Automated system for routing orders for financial instruments based upon undisclosed liquidity

• US 20040143538A1
• Filed: 01/21/2003
• Published: 07/22/2004
• Est. Priority Date: 01/21/2003
• Status: Active Grant

• Current Assignee: LavaFlow Inc (Citigroup Incorporated)
• Original Assignee: LavaFlow Inc (Citigroup Incorporated)
• Inventors: Wright, Peter J., Rafieyan, Kamran L., Korhammer, Richard A., Chutjian, Keith P.
• Granted Patent: US 7,693,775 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A computerized system and method for placing orders for financial instruments with an exchange or alternative trading system is provided. In accordance with this embodiment, updated order book information is received from each of a plurality of trade execution entities. An order for a first financial instrument of the plurality of financial instruments is received from a first user. The order includes a first price per unit component, and a first unit quantity. The first unit quantity includes a disclosed liquidity quantity and an undisclosed liquidity quantity. The order, including the disclosed liquidity quantity and the undisclosed liquidity quantity, is sent to a first one of the plurality of trade execution entities for execution. A reciprocal order for the first financial instrument that does not require that the trade execution entity be the first one of the trade execution entities is received from a second user. The reciprocal order includes a second price per unit component, and a second unit quantity, and the first and second price per unit components have overlapping values. As a function of (1) the price per unit value and the disclosed liquidity quantity for the first financial instrument in the updated order book information, and (2) the first price per unit component and the first undisclosed liquidity quantity, the reciprocal order is sent to one of the plurality of trade execution entities.

Claims

1. A computerized method for placing orders for financial instruments with an exchange or alternative trading system, comprising:

(a) receiving updated order book information from each of a plurality of trade execution entities, the updated order book information including, for each of a plurality of financial instruments, a current bid price with a corresponding disclosed liquidity quantity and a current offer price with a corresponding disclosed liquidity quantity;

(b) receiving, from a first user, an order for a first financial instrument of the plurality of financial instruments, the order including a first price per unit component, and a first unit quantity, the first unit quantity including a disclosed liquidity quantity and an undisclosed liquidity quantity;

(c) sending the order, including the disclosed liquidity quantity and the undisclosed liquidity quantity, to a first one of the plurality of trade execution entities for execution;

(d) receiving, from a second user, a reciprocal order for the first financial instrument that does not require that the trade execution entity be the first one of the trade execution entities, the reciprocal order including a second price per unit component, and a second unit quantity, the first and second price per unit components having overlapping values;

(e) as a function of (1) the price per unit value and the disclosed liquidity quantity for the first financial instrument in the updated order book information, and (2) the first price per unit component and the first undisclosed liquidity quantity, sending the reciprocal order to one of the plurality of trade execution entities.

2. The method of claim 1, wherein, in step (e), the reciprocal order is sent to one of the plurality of trade execution entities as a function of (1) the price per unit value and the disclosed liquidity quantity for the first financial instrument in the updated order book information, and (2) the first price per unit component, the first disclosed liquidity quantity and the first undisclosed liquidity quantity.

3. The method of claim 1, wherein, if the order is a bid, the reciprocal order is an offer, and if the order is an offer, the reciprocal order is a bid.

4. The method of claim 1, wherein the plurality of trade execution entities include ECNs.

5. The method of claim 1, wherein the plurality of trade execution entities include ECNs, exchanges, and broker-dealers.

6. The method of claim 1, wherein the plurality of trade execution entities include ECNs and broker-dealers and wherein each of the order and the reciprocal order includes a routing designation, and wherein each routing designation designates i) one of the ECNs in the plurality of trade execution entities as the one of the plurality of trade execution entities that the order is to be sent to;

ii) one of the market makers in the plurality of trade execution entities as the one of the plurality of trade execution entities that the order is to be sent to;

or iii) any one of the ECNs and market makers as possibly the one of the plurality of trade execution entities that the order is to be sent to.

7. The method of claim 1, wherein the order is entered by the first user via a graphical user interface.

8. The method of claim 7, wherein the reciprocal order is entered by the second user via a graphical user interface.

9. The method of claim 1, wherein at least one of the order and the reciprocal order are entered via a user interface.

10. The method of claim 1, wherein at least one of the order and the reciprocal order are not entered via a user interface.

