HK1143651A - Method and system conducting computer-assisted transaction - Google Patents

Description

Method and system for conducting computer-aided transactions

Technical Field

The invention relates to a method and a system for performing computer-assisted transactions

Background

In the financial industry, there are a variety of venues that allow securities (securities), such as stocks, bonds and derivatives, to be traded. Exemplary conventional trading places include stock exchanges, which include both physical stock exchanges (e.g., the new york stock exchange) and electronic stock exchanges (e.g., the NASDAQ). In addition to stock exchanges, the Securities Exchange Commission (SEC) has also approved various Alternative Trading Systems (ATS) to trade outside of traditional stock exchanges. Included in the ATS is the use of an Electronic Communications Network (ECN) that matches purchase orders (buy orders) with sales orders (sell orders).

In most of the locations referred to above, orders are publically advertised after arrival, for example as stock quotes. Thus, these locations do not appeal to traders who desire to prevent the leakage of information into the marketplace, which may adversely affect performance quality. Instead, some traders turn to the cross network (cross network), which is another form of ATS. The cross-over network provides a form of transaction known as "dark pools" in which orders are not publicly disclosed. In a cross network, complete anonymity may be provided even for other network subscribers (subscribers) since orders are never disclosed. The only information disclosed about the order is in the form of an execution message, such as a stock print, that occurs after the order has been executed. Thus, information is not disclosed until after the transaction has been completed. Stock prints, such as through the Consolidated Tape System, are also available to network subscribers and the general public. The cross-network can be likened to a black box where the order is placed; the order is displayed only after the matching order is successfully executed. In contrast, ECNs typically display unmatched orders externally, although the identity of the buyer/seller may still be hidden. Thus, the crossover network provides better anonymity than the ECN.

In an ideal cross-network, there is a high degree of liquidity because there are readily available offers (offers) for buyers and sellers, and because the anonymity provided results in minimal price fluctuations. In practice, the crossover network deviates from the ideal case. One problem is that the cross-network is susceptible to manipulation, such as gaming (gaming). As an illustrative example, assume that a seller has just sold a particular stock share (share) at a first location. Based on the sale, the seller suspects that there may be a sudden demand for the stock, and therefore purchases an additional share from another location and attempts to resell the additional share at the first location to obtain a profit, thus gaming the cross network.

Another problem is the large number of cross networks available. Because there are many cross-network locations, buyers and sellers are scattered and any appreciable size completed transaction may involve transactions over more than one cross-network. This reduces liquidity and reduces the average trade size, which reduces but increases the average number of trades needed to trade large orders at the same time. Further, as the number of transactions increases, the likelihood of becoming a victim of the game increases as the transactions become more visible. Further, the spread of buyers and sellers may cause traders to miss desired trading opportunities, e.g., fail to meet at the correct trading floor at the correct time.

Accordingly, there is a need for a more efficient method of conducting transactions.

Disclosure of Invention

In accordance with an example embodiment of the present invention, a system for conducting computer-assisted transactions includes a central computer configured to: receiving an initial order to purchase and sell a security from at least a subset of a plurality of system participants; matching at least a subset of the initial purchase orders with at least a subset of the initial sell orders based at least on quantity; forming order blocks (order blocks) of at least a subset of the matched orders; broadcasting a cross-notification (interchangeably referred to herein as a cross-Notification (NOX), cross-Indication (IOX), or block cross (BLX) alert) to each of the plurality of participants in response to reaching a threshold volume (volume) of matching orders, the NOX alert indicating the beginning of a time window during which further matching orders to purchase and sell a quantity of securities may exist (presentable) for inclusion in the order block; and at the end of the time window, the order block is executed.

In an example embodiment of the invention, the central computer is configured to execute the order block at a National Best Bid and a midpoint price (midpoint price) of a National Best Offer (NBBO).

In an example embodiment of the invention, the midpoint price is calculated from the value of the NBBO captured after the threshold volume is reached and before the NOx broadcast.

In an example embodiment of the invention, further matching orders are contained within the order block only if the calculated midpoint price is within the range of NBBO at any time during the time window.

In an example embodiment of the invention, the central computer is configured to: for each matched initial sell order, assigning (option) to the matched initial sell order a percentage of the lesser of the total number of shares of the matched initial sell order and the total number of shares of the matched initial purchase order (lesser), said percentage being approximately equal to the ratio of the number of shares of the matched initial sell order to the total number of shares of the matched initial sell order; and for each of the matched initial purchase orders, assigning a percentage of the lesser of the total number of shares of the matched initial sell order and the total number of shares of the matched initial purchase order to the matched initial purchase order, the percentage being approximately equal to a ratio of the number of shares of the matched initial purchase order to the total number of shares of the matched initial purchase order.

