Patent Publication Number: US-11651423-B2

Title: System and method for apportioning trading orders based on size of displayed quantities

Description:
RELATED APPLICATIONS 
     This patent application is a continuation of U.S. patent application Ser. No. 16/516,323, filed Jul. 19, 2019, which is a continuation application of U.S. patent application Ser. No. 13/936,789, filed Jul. 8, 2013 (now U.S. Pat. No. 10,395,310 issued on Aug. 27, 2019), which is a continuation of U.S. application Ser. No. 11/499,496 filed Aug. 3, 2006 (now U.S. Pat. No. 8,484,122), which claims priority from Patent Application Ser. No. 60/705,769, filed Aug. 4, 2005, entitled: System and Method for Apportioning Trading Orders Based on Size of Displayed Quantities, the disclosures of which are hereby incorporated by reference herein in their entireties. 
    
    
     TECHNICAL FIELD OF THE INVENTION 
     The present invention relates generally to electronic trading and more specifically to a system for apportioning trading orders based on size of displayed quantities. 
     BACKGROUND OF THE INVENTION 
     In recent years, electronic trading systems have gained wide spread acceptance for trading of a wide variety of items, such as goods, services, financial instruments, and commodities. For example, electronic trading systems have been created which facilitate the trading of financial instruments and commodities such as stocks, bonds, currency, futures contracts, oil, and gold. 
     Many of these electronic trading systems use a bid/offer process in which bids and offers are submitted to the systems by a passive side and then those bids and offers are hit or lifted (or taken) by an aggressive side. For example, a passive trading counterparty may submit a “bid” to buy a particular trading product. In response to such a bid, an aggressive side counterparty may submit a “hit” in order to indicate a willingness to sell the trading product to the first counterparty at the given price. Alternatively, a passive side counterparty may submit an “offer” to sell the particular trading product at the given price, and then the aggressive side counterparty may submit a “lift” (or “take”) in response to the offer to indicate a willingness to buy the trading product from the passive side counterparty at the given price. 
     SUMMARY OF THE INVENTION 
     In accordance with the present invention, the disadvantages and problems associated with prior electronic trading systems have been substantially reduced or eliminated. 
     An apparatus for processing trading orders comprises a memory and a processor. The memory stores a first order and a second order. The first order is associated with a product and comprises a displayed quantity and a reserved quantity. The second order is associated with the product and comprises a displayed quantity and a reserved quantity. The processor is coupled to the memory and receives a counterorder associated with the product. The processor fills the displayed quantity of the first order with a corresponding portion of the counterorder, and fills the displayed quantity of the second order with a corresponding portion of the counterorder. The processor allocates a first additional portion of the counterorder to the first order. The first additional portion is based at least in part on a ratio of the displayed quantity of the first order to a sum of the displayed quantity of the first order and the displayed quantity of the second order. 
     Various embodiments of the present disclosure may benefit from numerous advantages. It should be noted that one or more embodiments may benefit from some, none, or all of the advantages discussed below. 
     One advantage is that the trading platform of the present system allocates counterorders to the reserved quantities of orders in proportion to the size of the displayed quantity of each order. As a result, the larger the displayed quantity of a particular order, the greater the number of shares allocated to the reserved quantity of that order from a counterorder. Accordingly, the system creates incentives for greater transparency in the marketplace by rewarding traders that display a larger portion of a given order. Greater transparency in the marketplace may lead to greater liquidity in the markets. 
     Other advantages will be readily apparent to one having ordinary skill in the art from the following figures, descriptions, and claims. 
    
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
       For a more complete understanding of the present invention and its advantages, reference is now made to the following description, taken in conjunction with the accompanying drawings, in which: 
         FIG.  1    illustrates one embodiment of a trading system in accordance with the present invention; 
         FIG.  2    illustrates one embodiment of trading information used by the system illustrated in  FIG.  1   ; and 
         FIG.  3    illustrates a flowchart of an exemplary method for apportioning trading orders based on size of displayed quantities. 
     
    
    
     DETAILED DESCRIPTION OF THE INVENTION 
       FIG.  1    illustrates one embodiment of a trading system  10 . Generally, trading system  10  comprises a trading platform  50  communicatively connected to clients  20 , networks  30 , and market centers  40 . Trading platform  50  may receive and process trading orders  12  from traders  70 . By regulating the manner and sequence in which trading orders  12  are filled, trading platform  50  may create incentives for increased disclosure of trading orders  12 . 
