Transaction system for employee stock options and other compensation programs

• US 20080133393A1
• Filed: 12/01/2006
• Published: 06/05/2008
• Est. Priority Date: 12/01/2006
• Status: Abandoned Application

• Current Assignee: Morgan Stanley
• Original Assignee: Morgan Stanley
• Inventors: Arnold, Caroline L., Guo, Yimei, Kovel, Chris, Sargison, Andrew, Madhavan, Raghavachari, Johnson-Laird, Ben, Riehl, Lynn M.
• Application Number:
  US11/607,552
• Publication Number:
  US 20080133393A1
• Time in Patent Office: Days
• US Class Current: 705/37
• 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
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

Systems and methods of selling employee stock options (ESOs) and other compensation instruments. The method may comprise the steps of receiving a sale order for the employee stock options from a seller, where the sale order indicates the price of the employee stock options to be sold and the number of employee stock options to be sold. The method may also comprise the step of determining a winning bidder, from the at least two bidders, of an auction for the employee stock options based on bids submitted by the at least two bidders that specify a price for the employee stock options. The method may further comprise suspending the auction until there are qualifying bids from at least two bidders. The method may also comprise transferring a derivative in place of the employee stock options to the winning bidder, wherein the derivative entitles the holder thereof to buy a quantity of securities of an issuer at the price. The method may also comprise transferring net proceeds from the sale of the employee stock options to an account of the seller.

Claims

1. A method of selling compensation instruments issued by an issuer comprising:

receiving a sale order for the compensation instruments from a seller, where the sale order indicates a price and a quantity of the compensation instruments to be sold;

determining at least one winning bidder, from at least two bidders, of an auction for the compensation instruments based on bids submitted by the at least two bidders that specify an offer price for the compensation instruments;

suspending determination of the at least one winning bidder until there are the at least two bidders with qualifying bids that recite a quantity of compensation instruments equal to or greater than the number of compensation instruments to be sold in the auction as specified in the seller'"'"'s sale order;

transferring a derivative in place of the compensation instruments to at least one winning bidder, wherein the derivative entitles the holder thereof to buy a specific quantity of securities of an issuer at the price; and

transferring net proceeds from the sale of the compensation instruments to an account of the seller.

2. The method of claim 1, wherein:

the compensation instruments are employee stock options;

the price is the strike price; and

the derivative entitles the holder thereof to buy a specific quantity of shares of stock of the issuer at the strike price.

3. The method of claim 2, further comprising, after determining the at least one winning bidder, rescinding the employee stock options of the seller.

4. The method of claim 3, wherein the bidders are not made aware of bids from other bidders.

5. The method of claim 4, wherein the bidders are not made aware of the sale orders prior to the auction.

6. The method of claim 5, wherein there is an upper limit to the number of employee stock options that can be sold by a seller in one auction.

7. The method of claim 6, wherein the limit is 1,000.

8. The method of claim 2, wherein the derivative comprises a warrant.

9. The method of claim 1, wherein the derivative comprises an over-the-counter (OTC) option.

10. The method of claim 5, wherein bidders other than the at least one winning bidder are not notified that the at least one winning bidder has been determined for the auction.

11. The method of claim 10, wherein the identity of the at least one winning bidder is not revealed to the one or more nonwinning bidders.

12. The method of claim 2, wherein the employee stock options are awarded on a pro rata basis to the winning bidders when more than one bidder wins the auction.

13. The method of claim 1, wherein bids that recite a quantity of compensation instruments equal to or greater than the number of compensation instruments to be sold in the auction as specified in the seller'"'"'s sale order and that recite an offer price of zero dollars are qualifying bids.

14. The method of claim 2, further comprising displaying for the seller a price from a highest pending bid for employee stock options having the same or a similar strike price to the employee stock options to be sold by the seller in the auction.

15. The method of claim 2, further comprising displaying for the issuer statistics associated with auctions performed by the transaction system.

16. The method of claim 2, further comprising displaying for each bidder individually success rate data indicating a percentage of auctions won by the bidder.

17. The method of claim 2, further comprising displaying for the seller a premium value over the intrinsic value for the employee stock options.

18. The method of claim 2, further comprising suspending a bidder from participating in auctions when it is determined that the bidder has won auctions for employee stock options exceeding a threshold limit within a specified time period.

19. The method of claim 18, further comprising sending a communication to the bidder that is determined to have won auctions for employee stock options exceeding the threshold limit within the specified time period.

20. The method of claim 1, wherein a party executing the auction is responsible for payment of the sale proceeds to the seller at day T+3 following the auction.

51. The method of claim 1, wherein suspending determination of the at least one winning bidder comprises waiting a period of time for the one or more winning bidders from an immediately prior auction to refresh their bids.

52. The method of claim 19, wherein suspending determination of the at least one winning bidder comprises waiting a period of time for the one or more winning bidders from an immediately prior auction to refresh their bids.

53. The method of claim 1, wherein the bidders are required to place a bid for the compensation instruments.

54. The method of claim 53, wherein the bid for the compensation instruments must be $0 or greater.

21. A transaction system for transacting sales of compensation instruments comprising:

at least one transaction engine for executing a sale of the compensation instruments, wherein at least one winning bidder for each transaction is determined based on (1) a received sale order from a seller that indicates the strike price of the compensation instruments to be sold and the quantity of compensation instruments to be sold, and (2) a bid quote from each of at least two bidders that includes a bid size quote and an offer price for the compensation instruments, and wherein the at least one transaction engine is programmed to suspend execution of a transaction when there is only one bidder whose bid size quote is equal to or greater than the number of compensation instrument to be sold in the auction as specified in the received sale order until the bid quote from at least one other bidder is refreshed so that there are at least two bidders whose bid size quote is equal to or greater than the number of employee stock options to be sold in the transaction.

