ORDER ROUTING SYSTEM AND METHOD INCORPORATING DARK POOLS

• US 20090024512A1
• Filed: 06/18/2008
• Published: 01/22/2009
• Est. Priority Date: 06/18/2007
• Status: Active Grant

• Current Assignee: Penson Worldwide, Inc.
• Original Assignee: Penson Worldwide, Inc.
• Inventors: Reid, Charles Keller
• Granted Patent: US 8,015,099 B2
• 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

Abstract

A method for routing a financial instrument order incorporating dark pools and at least one electronic communication network (ECN) or exchange. The financial instrument order includes an identification of a financial instrument, a bid or ask price, and a number of units to be traded. A ping order of the dark pools is determined. The financial instrument order is routed to a top dark pool as an immediate or cancel order. If the financial instrument order is not complete, the ping order is updated by removing the top dark pool. If any dark pools remain in the updated ping order, the financial instrument order is routed to the next dark pool. This process continues until all of the dark pools have been pinged or the financial instrument order is complete. If the financial instrument order is not complete, the financial instrument order is routed to the ECN or exchange.

Claims

1. A method for routing a financial instrument order to a plurality of dark pools and at least one electronic communication network (ECN) or exchange, the financial instrument order having a plurality of parameters including an identification of a financial instrument to be traded, one of a bid price or an ask price, and an order number of units of the financial instrument to be traded by the financial instrument order, the method comprising the steps of:

a) placing the financial instrument order with an automated order router adapted to route financial instrument orders to the plurality of dark pools and the at least one ECN or exchange;

b) determining a ping order of the dark pools;

c) routing the financial instrument order to a top dark pool in the ping order as an immediate or cancel (IOC) order;

d) reducing the order number of the financial instrument order by a filled number of units of the financial instrument traded with the top dark pool as a result of the IOC order routed in step (c);

e) i) if the order number is zero, flagging the financial instrument order as complete;

or

ii) if the order number is not zero, updating the ping order by removing the top dark pool from the ping order;

f) if the financial instrument order is not flagged as complete and the updated ping order includes at least one dark pool, repeating steps (c), (d), (e), and (f); and

g) if the financial instrument order is not flagged as complete and no dark pools remain in the updated ping order, routing a remaining portion of the financial instrument order to the at least one ECN or exchange.

2. A method according to claim 1, wherein the financial instrument is one of a stock, a bond, a commodity, a currency, an equity, a derivative security, or a future.

3. A method according to claim 1, wherein step (a) includes the steps of:

a1) placing the financial instrument order with the automated order router;

a2) comparing the one bid price or ask price of the financial instrument order to current quotes of the financial instrument on the at least one ECN or exchange to determine whether the financial instrument order is marketable; and

a3) if the financial instrument order is determined to be marketable in step (a2), continuing to step (b), otherwise, routing the financial instrument order to the at least one ECN or exchange.

4. A method according to claim 3, wherein step (a3) includes the steps of:

comparing the one bid price or ask price of the financial instrument order and the order number of the financial instrument order to the current quotes of the financial instrument on the at least one ECN or exchange to determine whether the financial instrument order is immediately fillable;

if the financial instrument order is determined to be immediately fillable, routing the financial instrument order to the at least one ECN or exchange; and

if the financial instrument order is determined to be marketable in step (a2), continuing to step (b), otherwise routing the financial instrument order to the at least one ECN or exchange.

5. A method according to claim 1, wherein:

the automated order router is coupled to a user interface; and

step (a) includes receiving the plurality of parameters of the financial instrument order via the user interface.

6. A method according to claim 1, wherein the ping order is determined in step (b) based on historic information about each of the plurality of dark pools and the financial instrument.

7. A method according to claim 1, wherein step (c) includes the steps of:

c1) determining whether the top dark pool in the ping order supports a financial information exchange (FIX) protocol; and

c2) if the top dark pool in the ping order supports the FIX protocol, (i) converting the financial instrument order into a FIX protocol compatible format and transmitting the FIX compatible financial instrument order to the top dark pool in the ping order, otherwise, (ii) transmitting the financial instrument order to the top dark pool in the ping order.

8. A method according to claim 1, wherein step (d) includes the steps of:

d1) receiving a response to the IOC order from the top dark pool, the response indicating the filled number of units of the financial instrument traded with the top dark pool; and

d2) reducing the order number of the financial instrument order by the filled number.

9. A method according to claim 1, wherein step (g) includes the step of:

g1) if the financial instrument order is not flagged as complete and no dark pools remain in the updated ping order, converting the remaining portion of the financial instrument order into a financial information exchange (FIX) protocol compatible format and transmitting the FIX compatible financial instrument order to the at least one ECN or exchange.

10. A method according to claim 1, wherein step (g) includes the step of

g1) if the financial instrument order is not flagged as complete and no dark pools remain in the updated ping order, routing the remaining portion of financial instrument order to the at least one ECN or exchange as one of a limit order or an IOC order.

