Investment policy tool

Various embodiments provide a system for enforcing investment policies created by an account owner. An investment policy tool may receive account data from an account database, including a portfolio and a policy, and a transaction generated by a trader for the account from a trading system. The investment policy tool may use the portfolio and the transaction to generate a speculative portfolio. The transaction and the speculative portfolio may be compared with the policy, to determine if either the transaction or the speculative portfolio violates any elements of the policy. If the investment policy tool determines that the policy has been violated, the investment policy tool may stop the transaction, stop the transaction and notify the account owner of the violation, hold the transaction and request approval from the account owner, or allow the transaction to proceed and notify the account owner of the violation.

BACKGROUND

Clients with large brokerage accounts may wish to exert control over how their accounts are managed. A client may provide instructions to the broker responsible for their account, setting out goals, guidelines, or even specific transactions the client wishes to make. This form of indirect account management may be efficient for the client, as they need only spend a minimal amount of time talking with their broker. The client may then rely on the broker and the broker's representatives to ensure transactions are carried out pursuant to the client's goals and guidelines. However, because the client is not directly involved in the transactions, it is harder for the client to ensure that the account is being managed in a manner consistent with whatever instructions, goals, and guidelines were given to the broker. The client may need to constantly monitor the account, and may not be able to prevent the broker from engaging in transactions that are counter to the client's goals. If the broker does act in a way that goes against the client's wishes, the client's primary recourse may be to find another broker, necessitating the moving of the entire account. Such a move may be very disruptive to the client's finances.

The client may also directly participate in managing the account, for example using the phone or online trading systems to complete transactions for their account. While directly managing the account may guarantee that the client's wishes are followed, direct management may be time consuming for the client. The client may be an individual with a job who does not have the necessary free time needed for the active management of an account, or a business that does not want to assign an employee to manage the account. Additionally, the client may have the account with the broker in part to take advantage of professional money management, a benefit which would be lost if the client does all of the account management.

For example, the client may want to have no more than 10% of the total assets in their account invested in US Government bonds. If the client chooses to directly manage their account, they may easily prevent any more than 10% of the account from being invested in US Government bonds, but at the expense of the time and energy needed to manage the entire account. The client may tell the broker of this restriction, but the client would not have any enforcement mechanism for the restriction. If the broker or the broker's representatives decided to invest 25% of the client's assets in US Government bonds, the client would not know the restriction had been violated until after the transaction was completed and the client checked the account statement and realized that 25% of the client's assets were now in US Government bonds. At that point, the client may choose to move the account to a different brokerage, possibly incurring losses of time and money.

DESCRIPTION

Various embodiments provide methods and systems that can be configured and executed to enforce investment policies created by an account owner. An investment policy tool may receive account data from an account database, including a portfolio and a policy, and a transaction generated by a trader for the account from a trading system. The investment policy tool may use the portfolio and the transaction to generate a speculative portfolio. The transaction and the speculative portfolio may be compared with the policy, to determine if either the transaction or the speculative portfolio violates any elements of the policy. If the investment policy tool determines that the policy has been violated, the investment policy tool may stop the transaction, stop the transaction and notify the account owner of the violation, hold the transaction and request approval from the account owner, or allow the transaction to proceed and notify the account owner of the violation.

FIG. 1depicts an exemplary system including an investment policy tool101, an account database102, and a trading system103. An account owner104may have an account106in the account database102. A trader105may use the trading system103to create and complete a transaction109for the account106.

The account database102may be any suitable combination of hardware and software that serves as a database for any financial institution, such as a bank or brokerage, which maintains accounts for clients. The account106may be an account at the financial institution held by a client, the account owner104. The account106may include a portfolio107and a policy108. The portfolio107may include records of the account owner106's assets and liabilities held by or through the financial institution, i.e., cash on deposit, financial instruments owned, outstanding loans, etc. The policy108may include rules, parameters, guidelines, or other policy elements created by the account owner104that may govern whether or not the transaction109is allowed to complete, and what actions to take in the case that the transaction109violates any of the elements of the policy108.