11. The method of claim 1, wherein step (e) comprises,

(1) if the order is a bid, and the reciprocal order is an offer,

(i) select a highest bid for the first financial instrument, based upon the price per unit value of the bid of the order and the price per unit value of each of the bids for the first financial instrument in the order book information;

(ii) select an order quantity for the highest bid which is the lesser of the order quantity of the reciprocal order and

     1) if the highest bid is the order, a sum of the disclosed liquidity value and the undisclosed liquidity value; and

     2) if the highest bid is one of the bids for the first financial instrument in the order book information, the disclosed liquidity value for the bid;

(iii) repeat steps 1(i) and 1(ii) for a next highest bid until a sum of the selected order quantities is equal to the order quantity of the reciprocal order; and

(2) for each selected bid, send a corresponding order specifying the selected order quantity to the one of the plurality of trade execution entities associated with the selected bid;

(3) if the order is an offer, and the reciprocal is a bid

(i) select a lowest offer for the financial instrument, based upon the price per unit value of the offer of the order and the price per unit value of each of the offers for the financial instrument in the order book information;

(ii) select an order quantity for the lowest offer which is the lesser of the order quantity of the reciprocal order and

     1) if the lowest offer is the order, a sum of the disclosed liquidity value and the undisclosed liquidity value; and

     2) if the lowest offer is one of the offers for the financial instrument in the order book information, the disclosed liquidity value for the offer;

(iii) repeat steps 3(i) and 3(ii) for a next lowest offer until a sum of the selected order quantities is equal to the order quantity of the reciprocal order; and

(4) for each selected offer, send a corresponding order specifying the selected order quantity to the one of the plurality of trade execution entities associated with the selected offer.

12. The method of claim 11, wherein

step 1(iii) further comprises updating the order book information and the corresponding price per unit value of each of the bids for the first financial instruments in the order book information, and selecting the next highest bid based upon the updated price per unit values;

and

step 3(iii) further comprises updating the order book information and the corresponding price per unit value of each of the offers for the first financial instruments in the order book information, and selecting the next lowest offer based upon the updated price per unit values.

13. The method of claim 11, wherein the broker-dealers include market makers.

14. A method for processing and routing orders for financial instruments to a plurality of trade execution entities, comprising:

(a) receiving a first order from a first user, the first order being one of a bid for a financial instrument and an offer for the financial instrument, the first order including a price per unit value for the financial instrument and an order quantity for the financial instrument, the order quantity including a disclosed liquidity value and an undisclosed liquidity value;

(b) transmitting the first order, including the disclosed liquidity value and the undisclosed liquidity value to one of the plurality of trade execution entities;

(c) receiving, from each of the plurality of trade execution entities, updated order book information, the updated order book information including bids and offers for the financial instrument, each bid and each offer including respective price per unit values and respective disclosed liquidity values;

(d) if the first order is a bid, and a second order is received which includes an offer for the financial instrument at an overlapping price per unit value, which does not require any particular one of the plurality of trade execution entities, and which includes a respective order quantity,

(i) select a highest bid for the financial instrument, based upon the price per unit value of the offer of the second order and the price per unit value of each of the bids for the financial instrument in the order books;

(ii) select an order quantity for the highest bid which is the lesser of the order quantity of the second order and

     1) if the highest bid is the first order, a sum of the disclosed liquidity value and the undisclosed liquidity value; and

     2) if the highest bid is one of the bids for the financial instrument in the order books, the disclosed liquidity value for the bid;

(iii) repeat steps d(i) and d(ii) for a next highest bid until a sum of the selected order quantities is equal to the order quantity of the second order; and

(e) for each selected bid, send a corresponding order specifying the selected order quantity to the one of the plurality of trade execution entities associated with the selected bid;

(f) if the first order is an offer, and a second order is received which includes a bid for the financial instrument at an overlapping price per unit value, which does not require any particular one of the plurality of trade execution entities, and which includes a respective order quantity,

(i) select a lowest offer for the financial instrument, based upon the price per unit value of the bid of the second order and the price per unit value of each of the offers for the financial instrument in the order books;

(ii) select an order quantity for the lowest offer which is the lesser of the order quantity of the second order and

     1) if the lowest offer is the first order, a sum of the disclosed liquidity value and the undisclosed liquidity value; and

     2) if the lowest offer is one of the offers for the financial instrument in the order books, the disclosed liquidity value for the offer;

(iii) repeat steps f(i) and f(ii) for a next lowest offer until a sum of the selected order quantities is equal to the order quantity of the second order; and

(g) for each selected offer, send a corresponding order specifying the selected order quantity to the one of the plurality of trade execution entities associated with the selected offer.

15. Computer readable media, having stored thereon, computer executable process steps operable to control a computer to perform steps comprising:

(a) receiving updated order book information from each of a plurality of trade execution entities, the updated order book information including, for each of a plurality of financial instruments, a current bid price with a corresponding disclosed liquidity quantity and a current offer price with a corresponding disclosed liquidity quantity;

(b) receiving, from a first user, an order for a first financial instrument of the plurality of financial instruments, the order including a first price per unit component, and a first unit quantity, the first unit quantity including a disclosed liquidity quantity and an undisclosed liquidity quantity;

(c) sending the order, including the disclosed liquidity quantity and the undisclosed liquidity quantity, to a first one of the plurality of trade execution entities for execution;

(d) receiving, from a second user, a reciprocal order for the first financial instrument that does not require that the trade execution entity be the first one of the trade execution entities, the reciprocal order including a second price per unit component, and a second unit quantity, the first and second price per unit components having overlapping values;

(e) as a function of (1) the price per unit value and the disclosed liquidity quantity for the first financial instrument in the updated order book information, and (2) the first price per unit component and the first undisclosed liquidity quantity, sending the reciprocal order to one of the plurality of trade execution entities.