In an example embodiment of the invention, the central computer is configured to: for each matched further sell order, assigning to the matched further sell order a percentage of the lesser of the total number of shares of the matched further sell order and the total number of shares of the matched further purchase order, the percentage being approximately equal to the ratio of the number of shares of the matched further sell order and the total number of shares of the matched further sell order; and for each matched further purchase order, assigning a percentage of the lesser of the total number of shares of the matched further sell order and the total number of shares of the matched further purchase order to the matched further purchase order, the percentage being approximately equal to a ratio of the number of shares of the matched further purchase order and the total number of shares of the matched further purchase order. The remaining portions of the matched initial purchase order and the matched initial sell order are processed as further purchase orders and further sell orders, respectively.

In an example embodiment of the invention, the threshold volume is determined as a function of the Average Daily Volume (ADV) of the securities.

In an example embodiment of the invention, the threshold volume is a function of the twenty-day ADV of the security.

In an example embodiment of the present invention, the threshold volume is determined as a function of the market state of the securities.

In an example embodiment of the present invention, the length of the time window is less than 10 seconds.

In an example embodiment of the present invention, the length of the time window ranges from 2 to 10 seconds.

In accordance with an example embodiment of the present invention, a method of a security transaction facilitator, comprises a processor at a central computer: receiving an initial order to purchase and sell a security from at least a subset of a plurality of system participants; matching at least a subset of the initial purchase orders with at least a subset of the initial sell orders based at least on quantity; form at least a subset of the order blocks in the matched order. In response to reaching the threshold volume of matched orders, the central computer broadcasts a cross-notification (NOx) alert to each of the plurality of participants, the NOx alert indicating the beginning of the time window, and further matched orders to purchase and sell a quantity of securities during the time window may exist for inclusion in the order block. The method further includes executing the order block at the end of the time window.

In accordance with an example embodiment of the present invention, a method of assisting in the trading of securities, comprising: with respect to securities, the received purchase order and the received sell order are matched by a processor at the central computer. The matched orders form order blocks. The method further comprises the following steps: in response to reaching a threshold volume for matched orders, the central computer broadcasts a cross-notification (NOx) alert indicating the start of a time window during which further matched orders to purchase and sell a quantity of securities may exist for inclusion in the order block.

In accordance with an example embodiment of the present invention, a hardware-implemented computer-readable storage medium has stored thereon a series of instructions executable by a processor of a security transaction assistant. When executed, the instructions cause a processor to perform a method comprising: receiving an initial order to purchase and sell a security from at least a subset of a plurality of system participants; matching at least a subset of the initial purchase orders with at least a subset of the initial sell orders based at least on quantity; and forming at least a subset of the matched orders into order blocks. The method further comprises the following steps: broadcasting a cross-notification (NOx) alert to each of the plurality of participants in response to reaching a threshold volume of matched orders, the NOx alert indicating a start of a time window during which further matched orders to purchase and sell a quantity of securities may exist for inclusion in the order block; and at the end of the time window, executing the order block.

Drawings

FIG. 1 is a block diagram illustrating a system for conducting computer-assisted transactions, according to an example embodiment of the present invention.

Fig. 2a and 2b are flow diagrams illustrating a method of conducting a computer-assisted transaction according to an example embodiment of the invention.

FIG. 3 is a flow chart illustrating another method of conducting a computer-assisted transaction according to an example embodiment of the invention.

FIG. 4 is a first set of transactions, according to an example embodiment of the invention.

FIG. 5 is a second set of transactions, according to an example embodiment of the invention.

Fig. 6 is a schedule of the transactions of fig. 4, according to an example embodiment of the invention.

Detailed Description

The invention relates to a method and a system for conducting computer-assisted transactions. Illustrative embodiments of the invention relate to a method and system for conducting a sale of securities, such as stocks, bonds and derivatives, in which an intermediate computer acts as an intermediary between a plurality of trading participants, i.e., buyers and sellers. In an example embodiment, the participants include only buyer users, such as hedge fund, mutual funds, retirement funds, and individual investors. However, in alternative embodiments, the participants may also include vendor participants such as brokers. The central computer attempts to match the buyer with the seller. When sufficient volume of a particular security is available for crossing (crossing), the central computer invites additional orders to build a block of existing orders before crossing all matching orders within the block. The order block is then executed as a single transaction under which the individual participants containing the order block are hidden. As a result, the average transaction size is increased, the likelihood of gambling is reduced, and participants are attracted to transactions within a single venue rather than scattered transactions in multiple venues. An exemplary embodiment of the present invention will be described in which orders are executed at intersections based on a nationally best bid and a nationally best bid price (NBBO). However, any conventional method of determining the intersection point may be used.

FIG. 1 illustrates an example of a system 100 for conducting computer-assisted transactions, according to an example embodiment of the invention. The system 100 may include a cross-provider (provider)110, a plurality of transaction input devices 12, 14, 16, 22, 24, and 26, and a public market 50. In an example embodiment, the cross provider 110 independently owns the cross network provider. Examples of independently owned providers include Instinet, Investment Technology Group (ITG), Liquidnet, and Pipeline tracing Systems. The cross-provider 110 may include a cross-network 112, a transaction server 114, and a bookkeeping server 116.