The rules, parameters, guidelines and other policy elements included in the policy108may pertain to a variety of categories related to the portfolio107and the trader105. Exemplary rules, parameters, guidelines, or other policy elements may include: trading limits, such as day trading limits, monthly trading limits, yearly trading limits, etc., which may apply to the account106as a whole or to the individual trader105, such that a first trader105may have different limits from a second trader105; investment type restrictions, prohibiting or limiting the purchases of specific financial instruments, for example, allowing only 90% of the portfolio value to be held in stocks, preventing the purchase of bonds rated AA or lower, or restricting the amount of money that may be invested in a specific stock or mutual fund on a daily, weekly, monthly, yearly, etc., basis; transaction limits, limiting, for example, the amount of money that may be involved in any single transaction; portfolio balance guidelines, requiring that certain financial instruments be held in the portfolio107in certain ratios to each other, i.e. the value of bond investments must always be at least ⅓ of the value of stock investments in the portfolio107; risk limits, governing how much risk can be associated with financial instruments held in the portfolio107based on, for example, bond ratings, S&P ratings, stock classifications, sector of the economy, etc.

The policy108may also include criteria for determining the appropriate action to take when any element of the policy108is violated. Actions that may be taken when the policy108is violated by the transaction109may include sending a notification to the account owner104, or any other party designated by the account owner104, stopping the completion of the transaction109that is in violation of the policy108, allowing the transaction109to complete, placing the transaction109on hold until approval is received, for example, from the account owner104, and notifying the trader105that the transaction109will be allowed to complete only if the trader105creates a second transaction109that, when completed, will remedy the violation of the policy109. The action triggered by a violation of the policy108may be dependent on any relevant criteria, including the identity of the trader105, the specific nature of the transaction109, and the state of the portfolio108. For example, an exemplary transaction109may be prohibited when an exemplary portfolio107has less then $10,000 in cash, but allowed otherwise.

The policy108may also specify that notifications be sent to the account owner104on the occurrence of events other than a violation of the policy108. For example, if more than one individual can modify the policy108, notifications may be sent to the account owner104every time a modification is made to the policy108. Notifications may also be sent based on changes in the status of the portfolio107or assets held in the portfolio107, i.e., when financial instruments reach their maturity date.

The account owner104may create, view, and edit the policy108for the account106. For example, the account owner104may have access to the account106through a web-based interface. The account owner104may use the web-based interface to create, view, and edit the policy108.FIGS. 5-10depict exemplary screenshots of various screens for creating, viewing, and editing the policy108.

FIG. 5depicts an exemplary screenshot of a screen displaying an account's policy regarding individual traders. The exemplary policy108depicted in

FIG. 5has a per trade limit, daily limit, and maturity limit for each of three traders105. Default User may be, for example, the account owner104, and the exemplary policy108may limit the Default User to $1000 per trade, $1000 per day, and to investments in financial instruments that have a maturity time of no more than 30 days, i.e., Default User cannot invest in any financial instrument that cannot be redeemed until after 30 days have passed. Trader2and Trader3may each be an exemplary trader105, and the exemplary policy108may place limits on their trading activity. For example, Trader2may be limited to $100,000 worth of trades per day, while Trader3may be limited to $4000 worth of trades per day.

FIG. 6depicts an exemplary screenshot of a screen for viewing an account's policy regarding investments held in the account. The policy108may include elements that relate to specific investments types. The exemplary policy108depicted inFIG. 6includes restrictions on the Federal Funds, Master Notes, and Euro Dollar Deposits investment types. For example, the exemplary policy108includes a $100,000 trade limit and a $2000 daily limit on Master Notes, and restricts investment to only those Master Notes that receive AA+ or better ratings from Moody's and S&P.

FIG. 7depicts an exemplary screenshot of a screen for modifying an account's policy regarding investments held in the account. The account owner104may use an interface, for example, a web-based interface, into the account database102to access the account106, and the policy108. The account owner104may then edit the policy108using, for example, a web-based screen of text-fields and drop down boxes as depicted inFIG. 7.

