Patent Document

FIELD OF THE INVENTION  
         [0001]    The present invention relates to a system and method for automatically executing securities trades based upon a series of user-definable rules.  
         BACKGROUND OF THE INVENTION  
         [0002]    Under existing equities trading systems, a trader needs to review every order, including small orders, and make a decision as to whether to send the order to an exchange or to fill the order from the inventory of the brokerage. For certain orders, for example where the client has asked for a limit order, the trader would need to review the order and perform an action on it. While this arrangement provides for accurate order placement, it lengthens the time between when the order is placed and when the order is filled due to the review process undertaken by the trader.  
           [0003]    In an environment where market movements may be large and rapid, short execution times are critical in obtaining the best possible price for a trade. Combine the rapidly-moving markets with computer-enabled order placement, and customers desire (and often expect) to have their orders executed as soon as possible after being placed. By requiring the trader to manually review each order and make a decision thereon, the execution time of the order is inherently slow. It is therefore desirable to shorten the time between when an order is placed and when the order is executed. The system and method of the present invention are designed to overcome the limitations in the prior art.  
         SUMMARY OF THE INVENTION  
         [0004]    By using the system and method of the present invention, a trader can set some basic rules for all orders, so that the trader does not need to take any action on an order if it meets the pre-defined criteria. If the order fails to meet the criteria, then the trader will directly act upon the order; otherwise, all orders will be automatically processed which will shorten execution time. The system is most effective with small orders which are easily filled. By freeing up some of the trader&#39;s time, he or she can concentrate on the larger orders that are more difficult to fill.  
           [0005]    An order that is entered into the system of the present invention can be handled in one of three ways: (1) worked by the trader in the same manner as a typical telephone order; (2) automatically filled from the brokerage&#39;s inventory; or (3) automatically forwarded to a trading exchange to be filled. An order will be automatically processed only if certain pre-defined criteria are met. This is accomplished by passing an order through a series of filters; if the order passes through all the filters, then it will be automatically processed. If an order does not meet all of the filters, it will be passed out of the filter loop to a trader to be manually processed.  
           [0006]    An automated securities order execution system according to the present invention includes order entering means for a client to enter an order and at least one filtering means for determining whether the order can be automatically executed. After the filtering means have been applied, routing means will route the order to a destination based upon the determination made by the filtering means. Next, executing means will carry out execution of the order and reporting means will report the result of the order execution to the client.  
           [0007]    A method for automatically executing a securities trade according to the present invention includes the steps of first creating at least one filter and then entering an order for a security by a client. Next, each filter is applied to the order to determine whether the order can be automatically executed. The order is then routed to a destination based upon whether the order can be automatically executed. The order will be executed and the results of the trade are reported to the client. 
       
    
    
     BRIEF DESCRIPTION OF THE DRAWINGS  
       [0008]    For a better understanding of the present invention, reference is made to the following detailed description of an exemplary embodiment considered in conjunction with the accompanying drawings, in which:  
         [0009]    [0009]FIG. 1 is a diagrammatical overview of the system of the present invention;  
         [0010]    [0010]FIG. 2 is a rule definition screen used in connection with the system shown in FIG. 1;  
         [0011]    [0011]FIG. 3 is a rule summary screen used in connection with the system shown in FIG. 1;  
         [0012]    [0012]FIG. 4 is an alert definition screen used in connection with the system shown in FIG. 1;  
         [0013]    [0013]FIG. 5 is an alert summary screen used in connection with the system shown in FIG. 1;  
         [0014]    [0014]FIG. 6 is a broker alert definition screen used in connection with the system shown in FIG. 1; and  
         [0015]    [0015]FIG. 7 is a broker alert summary screen used in connection with the system shown in FIG. 1. 
     
    
     DETAILED DESCRIPTION OF THE INVENTION  
       [0016]    [0016]FIG. 1 shows a diagrammatic overview of an automated trade execution system  10  constructed in accordance with the present invention. A client  12  places an order  14  via an order management system  16 . The order  14  enters a brokerage&#39;s internal systems  18  via a firewall  20 . The firewall  20  provides the usual types of protection expected when using a firewall, such as protection of the brokerage&#39;s internal systems  18  and client validation, to ensure that only authorized clients  12  can access the brokerage&#39;s internal systems  18 . To protect the client  12  and the security of an order  14 , an order is encrypted by the order management system  16  before being sent through the firewall  20 .  