The crossover network 112 may be operated as a dark pool in which the participants are anonymous and the executed transaction is only disclosed after the transaction has been known to the public. The crossover network 112 may comprise an electronic communication network, such as a virtual private network or a secure local area network. The cross network 112 may be accessed in any of a variety of ways, including through an Internet connection, a file transfer protocol, a dial-up connection, a local connection, and so forth. In an example embodiment, access may be obtained remotely through a plurality of terminals (e.g., input device 12/14/16/22/24/26 configured to connect to the cross-network through a web portal). In alternative embodiments, access may include, for example, a combination of remote access and local access. For example, in addition to remote terminal access, the cross-over provider 110 may provide a transaction facility in which terminals preconfigured to access the cross-over network 112 are located.

The trade server 114 may be any computing device or combination of computing devices in communication with the cross network 112 and configured to receive trade orders from the input device 12/14/16/22/24/26. The transaction server 114 may be a commerce server dedicated to supporting the cross network 112. However, it will be appreciated that other functions may be performed by the transaction server 114. The transaction server 114 may be implemented in any combination of hardware and/or software, including, for example, a processor, memory storing instructions and/or data, a network interface device, and so forth. The trading server 114 may be configured to match purchase orders with sell orders. As will be described in further detail below, depending on the price, when a purchase order and a sell order match, trading server 114 may determine a match. The trading server 114 may also be configured to execute matched orders, for example, by allocating shares from the seller to the buyer and arranging for funds transfer from the buyer to the seller. As will be described below, the system may provide for the execution of matched orders, subject to a determination that the various requirements of the orders are satisfied, wherein the matched orders are executed as part of a single order block. The transaction server 114 may store account information corresponding to participants who have signed up for the cross network 112. The account information may include, for example, a user name and password, contact information, bank account information, and any other information needed to perform a transaction.

Bookkeeping server 116 may be any computing device or combination of computing devices in communication with transaction server 114. Although in the illustrative embodiment, bookkeeping server 116 is shown separate from transaction server 114, alternative embodiments may feature a single computing device that combines the functionality of both transaction server 114 and bookkeeping server 116. Bookkeeping server 116 may be configured to store and retain records of transactions performed. Alternatively, bookkeeping server 116 may be configured to store and retain a record of unexecuted transactions (e.g., rejected orders or unmatched orders). The record may be stored in a log located in the memory of bookkeeping memory 116. Alternatively, bookkeeping memory 116 may transmit the record for remote storage.

The input device 12/14/16/22/24/26 may include any kind of electronic input device operated by a participant, including mobile phones, personal computers, laptops, and dedicated transaction terminals. In the illustrative embodiment, the input devices each include software, such as a client application or plug-in, that configures the input devices to communicatively connect to the transaction server 114 over the crossover network 112. The software may be preloaded during manufacture of the device or installed post-manufacture, for example, by a participant. Each input device may only be operated by a single participant at a time, although the participants do not need to have actual device, such as shared device access. The transaction server 114 may identify each participant by entering account information, such as a username and password. If the participant is an authorized subscriber, the participant is then allowed to submit an order to the crossover network 112.

The public exchange 50 may include a stock market, such as a physical stock market like the New York stock exchange or an electronic stock market like the NASDAQ. The public exchange 50 may communicate with the bookkeeping server 116 to transmit and receive information containing NBBO, which is an indicator of the best available purchase price (high bid) and best available sale price (low quote) for a given stock. NBBO originates from transaction information received in substantially real-time from all SEC authorized public trading places, including stock markets and ATS such as the crossover network 112.

Several illustrative embodiments of a method of conducting computer-assisted transactions in accordance with the present invention are described herein. The method may be implemented in hardware, software, or a combination thereof, and is described with reference to the example system 100 in FIG. 1. In particular, the method may be implemented at a processor of the transaction server 114 and executed as instructions contained in a computer-readable medium (e.g., computer memory, hard disk, CD-ROM, portable flash memory, etc.). However, these methods may also be successfully implemented in other systems according to the present invention.

Fig. 2a and 2b illustrate an example of a method 200 of conducting a computer-assisted transaction according to an example embodiment of the invention. In an example embodiment, the method 200 begins at 202, where an order from a set of initial participants may be received, for example, at the trading server 114. Orders may be recorded internally on an order book (order book) maintained by the cross-provider 110. The order book is private and will typically not be shared with anyone outside of the provider 110. The price (if any) and quantity specified by the subscriber may be recorded along with any additional subscriber specified requirements. For example, limit order (limit order), market order (market order), and reference price order (reference price order) (i.e., midpoint of hook (midpoint) may be accepted).

In step 204, it is determined whether the crossing condition is satisfied. Step 204 may be performed whenever a match is found. Referring to FIG. 3, an exemplary method 300 of determining a crossover condition is shown. In the exemplary embodiment, method 300 begins at step 302.

At step 302, it may be determined whether the general requirements of the new order are met, i.e., whether the order matches another order in quantity. Conversely, in a public exchange, the situation where a match is considered to have occurred is limited to situations where the quote exactly matches the bid, e.g., $10 sell order and $10 buy order. In the case of a limit order, a match may also occur when the price requirements of the purchase order overlap with the price requirements of the sell order (e.g., no less than $10 sell orders and no more than $14 purchase orders). In the latter example, the transaction may be successfully executed anywhere between $10 and $ 14. Thus, the buyer typically sets an upper price limit while the seller typically sets a lower price limit. If the upper limit is greater than or equal to the lower limit, the overlap between the two prices defines the range in which the transaction can be executed.

