Method and apparatus for the receipt, combination, and evaluation of equity portfolios for execution by a sponsor at passively determined prices

• US 7,415,432 B1
• Filed: 11/17/2000
• Issued: 08/19/2008
• Est. Priority Date: 11/17/2000
• Status: Expired due to Term

• Current Assignee: D.E. Shaw & Co., Inc.
• Original Assignee: D.E. Shaw & Co., Inc.
• Inventors: Shaw, David E., Gianakouros, Nicholas P.
• Primary Examiner(s): Subramanian; Narayanswamy
• Application Number:
  US09/714,212
• Time in Patent Office: 2,832 Days
• Field of Search: 705 35- 37, 705/36.R
• US Class Current: 705/36.00R
• 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

The present invention is directed to a system for the electronic trading of financial instruments, and in particular, a system and method for the receipt, combination, and evaluation of equity portfolios for possible simultaneous execution by a sponsor at passively determined prices. In accordance with an embodiment of the present invention, a method for trading securities portfolios includes receiving a first intended portfolio trade having an associated specified commission, evaluating a combination of the first intended portfolio trade and a second intended portfolio trade for possible execution; and transmitting a decision on whether to execute the combination of the first intended portfolio trade and the second intended portfolio trade.

Claims

1. A method for evaluating securities portfolios for trading, comprising:

receiving a plurality of intended portfolio trades including a first intended portfolio trade, said first intended portfolio trade submitted by a client, each of said plurality of intended portfolio trades including at least two orders to trade different securities;

evaluating, via a computer, risk associated with combinations of said first intended portfolio trade with at least one other of said plurality of intended portfolio trades, said risk evaluation including determining whether a risk profile for execution of any of said combinations is lower than an aggregated risk profile of the respective component portfolios evaluated individually, said risk profile incorporating a per-share commission at which the client is willing to commit to the execution of said first intended portfolio trade at passively determined prices;

receiving approval to trade one of said combinations based on said risk evaluation; and

transmitting said one combination for execution after the close of trading on the day in which said approval to trade is received.

2. The method of claim 1, wherein said receiving a first intended portfolio trade comprises either:

receiving an intended portfolio trade from a broker-dealer;

or

receiving an intended portfolio trade from an institutional investor.

3. The method of claim 1, wherein said evaluating risk associated with combinations of said first intended portfolio trade with at least one other of said plurality of intended portfolio trades comprises:

crossing component trades for each security in said first intended portfolio trade and said at least one other of said plurality of intended portfolio trades to create a combined portfolio trade, said combined portfolio trade including crossed component trades for each security.

4. The method of claim 1, wherein said receiving approval to trade one of said combinations comprises:

requesting approval to trade said one combination; and

receiving a response to said request to trade said one combination.

5. The method of claim 1, wherein said transmitting said one combination for execution after the close of trading on the day in which said approval to trade is received comprises:

transmitting said first intended portfolio trade and said at least one other of said plurality of intended portfolio trades included in said one combination.

6. The method of claim 5, wherein said transmitting occurs after the close of trading on the day in which said approval to trade is received.

7. The method of claim 1, wherein said transmitting said one combination for execution after the close of trading on the day in which said approval to trade is received comprises:

transmitting said one combination to be executed as a principal trade.

8. The method of claim 1, wherein said transmitting said one combination for execution after the close of trading on the day in which said approval to trade is received comprises:

transmitting said one combination to be executed as an agency trade.

9. The method of claim 1, wherein a security associated with each of said two orders to trade is selected from the group consisting of:

an equity;

a derivative;

a warrant;

an option;

a portfolio future; and

a portfolio bond.

10. The method of claim 9, wherein each of said at least two orders to trade comprises:

a trading symbol representing a security to be traded;

a side for the order; and

a quantity of said security to be traded.

11. The method of claim 1, wherein said receiving at least two orders to trade different securities comprises at least one selected from the group consisting of:

receiving said at least two orders to trade different securities at a market closing price;

receiving said at least two orders to trade different securities at a volume-weighted average price; and

receiving said at least two orders to trade different securities at a predetermined price.

12. The method of claim 11, wherein said receiving at least two orders to trade different securities at a predetermined price comprises:

receiving said at least two orders to trade different securities at a price determined by a methodology, said methodology being determined prior to receiving said at least two orders to trade.

13. The method of claim 1, wherein receiving said first intended portfolio trade comprises one selected from the group consisting of:

receiving said first intended portfolio trade from a broker-dealer, said first intended portfolio trade including said per-share commission specified by said broker-dealer; and

receiving said first intended portfolio trade from an institutional investor, said first intended portfolio trade including said per-share commission specified by said institutional investor.