         [0017]    The order management system  16  can be of any type desired by the client  12 , provided that the order management system  16  can communicate with the brokerage&#39;s internal systems  18 . The order management system  16  can operate on an unillustrated communications device such as a conventional personal computer or a wireless access device such as a personal digital assistant, and over a suitable communications network to access the brokerage&#39;s internal systems  18 . By way of illustration but not limitation, when communicating with a particular brokerage, the order management system  16  may need to be capable of sending a FIX protocol message to the brokerage&#39;s internal systems  18 . FIX or Financial Information Exchange protocol is a messaging standard developed specifically for the real-time electronic exchange of securities transactions and is a public-domain specification owned and maintained by FIX Protocol, Ltd. It will be understood that different message protocols may be required to enable communication between the order management system  16  and other brokerages.  
         [0018]    In a fully automated embodiment, the trade execution system  10  is preferably configured with appropriate proprietary or commercially available software suitable to enable direct interaction with a client  12 . Preferably, the system  10  is highly scalable, whereby any number of clients may be readily connected to and simultaneously submit orders to the system. Further, the system architecture may be portable and capable of being run on a variety of software platforms such as Windows®, UNIX®, etc.  
         [0019]    The system  10  may comprise a flexible and adaptable client-server architecture that employs any suitable object-oriented programming language such as, for example, Java® or C++. The system  10  may also operate on any electronic communication network capable of enabling interactive participation by users of the system. Examples of communication networks that may support the system  10  include the Internet, a proprietary network, a local or wide area network, a wireless network, a telephone network, etc. By way of illustration but not limitation, the system  10  may be a World Wide Web (Web) based system functioning on the Internet.  
         [0020]    The system  10  further includes a communication network services integrator appropriate for the communication network within which the system is implemented. For example, in a Web based environment, a suitable communication network services integrator may be the user interface, program logic, data server, and Web server applications marketed by Oracle Corp. of Redwood Shores, Calif.  
         [0021]    The order  14  first passes through a series of broker filters  22 , which evaluate items such as a credit check on the client  12  to determine whether the order  14  can be covered, whether the order  14  is for a restricted security, or whether the order  14  has exceeded any limits placed on the client&#39;s account. The types of checks applied by the broker filters  22  can include any check to validate whether an order  14  can be processed. If the order  14  does not clear all of the broker filters  22 , an exception  24  is generated which is passed, along with the order  14 , to a broker  26 . The broker  26  will then contact the client  12  regarding the exceptions  24  to attempt to resolve the problem. Once the order  14  has been rejected, the client  12  may resubmit the order  14  by re-entering it in the same way as the original order. However, if the order  14  has been rejected on, for example, credit grounds, then it is unlikely to succeed until the credit limit has been altered (e.g., raised) or otherwise addressed.  
         [0022]    The broker filters  22  are pre-defined by the rules of the brokerage and cannot be modified by the client  12 . Other types of broker filters  22  can include whether the order  14  is a standard market order or a limit order, whether the execution instructions on the order  14  are “held” (meaning that the trader has no discretion in filling the order) or “not held” (meaning that the trader can exercise discretion in filling the order; this is the default setting when used), whether the order  14  is for regular settlement in the normal trading currency, and whether there are any special instructions associated with the order  14 .  
         [0023]    If the order  14  clears all of the broker filters  22 , it is passed to a series of trader filters  30  which will determine whether the order  14  is automatically processed, whether a trader  32  will need to manually fill the order  14 , or whether the trader  32  will need to manually send the order  14  to an exchange. The trader filters  30  include the types of checks a trader  32  would use in evaluating an order  14  and deciding the best method of filling the order  14 . For example, the trader filters  30  can include items such as volume of the order  14  in terms of the number of shares involved, the value of the order  14 , any limit price on the order  14 , and the current price spread of the product. The trader filters  30  will be discussed in greater detail below in connection with FIG. 2.  
         [0024]    If an order  14  does not clear any one of the trader filters  30 , it will be passed to a trader  32  to be manually processed. The trader filters  30  may be individually active or inactive, but an order  14  must pass through all of the active trader filters  30  to be automatically processed. The number of orders  14  that will be manually handled by the trader  32  is dependent upon the number of trader filters  30  that are set, the criteria of each of the trader filters  30 , and the types of orders that the trader  32  normally receives. Each trader  32  has the ability to set the criteria for his or her own trader filters  30 , as will be discussed below in connection with FIG. 2. Ideally, the trader filters  30  will accept smaller orders  14  (in terms of both volume and value) and will only pass larger or unusual orders  14  to the trader  32  for manual processing.  
