System for trading financial assets using volume weighted average price

The invention relates to a system and method for trading financial assets comprising a computer, software executing on the computer for receiving at least one request for buying a specified financial asset and an indication of a specified future time period for buying the specified financial asset, software executing on the computer for receiving at least one offer for selling a specified financial asset and an indication of a specified future time period for selling the specified financial asset, software executing on the computer for automatically matching the at least one request for buying with the at least one offer for selling, and software executing on the computer for automatically computing, after expiration of the specified time period, a volume weighted average price of all shares of the financial asset traded during the time period.

DETAILED DESCRIPTION OF THE DRAWINGS FIG. 1 depicts the system 10 for trading financial assets in accordance with the invention. System 10 operates to match requests for buying a financial asset with offers for selling the financial asset. The system further provides a calculated volume weighted average price of all shares of the financial asset traded during a specified time period, whereby the volume weighted average price is to be used as the trading price between the matched requests and offers. Once a request to buy shares of a specified financial asset at a specified future time is given, system 10 matches the request with any offers to sell shares of the same specified financial asset. The system continues matching requests 42 with offers 44 to sell until all shares requested to be bought have been matched. Likewise, the system continues matching offers 44 with requests 42 until all offers have been matched. For example, if a buyer makes a request to buy 10,000 shares of Cisco at a specified future time, system 10 continually matches this request with offers from sellers who are wishing to sell Cisco shares. A first seller may wish to sell only 1,000 shares, a second seller may wish to sell 6,000 shares, and a third seller may wish to sell 5,000 shares. System 10 matches these three offers to sell Cisco shares with the request to buy them. In addition, after the time period has expired, system 10 automatically calculates the volume weighted average price (“VWAP”) of all Cisco shares traded during the specified time period and submits it to the buyer and three sellers for use as the trading price to complete their transactions. In the example above, should the first seller have 20,000 shares of Cisco to sell, system 10 need not continue matching with subsequent sellers because the request has been fulfilled with the first seller. Similarly, if there are insufficient offers to sell Cisco shares, then the request will be partially fulfilled and system 10 will match the request with as many offers to sell as available prior to the commencement of the specified future time period. Because request 42 can only be partially fulfilled, system 10 permits the buyer to either cancel his/her request or continue with the trade and receive a VWAP for his/her request that will only be partially fulfilled. In other embodiments, where a request is not fulfilled completely, system 10 will not partially match the request and, hence, no matching will occur. In certain other embodiments, where there are multiple requests for buying the same financial asset or multiple offers to sell the same financial asset during the same future time period, a first come first served approach will be used to fulfill the requests/offers. It should be noted that all requests 42 to buy and offers 44 to sell should be received prior to commencement of the specified future time period in order for system 10 to match requests 42 with offers 44 . Furthermore, requests 42 and offers 44 should be received prior to commencement of the specified future time period in order to use the VWAP for that time period. This prevents a buyer or seller to unfairly view the performance of the financial asset at the beginning of the time period and make corrective action by subsequently electing to trade at the VWAP by submitting a request or offer prior to the expiration of the time period. In other words, buyers and sellers wishing to trade at a future time using a VWAP need to commit to such a trade prior to the commencement of the time period. The VWAP is a price that is typically agreeable to both buyers and sellers because it generally is a price reflective of reduced transaction costs, which would otherwise be passed along to the buyers and sellers in the form of a buying price to the buyer that is higher than the VWAP or a selling price to the seller that is lower than the VWAP, or in the form of a higher service fee taken off the top from any sale or purchase. If request 42 or offer 44 is received after a time period has commenced, system 10 will notify the buyer or seller that matching will not occur unless the buyer and/or seller elect to trade at a later time period that has not yet commenced. At this point, the buyer and/or seller may opt to cancel request 42 and/or offer 44 . System 10 comprises computer 20 in communication with buyer's terminal 16 and seller's terminal 18 , both of which may also be computers. Buyer's terminal 16 and seller's terminal 18 communicate with computer 20 for the purpose of transmitting trade information related to financial assets. The communication may be over an Internet connection or any connection for transmitting financial asset trading information. System 10 further comprises software 22 executing on computer 20 for receiving a request to buy financial assets at a specified time period, software 24 executing on computer 20 for receiving an offer to sell financial assets at a specified time period, software 26 executing on computer 20 for matching the requests to buy with the offers to sell, and software 28 executing on computer 20 for automatically calculating a volume weighted average price of all shares of the financial assets traded during the specified time period. Once request 42 to buy a specified amount of financial asset at a future time is made 46 by a buyer, software 22 executing on computer 20 receives request 42 and system 10 begins matching request 42 with offer 44 , which are offers to sell shares of the requested financial asset at a future time made 48 by a seller. Software 28 matches the requests to buy with the offers to sell and provides the matched results to the parties in the form of a confirmation 56 of matched offers to sell and confirmation 58 of matched requests to buy. Once system 10 has received all requests 42 and offers 44 and has performed all matching, software 28 executing on computer 20 automatically calculates, at the expiration of the specified time period, a volume weighted average price of all shares of the financial