Auction system and method for pricing and allocation during capital formation

• US 6,629,082 B1
• Filed: 07/06/1999
• Issued: 09/30/2003
• Est. Priority Date: 06/15/1999
• Status: Expired due to Term

• Current Assignee: W.R. Hambrecht + Co., Inc. (WR Hambrecht + Co. LLC)
• Original Assignee: W.R. Hambrecht & Co.
• Inventors: Hansson, Othar, Ocheret, Charles, Katz, Alan, Hambrecht, William R., Regan, Matt, Hayes, Jordan
• Primary Examiner(s): Millin, Vincent
• Assistant Examiner(s): Kyle, Charles R.
• Application Number:
  US09/347,949
• Time in Patent Office: 1,547 Days
• Field of Search: 705/37, 705/35, 705/36
• US Class Current: 705/36.00R
• 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
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

Techniques are provided for an auction system that is used for pricing and allocating equity securities. Information about an offering to accept bids for equity shares is provided to qualified potential purchasers and non-qualified potential purchasers. Bids front potential purchasers for equity shares are received through a communication network. Bids are accepted and offered to be accepted only from qualified potential purchasers. A non-qualified potential purchaser submits a bid through a qualified potential purchaser. A clearing price for the offered shares is determined based on the received bids. Prospective investors who bid a price above the clearing price are allocated all of the shares for which they bid. Prospective investors who bid a price equal to the clearing price are allocated a pro-rata allocation of the shares for which they bid. No shares are allocated to prospective investors who bid a price below the clearing price.

Claims

1. A computer implemented method for determining price and allocation of equity shares in an offering comprising:

providing information about an offering to accept bids for equity shares to at least one qualified potential purchaser and at least one non-qualified potential purchaser;

offering to accept bids only from one or more qualified potential purchasers via a communication network for equity shares, wherein at least one non-qualified potential purchaser submits a bid through a qualified potential purchaser;

receiving bids via a communication network only from qualified potential purchasers of the offered shares;

determining a clearing price for the offered shares based upon the received bids;

allocating to prospective investors who bid a price above the clearing price all of the shares for which they bid;

allocating to prospective investors who bid a price equal to the clearing price a pro-rata allocation of the shares for which they bid; and

allocating zero shares to prospective investors who bid a price below the clearing price.

2. The computer implemented method of claim 1, wherein said step of determining a clearing price for the offered shares based upon the received bids is based on a prescribed amount of capital that is to be raised.

3. The computer implemented method of claim 1, wherein said step of determining a clearing price for the offered shares based upon the received bids is based on a prescribed number of shares being offered.

4. The computer implemented method of claim 1, wherein said step of offering to accept bids for equity shares further comprises setting an initial price range in which bids must be within or setting a minimum price bids must be above.

5. The computer implemented method of claim 3, wherein said step of determining a clearing price for the offered shares based upon the received bids comprises:

arranging the received bids in descending order based on price;

summing the aggregate quantity of shares bid for starting with the bid with the highest price and descending downward in price; and

determining at which price the aggregate quantity of shares bid for is equal to or greater than the prescribed number of shares being offered.

6. The computer implemented method of claim 1, wherein said pro-rata allocation for a prospective investor who bid a price equal to the clearing price is calculated by:

determining the total number of shares bid for above said clearing price;

subtracting from a total number of shares being offered said total number of shares bid for above said clearing price;

determining the product of the quantity of shares bid for by said prospective investor and the value determined by subtracting from a total number of shares being offered said total number of shares bid for above said clearing price; and

dividing said product by a sum of the number of shares bid for at said clearing price.

7. The computer implemented method of claim 1, wherein said steps of offering to accept bids for equity shares and receiving bids from potential purchasers of the offered shares are performed through a World Wide Web based interface.

8. The computer implemented method of claim 1, wherein said potential purchasers are registered with a designated underwriter.

9. The computer implemented method of claim 1, wherein said potential purchasers are either institutional investors or retail investors.

10. The computer implemented method of claim 9, wherein said retail investors participate as bidders via an on-line brokerage firm.

11. The computer implemented method of claim 1, wherein said bid comprises the number of shares the potential purchaser would be willing to purchase and the price per share such potential purchaser would be willing to pay.

12. The computer implemented method of claim 1, wherein said clearing price is equal to the offering price of said equity securities.

13. The computer implemented method of claim 1, wherein said bids are binding contracts.

14. The computer implemented method of claim 1, wherein said bids are indications of interest.

15. The computer implemented method of claim 1, further comprising the step of preparing auction reports summarizing information relating to bids and share allocation results.

16. The computer implemented method of claim 1, wherein said step of receiving bids from potential purchasers of the offered shares comprises receiving bids from broker dealers.

17. The computer implemented method of claim 16, wherein said bids received from broker dealers were submitted to a broker dealer open order system by users and treated as good until cancelled limit orders.

35. The computer implemented method of claim 1 wherein one of the one or more qualified potential purchasers comprises a financial institution, an on-line brokerage firm, an investment advisor, a certified financial planner, a certified financial advisor, or an insurance company.

36. The computer implemented method of claim 1, wherein:

at least one of the one or more qualified potential purchasers comprises a qualified institutional investor, and

at least one other of the one or more qualified potential purchasers comprises a qualified non-institutional investor, further comprising;

permitting the extension of credit for a bid only to qualified institutional investors; and

requiring qualified non-institutional investors to have funds in an account sufficient to cover a bid.