         [0025]    If an order  14  meets the requirements of all of the trader filters  30 , it will be passed to a set of compliance filters  40 . The compliance filters  40  are used to determine if the order  14  can be filled based upon the governing market rules. For example, a determination is made whether the order  14  is of a minimum volume (i.e., no odd-lot trades), whether the price of the order  14  is within a specified percentage of the market price, or whether the security is presently suspended from trading. Additional compliance filters  40  can be added when necessary to meet specific compliance concerns. The compliance filters  40  are dictated by the local market rules, and cannot be modified by either the brokers  26  or the traders  32 .  
         [0026]    If the order  14  fails any of the compliance filters  40 , an exception  42  will be generated, and the order  14  along with the exception  42  will be passed to the trader  32  for manual processing. A human compliance officer  44  can view the compliance filters  40  in operation, to determine what number of orders  14  meet or fail the criteria set. If the order  14  passes all of the compliance filters  40 , and depending on the action status of the relevant rule, it will be forwarded to be automatically filled from inventory  50  of the brokerage or directed to an appropriate trading exchange  52 . At present, it is believed that only human compliance officers are able to monitor the compliance filters  40 . However, at such time that automated/electronic transaction compliance technology is developed that partially or completely performs the functions of a human compliance officer, it will be understood that such technology may be used in the automated trade execution system  10  of the present invention.  
         [0027]    To be able to properly track an order  14  as it moves through the brokerage&#39;s internal systems  18 , certain identifying information is attached to the data record that includes the order  14 , such as client and account identifiers and tags. A tag is used to uniquely identify every trade or execution that is processed by the system  10 . With this additional information, an audit trail for the order  14  can be constructed so that the progress of the order  14  through the various filters  22 ,  30 ,  40  can be monitored. The compliance officer  44  can view the audit trail at any time, to monitor order flow and to ensure that an order  14  is being properly handled. Presently, the compliance officer  44  can call a member of the relevant team for a detailed description of an identified problem, although a brief description can be obtained from the order history and the associated tags. The background process is also responsible for accepting orders via FIX, handing off the orders to the automated trade execution system  10 , and if necessary, routing orders to the applicable exchange or filling the orders from inventory.  
         [0028]    After an order  14  is processed either from inventory  50  or through an exchange  52 , a status record  60  is generated. The status record  60  is passed backwards through the brokerage&#39;s internal systems  18  until the status record  60  is passed through the firewall  20  where it can be retrieved by the order management system  16 . This way, the client  12  has a complete record of the history of the order  14  and whether the order  14  was successfully filled.  
         [0029]    [0029]FIG. 2 is a rule definition screen  200  that is used by a trader  32  to define the trader filters  30 . (The terms “filter” and “rule” are used interchangeably herein.) A rule  202  is the collection of information that is used to check against an order. A Product  204  is the security that the rule  202  is to be defined for on a particular Market  206 . A Priority  208  is assigned to the rule  202  which determines the order in which the rule  202  is applied to the Product  204 . If there are multiple rules  202  defined for a Product  204 , each rule  202  will have a different Priority  208  and will be tested against the order by ascending priority value.  
         [0030]    The checkboxes  210 ,  212 ,  214 ,  216  can be used to determine whether the system  10  should test an order  14  against an Individual Client  210  or a Client Group  212  and/or against a Booking Representative  214  or a Booking Representative Group  216 . The grouping of the checkboxes is such that either both the Individual Client  210  and the Client Group  212  are unchecked or only one of them is checked. The same grouping principle applies to the Booking Representative  214  and the Booking Representative Group  216 . When the desired Client and/or Booking Representative selection(s) have been made in checkboxes  210 ,  212 ,  214 ,  216 , appropriate dropdown lists appear which are populated with the relevant options for the selected checkbox(es) from which the user chooses the desired Individual Client  210  or Client Group  212  and/or Booking Representative  214  or Booking Representative Group  216 .  