11. A method according to claim 1, wherein step (g) includes the steps of:

g1) if the financial instrument order is not flagged as complete and no dark pools remain in the updated ping order, comparing the one bid price or ask price of the financial instrument order to current quotes of the financial instrument on the at least one ECN or exchange to determine how many units of the financial instrument order are immediately fillable on each of the at least one ECN or exchange;

g2) if the remaining portion of the financial instrument order is not immediately fillable, for each of the at least one ECN or exchange, routing only an immediately fillable portion of the remaining portion of the financial instrument order to the at least one ECN or exchange as a limit order; and

g3) if the remaining portion of the financial instrument order is immediately fillable;

calculating a best available composite price for the remaining portion of the financial instrument order on the at least one ECN or exchange based on the current quotes of the financial instrument on the at least one ECN or exchange;

for each of the at least one ECN or exchange, identifying a number of units of the financial instrument to be traded at a corresponding one of the at least one ECN or exchange to obtain the best available composite price;

routing a sub-portion of the remaining portion of the financial instrument order to the corresponding one of the at least one ECN or exchange, each sub-portion of the remaining portion of the financial instrument order being a market limit order for the identified number of units of the financial instrument for the corresponding one of the at least one ECN or exchange.

12. An automated order routing system adapted to a route financial instrument order to a plurality of dark pools and an electronic communication network (ECN) or an exchange, the automated order routing system comprising:

an input interface for placing the financial instrument order with the automated order routing system, the financial instrument order having a plurality of parameters including;

an identification of a financial instrument;

one of a bid price or an ask price; and

an order number of units of the financial instrument to be traded by the financial instrument order;

a ping order processor coupled to the input interface, the ping order processor adapted to determine a ping order of the dark pools based on historic information about each of the plurality of dark pools and the financial instrument;

a dark pool router coupled to the ping order processor and the plurality of dark pools, the order router adapted to route the financial instrument order to the plurality of dark pools one at a time in the ping order as immediate or cancel (IOC) orders until the financial instrument order is flagged as completed or the ping order is flagged as completed;

an IOC feedback processor coupled to the dark pool router and the plurality of dark pools, the IOC feedback processor adapted to;

receive a response to the IOC order from a most recently pinged dark pool,

reduce the order number of the financial instrument order by a filled number of units of the financial instrument traded with the pinged dark pool as a result of the IOC,

flag the financial instrument order as completed, if the order number of the financial instrument order equals zero,

remove the most recently pinged dark pool from the ping order, and

flag the ping order as completed, if no dark pools remain in the ping order; and

an order completion router coupled to the IOC feedback processor and the plurality of dark pools and the ECN or exchange, the order completion router adapted to route a remaining portion of the financial instrument order to one of the plurality of dark pools or to the ECN or exchange as a limit order, if the ping order is flagged as completed.

13. An automated order routing system according to claim 12, wherein the financial instrument is one of a stock, a bond, a commodity, a currency, an equity, a derivative security, or a future.

14. An automated order routing system according to claim 12, wherein the input interface includes a display and at least one of a keyboard, a touchpad, a mouse, or a touch screen.

15. An automated order routing system according to claim 12, wherein:

the ping order processor includes at least one of special purpose circuitry, an application specific integrated circuit (ASIC), or a general purpose computer;

the dark pool router includes at least one of special purpose circuitry, an ASIC, or a general purpose computer;

the IOC feedback processor includes at least one of special purpose circuitry, an ASIC, or a general purpose computer; and

the order completion router includes at least one of special purpose circuitry, an ASIC, or a general purpose computer.

16. An automated order routing system according to claim 12, further comprising a financial information exchange (FIX) processor adapted to convert the financial instrument order into a FIX protocol compatible format, the FIX processor coupled to the input interface and at least one of the dark pool router or the order completion router.

17. An automated order routing system according to claim 12, further comprising a quote comparison processor adapted to compare the one bid price or ask price of the financial instrument order to current quotes of the financial instrument on the ECN or exchange to determine whether the financial instrument order is marketable, wherein:

if the financial instrument order is determined to be marketable by the quote comparison processor, passing the financial instrument order to the ping order processor, otherwise, flagging the ping order as completed and passing the financial instrument order to the order completion router.

18. An automated order routing system according to claim 17, wherein

the quote comparison processor further compares the one bid price or ask price of the financial instrument order and the order number of the financial instrument order to the current quotes of the financial instrument on the ECN or exchange to determine whether the financial instrument order is immediately fillable;

and

if the financial instrument order is determined to be immediately fillable by the quote comparison processor, flagging the ping order as completed and passing the financial instrument order to the order completion router.

19. A method for routing a financial instrument order incorporating a plurality of dark pools, the financial instrument order having a plurality of parameters including an identification of a financial instrument, one of a bid price, or an ask price, and an order number of units of the financial instrument to be traded by the financial instrument order, the method comprising the steps of:

a) placing the financial instrument order with an automated order router adapted to route financial instrument orders to the plurality of dark pools;

b) determining a ping order of the dark pools in the plurality of dark pools;

c) routing the financial instrument order to a top dark pool in the ping order as an immediate or cancel (IOC) order;

d) reducing the order number of the financial instrument order by a filled number of units of the financial instrument traded with the top dark pool as a result of the IOC order routed in step (c);

e) updating the ping order by removing the top dark pool from the ping order;

f) if the financial instrument order is not complete and the updated ping order includes at least one dark pool, repeating steps (c), (d), (e), and (f).

20. A method according to claim 19, further comprising a step of:

g) if the financial instrument order is complete and no dark pools remain in the updated ping order, routing a remaining portion of the financial instrument order to at least one of the plurality of dark pools as a limit order.