Thus, according to an exemplary embodiment of the present invention, orders are matched based solely on the quantity requirements of the order (i.e., order volume) unless the order requirements specify otherwise (e.g., price upper or lower limits). It should be noted that matching need not specifically involve including new or previously unmatched orders. For example, the order requirements may be met by partial quantity matching, i.e., the offer amount (offer amount) does not need to be exactly equal to the bid amount (bid amount). Any remaining number may be carried over (carry over) for subsequent matching. This may occur, for example, when an order specifies a larger quantity than any combination of the initial matching orders can satisfy.

If the volume requirements for the order are not met, then the method 300 proceeds to step 304, where the order may be added to the order queue, aggregating the order with other unmatched orders (aggregates). Orders may stay in the queue indefinitely until they are matched. After adding the order to the queue, the method 300 proceeds to 202 in FIG. 2a, where a new order is received.

If the volume requirements for the order are met, then the method 300 proceeds to step 306, where the order may be added to an existing order block for subsequent execution. The method 300 then proceeds to step 308.

In step 308, it may be determined whether a threshold volume is met. The threshold volume may be the number of reservations or may be a function of the Average Daily Volume (ADV) of the stocks involved in the order. In an example embodiment, the threshold volume is a function of the 20-day ADV. The threshold volume is met if the aggregate of all matching orders involving the stock totals at least the threshold volume. In an alternate embodiment, the threshold volume may be a function of the market state of the stock. For example, a large-cap stock may require a higher threshold volume (e.g., 10,000 shares) than a small or medium value stock (e.g., 5,000 shares).

If the threshold volume is not met, then the method 300 proceeds to step 202 of FIG. 2a, where a new order is received.

If the threshold volume is met, then the method 300 proceeds to step 310, where it is determined that the intersection condition is fully met.

Returning to FIG. 2a, as indicated above, if the intersection condition is not satisfied, the method 200 returns to step 202, where additional orders may be received.

If the crossover condition is satisfied, then the method 200 proceeds to step 206, where, in response to a determination that the crossover condition is satisfied, the crossover point is selected as the NBBO midpoint and a NOx alert is broadcast to: such as immediately to all participants currently connected to the crossover network 112, such as to any input devices connected to the crossover network 112. The NOx alert indicates that the cross provider 110 is about to cross (cross) the currently matched order and invites the participant to submit additional orders in an attempt to build an existing order block. Thus, a participant interested in trading the same stock may participate in a single order rather than performing multiple smaller trades.

It should be noted that the value of NBBO does not need to be taken at the exact moment that the threshold volume is triggered. In one embodiment (FIG. 6), the value of NBBO may be taken at any time within a particular time window prior to broadcasting NOx. For example, the value of NBBO may be randomly selected within a 10 second pricing window prior to broadcasting NOx. However, any value of NBBO prior to actual order fulfillment may be taken.

In step 208, additional orders from subsequent participants may be received and matched with pre-existing and other subsequent orders. Subsequent participants may include the new participant as well as any initial participants. Orders relating to other stocks may also be received during the time additional orders are received, e.g., an order window corresponding to a time period beginning after the NOX broadcast, but are not added to the existing order queue, e.g., a separate queue may be created for each stock. It should be noted, however, that stock orders other than the stock orders involved in the existing order queue may trigger additional crossovers, for example, if the order satisfies the corresponding threshold volume of other stocks.

In step 210, the order window will remain open until a predetermined time has elapsed. In an exemplary embodiment, the length of the order window may be 10 seconds or less. In one embodiment, the length may be any value between 2 and 10 seconds, inclusive. However, it will be appreciated that the order window may vary depending on any number of factors, including but not limited to: the transmission time between the transaction server 114 and the input device 12/14/16/22/24/26, the response time of the transaction server 114, and the latency in the crossover network 112. The length may be limited by an amount of time sufficient to satisfy an automatic participant reaction (e.g., from a pre-configured transaction input device) or sufficient to satisfy a rapid manual reaction. It may also be preferred that the length is short enough to limit the possibility of manipulation by the participants, such as attempting to notify non-participants of the order block, collusion between participants, or gaming. The length may be fixed, e.g. the same for all intersections. Alternatively, the length may be adjusted, for example, dynamically in response to changes in factors (such as those described above). The method 200 then proceeds to step 212 as shown in fig. 2 b.

Referring to FIG. 2b, in step 212, it may be determined whether the midpoint value selected in step 206 has once (even) fallen within the range of the NBBO during the order window (e.g., within 10 seconds after NOx broadcast). That is, as the value of NBBO changes during the course of any given pricing window, there should be at least one instant (instant) in which the selected midpoint value is within the range of NBBO during that time period. This may enable all orders within the order block (which include the matched initial order and the matched additional orders) to be executed at the selected midpoint value while complying with federal regulations, such as the SEC's regulatory NMS. This is because the legislative NMS prohibits the execution of transactions (prints) outside the NBBO, so if the additional order is executed at the same price as the original order, the price must fall within the NBBO at some point during the time the additional order was received. It should be noted, however, that this determination is only necessary if all matched orders are to be executed at the same price (only recessary).