         [0031]    The value for Side  220  allows the trader to determine what type of transactions will be filtered by the rule  202 . The Side  220  may be “buy” for buy orders, “sell” for sell orders, or “all” for both buy and sell orders. The Volume  222  is based on the number of shares for a single order. At  224 , the value of the order to be filtered can be expressed in United States dollars or, at  226 , the local currency. Limit  228  is the limit price on a limit order that can pass the rule  202 . A limit order is an order to a broker to buy a specified quantity of a security at or below a specified price, or to sell it at or above a specified price. The Spread Ticks value  230  is used to determine whether the order price is within the specified value of the current market price for the Product  204 . The value specified for Spread Ticks is the difference between the bid and the offer. The spread is the current market spread, so that specifying a rule with a spread less than or equal to five (for example), would mean that the order would only be automatically traded if the current bid-offer spread was less than five ticks. The trader may want to limit orders to be automatically processed only when the volatility of the stock is low, i.e., with a small spread. The values for Volume  222 , Value  224 , Value  226 , Limit  228 , and Spread Ticks  230  may be defined to be either less than, less than/equal to, greater than, or greater than/equal to (via the drop-down list) the numeric value entered into the field.  
         [0032]    The selections for Action  232  determine where an order is sent after it successfully passes the applicable rule  202 . The possible values for Action  232  include: “Send To Exchange,” where the order will be sent directly to the exchange where the Product  204  is traded; “Fill From Inventory,” where the order will be filled from the inventory of the brokerage; and “Send Round Lot, Fill Odd Lot,” which is used on exchanges that prohibit orders having a volume that is not equal to a multiple of a given lot size, where the round lot portion will be sent to the exchange and the odd lot portion will be filled from the inventory of the brokerage. The value for Send To  234  directs where the order should be sent if it passes all of the specified criteria. If the Action  232  is “Send To Exchange,” then Send To  234  will be a code for the exchange. Send To  234  is not specified for the action “Fill From Inventory”. The Firm Account  236  is used when the Action  232  is “Send To Exchange” to properly track the order and credit or debit the appropriate account. The firm account is a tool that enables the company to track its position. Quantities of (positions in) related stocks are usually tracked in the same account.  
         [0033]    The From time  238  and the To time  240  are used to set the boundaries for when the rule is operational. Since the system  10  is designed to process orders automatically, it is necessary for the Market  206  where the Product  204  is traded to be open for business. The Is Active checkbox  242  is used to place a rule  202  into and out of an active state. The checkbox  242  can be used to disable a particular rule  202  without having to delete it from the system.  
         [0034]    When defining the criteria that comprise a rule  202 , a trader can select any combination of criteria; it is not necessary to define values for all of the criteria. For an order to successfully pass a given rule  202 , all of the specified criteria need to be satisfied. If the order does not pass one of the criteria of the rule  202 , the order fails the rule  202  and will then be passed to a trader  32  for manual processing. After the criteria for the rule  202  have been defined, the user can save or delete the rule  202  by clicking on the appropriate button  250 ,  252 .  
         [0035]    Additional filters can be added and can include any quantifiable criteria that a trader would normally evaluate in determining how to process an order. Furthermore, a trader may set limits for the total volume or total value of orders that may be executed against the brokerage&#39;s inventory or directed to an exchange.  
         [0036]    Referring now to FIG. 3, a rule summary screen  300  contains a compact listing of all of the rules  202  that have been defined in the system  10 . A rule summary  302  includes the market  304  for which the rule  202  applies and the criteria  306  for each product  308 . An individual rule  202  may enabled (e.g., made active or inactive) by toggling the checkbox  310 . A user can view the details of a rule  202  by clicking on the Details link  312 , which will lead the user to a screen like that shown in FIG. 2. A default trader dropdown list (Trader list)  320  identifies those persons with permissions to execute (i.e., trade) on the respective exchanges. Persons on Trader list  320  can view and edit rules  202 . The dropdown list contains all valid traders for the relevant market. A selected trader on Trader list  320  is a person to whom certain orders that do not meet the criteria  306  of a rule  202  will be sent. A rejected order will be sent to all relevant traders for that market, not just the trader selected in the Trader list  320 . Persons on Trader list  320  each have a unique trader identifier that is associated with an order that is sent to an exchange. In effect, the automated process of the present invention thus works “on behalf” of the trader. By clicking on the Update button  322 , the user saves a changed value of a trader specified in Trader list  320 .  