37. The computer implemented method of claim 1 wherein information about the offering comprises one or more of a prospectus, a description of the offering, auction guidelines and rules, instructions on how to open a brokerage account, marketing materials associated with the offering, a registration form, or a disclaimer.

38. The computer implemented method of claim 1 wherein at least one non-qualified potential purchaser submits a bid through a qualified potential purchaser that is an on-line brokerage firm.

18. A system for determining the price and allocation of equity securities of a company over the World Wide Web comprising:

a user input terminal where qualified potential purchasers submit bids for equity shares; and

a computer system connected to said user input terminal via a communications network;

wherein the computer system is configured to;

provide information about an offering to accept bids for equity shares to at least one qualified potential purchaser and at least one non-qualified potential purchaser;

accept bids only from one or more qualified potential purchasers via the communications network, wherein at least one non-qualified potential purchaser submits a bid through a qualified potential purchaser;

receive said bids only from qualified potential purchasers,

determine a clearing price based upon the received bids;

allocate to prospective investors who bid a price above the clearing price all of the shares for which they bid;

allocate to prospective investors who bid a price equal to the clearing price a pro-rata allocation of the shares for which they bid; and

allocate zero shares to prospective investors who bid a price below the clearing price.

19. The system of claim 18, wherein said computer system comprises:

an auction server for processing said bids to determine said clearing price and the number of allocated equity shares to each prospective investor;

an auction database for storing deal information concerning an auction transaction; and

an account information computer for storing and managing prospective inventor account information.

20. The system of claim 19, wherein the computer system is configured to limit the total number of shares that may be sold to any one prospective investor.

21. The system of claim 19, wherein prior to said auction server processing said bids, said bids are associated with prospective investor account information from said account information computer and information concerning an auction from said auction database.

22. The system of claim 19, wherein said deal information comprises the symbol to be used to designate the company.

23. The system of claim 19, wherein said deal information comprises the price range for the deal.

24. The system of claim 19, wherein said deal information comprises the number of shares expected to be sold.

25. The system of claim 19, wherein said deal information comprises the expected opening and closing dates of the deal.

26. The system of claim 19, wherein said deal information comprises a limitation on the number of shares that a prospective investor may purchase.

27. The system of claim 19, wherein said deal information is also stored on said account information computer and auction server.

28. The system of claim 18, further comprising a research information server which provides information concerning an offering.

29. The system of claim 28, wherein said information comprises the full text of a prospectus that describes the proposed offering.

30. The system of claim 18, wherein limits are placed on bids submitted by certain prospective investors.

39. The computer system of claim 18 wherein one of the one or more qualified potential purchaser comprises a financial institution, an on-line brokerage firm, an investment advisor, a certified financial planner, a certified financial advisor, or an insurance company.

40. The computer system of claim 18 wherein:

at least one of the one or more qualified potential purchasers comprises a qualified institutional investor, and

at least one other of the one or more qualified potential purchasers comprises a qualified non-institutional investor,

the computer system further configured to;

permit the extension of credit for a bid only to qualified institutional investors; and

require qualified non-institutional investors to have funds in an account sufficient to cover a bid.

41. The computer system of claim 18 wherein information about the offering comprises one or more of a prospectus, a description of the offering, auction guidelines and rules, instructions on how to open a brokerage account, marketing materials associated with the offering, a registration form, or a disclaimer.

42. The computer system of claim 18 wherein at least one non-qualified potential purchaser submits a bid thorough a qualified potential purchaser that is an on-line brokerage firm.

31. A computer implemented system for determining the price and allocation of equity securities of a company comprising:

an order management server component for;

providing information about an offering to accept bids for equity shares to at least one qualified potential purchaser and at least one non-qualified potential purchaser;

offering to accept bids only from one or more qualified potential purchasers via a communication network, wherein at least one non-qualified potential purchaser submits a bid through a qualified potential purchaser; and

receiving via a communication network bids only from qualified potential purchasers of offered equity securities;

an auctioneer component for determining a clearing price for offered shares based on the received bids, allocating to prospective investors who bid a price above the clearing price all of the shares for which they bid, allocating to prospective investors who bid a price equal to the clearing price a pro-rata allocation of the shares for which they bid, and allocating zero shares to prospective investors who bid a price below the clearing price; and

a data storage component for storing information associated with bids.

32. The system of claim 31, wherein said bids are received from said broker dealers.

33. The system of claim 31, wherein the bids received from broker dealers are submitted via a broker client module that interfaces with an order management system at the broker dealer.

34. The system of claim 31, wherein said data storage component stores information on users and user security information relating to user access rights to the system.

43. The computer system of claim 31 wherein:

at least one of the one or more qualified potential purchasers comprises a qualified institutional investor, and

at least one other of the one or more qualified potential purchasers comprises a qualified non-institutional investor,

the order management server component further configured to;

permit the extension of credit for a bid only to qualified institutional investors; and

require qualified non-institutional investors to have funds in an account sufficient to cover a bid.

44. The computer system of claim 31 wherein at least one non-qualified potential purchaser submits a bid thorough a qualified potential purchaser that is an on-line brokerage firm.