FIG. 8depicts an exemplary screenshot of a screen for viewing an account's policy regarding a specific family of investments held in the account. The policy108may include elements that relate to a specific investment family. The exemplary policy108depicted inFIG. 8includes restrictions on the four mutual fund families, Black Rock, Evergreen1, Evergreen2, and Fund Family2. For example, the exemplary policy108includes a $100,000 trade limit and a $2000 daily limit on Evergreen1, and also includes a restriction on investments in the Black Rock family of mutual funds to funds that receive AAA ratings from Moody's and S&P.

FIG. 9depicts an exemplary screenshot of a screen for modifying an account's policy regarding a specific family of investments held in the account. As inFIG. 7, the account owner104may use an interface, for example, a web-based interface, into the account database102to access the account106, and the policy108. The account owner104may then edit the policy108using, for example, a web-based screen of text-fields and drop down boxes as shown inFIG. 9.

FIG. 10depicts an exemplary screenshot of a screen for modifying notifications. The policy108may include various criteria for determining when to send a notification to the account owner104. For example, the policy108may specify that a notification should be sent to the account owner104every time a violation of the policy108is detected. The notification may be sent to the account owner104via any suitable communications means, including, for example, email, SMS message, automated phone call, person-to-person phone call, standard mail, etc, and may include any relevant information about the account106, the transaction109, the trader105, etc, that may be useful to the account owner104.

The account owner104may use an interface, for example, a web-based interface, into the account database102to access the account106, and the policy108. The account owner104may then edit the notifications in the policy108using, for example, a web-based screen of text-fields and check boxes as shown inFIG. 10. The account owner104may change which criteria are used to determine when a notification is sent, may activate and deactivate different criteria, may edit the manner in which the notification is sent and who the notification is sent to, and may set up filters to go with the criteria to narrow the range of events that trigger a notification. For example, the account owner104may set up a filter on the Policy Exception criteria, so that only violations of the policy108which involve transactions of $10,000 or more trigger a notification.

The trading system103may be any suitable combination of hardware and software used by the trader105to create and complete the transaction109for the account106. For example, the trading system103may be a computer system used by the trader105, from which the trader105has access to the account106, market data, and an Electronic Communication Network (ECN) with direct access to various market exchanges in which the trader105may make trades. The trader105may use the trading system103to create the transaction109. The transaction109may be any transaction that changes the composition of assets held in the portfolio107, for example, using cash in the portfolio107to purchase stocks, selling stocks in the portfolio107to raise cash, etc. The transaction109may be compared to the policy108by the investment policy tool101. If the transaction109is allowed, the trading system103may be responsible for executing the transaction in the appropriate markets through the ECN.

FIG. 2depicts an exemplary embodiment of the investment policy tool101. The investment policy tool101may be implemented on any suitable computer system, and may include a communications module201, speculative module202, and comparison module203.

The communications module201of the investment policy tool101may be any suitable combination of hardware and software for sending and receiving data, for example, to and from another computer system. The communications module201may be communicatively connected to and receive data from the account database102and the trading system103, may pass the data to the speculative module202and the comparison module203, and may transmit data, for example, a stop transaction order to the trading system103, or a notification to the account owner104. Data received by the communications module201may include the transaction109from the trading system103and the portfolio107and the policy108for the account106from the account database102.

The speculative module202of the investment policy tool101may be any suitable combination of hardware and software for applying the transaction109to the portfolio107to generate the speculative portfolio204. The speculative portfolio204may reflect the future status of the portfolio107if the transaction109is allowed to proceed, i.e., what the portfolio107will look like after the transaction109is completed.

The comparison module203may be any suitable combination of hardware and software for comparing the transaction109and the speculative portfolio204with the policy108to determine if the policy108has been violated. After the speculative module202generates the speculative portfolio204, the comparison module203may compare the state of the speculative portfolio204with the policy108to determine if the speculative portfolio204violates the policy108. For example, the policy108may specify that at least $10,000 must remain in cash at all times, and the speculative portfolio204may contain only $4,000 in cash as a result of the transaction109. In this case, the comparison module203would find that the policy108has been violated. The comparison module203may also compare the transaction109with the policy108, to determine if any of the elements of the transaction109violate the policy108. For example, the policy108may not permit investments in airline stocks. If the transaction109is for the purchase of airline stocks, the comparison module203may find that the transaction109violates the policy108.