asset traded during the time period according to the following formula: 1 VWAP = ( # &it; &it; of &it; &it; shares &it; &it; traded ) &it; ( trading &it; &it; price &it; &it; of &it; &it; each &it; &it; share ) total &it; &it; # &it; &it; of &it; &it; shares &it; &it; traded For example, in the time period from 3 pm to 4 pm, 3 trades of stock XYZ took place: 100 shares at $20/share, 300 shares at $22/share, and 500 shares at $21/share. The VWAP for this time period is then VWAP&equals;(100*20&plus;300*22&plus;500*21)/(100&plus;300&plus;500)&equals;$21.22 Information of all shares of the financial asset traded during the specified time period is stored on database 60 , which stores trading activity of all assets for all financial markets worldwide. Activity on Wall Street in the United States, benchmark indexes, foreign markets, and other related financial information are some examples of the data related to trading activity stored on database 60 . In certain embodiments, price information is stored on database 60 on a real time basis. In certain other embodiments, system 10 may further include software 32 executing on computer 20 for automatically retrieving price information of the requested financial asset. The retrieved price information is used by system 10 for calculating the VWAP. In certain other embodiments, software 32 retrieves price information on a real time basis. Subsequent to calculating VWAP 36 , software 34 for submitting the VWAP submits the VWAP to buyer and seller terminals, 16 and 18 . In certain embodiments, software 34 submits VWAP automatically without user intervention. The invention is particularly beneficial for institutional investors seeking to purchase a large amount of shares of a financial asset or assets. System 10 obtains a VWAP for purchasing the volume of shares while minimizing transaction costs. The invention further facilitates negotiations between buyers and sellers because the VWAP is typically agreeable to both parties. The invention, however, need not apply solely to institutional investors. The investor may be an individual seeking at least one share of a financial asset. In the case of the investor requesting a small amount of shares, the invention insulates the investor from the possibility of buying at a high price. Hence, the VWAP protects the investor from undesired fluctuations in market price and gives an investor freedom to purchase an asset at anytime during the specified time period as opposed to trying to pin point the best moment to buy and avoid a jump in market price. FIG. 2 depicts a method for trading financial assets in accordance with the invention. Method 110 comprises the steps of receiving 120 at least one request to buy a financial asset at a specified future time, receiving 122 at least one offer to sell the financial asset at a specified future time, automatically matching 124 the at least one request with the at least one offer, and automatically computing 126 a VWAP of all shares of the financial asset traded during the specified future time period. Method 110 may further comprise the step of retrieving 128 price information of the financial asset from database 60 . Receiving 120 at least one request to buy a financial asset includes requests from all investors, including individual investors seeking to insulate themselves from spikes in market price and institutional investors seeking large volumes of varying types of financial assets. Receiving 122 at least one offer to sell the financial asset includes all offers to sell the financial asset received prior to commencement of the specified future time period. After all offers to sell and requests to buy are received, method 110 matches the requests with the offers in order to fulfill all offers and all requests. For example, if there are 5 requests to buy a total of 15,000 shares of a financial asset and 8 offers to sell a total of 15,000 shares of the financial asset, method 110 matches these 5 requests with the 8 offers. However, the total number of shares to be bought typically does not equal in total number of shares to be sold. In this case, matching 124 includes partially fulfilling a request if there are insufficient offers to sell by matching the request with as many offers to sell as available. Conversely, method 110 partially fulfills an offer to sell if there are insufficient requests to buy. Method 110 performs matching on a first come first served basis with respect to the order of both requests 42 and offers 44 . Further, method 110 may automatically match 124 requests and offers using any other arrangement, such as last in first out. Matching 124 between requests and offers is performed provided they are received prior to commencement of the time period. If a request or offer is received during or after the time period, method 110 will not permit the buyers or offerors to trade using the VWAP unless the buyers or sellers elect to use the VWAP for a later, or future, time period that has not commenced at the time the request or offer is submitted. After expiration of the specified future time period, method 110 automatically computes 126 a VWAP of all shares of the financial asset traded during the time period. The price information used for computing the VWAP includes all trading prices of the financial asset during the time period. The calculated VWAP is then submitted to the buyer and seller for use as the trading price for the financial asset. FIG. 3 depicts the time periods in accordance with the invention. Although the time period shown is depicted in terms of hours, time periods may also be in terms of minutes, days (shown as time period B), weeks, months, or years. In certain embodiments, they are predetermined according to trading patterns, such as times during the day, week, month, or year when trading is generally heavy, shown as time period D, or light, shown as time period A. In other embodiments, they are predetermined according to agency guidelines, such as the SEC. In still other embodiments, they are predetermined according to the type of financial asset or market, such as technology sectors, foreign, or bond markets. In certain other embodiments, time periods are arbitrarily determined, shown as time period C. FIG. 4 more particularly depicts request 42 to buy a financial asset being matched with offers 44 to sell the financial asset. For exemplary purposes only, request 42 is for purchasing 10,000 shares of a financial asset. System 10 matches request 42 with offers 44 for selling shares of the same financial asset in order to fulfill the request. Offers 44 include a plurality of offers from a plurality of offerors. Although the invention has been described with reference to a particular arrangement of parts, features and the like, these are not intended to exhaust all possible arrangements or features, and indeed many other modifications and variations will be ascertainable to those of skill in the art.