In an alternative embodiment, matching orders may be executed at different prices, such as at different NBBO midpoint values. The midpoint value for the matched initial order may be based on, for example, the value of NBBO taken prior to NOX broadcast, while the midpoint value for the matched additional order may be based on the value of NBBO taken after NOX broadcast. Because the matched initial order and the matched additional order are interleaved based on the value of the individual NBBO, they can be executed at different prices without violating the regulatory NMS. Thus, the determination in step 212 may be unnecessary in this alternative embodiment.

If the selected midpoint value is within the range of NBBO, the method then proceeds to step 214, where an allocation may be performed between the initial participants. The allocation may involve allocating the total number of available shares (available shares) of the stock in the platform between the initial participants. In an example embodiment, the initial participant may be allocated a proportional amount based on the relative contribution of each participant to the total available shares contained in the matched initial order. As an illustrative example, when demand (e.g., purchase interest) exceeds the total number of shares available for purchase, each buyer may receive a portion of the total available shares such that the portion of the buyer is equal to the ratio of the number of shares the buyer subscribes to relative to the total number of shares offered for purchase in the matched initial order. Similarly, when the offer (e.g., selling interest) exceeds the total number of shares purchased, each seller will receive rights (right) to sell a portion of the total number of shares purchased, such that the portion of the seller equals the ratio of the number of shares that the seller offers to sell (offer to sell) relative to the total number of shares offered for sale in the matched initial order.

In step 216, the allocation may be performed between subsequent participants (e.g., participants joined after the NOX broadcast) in a similar manner as the allocation between the initial participants. That is, the buyer may receive rights to purchase a portion equal to the ratio of the number of shares the buyer subscribes to relative to the total number of shares offered for purchase in the matched additional order, while the seller may receive rights to sell a portion equal to the ratio of the number of shares the seller is about to sell relative to the total number of shares offered for sale in the matched additional order. It should be noted that if a single participant enters multiple orders at different times (e.g., before or after NOX broadcasts), that participant can be considered both an initial participant and a subsequent participant. This may also occur in the remaining orders.

Because the allocation is performed between the initial participants prior to the allocation between the subsequent participants, the initial participants are guaranteed relative shares of their order blocks over the subsequent participants. Subsequent participants may then receive their relative shares in the remainder of the order block. As indicated above, the initial participant (which is also the subsequent participant) may be treated the same as any other subsequent participant in step 216. Further, if any partial number of matching (e.g., remaining) orders from the initial participant are carried forward into the matched additional orders, the unmatched portions of the matched initial orders will be treated the same as the additional orders.

It should be noted that the allocation between the initial participants may be performed at any time after the value of NBBO is taken. Thus, in an alternative embodiment, the allocation between the initial participants may occur before the NOX is broadcast.

In step 218, the requirements for each order in the order queue may be rechecked to ensure that the requirements for each order are met, e.g., if not already met. This allows for the possibility of order requirements based on total volume or participation. For example, a participant may specify that they do not desire to participate if their order represents a certain percentage (e.g., 10%) of the total volume of the final print order (finalprint). Participants may also specify whether they wish to be the only party on one side, such as "participating-but not initiating," or whether they need to be multiple parties on the opposite side. It may happen that such order requirements are not met initially, but are met when additional orders are subsequently added. As an illustrative example, if the seller is the only seller, the seller requirements do not represent a requirement that exceeds 10% of the final print order cannot be met initially. However, when additional orders occur, the fraction of sellers in the total volume may fall below 10% to satisfy the order requirements. After reviewing the orders, any orders whose requirements are not met may be removed from the order queue.

At step 220, it may be determined whether there are any newly satisfied order requirements based on the results of the recheck of step 218. If there are newly satisfied order requirements, method 200 returns to 216 where the allocation is performed among subsequent participants that now include the order(s) having the newly satisfied requirements. If there are no newly satisfied order requirements, the method 200 proceeds to step 222.

In step 222, the trade is performed by crossing each trade corresponding to the allocated shares of each matched order at the midpoint of the value of NBBO taken in step 206. This is applied to the initial participant and the subsequent participants. Thus, between matched orders, all shares will be bought and sold at the midpoint regardless of the sell/buy spread (ask/bid spread), if any. Further, the execution is fair for all participants, since the entire order block is executed at the same price (i.e., NBBO midpoint).

