Method and system for obtaining a discovered price

• US 20070112693A1
• Filed: 12/29/2006
• Published: 05/17/2007
• Est. Priority Date: 02/02/2000
• Status: Abandoned Application

• Current Assignee: ITG Software Solutions, Inc. (Virtu Financial, Inc.)
• Original Assignee: ITG Software Solutions, Inc. (Virtu Financial, Inc.)
• Inventors: Cushing, Daivd
• Application Number:
  US11/647,130
• Publication Number:
  US 20070112693A1
• Time in Patent Office: Days
• US Class Current: 705/400
• CPC Class Codes: G06Q 30/0283 Price estimation or determination
• CPC Class Codes: G06Q 30/08 Auctions
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A method and system for determining an optimal price at which to perform a batch auction of financial assets. Orders, according to a variety of predetermined order types, are received from qualified market participants and communicated to an auction system according to the invention. The auction system takes into account each order and its impact upon relative supply and demand to determine by a preset algorithm an optimal price and share transaction quantity. The optimal price is selected by identifying a particular price at which trade volume would be maximized and which reflects the appropriate effect of supply and demand imbalances. Trades are executed at the optimal price, and portions of the transaction quantity are allocated to each investor on a fair basis dependent upon their submitted orders. In another aspect, the auction system includes a computer system and network designed to automatically perform one or more steps of the above method. Such a system is preferably connected to one or more ECNs such that non-executed shares can be automatically sent to outside sources for execution, and connected to real time quote services to obtain current market information.

Claims

1. A method for identifying a price at which to conduct a batch auction of a financial asset, comprising the steps of:

accepting a plurality of order requests from a plurality of sources, said order requests containing orders representing a desire to trade the financial asset within certain order parameters, a portion of said orders optionally containing a desired order parameter;

selecting the price at which to trade the asset by examining said priced portion of said orders, including determining from said priced portion of said orders whether there exists a single price at which a maximum number of shares of said asset will be traded, and, if so, selecting said single price as a selected price,

if there does not exist such a single price, calculating an imbalance ratio of purchase requests of said asset to sale requests of said asset, and determining the selected price based on the result of a comparison of said imbalance ratio to a predetermined reference value;

exchanging a number of shares of the asset at the selected price; and

allocating said number of shares among said order requests.

2. The method for identifying a price at which to conduct a batch auction of a financial asset according to claim 1, wherein said number of shares is a maximum number of shares which can be exchanged based upon said order requests.

5. The method for identifying a price at which to conduct a batch auction of a financial asset according to claim 1, wherein said order parameters include a trade side, a security identifier, a price, and a quantity of shares.

6. The method for identifying a price at which to conduct a batch auction of a financial asset according to claim 1, wherein said orders have order types selected from the group consisting of unpriced orders, cross orders, and priced orders.

3-4. -4. (canceled)

7-10. -10. (canceled)

11. A computerized system for identifying a price at which to conduct a batch auction of an asset, comprising:

a computerized network having one or more computers in electronic communication with each other;

an order receiving program running on one or more of said computers, wherein said receiving program is designed to receive a plurality of messages containing orders from one or more qualified participants;

an order book database located on one or more of said computers, wherein said order book database communicates with said order receiving program and stores each of said orders received by said receiving program;

a price selection program running on one or more of said computers, wherein said price selection program refers to said order book database and calculates a selected price at which to transact a maximum number of shares of the security during the batch auction;

a batch auction execution program running on one or more of said computers, wherein said execution program executes the batch auction of said maximum number of shares of the security at a given execution time at said selected price, and allocates said maximum number of shares of the security among said accepted orders according to a predetermined criterion.

12. The computerized system according to claim 11, further comprising a notification program running on one or more of said computers, wherein said notification program notifies said qualified participants of results of said auction execution program.

13. The computerized system according to claim 11, wherein said messages can contain order types selected from the group consisting of unpriced orders, cross orders, and priced orders.

14. The computerized system according to claim 11, further comprising an electronic connection for forwarding unexecuted orders to outside markets.

15. The computerized system according to claim 11, further comprising communication connections whereby said qualified participants may remotely submit said messages to said order receiving program electronically.

16. The computerized system according to claim 15, wherein said qualified participants receive said results of the batch auction electronically from said notification program.

18. The computerized system according to claim 11, wherein said price selection program identifies said single price according to a price discovery algorithm and a reference price algorithm.

20. The computerized system according to claim 11, further comprising an electronic connection to an external data source, said data source providing market information regarding the asset.

17. (canceled)

19. (canceled)

21. A method for conducting a security batch auction cycle for an asset at a single price, said auction cycle having an order acceptance period, a price discovery period, and an order execution period, said method comprising the steps of:

during said order acceptance period, accepting requests to enter auction orders into an order book;

during said price discovery period, determining whether said orders will intersect,

if said orders intersect, identifying one or more prices at which the batch auction cycle would produce a maximum number of executed shares, selecting one of said one or more prices as an optimal price, and setting said optimal price as the single price;

or

if said orders do not intersect, selecting a reference price, and setting said reference price as the single price; and

during said order execution period, executing a trade of said maximum number of shares at said optimal price, and allocating said executed maximum number of shares among the orders according to a predetermined criterion.