     A given trading order  12  may comprise two parts—a “displayed quantity” and a “reserved quantity.” In placing trading order  12 , trader  70  may indicate that only a portion of the total quantity of trading order  12  should be displayed to other traders  70 . This portion of trading order  12  to be displayed to other traders  70  is referred to as the “displayed quantity.” The remaining portion of trading order  12  is referred to as the “reserved quantity.” Designating a portion of trading order  12  as a “reserved quantity” allows trader  70  to enter a large trading order  12  while only displaying a portion of that trading order  12  to other traders  70 . Trading platform  50  may incrementally fill a particular trading order  12  by first filling the displayed quantity of that trading order  12  and then using the reserved quantity to replenish the displayed quantity of that trading order  12 . 
     Trading orders  12  generally comprise orders  12   a  and counterorders  12   b . Orders  12   a  and counterorders  12   b  may be buy orders  14  and sell orders  16 . Orders  12   a  and counterorders  12   b  are complementary actions such as, for example, buying and selling. If an order  12   a  refers to a buy order  14 , then a counterorder  12   b  refers to a sell order  16 . Conversely, if an order  12   a  refers to a sell order  16 , then a counterorder  12   b  refers to a buy order  14 . A buy order  14  is a request to buy a particular quantity of a particular trading product (e.g., bid request). A sell order  16  is a request to sell a particular quantity of a particular trading product (e.g., offer request). In particular embodiments, trading order  12  may specify a target price (e.g., target bid price or target offer price) for the trading product. Although system  10  is exemplified below using equities as the trading product, the trading product that forms the basis of trading order  12  may comprise any goods, services, financial instruments, commodities, etc. Examples of financial instruments include, but are not limited to, stocks, bonds, and futures contracts. 
     Clients  20  are operable to receive trading orders  12  from traders  70  and to send trading orders  12  to trading platform  50  and/or market centers  40 . Clients  20  comprise any suitable local or remote end-user devices that may be used by traders  70  to access one or more elements of trading system  10 , such as trading platform  50 . A particular client  20  may comprise a computer, workstation, telephone, Internet browser, electronic notebook, Personal Digital Assistant (PDA), pager, or any other suitable device (wireless or otherwise), component, or element capable of receiving, processing, storing, and/or communicating information with other components of system  10 . Client  20  may also comprise any suitable user interface such as a display, microphone, keypad, keyboard, touch screen, or any other appropriate terminal equipment according to particular configurations and arrangements. It will be understood that there may be any number of clients  20  communicatively connected to trading platform  50 . In addition, there may be any number of clients  20  communicatively connected to market centers  40  without using trading platform  50 . 
     Although clients  20  are described herein as being used by “traders”  70 , it should be understood that the term “trader” is meant to broadly apply to any user of trading system  10 , whether that user is an agent acting on behalf of a principal, a principal, an individual, a legal entity (such as a corporation), or any machine or mechanism that is capable of placing and/or responding to trading orders  12  in system  10 . 
     According to certain embodiments, traders  70  may include market makers. A market maker may include any individual or firm that submits and/or maintains either or both bid and offer trading orders  12  simultaneously for the same instrument. For example, a market maker may include an individual or firm, such as a brokerage or bank, that maintains either a firm bid and/or offer price in a given security by standing ready, willing, and able to buy and/or sell that security at publicly quoted prices. A market maker generally displays bid and/or offer prices for specific numbers of specific securities, and if these prices are met, the market maker will immediately buy for and/or sell from its own accounts. According to certain embodiments, a single trading order  12  may be filled by a number of market makers at potentially different prices. 
     Networks  30  are communication platforms operable to exchange data or information between clients  20  and trading platform  50  and/or market centers  40 . According to certain embodiments, a particular network  30  may represent an Internet architecture which provides clients  20  with the ability to communicate trading or transaction information to trading platform  50  and/or market centers  40 . According to certain embodiments, network  30  comprises a plain old telephone system (POTS), which traders  70  may use to perform the same operations and functions. Transactions may be assisted by a broker associated with trading platform  50  or manually keyed into a telephone or other suitable electronic device to request that a transaction be executed. In certain embodiments, network  30  may be any packet data network (PDN) offering a communications interface or exchange between any two nodes in system  10 . Network  30  may further comprise any combination of local area network (LAN), metropolitan area network (MAN), wide area network (WAN), wireless local area network (WLAN), virtual private network (VPN), intranet, or any other appropriate architecture or system that facilitates communications between clients  20  and trading platform  50  and/or market centers  40 . 
