AUTOMATED BATCH AUCTIONS IN CONJUNCTION WITH CONTINUOUS FINANCIAL MARKETS

• US 20090083175A1
• Filed: 09/24/2008
• Published: 03/26/2009
• Est. Priority Date: 01/11/2000
• Status: Abandoned Application

• Current Assignee: ITG Software Solutions, Inc. (Virtu Financial, Inc.)
• Original Assignee: ITG Software Solutions, Inc. (Virtu Financial, Inc.)
• Inventors: CUSHING, David
• Application Number:
  US12/236,651
• Publication Number:
  US 20090083175A1
• Time in Patent Office: Days
• US Class Current: 705/37
• 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 performing a batch auction whereby a series of orders, according to a variety of predetermined order types, are generated by qualified market participants and communicated to an auction system. The auction system takes into account each order and its impact upon relative supply and demand to determine by a preset algorithm a price and share transaction quantity. Trades are executed at the price, and a portion of the transaction quantity is allocated to each investor on a fair basis dependent upon their initial orders. In embodiments of the present invention, the auction system uses a computer system or 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. In alternative embodiments, the invention includes the use of a one or more intermediaries or market makers to cover certain unexecuted trades at the determined price. The present invention is preferably used to conduct batch auctions at the opening and closing of securities trading markets.

Claims

1. A method for conducting a financial batch auction after a first period and before a second period, comprising:

steps for receiving orders from one or more qualified participants, said orders defining a binding instruction to execute a trade regarding a security according to respective trade parameters;

steps for concurrently with receiving said orders, transmitting information regarding said orders to said qualified participants;

steps for terminating the step of receiving of orders;

steps for discovering an optimal price at which a maximum number of shares will be executed amongst the orders;

steps for executing a trade of said maximum number of shares amongst the orders at said optimal price; and

steps for allocating said executed maximum number of shares fairly among orders that qualify according to a predetermined allocation procedure.

2. The method for conducting a financial batch auction according to claim 1, wherein said trade parameters includes trade side, security identifier, and quantity of shares to be traded.

3. The method for conducting a financial batch auction according to claim 1, wherein said orders are selected from the group consisting of unpriced orders, priced orders, and cross orders.

4. The method for conducting a financial batch auction according to claim 1, wherein the batch auction is conducted concurrently with a continuous trading financial market.

5. The method for conducting a financial batch auction according to claim 1, wherein said information transmitted to said qualified recipients comprises an indicated price and a net order imbalance.

6. The method for conducting a financial batch auction according to claim 1, further comprising:

steps for receiving requests to cancel orders and receiving requests to modify orders concurrently with said receiving of said orders.

7. The method for conducting a financial batch auction according to claim 6, wherein said steps for receiving of requests to cancel orders is terminated a predetermined time before terminating the receipt or orders, and said steps for receiving of orders and said receiving of requests to modify orders are accepted subject to pre-determined conditions.

8. The method for conducting a financial batch auction according to claim 1, wherein during said steps for allocating, said executed maximum number of shares is distributed pro-rata among orders that qualify.

9. A method of performing a batch auction of a security, comprising:

steps for compiling an order book, wherein said compiling comprises receiving order information from qualified participants, and for entering orders into the order book and modifying or canceling orders within the order book based upon said order information;

steps for discovering an optimal price, wherein said discovering step comprises identifying one or more prices at which the batch auction would produce a maximum number of executed shares, and for selecting one of said one or more prices as an optimal price; and

steps for executing the batch auction at the optimal price, wherein said executing step comprises crossing orders within the order book at the optimal price, and for allocating the executed shares pro-rata among orders having price requirements consistent with said optimal price.

10. The method of performing a batch auction of a security according to claim 9, wherein said order information comprises parameters describing trade side, security identifier, and quantity of shares.

11. The method of performing a batch auction of a security according to claim 9, wherein said orders have order types selected from the group consisting of unpriced orders, priced orders, and cross orders.

12. The method of performing a batch auction of a security according to claim 9, wherein the batch auction is conducted concurrently with a continuous trading financial market.

13. The method of performing a batch auction of a security according to claim 12, wherein the batch auction is performed at the open or close of said continuous trading market.

14. The method of performing a batch auction of a security according to claim 9, wherein said optimal price is selected based upon a relative supply and a demand dictated by said order book.

15. The method of performing a batch auction of a security according to claim 14, wherein said selecting step further comprises comparing said relative supply and demand to a standard.

16. The method of performing a batch auction of a security according to claim 9, wherein during compiling said order book information comprising an indicated price and a net order imbalance is disseminated to qualified recipients.

17. The method of performing a batch auction of a security according to claim 9, wherein said canceling of and modifying of orders within the order book is restricted a predetermined time before said price discovering step begins.

18. The method of performing a batch auction of a security according to claim 9, wherein a designated intermediary is permitted to view said order book and to cover orders for unexecuted shares at said optimal price.

19. A computerized system for performing a batch auction of a security, comprising:

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

computer facilities configured to receive a plurality of messages containing orders from one or more qualified participants, and to accept those orders that meet certain predetermined criteria;

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 accepted orders received by said receiving program;

computer facilities configured to calculate an optimal price upon which to transact a maximum number of shares of the security during the batch auction based upon the order book in said order boob database;

computer facilities configured to execute the batch auction of said maximum number of shares of the security at a given execution time, and to allocate said maximum number of shares of the security among said accepted orders according to a predetermined criterion; and

computer facilities configured to publish a predetermined selection of data from said order book database, and wherein said notification program notifies said qualified participants of results of said auction execution program.

20. The computerized system for performing a batch auction of a security according to claim 19, wherein said predetermined selection of data published by said price notification program comprises an indicated price and net order imbalance.

21. The computerized system for performing a batch auction of a security according to claim 19, wherein said messages can contain order types selected from the group consisting of unpriced orders, priced orders, and cross orders.

22. The computerized system for performing a batch auction of a security according to claim 19, further comprising an electronic connection for forwarding unexecuted orders to outside markets.

23. The computerized system for performing a batch auction of a security according to claim 19, further comprising communication connections whereby said qualified participants may remotely submit said messages to said order receiving program electronically.