16. A computer system comprising one or more processors, the one or more processors configured to receive updated order book information from each of a plurality of trade execution entities, the updated order book information including, for each of a plurality of financial instruments, a current bid price with a corresponding disclosed liquidity quantity and a current offer price with a corresponding disclosed liquidity quantity;

receive, from a first user, an order for a first financial instrument of the plurality of financial instruments, the order including a first price per unit component, and a first unit quantity, the first unit quantity including a disclosed liquidity quantity and an undisclosed liquidity quantity;

send the order, including the disclosed liquidity quantity and the undisclosed liquidity quantity, to a first one of the plurality of trade execution entities for execution;

receive, from a second user, a reciprocal order for the first financial instrument that does not require that the trade execution entity be the first one of the trade execution entities, the reciprocal order including a second price per unit component, and a second unit quantity, the first and second price per unit components having overlapping values; and

as a function of (1) the price per unit value and the disclosed liquidity quantity for the first financial instrument in the updated order book information, and (2) the first price per unit component and the first undisclosed liquidity quantity, send the reciprocal order to one of the plurality of trade execution entities.

17. A computer system comprising:

a market data server, the market data server receiving order book information for a plurality of trade execution entities;

an order server, the order server configured to receive, from one or more users, orders for one or more of a plurality of financial instruments, at least some of the orders including a disclosed liquidity value and an undisclosed liquidity value, the order server receiving order book information for the plurality of trade execution entities from the market data server;

the order server routing each received order to one of the plurality of trade execution entities as a function of the order book information, and the undisclosed liquidity values of other ones of the received orders.

18. The computer system of claim 17, wherein the order server includes a plurality of order servers and the one or more users include a plurality of users, each of the plurality of order servers receiving orders from a subset of the plurality of users, each of the plurality of order servers transmitting the undisclosed liquidity values of its received orders to the market data server, the market data server transmitting the undisclosed liquidity values it receives to each of the plurality of order servers.

19. The computer system of claim 18, wherein the undisclosed liquidity values are transmitted to the market data server via a gateway server.

20. The computer system of claim 17, wherein the market data server receives the order book information from the plurality of trade execution entities.

21. The computer system of claim 17, further comprising a corresponding client computer for each of the one or more users, the orders being transmitted to the order server from the corresponding client computers.

22. The system of claim 18, wherein the market data server generates a consolidated order book including order book information and the undisclosed liquidity values, and the market data server transmits the consolidated order book to each order server.

23. A method for routing an order for a financial instrument to one of a plurality of trade execution entities, comprising:

maintaining information regarding disclosed liquidity and undisclosed liquidity for a plurality of financial instruments;

receiving an order for one of the plurality of financial instruments, the order not requiring routing to any particular one of the plurality of trade execution entities;

sending the order to one of the plurality of trade execution entities as a function of the disclosed liquidity information and undisclosed liquidity information for the one of the plurality of financial instruments.

24. A computerized method for placing orders for financial instruments with an exchange or alternative trading system, comprising:

(a) receiving updated order book information from each of a plurality of trade execution entities, the updated order book information including, for each of a plurality of financial instruments, a current bid price with a corresponding disclosed liquidity quantity and a current offer price with a corresponding disclosed liquidity quantity;

(b) receiving, from a first user, an order for a first financial instrument of the plurality of financial instruments, the order including a first price per unit component, and a first unit quantity, the first unit quantity including a disclosed liquidity quantity and an undisclosed liquidity quantity;

(c) sending a first sub-order, based upon the order, and including the first price per unit component and the disclosed liquidity quantity and not including the undisclosed liquidity quantity, to a first one of the plurality of trade execution entities for execution;

(d) receiving, from a second user, a reciprocal order for the first financial instrument that does not require that the trade execution entity be the first one of the trade execution entities, the reciprocal order including a second price per unit component, and a second unit quantity, the first and second price per unit components having overlapping values;

(e) as a function of (1) the price per unit value and the disclosed liquidity quantity for the first financial instrument in the updated order book information, and (2) the first price per unit component and the first undisclosed liquidity quantity, identifying a target one of the trade execution entities to which the reciprocal order is to be sent;

(f) if the target one of the trade execution entities is the first one of the trade execution entities, sending a second sub-order, including the first price per unit component and a second disclosed liquidity quantity equal to at least a portion of the undisclosed liquidity quantity to the target one of the trade execution entities; and

then sending the reciprocal order to the target one of the trade execution entities.

(g) if the target one of the trade execution entities is not the first one of the trade execution entities, sending the reciprocal order to the target one of the trade execution entities.