The transaction may be executed as a single block of orders. The order block may be broadcast within the crossover network 112 in a similar manner as a public print (publishprint), for example, by displaying the name or symbol of the stock, the total number of shares in the order block, and the execution time. Since the matched initial order and the matched additional order occur at separate times, two printed sheets may occur although the order is processed as a single piece. The print order may be visible to the general public as in conventional cross-networks. Bookkeeping may be performed by adjusting the participant's account balance to reflect the transaction that has been performed. The cross provider 110 may charge a commission based on the total cost of each transaction, e.g., the cross provider 110 may receive a fixed percentage of each transaction. Alternatively, a flat-rate commission may be levied. As an incentive for future participants to initiate transactions, the initial participant may be charged a smaller commission than the subsequent participants.

If the selected midpoint during the order window is never within the NBBO range, the method 200 proceeds to step 224, where an allocation may be performed between the initial participants, for example, using the method described in 214. The method 200 then proceeds to step 226 where only the matched initial order is executed as part of the order block prior to performing bookkeeping.

Fig. 4 and 5 illustrate examples of transactions according to example embodiments of the invention. In fig. 4, a table is shown that includes a participant column 60, a offer or activity column 62, and a results column 66. For illustrative purposes, only one company's stocks are involved in the orders shown in FIGS. 4 and 5 and the threshold volume is 10,000 shares.

In row 30, participant a underwritten 1,000 shares. The purchase order is queued.

In row 31, participant B underwent 3,000 shares. The purchase order is queued.

In row 32, participant D is about to sell 3,500 shares. The sell order matches the buy order in 30 and 31 and the orders in 30 to 32 are added to the order block.

In row 33, participant E is about to sell 9,500 shares. The sell order matches the purchase orders in 30 and 31 and is added to the order block because 500 shares remain to be purchased.

In row 34, participant C underwritten 6,000 shares. The purchase order is matched with the sell order in 32 and 33 and added to the order block.

In line 35, the volume trigger is activated because the threshold volume has been reached (at least 10,000 shares have been matched). Participants A, B, D, E and C may now be considered initial participants.

In line 36, NBBO midpoints are captured randomly, for example, within a 10 second window after activation of the volume trigger.

In row 37, NOX is broadcast to all participants in the crossing network.

As described above, the allocation between the initial participants may occur at any time after the value of NBBO is taken. Thus, the allocation between the initial participants may be performed after the NOX broadcast, such as immediately prior to the allocation between subsequent participants. However, for ease of discussion, and also to illustrate how the remaining orders may be carried forward into additional orders, before proceeding, the results of the allocation between initial participants A, B, D, E and C will now be discussed.

In orders 30-34, a total of 10,000 shares are available for purchase, based on a total demand of 10,000 and a total supply of 13,000. Thus, the excess of 3,000 supplies will be transferred to the remaining sales orders. Participants A, B and C each purchased their full order volume. And participant D sells 2,700 based on the scaled ratio 3,500/13,000. Participant E sells 7,300 based on the scaled ratio 9,500/13,500. This proportional allocation may vary in implementation, for example, based on how rounding (rounding) or approximation is performed for fractional shares. In this case, participant D would have a remaining sell order of 800 and participant E would have a remaining sell order of 2,200.

In line 38, the remaining sell orders for participant D's 800 are grouped with additional orders, which may be performed by, for example, adding the remaining orders for D to the order queue.

In line 39, the remaining sell orders of 2,200 for participant E are grouped with additional orders, which may be performed by, for example, adding the remaining orders of E to the order queue.

In line 40, participant F underwritten 5,000. The purchase order matches the remaining sell orders of 38 and 39, and the orders of 38 through 40 are added to the order block.

In row 41, participant G is about to sell 10,000. The sell order is matched with the purchase order in 40 and added to the order block. At this point, the order window closes such that participants D, E, F and G are considered subsequent participants.

Now follows the allocation between subsequent participants. In order 38-41, a total of 5,000 shares are available for purchase, based on a total demand of 5,000 and a total supply of 13,000. Participant F purchased 5,000. And participant D is sold 300 based on the scaled ratio 800/13,000. Participant E sold 900 based on the scaled ratio 2,200/13,500 and participant G sold 3,800 based on the scaled ratio 10,000/13,500.

FIG. 5 shows an example of how the present invention may support a limit order. In fig. 5, a table is shown that includes a participant column 60, a offer or activity column 62, a price upper/lower limit column 64, and a results column 66.

In row 42, participant D is about to sell 2,000 shares. The sell order is queued.

In row 43, participant a underwritten 11,000 shares. The purchase order matches the sell order in 42 and the orders in 42 and 43 are added to the order block.

In row 44, participant E is about to sell 5,000 shares. The sell order is a limit order specifying a lower limit of $12, which matches the purchase order in 43, and is added to the order block.

In row 45, participant G is about to sell 3,000 shares. The sell order is a limit order specifying a lower limit of $11, which matches the purchase order in 43, and is added to the order block.

In line 46, the volume trigger is activated because the threshold volume has been reached (at least 10,000 shares have been matched). Participants D, A, E and G may be considered initial participants.

In row 47, NBBO midpoints are captured randomly, for example, within a 10 second window after activation of the volume trigger.

In row 48, NOX is broadcast to all participants in the crossover network.