     Market centers  40  comprise all manner of order execution venues including exchanges, Electronic Communication Networks (ECNs), Alternative Trading Systems (ATSs), market makers, or any other suitable market participants. Each market center  40  maintains a bid and offer price for a given trading product by standing ready, willing, and able to buy or sell that trading product at publicly quoted prices, also referred to as market center prices. Different market centers  40  may provide different market center prices for particular trading products. For example, a particular market center  40  may offer a particular bid price and/or offer price for a particular trading product, while another market center  40  may offer a different bid price and/or offer price for the same trading product. A particular market center  40  may charge a transaction cost to execute trading orders  12  that remain in the order books of that market center  40  for more than a certain length of time. Different market centers  40  may have different policies regarding the disclosure of various details of trading orders  12 . For example, certain market centers  40  referred to as “cooperative” market centers may disclose both the displayed quantities and the reserved quantities of trading orders  12  to trading platform  50 . Other market centers  40  referred to as “non-cooperative” market centers may disclose only the displayed quantities of trading orders  12  to trading platform  50 . 
     Trading platform  50  is a trading architecture that facilitates the routing, matching, and otherwise processing of trading orders  12 . Trading platform  50  may comprise a management center or a headquartering office for any person, business, or entity that seeks to route, allocate, match, process, or fill trading orders  12 . Accordingly, trading platform  50  may include any suitable combination of hardware, software, personnel, devices, components, elements, or objects that may be utilized or implemented to achieve the operations and functions of an administrative body or a supervising entity that manages or administers a trading environment. In certain embodiments, trading platform  50  comprises client interface  52 , market interface  54 , processor  56 , and memory module  60 . 
     Client interface  52  of trading platform  50  is communicatively connected to network  30  and supports communications between clients  20  and the various components of trading platform  50 . According to certain embodiments, client interface  52  comprises a transaction server that receives trading orders  12  communicated by clients  20  via network  30 . 
     Market interface  54  is communicatively connected to market centers  40  and supports communications between market centers  40  and the various components of trading platform  50 . Market interface  54  may comprise a transaction server that receives trading orders  12  communicated by market centers  40 . Market interface  54  may be operable to send to market centers  40  trading orders  12  received from clients  20  connected directly to trading platform  50 . 
     Client interface  52  and market interface  54  are communicatively connected to processor  56 . Processor  56  is operable to record trading orders  12  in memory module  60  and route trading orders  12  to market centers  40 . Processor  56  is further operable to execute logic  62  stored in memory module  60  to match buy orders  14  and sell orders  16  received by client interface  52  and market interface  54 . In addition, processor  56  is operable to incrementally fill a particular trading order  12  by using the reserved quantity of that trading order  12  to replenish the displayed quantity of that trading order  12 . Processor  56  may comprise any suitable combination of hardware and software implemented in one or more modules to provide the described function or operation. 
     Memory module  60  comprises any suitable arrangement of random access memory (RAM), read only memory (ROM), magnetic computer disk, CD-ROM, or other magnetic or optical storage media, or any other volatile or non-volatile memory devices that store one or more files, lists, tables, or other arrangements of information such as trading orders  12 . Although  FIG.  1    illustrates memory module  60  as internal to trading platform  50 , it should be understood that memory module  60  may be internal or external to components of trading system  10 , depending on particular implementations. Also, memory module  60  illustrated in  FIG.  1    may be separate or integral to other memory devices to achieve any suitable arrangement of memory devices for use in trading system  10 . 
     According to certain embodiments, memory module  60  comprises logic  62 . Generally, logic  62  comprises software instructions for routing, matching, processing, or filling trading orders  12 . Processor  56  is operable to execute logic  62  in memory module  60  to match buy orders  14  and sell orders  16  and to determine the priority of traders  70  associated with those buy orders  14  and sell orders  16 . Processor  56  is further operable to execute logic  62  in memory module  60  to determine the manner in which to replenish the displayed quantity of a particular trading order  12 . Generally, the manner and sequence in which trading orders  12  are filled is based at least in part on the sequence in which trading platform  50  receives each trading order  12 . In certain embodiments, the manner and sequence in which trading orders  12  are filled is also based at least in part on the size of the displayed quantity of a particular trading order  12  relative to the size of the reserved quantity of that trading order  12 . By regulating the manner and sequence in which trading orders  12  are filled, trading platform  50  may create incentives for increased disclosure of trading orders  12 . 