         [0037]    [0037]FIG. 4 shows an alert definition screen  400  that permits a user to define when an alert  402  is generated. An alert  402  will notify a trader when a certain condition occurs, as will be explained below. An alert  402  can be defined for a specific Product  404  traded on a Market  406  and by the type of Action  408  to be performed as defined by the rule for that Product  404 . Additionally, an alert be created for all products in a market. The Type  410  can include United States dollar value, local currency value, or volume of the order. The Value  412  is a check against which it will be determined whether to trigger an alert. The Alert Level  414  is a percentage value which is used to determine when an alert  402  will be generated, which is when the value in the order specified by the selection of the Type  410  is greater than the Value  412  multiplied by the Alert Level  414 .  
         [0038]    The Alert Only checkbox  416  is used to determine what type of alert will be sent to the trader. If the box  416  is checked, only an alert will be sent to the trader. If the box  416  is not checked, the system  10  will stop processing the rule that allowed the order that violated the threshold to be automatically traded (i.e., the offending rule will be made inactive). The Is Active checkbox  418  permits the user to selectively activate the alert  402  without having to delete it from the system  10 . Once the user has defined the alert  402 , the user can either save or delete the alert  402  by clicking the appropriate buttons  420 ,  422 .  
         [0039]    [0039]FIG. 5 shows an alert summary screen  500  that displays an alert summary  502  for each alert  402  that has been created by the user. The alert summary  502  is grouped by market  504  and lists the criteria  506  that have been defined for either a particular product  508  or an entire market  504 . An Enabled checkbox  510  permits the user to active or deactivate an alert  402  without having to delete the alert  402  from the system  10 . The user can also view the details of the alert  402  by clicking on the Details link  512 . The Enabled checkboxes  510  associated with each alert summary  502  allow the user to configure a variety of alerts  402 . The user can enable all of the alerts  402  by clicking the Select All button  520  or deactivate all of the alerts  402  by clicking on the Clear Selection button  522 . Once the user has enabled their desired selection of alerts  402 , clicking on the Activate Current Selection button  524  will activate all of the alerts  402  that have been enabled.  
         [0040]    [0040]FIG. 6 shows a broker alert definition screen  600  that permits a user to define when a broker alert  602  is generated. A broker alert  602  will notify a trader when the thresholds for a given broker have been met or exceeded. This allows the trader to be alerted when a certain amount of business has been done through a given broker. An alert  602  is defined for a specific broker (Send To)  604 . The Type  606  can include United States dollar value, local currency value, or volume of the order. The Value  606  is the numerical value that will be tested in order to generate the alert  602 . The Alert Level  610  is a percentage value used to determine when the threshold has been exceeded. An alert  602  will be generated when the total value of all the orders generated by the broker  604  specified by the selection of the Type  606  is greater than the Value  608  multiplied by the Alert Level  610 .  
         [0041]    The Is Active checkbox  612  permits the user to selectively activate the alert  602  without having to delete it from the system  10 . Once the user has defined the alert  602 , the user can either save or delete the alert  602  by clicking the appropriate buttons  620 ,  622 .  
         [0042]    [0042]FIG. 7 shows a broker alert summary screen  700  that displays an alert summary  702  for each alert  602  that has been created by the user. The alert summary  702  is grouped by broker  704  and lists the criteria  706  that have been defined for the broker  704  and the Type of alert  708  desired. An Enabled checkbox  710  permits the user to active or deactivate a broker alert  602  without having to delete the alert  602  from the system  10 . The user can also view the details of the alert  602  by clicking on the Details link  712 . The Enabled checkboxes  710  associated with each alert summary  702  allow the user to configure a variety of alerts  602 . The user can enable all of the broker alerts  602  by clicking the Select All button  720  or deactivate all of the alerts  602  by clicking on the Clear Selection button  722 . Once the user has enabled their desired selection of broker alerts  602 , clicking on the Activate Current Selection button  724  will activate all of the alerts  602  that have been enabled.  
         [0043]    It will be understood that the embodiment described herein is merely exemplary and that a person skilled in the art may make many variations and modifications without departing from the spirit and scope of the present invention. For instance, the filters exemplified herein can be expanded to include any type of filter that would accomplish the goal to be achieved by that stage of the processing. Moreover, the user screens shown in FIGS.  2 - 7  are illustrative of a preferred embodiment for constructing the filters and communicating this information to a user of the system  10 . A person skilled in the art would be readily able to create many other types of user screens that would collect and display the necessary information contained therein. In addition, the criteria defined for a filter can be any quantifiable criteria that would normally be evaluated by a trader when processing an order. All such variations and modifications are intended to be included within the scope of the invention as defined in the appended claims.

Technology Category: g