The comparison module203may produce results including whether or not the policy108has been violated, and, if a violation has been found, which of the specific elements of the policy108were violated, whether they were violated by the speculative portfolio204or the transaction109, the degree to which the elements of the policy108were violated, and any action to be taken in accordance with the policy108. Actions taken in accordance with the policy may include the sending of notifications to the account owner104and/or the sending of stop transaction, hold transaction, or allow transaction orders to the trading system103. The results produced by the comparison module203may be passed back to the communications module201, which may then send out the results message205to the account database102and the trading system103. The results message205may include a notification to the account owner104, a stop transaction order, a hold transaction order, and/or an allow transaction order, as determined by the comparison module203.

FIG. 3depicts an exemplary flowchart for using an investment policy tool to implement an account's policy. In block301, the investment policy tool101may receive the transaction109. The trader105may use the trading system103to create the transaction109for the account106. Before the trading system103can execute the transaction109, the trading system103may require approval from the investment policy tool101. The trading system103may send the transaction109to the communications module201of the investment policy tool101.

In block302, the investment policy tool101may receive the account106from the account database102. The transaction109received from the trading system103in block301may be related to the account106in the account database102. In order to approve or disapprove the transaction109, the investment policy tool101may need both the portfolio107and the policy108for the account106. After receiving the transaction109from the trading system103, the investment policy tool101may request the appropriate account106from the account database102. The account database102may send the account106to the communications module201of the investment policy tool101.

In block303, the investment policy tool101may compare the transaction109and speculative portfolio204with the policy109to determine whether the transaction109violates the policy108. The transaction109and the portfolio107may be passed from the communications module201of the investment policy tool101to the speculative module202. The speculative module202may generate the speculative portfolio204using the transaction109and the portfolio107. The speculative portfolio204, the transaction109and the portfolio107may be passed to the comparison module203. The comparison module203may compare the transaction109and the speculative portfolio204with the policy108to determine if the policy108has been violated.

FIG. 4depicts an exemplary flowchart and block diagram of an investment policy tool determining if a transaction violates an account's policy. The exemplary transaction109, the purchase of 1000 shares of ABX for $25,000, may be applied to the exemplary portfolio107by the speculative module202to produce the exemplary speculative portfolio204. The exemplary speculative portfolio204and the exemplary transaction109may then be compared to elements401,402,403, and404of the exemplary policy108by the comparison module203.

The element401of the exemplary policy108specifies a daily trading limit of $50,000. The exemplary speculative portfolio204indicates that after the exemplary transaction109is completed, the exemplary portfolio107would have a total of $5000+$25,000=$30,000 traded that day. $30,000 is less than $50,000, therefore the exemplary policy108has not been violated on the basis of element401, as reflected in result405.

The element402of the exemplary policy108specifies a monthly trading limit of $1,000,000. The exemplary speculative portfolio204indicates that after the exemplary transaction109is completed, the exemplary portfolio107would have a total of $100,000+$25,000=$125,000 traded that month. $125,000 is less than $1,000,000, therefore the exemplary policy108has not been violated on the basis of element402, as reflected in result406.

The element403of the exemplary policy108specifies that the exemplary portfolio107must always have more than $150,000 in cash. The exemplary speculative portfolio204indicates that after the exemplary transaction109is completed, the exemplary portfolio107would have a total of $250,000−$25,000=$225,000 in cash. $225,000 is greater than $150,000, therefore the exemplary policy108has not been violated on the basis of element403, as reflected in result407.