     It should be understood that the internal structure of trading platform  50  and the interfaces, processors, and memory devices associated therewith is malleable and can be readily changed, modified, rearranged, or reconfigured in order to achieve the intended operations of trading platform  50 . 
     Trading platform  50  may process trading orders  12  according to logic  62  stored in memory module  60 . Logic  62  may dictate the manner and sequence in which trading orders  12  are filled. According to certain embodiments, logic  62  may cause processor  56  to first fill the displayed quantities of trading orders  12  in chronological order. In some embodiments, logic  62  may then cause processor  56  to fill the reserved quantities of trading orders  12  in proportion to the size of the displayed quantity of each trading order  12 . 
       FIG.  2    is a table  100  that sets forth an example illustrating certain embodiments of system  10 . Trading platform  50  receives buy orders  14   p ,  14   q ,  14   r , and  14   s  at 2:00 p.m., 2:01 p.m., 2:02 p.m., and 2:03 p.m., respectively, as illustrated in columns  102  and  106 . Each buy order  14  is for shares of product A. Buy order  14   p  has a displayed quantity of 10 shares and a reserved quantity of 100 shares, as illustrated in columns  108  and  110 , respectively. Buy order  14   q  has a displayed quantity of 20 shares and a reserved quantity of 100 shares. Buy order  14   r  has a displayed quantity of 30 shares and a reserved quantity of 100 shares. Buy order  14   s  has a displayed quantity of 40 shares and a reserved quantity of 100 shares. At 2:04 p.m., trading platform receives sell order  16   z  for 150 shares of product A. In the present example, logic  62  comprises a rule to first fill the displayed quantities of orders  12   a  in the sequence that trading platform  50  received those orders  12   a . Accordingly, processor  56  first fills the displayed quantity of buy order  14   p  with 10 shares of product A from sell order  16   z . Processor  56  next fills the displayed quantity of buy order  14   q  with 20 shares of product A from sell order  16   z . Processor  56  then fills the displayed quantity of buy order  14   r  with 30 shares of product A from sell order  16   z . Processor  56  next fills the displayed quantity of buy order  14   s  with 40 shares of product A from sell order  16   z . At this point, the displayed quantities of all buy orders  14  have been filled and there are 50 remaining shares of product A from sell order  16   z.    
     In the present example, logic  62  comprises a second rule. The second rule is to divide and allocate, once the displayed quantities of all orders  12   a  are filled, any remaining portion of counterorder  12   b  to orders  12   a  according to the ratio of the displayed quantity of a given order  12   a  to the displayed quantities of all orders  12   a . In the present example, the displayed quantities of buy orders  14   p ,  14   q ,  14   r , and  14   s  total 100 shares (e.g., 10+20+30+40=100). The displayed quantity of buy order  14   p  is 10% of the total displayed quantities of buy orders  14  (e.g., 10/100=10%). Based on the second rule in logic  62 , processor  56  allocates 10% of the remaining 50 shares of sell order  16   z —5 shares—to the reserved quantity of buy order  14   p , as illustrated in column  112 . The displayed quantity of buy order  14   q  is 20% of the total displayed quantities of buy orders  14  (e.g., 20/100=20%). Accordingly, processor  56  allocates 20% of the remaining 50 shares of sell order  16   z —10 shares—to the reserved quantity of buy order  14   q . The displayed quantity of buy order  14   r  is 30% of the total displayed quantities of buy orders  14  (e.g., 30/100=30%). Accordingly, processor  56  allocates 30% of the remaining 50 shares of sell order  16   z— 15 shares—to the reserved quantity of buy order  14   r . The displayed quantity of buy order  14   s  is 40% of the total displayed quantities of buy orders  14  (e.g., 40/100=40%). Accordingly, processor  56  allocates 40% of the remaining 50 shares of sell order  16   z— 20 shares—to the reserved quantity of buy order  14   s.    