22. The transaction system of claim 21, wherein the compensation instruments are employee stock options.

23. The transaction engine of claim 22, wherein the transaction engine is programmed to determine the winning bidder based on an auction.

24. The transaction engine of claim 23, wherein the transaction engine is programmed to not notify the bidders of bids from other bidders.

25. The transaction engine of claim 24, wherein the transaction engine is programmed to not notify the bidders of the sale orders prior to the auction.

26. The transaction engine of claim 25, wherein the transaction engine is programmed to not notify the nonwinning bidders that the at least one winning bidder has been determined for the auction.

27. The transaction engine of claim 26, wherein the transaction engine is programmed to not notify the nonwinning bidders of the identity of the at least one winning bidder.

28. The transaction system of claim 23, wherein the transaction engine is further programmed to eliminate a bidder from a transaction if the bidder has not refreshed its bid within a threshold time period.

29. The transaction system of claim 28, wherein the transaction engine is further programmed to cancel a sale order when the transaction engine determines that the seller has exercised the employee stock options.

30. The transaction system of claim 23, further comprising a bidder protection engine that suspends a bidder from participating in auctions when it is determined that the bidder has won auctions for employee stock options exceeding a threshold limit within a specified time period.

31. The transaction system of claim 30, wherein the bidder protection engine for sending a communication to the bidder that is determined to have won auctions for employee stock options exceeding the threshold limit within the specified time period.

32. The transaction system of claim 23, further comprising an analytics engine in communication with the at least one transaction engine.

33. The transaction system of claim 32, wherein the analytics engine performs analytics on transaction data accumulated regarding past auctions.

34. The transaction system of claim 33, wherein the analytics engine is configured to provide the seller with a price from a highest pending bid for employee stock options having the same or a similar strike price to the employee stock options to be sold by the seller in the auction.

35. The transaction system of claim 33, wherein the analytics engine is configured to provide the seller with a premium value over the intrinsic value for the employee stock options.

36. The transaction system of claim 33, wherein the analytics engine is configured to provide statistics associated with auctions performed by the transaction system to an issuer of the employee stock options.

37. The transaction system of claim 33, wherein the analytics engine is configured to provide each bidder individually with success rate data indicating a percentage of auctions won by the bidder.

38. The transaction system of claim 23, wherein the transaction engine is for executing a plurality of sales of employee stock options, wherein sales for employee stock options having the same strike price are executed in a time sequence corresponding to when the sale orders are received.

39. The transaction system of claim 38, wherein the sale orders comprise either limit orders or market orders.

40. The transaction system of claim 23, wherein the transaction engine is for executing a plurality of sales of employee stock options, wherein sales for employee stock options having the same strike price are executed in a time sequence corresponding to when the sale orders are received.

41. The transaction system of claim 23, wherein the transaction engine is for executing a plurality of sales of employee stock options, wherein sales for employee stock options having the same strike price are executed in a time sequence corresponding to when the sale orders are received.

42. The transaction system of claim 23, wherein the transaction engine is for executing auctions for employee stock options having the same strike price that are aggregated from a plurality of sale orders.

43. The transaction system of claim 42, wherein the plurality of sale orders are aggregated over a specified period of time.

44. The transaction system of claim 23, further comprising a plurality of transaction engines, wherein each transaction engine is for executing auctions for a set of employee stock option products different from the other transaction engines.

55. The system of claim 23, wherein the at least one transaction engine is further programmed to suspend execution of the transaction for a period of time for the one or more winning bidders from an immediately prior auction to refresh their bids.

56. The system of claim 31, wherein the at least one transaction engine is further programmed to suspend execution of the transaction for a period of time for the one or more winning bidders from an immediately prior auction to refresh their bids.

45. A method of selling compensation instruments issued by an issuer comprising:

receiving a sale order for the compensation instruments from a seller, where the sale order indicates a price and a quantity of the compensation instruments to be sold;

determining at least one winning bidder of an auction for the compensation instruments based on bids submitted by one or more participating bidders that specify an offer price for the compensation instruments;

transferring a derivative in place of the compensation instruments to at least one winning bidder, wherein the derivative entitles the holder thereof to buy a specific quantity of securities of an issuer at the price; and

transferring net proceeds from the sale of the compensation instruments to an account of the seller, wherein the one or more participating bidders are not made aware of bids from other participating bidders.

46. The method of claim 45, wherein:

the compensation instruments are employee stock options;

the price is the strike price; and

the derivative entitles the holder thereof to buy a specific quantity of shares of stock of the issuer at the strike price.

47. The method of claim 46, further comprising, after determining the at least one winning bidder, rescinding the employee stock options of the seller.

48. The method of claim 47, wherein the at least one bidder is not made aware of the sale orders prior to the auction.

49. The method of claim 48, wherein nonwinning participating bidders are not notified that the at least one winning bidder has been determined for the auction.

50. The method of claim 49, wherein the identity of the at least one winning bidder is not revealed to the nonwinning participating bidders.