The element404of the exemplary policy108specifies that the exemplary portfolio107cannot have more than 2.5 times the number of shares of ABX as shares of CYV. The exemplary speculative portfolio204indicates that after the exemplary transaction109is completed, the exemplary portfolio107would have a total of 2000+1000=3000 shares of ABX and 1000 shares of CYV. 3000 is more than 2.5 times greater than 1000, therefore the exemplary policy108has been violated on the basis of element404, as reflected in result407.

Because one of the elements of the exemplary policy108has been violated, the comparison module203may determine that the exemplary transaction109violates the exemplary policy108. As a result, the comparison module203may generate the action409, based on the exemplary policy108. Referring back toFIG. 3, in block304, if the transaction109violates the policy108as inFIG. 4, the flow proceeds to block305. Otherwise, flow proceeds to block309.

In block305, the policy108may be checked to determine if the violation of the policy108triggers a notification to the account owner104. The comparison module203, after determining that the transaction109violates the policy108, may check the policy108for notification criteria based on the transaction109and the element or elements of the policy108found to be violated. If the policy108indicates that the violation should trigger the sending of a notification to the account owner104, flow proceeds to block306. Otherwise, flow proceeds to block307.

For example, referring toFIG. 4, the comparison module203may check the exemplary policy108for any notification criteria relating to the element404. If the exemplary policy108includes notification criteria triggering a notification for any violation of a rule relating to portfolio balance, such as the element404, then the violation of the element404would trigger a notification. The comparison module203may generate the action409including a notification to the account owner104.

In block306, a notification may be sent to the account owner104, informing the account owner104of the violation of the policy108. The comparison module203may instruct the communications module201of the investment policy tool101to send the notification to the account owner205as part of the results message205.

FIGS. 11a-11cdepicts exemplary screenshots of notifications.FIG. 11adepicts an exemplary notification sent to the account owner104by the account database102when changes made to the policy108require the approval of the account owner104.FIG. 11bdepicts an exemplary notification sent to the account owner104when an exemplary transaction109that does not violate the policy108has been completed the account106.FIG. 11cdepicts an exemplary notification sent to the account owner104when an exemplary transaction109for the account106has been found to violate the policy108. The exemplary notification inFIG. 11cmay include the date of the violation, the account106with the violated policy108, the details of the transaction109that violated the policy108, the details of the element or elements of the policy108found to be violated, and the status of the transaction109, i.e. stopped, held, or allowed.

In block307, the policy108may be checked to determine if the violation of the policy108triggers a stop or hold transaction order. The comparison module203, after determining that the transaction109violates the policy108, may check the policy108to determine if the transaction109and/or the element or elements of the policy108found to be violated trigger a stop or hold transaction order. If the policy108indicates that the violation should trigger either a stop or hold transaction order104, flow proceeds to block308. Otherwise, flow proceeds to block309.

For example, referring toFIG. 4, the comparison module203may check the exemplary policy108to determine the action to be taken specified by the account owner104for violations of the element404. If the exemplary policy108specifies that any violation of the element404triggers a stop transaction order, i.e. no transaction that violates the element404should be allowed to complete, then the violation of element404would trigger a stop transaction order. The comparison module203may generate the action409including a stop transaction order to be sent to the trading system103.

In block308, the transaction109may be stopped or held. The comparison module203may instruct the communications module201of the investment policy tool101to send a stop or hold transaction order to the trading system103as part of the results message205. If a stop transaction order is sent to the trading system103, the trading system103may halt the transaction109, preventing the transaction109from completing and removing the transaction109from any queue of pending orders. If a hold transaction order is sent to the trading system103, the trading system103may place the transaction109on hold, for example, keeping the transaction109on a queue of pending orders but preventing the transaction109from completing until approval has been received from, for example, the account owner104. A hold transaction order may also be used to hold the transaction109until the trader105, or another trader105, creates a second transaction109that, when completed, would remedy the violation of the policy108by the held transaction109. For example, if the transaction109violates a portfolio balance guideline of the policy108resulting in too much stock being held in the portfolio107, a second transaction109may be created to sell enough stock to bring the portfolio107back in compliance with the portfolio balance guideline.