     The preceding example illustrates one method for apportioning the remaining portion of counterorder  12   b  among orders  12   a  in proportion to the displayed quantity of each order  12   a . According to other embodiments, the remaining portion of the counterorder  12   b  may be apportioned based on a fraction or a multiple of the percentage of the displayed quantity of each order  12   a.    
     In some embodiments, in addition or as alternatives to the ratio of the displayed quantity of a given order  12   a  to the displayed quantities of all orders  12   a , processor  56  may use other factors in allocating the remaining portion of counterorder  12   b  among orders  12   a . According to certain embodiments, processor  56  may allocate the remaining portion of counterorder  12   b  based at least in part on the amount of time a particular order  12   a  has been in the order books prior to being filled. For example, an order  12   a  that has been in the order books for a long time may receive more of the remaining portion of counterorder  12   b  than another order  12   a  with the same displayed quantity that has not been in the order books for as long. In some embodiments, processor  56  may allocate the remaining portion of counterorder  12   b  based at least in part on the sequence in which orders  12   a  were received by trading platform  50 . For example, the first order  12   a  may receive more of the remaining portion of counterorder  12   b  than another order  12   a  with the same displayed quantity as the first order  12   a . In other embodiments, processor  56  may allocate the remaining portion of counterorder  12   b  based on any suitable number and combination of factors set forth above or hereinafter discovered (e.g., ratio of displayed quantity to reserved quantity; amount of time for order in order book; sequence that orders are received; etc.). 
       FIG.  3    is a flowchart  150  that illustrates one embodiment of a method for processing trading orders  12 . It should be understood that additional, fewer, or different operations may be performed in any suitable order to achieve the intended functions without departing from the scope of this method. Trading platform  50  receives a plurality of trading orders  12   a  at step  152 . Each trading order  12   a  is associated with a product and has a displayed quantity, and a reserved quantity. At step  154 , platform  50  receives a counterorder  12   b  specifying a quantity for the product. Platform  50  fills the displayed quantity of the first order  12   a  with a quantity of the counterorder  12   b  at step  156  and determines whether any portion of the counterorder  12   b  remains unfilled at step  158 . If not, execution terminates at step  172 . If so, execution proceeds to step  160  where the platform  50  determines whether any portion of a displayed quantity for a subsequent order  12   a  remains unfilled. If so, execution proceeds to step  162  where platform  50  fills the displayed quantity of the next order  12   a  with a quantity of the counterorder  12   b . Steps  160  and  162  are repeated until the answer to the question at step  160  is a negative response, at which point execution proceeds to step  164 . 
     At step  164 , platform  50  allocates a first additional portion of the counterorder  12   b  to the first order  12   a , according to one or more factors described above (e.g., ratio of displayed quantity to reserved quantity; amount of time for order in order book; sequence that orders are received; etc.). Execution proceeds to step  166  where platform  50  determines whether any portion of the counterorder  12   b  remains unfilled. If not, execution terminates at step  172 . If so, execution proceeds to step  168  where platform  50  determines whether any portion of the reserved quantity of a subsequent order  12   a  remains unfilled. If so, execution proceeds to step  170  where platform  50  allocates an additional portion of the counterorder  12   b  to the subsequent order  12   a , according to one or more factors described above (e.g., ratio of displayed quantity to reserved quantity; amount of time for order in order book; sequence that orders are received; etc.). Steps  168  and  170  are repeated for each subsequent order  12   a  until step  168  is answered with a negative response, at which time execution terminates at step  172 . 
     System  10  has certain technical advantages. Various embodiments of system  10  may have none, some, or all of these advantages. One advantage is that trading platform  50  allocates counterorder  12   b  to the reserved quantities of orders  12   a  in proportion to the size of the displayed quantity of each order  12   a . As illustrated in the preceding example, the larger the displayed quantity of a particular order  12   a , the greater the number of shares allocated to the reserved quantity of that order  12   a  from counterorder  12   b . Accordingly, system  10  creates incentives for greater transparency in the marketplace by rewarding traders  70  that display a larger portion of a given order  12   a . Greater transparency in the marketplace may lead to greater liquidity in the markets. 
     Although the present invention has been described in several embodiments, a myriad of changes and modifications may be suggested to one skilled in the art, and it is intended that the present invention encompass such changes and modifications as fall within the scope of the present appended claims.