In orders 42-45, a total of 10,000 shares are available for purchase based on a total demand of 11,000 and a total supply of 10,000. Thus, the excess of 1,000 demand will be carried over to the remaining purchase orders. Participant D sells all of his order volume. Assuming that the lower price limits in 44 and 45 are at or below the NBBO midpoint, participants E and G also sell their full order volume. Participant a purchased 10,000 and had 1,000 remaining purchase orders.

In line 49, participant A's 1,000 remaining purchase orders are grouped with additional orders, e.g., added to the order queue.

In row 50, participant D is about to sell 2,000. The sell order is a limit order specifying a lower limit of $10 that matches the purchase order in 49, so the orders in 49 and 50 are added to the order block.

In row 51, participant H is about to sell 5,000. The sell order is a limit order specifying a lower limit of $ 13. Assuming participant H has a lower price limit of $13 above the NBBO midpoint determined in 47, the sales order for H will be queued instead of being added to the order block. In this way it can be made available for subsequent matching and placement in different order blocks.

In row 52, participant B underwent 6,000. The purchase order is a limit order specifying an upper limit of $11, which matches the sell order in 50, and is added to the order block.

In line 53, participant I is about to sell 2,000. The sell order is matched with the purchase order in 49 and 52 and added to the order block. At this point, the order window closes so that participants A, D, H, B and I are considered subsequent participants.

Now follows the allocation between subsequent participants. In orders 49-53, a total of 4,000 shares are available for purchase based on a total demand of 7,000 and a total supply of 4,000. Assuming the lower price limit in 50 is at or below the NBBO midpoint, then participant D sells its full order volume. Participant I also sells all of his order volume. And participant a purchases 600 based on the scaled ratio 1,000/7,000. Assuming the upper price limit in 52 is at or above the NBBO midpoint, participant B purchases 3,400 based on the scaled ratio 6,000/7,000.

Fig. 6 shows a time chart of the above-described transaction with reference to fig. 4. In the order accumulation phase, matching buy and sell orders accumulate until both reach a threshold volume of 10,000, at which point a volume trigger is activated. During the order accumulation phase, the value of NBBO changes based on public information, starting at bid/offer 8.72/8.74 and ending at bid/offer 8.74/8.76.

The volume trigger signals the start of the pricing window phase, where the value of NBBO is randomly selected within a 10 second window. As shown in FIG. 6, the selected midpoint is based on the captured value of 8.77/8.81 and is equal to $ 8.79. At the end of the pricing window phase, NOX is broadcast (shown as a "Block match alarm") signaling the beginning of the Block setup phase. NBBO continues to change during the pricing window phase.

In the block build phase, the additional orders matched are accumulated during the 10 second order window. At the end of the order window, it is determined that the selected midpoint price $8.79 falls within the NBBO range at least once during the order window, because at some point during the order window, the value of NBBO is 8.79/8.81. After this determination, the matched initial order (i.e., the order from the order accumulation phase) is executed with the matched additional order from the block build phase. Two print slips appeared listing the volume of 10,000 and 5000 shares, both at a midpoint price of $ 8.79.

The allocation occurs in an allocation phase that produces the same result shown in the allocation results column 66 of fig. 4.

In the foregoing specification, the invention has been described with reference to specific exemplary embodiments thereof. However, various modifications and changes may be made without departing from the broader spirit and scope of the invention as set forth in the claims that follow. The embodiments described herein may be presented in combination with each other in various combinations. The specification and drawings are, accordingly, to be regarded in an illustrative rather than a restrictive sense.

Claims (24)

1. A method of a security transaction facilitator, comprising:

a processor located at the central computer:

receiving an initial order to purchase and sell a security from at least a subset of a plurality of system participants;

matching at least a subset of the initial purchase orders with at least a subset of the initial sell orders based at least on quantity; and

forming at least a subset of the order blocks in the matched order;

in response to reaching a threshold volume of matched orders, the central computer broadcasting a cross-notification (NOx) alert to each of the plurality of participants, the NOx alert indicating a start of a time window during which further matched orders to purchase and sell a quantity of securities may exist for inclusion in the order block; and

at the end of the time window, the order block is executed.

2. The method of claim 1, wherein the order block is executed at a midpoint price of a nationally best bid and a nationally best bid price (NBBO).

3. The method of claim 2, wherein the midpoint price is calculated from a value of NBBO captured after a threshold volume is reached and before NOX broadcasting.

4. The method of claim 3 wherein further matched orders are contained within an order block only if the calculated midpoint price is within the range of NBBO at any time during the time window.

5. The method of claim 1, further comprising:

for each matched initial sell order, the processor assigning a percentage of the lesser of the total number of shares of the matched initial sell order and the total number of shares of the matched initial purchase order to the matched initial sell order, the percentage being approximately equal to the ratio of the number of shares of the matched initial sell order to the total number of shares of the matched initial sell order; and

for each of the matched initial purchase orders, the processor assigns a percentage of the lesser of the total number of shares of the matched initial sell order and the total number of shares of the matched initial purchase order to the matched initial purchase order, the percentage being approximately equal to a ratio of the number of shares of the matched initial purchase order and the total number of shares of the matched initial purchase order.

