts to trade with a dummy order is the side revealed, and only to the party hitting the order. There are numerous ways dummy orders could be created, in one method the trading system can set a ratio of good orders to dummy orders, e. g., 10% of all orders in the order book are dummy orders. Even a small percentage of dummy orders can deter third parties from attempting to profit from the trading interest that is displayed in order books.
To prevent gaming, dummy orders can have a minimum fill requirement. This protects orders from being pinged from smaller orders which are used only to reveal the side of the larger order.
In a further embodiment, a computer program generates none or any number of dummy orders based on a number of market criteria such as number of orders already entered into the trading system, the size and symbol of the first party's order, volume, time of day price is pegged in relationship to the best ask price, and the dummy order price is pegged in relationship to the best bid price. The computer program can determine the number, size and price of dummy orders based in direct relationship to the orders already in the system. Dummy orders can be used to correct imbalances of trading interest that is displayed in the order book of the trading system. A computer program of the trading system can determine the generation of dummy orders when orders are entered into the trading system by trading participants.
Another embodiment of the invention,—trading participants of the trading system can create their own dummy orders.
In further embodiment of the invention is a trading system that ignores better priced orders and only will match a liquidity taking order with a contra order of equal or greater in size that is sitting in the trading system. This creates a new way of prioritizing orders based on their size rather than price as with current systems. It also prioritizes orders marked “trade at market” on what contra orders can be matched to them. It provides a means to match single limit orders that possess unique execution conditions with single individual liquidity taking contra orders.
Another embodiment of the invention is a computer-implemented method for trading above the market. The trading system receives from a first party a sell order at a price above the market value of a financial instrument, the market value based on an established market value indicator. First party's orders are displayed to the market and displayed via a user interface to a second party. The trading system receives a buy order by the second party at a particular price, equal to or greater than the price of the first party's sell order. The trading system completes the order by first party, buying at least one third party buy order at market value. The market value is based on the best offer in the market, but in different scenarios it could be based on the best bid or midpoint of the NBBO. In another embodiment the price of first party's order is pegged at a price distance away from the bid, ask or midpoint of the NBBO (National Best Bid and Offer).
In another embodiment of the invention, orders of the liquidity provider and liquidity taker are matched, but the actual trade does not occur until the trading system can verify that the liquidity taker did not conduct simultaneous trading in the same financial instrument at the moment he is matched with the liquidity provider. During the matching process the trading system scans the market for activity that would indicate simultaneous trading by the liquidity taker.
In another embodiment of the invention, the trading system will not execute a trade if the number of shares contained in the liquidity taking order is less than the displayed shares in various market centers at equal or better prices. This feature protects the liquidity taker from a bad fill.
Several embodiments of the invention are specifically illustrated and/or described herein. However, it will be appreciated that modifications and variations of the invention are covered by the above teachings and within the purview of the appended claims without departing from the spirit and intended scope of the invention. All buy transactions in the invention can be inversed to accommodate sell transactions and vice versa.