For example, referring toFIG. 4, the exemplary policy108may specify that any violation of the element404triggers a stop transaction order. The communications module201of the investment policy tool101may receive the results message405including the stop transaction order from the comparison module204. The communications module201may send the stop transaction order to the trading system103. The trading system103may stop the transaction109from completing.

In block309, the transaction109may be completed. If the transaction109does not violate the policy108, or does violate the policy108but not in a way that triggers a stop or hold transaction order, the trading system103may complete the transaction109. The trading system103may, for example, execute the transaction109on the appropriate market exchange.

In block310, the portfolio107may be updated with the results of the completion of the transaction109. When the trading system103completes the transaction109, changes may be made to the contents of the portfolio107. For example, if the transaction109is the exchange of $10,000 in cash for 1000 shares of ABX stock, upon completion of the transaction109the portfolio107may be update to reflect that there is now $10,000 less cash and 1000 more shares of ABX in the portfolio107.

In block311, the flow ends.

With reference toFIG. 1, the account owner104and the trader105may communicate with the account database102and the trading system103using a variety of devices through a variety of communication media. Examples of devices that may be employed by the account owner104and the trader105include, without limitation, computer systems, personal digital assistants, notebook computers, and/or telephones (of either wireline or wireless variety). Examples of communication media that can be employed include, without limitation, wireless data networks, wireline networks, and/or a variety of networked media.

As used herein, a “computer” or “computer system” may be, for example and without limitation, either alone or in combination, a personal computer (PC), server-based computer, main frame, server, microcomputer, minicomputer, laptop, personal data assistant (PDA), cellular phone, pager, processor, including wireless and/or wireline varieties thereof, and/or any other computerized device capable of configuration for receiving, storing and/or processing data for standalone application and/or over a networked medium or media.

Computers and computer systems described herein may include operatively associated computer-readable media such as memory for storing software applications used in obtaining, processing, storing and/or communicating data. It can be appreciated that such memory can be internal, external, remote or local with respect to its operatively associated computer or computer system. Memory may also include any means for storing software or other instructions including, for example and without limitation, a hard disk, an optical disk, floppy disk, DVD, compact disc, memory stick, ROM (read only memory), RAM (random access memory), PROM (programmable ROM), EEPROM (extended erasable PROM), and/or other like computer-readable media.

In general, computer-readable media may include any medium capable of being a carrier for an electronic signal representative of data stored, communicated or processed in accordance with embodiments of the present invention. Where applicable, method steps described herein may be embodied or executed as instructions stored on a computer-readable medium or media.

It is to be understood that the figures and descriptions of the present invention have been simplified to illustrate elements that are relevant for a clear understanding of the present invention, while eliminating, for purposes of clarity, other elements. Those of ordinary skill in the art will recognize, however, that these and other elements may be desirable. However, because such elements are well known in the art, and because they do not facilitate a better understanding of the present invention, a discussion of such elements is not provided herein. It should be appreciated that the figures are presented for illustrative purposes and not as construction drawings. Omitted details and modifications or alternative embodiments are within the purview of persons of ordinary skill in the art.

It can be appreciated that, in certain aspects of the present invention, a single component may be replaced by multiple components, and multiple components may be replaced by a single component, to provide an element or structure or to perform a given function or functions. Except where such substitution would not be operative to practice certain embodiments of the present invention, such substitution is considered within the scope of the present invention.

The examples presented herein are intended to illustrate potential and specific implementations of the present invention. It can be appreciated that the examples are intended primarily for purposes of illustration of the invention for those skilled in the art. The diagrams depicted herein are provided by way of example. There may be variations to these diagrams or the operations described herein without departing from the spirit of the invention. For instance, in certain cases, method steps or operations may be performed or executed in differing order, or operations may be added, deleted or modified.

Furthermore, whereas particular embodiments of the invention have been described herein for the purpose of illustrating the invention and not for the purpose of limiting the same, it will be appreciated by those of ordinary skill in the art that numerous variations of the details, materials and arrangement of elements, steps, structures, and/or parts may be made within the principle and scope of the invention without departing from the invention as described in the following claims.