6. The method of claim 1, further comprising:

for each matched further sell order, the processor assigning to the matched further sell order a percentage of the lesser of the total number of shares of the matched further sell order and the total number of shares of the matched further purchase order, the percentage being approximately equal to the ratio of the number of shares of the matched further sell order and the total number of shares of the matched further sell order; and

for each matched further purchase order, the processor assigning a percentage of the lesser of the total number of shares of the matched further sell order and the total number of shares of the matched further purchase order to the matched further purchase order, the percentage being approximately equal to a ratio of the number of shares of the matched further purchase order and the total number of shares of the matched further purchase order;

wherein the remainder of the matched initial purchase order and the matched initial sell order are processed as a further purchase order and a further sell order, respectively.

7. The method of claim 1, wherein the threshold volume is determined as a function of an Average Daily Volume (ADV) of the security.

8. The method of claim 7, wherein the threshold volume is a function of the twenty-day ADV of the security.

9. The method of claim 1, wherein the threshold volume is determined as a function of a market state of the security.

10. The method of claim 1, wherein the length of the time window is less than 10 seconds.

11. The method of claim 1, wherein the length of the time window ranges from 2 to 10 seconds.

12. A system for conducting computer-assisted transactions, comprising:

a central computer configured to:

receiving an initial order to purchase and sell a security from at least a subset of a plurality of system participants;

matching at least a subset of the initial purchase orders with at least a subset of the initial sell orders based at least on quantity;

forming at least a subset of the order blocks in the matched order;

broadcasting a cross-notification (NOx) alert to each of the plurality of participants in response to reaching a threshold volume of matched orders, the NOx alert indicating a start of a time window during which further matched orders to purchase and sell a quantity of securities may exist for inclusion in the order block; and at the end of the time window, executing the order block.

13. The system of claim 12, wherein the central computer is configured to execute the order block at a midpoint price of a national best bid and a national best bid price (NBBO).

14. The system of claim 13, wherein the midpoint price is calculated from a value of NBBO captured after a threshold volume is reached and before NOX broadcasting.

15. The system of claim 14, wherein further matched orders are contained within an order block only if the calculated midpoint price is within the range of NBBO at any time during the time window.

16. The system of claim 12, wherein the central computer is configured to:

for each matched initial sell order, assigning to the matched initial sell order a percentage of the lesser of the total number of shares of the matched initial sell order and the total number of shares of the matched initial purchase order, said percentage being approximately equal to the ratio of the number of shares of the matched initial sell order to the total number of shares of the matched initial sell order; and

for each matched initial purchase order, assigning a percentage of the lesser of the total number of shares of the matched initial sell order and the total number of shares of the matched initial purchase order to the matched initial purchase order, the percentage approximately equal to a ratio of the number of shares of the matched initial purchase order to the total number of shares of the matched initial purchase order.

17. The system of claim 12, wherein the central computer is configured to:

for each matched further sell order, assigning to the matched further sell order a percentage of the lesser of the total number of shares of the matched further sell order and the total number of shares of the matched further purchase order, the percentage being approximately equal to the ratio of the number of shares of the matched further sell order and the total number of shares of the matched further sell order; and

for each matched further purchase order, assigning a percentage of the lesser of the total number of shares of the matched further sell order and the total number of shares of the matched further purchase order to the matched further purchase order, the percentage being approximately equal to a ratio of the number of shares of the matched further purchase order and the total number of shares of the matched further purchase order;

wherein the remainder of the matched initial purchase order and the matched initial sell order are processed as a further purchase order and a further sell order, respectively.

18. The system of claim 12, wherein the threshold volume is determined as a function of an Average Daily Volume (ADV) of the security.

19. The system of claim 18, wherein the threshold volume is a function of the twenty-day ADV of the security.

20. The system of claim 12, wherein the threshold volume is determined as a function of a market state of the security.

21. The system of claim 12, wherein the length of the time window is less than 10 seconds.

22. The system of claim 12, wherein the length of the time window ranges from 2 to 10 seconds.

23. A method of a security transaction facilitator, comprising:

matching, by a processor at a central computer, the received purchase order and the received sell order with respect to the securities, wherein the matched orders form an order block; and the number of the first and second groups,

in response to reaching a threshold volume for matched orders, the central computer broadcasts a cross-notification (NOx) alert indicating the start of a time window during which further matched orders to purchase and sell a quantity of securities may exist for inclusion in the order block.

24. A hardware-implemented computer-readable storage medium having stored thereon a series of instructions executable by a processor of a security transaction assistant, the instructions, when executed, cause the processor to perform a method comprising:

receiving an initial order to purchase and sell a security from at least a subset of a plurality of system participants;

matching at least a subset of the initial purchase orders with at least a subset of the initial sell orders based at least on quantity;

forming at least a subset of order blocks in the matched order;

broadcasting a cross-notification (NOx) alert to each of the plurality of participants in response to reaching a threshold volume of matched orders, the NOx alert indicating a start of a time window during which further matched orders to purchase and sell a quantity of securities may exist for inclusion in the order block; and

at the end of the time window, the order block is executed.