14. The method of claim 13, wherein said broker-dealer specified per-share commission and said institutional investor specified per-share commission each represent the fee for which each said broker-dealer and said institutional investor agree in advance to trade said first intended portfolio trade with a sponsor.

15. The method of claim 1, further comprising:

proposing said per-share commission to a source of said first intended portfolio trade included in said one combination as a result of evaluating risk associated with said one combination.

16. The method of claim 15, wherein said proposing said per-share commission to a source of said first intended portfolio trade included in said one combination as a result of evaluating risk associated with said one combination comprises:

generating automatically said per-share commission; and

transmitting said per-share commission to said source of said first intended portfolio trade.

17. The method of claim 15, wherein said per-share commission represents a fee for which at least one sponsor is willing to execute said first intended portfolio trade at said passively determined prices on behalf of said source.

18. The method of claim 15, wherein said first intended portfolio trade is eligible for said execution by at least one sponsor only if said source explicitly agrees to said per-share commission.

19. The method of claim 15, wherein said proposing said per-share commission to a source of said first intended portfolio trade included in said one combination as a result of evaluating risk associated with said one combination comprises:

generating manually said per-share commission; and

transmitting said per-share commission to said source of said first intended portfolio trade.

20. The method of claim 1, wherein said plurality of intended portfolio trades are invisible to other market participants.

21. The method of claim 1, wherein said evaluating risk associated with combinations of said first intended portfolio trade with at least one other of said plurality of intended portfolio trades comprises:

performing a quantitative analysis of characteristics of each of said combinations.

22. The method of claim 21, wherein said quantitative analysis is performed automatically using data and other information supplied by a sponsor.

23. The method of claim 21, wherein said performing a quantitative analysis of characteristics of each of said combinations comprises evaluating said per-share commission, if specified by a source of said first intended portfolio trade.

24. The method of claim 21, wherein said performing a quantitative analysis of characteristics of each of said combinations generates said per-share commission for executing said first intended portfolio trade in one of said combinations, if said per-share commission is unspecified by a source of said first intended portfolio trade.

25. The method of claim 21, wherein said performing a quantitative analysis of characteristics of each of said combinations includes analysis of at least one of:

a total size in shares;

a total dollar value;

an average individual position size;

a median individual position size;

a size in shares of a largest individual position;

a dollar value of said largest individual position;

a total size as a percentage of average daily volume;

an individual position sizes as a percentage of average daily volume;

a correlation/tracking-error with major market indices;

an average bid-ask spread;

a breakdown by buy/sell orders, shares, and dollar value;

a breakdown by industry group;

a breakdown by listing exchange;

a hard to borrow analysis of individual positions;

risk calculations;

a crossing with a sponsor'"'"'s portfolio;

a sponsor'"'"'s proprietary price forecasts or other proprietary data or analyses for individual positions or for the combination as a whole; and

volatility measures.

26. The method of claim 21, wherein performing said quantitative analysis results in a recommendation on whether to execute said one combination.

27. The method of claim 26, wherein said recommendation on whether to execute said one combination of said intended portfolio trades comprises at least one of:

a recommendation to execute said one combination only in part;

a recommendation to execute said one combination; and

a recommendation to decline to execute said one combination.

28. The method of claim 27, further comprising:

transmitting to a source of said first intended portfolio trade a notification of an offer to execute a portion of said first intended portfolio trade, wherein said notification permits said source to choose whether to accept said offer to execute a portion of said first intended portfolio trade for said per-share commission.

29. The method of claim 26, wherein said quantitative analysis results in the generation of a report including said recommendation being sent to a sponsor.

30. The method of claim 29, wherein said report includes statistics and characteristics for said one combination.

31. The method of claim 30, wherein said report does not identify a trading symbol for any component trade included in said one combination, and does not otherwise include information which would permit said sponsor to identify any of said component trades.

32. The method of claim 26, wherein a sponsor decides whether to accept said recommendation on whether to execute said one combination.

33. The method of claim 32, wherein a decision by said sponsor to execute said one combination results in transmitting an immediate notification to a source of said first intended portfolio trade which is included in said one combination that said first intended portfolio trade has been accepted for execution by said sponsor.

34. The method of claim 32, wherein a decision by said sponsor to decline said one combination results in transmitting an immediate notification to a source of said first intended portfolio trade which is included in said one combination that said first intended portfolio trade has been declined for execution by said sponsor.

35. The method of claim 26, wherein a decision whether to accept said recommendation whether to execute said one combination occurs automatically.

36. The method of claim 1, wherein said evaluating risk associated with combinations of said first intended portfolio trade with at least one other of said plurality of intended portfolio trades occurs at least once per calendar week.

37. The method of claim 1, said plurality of intended portfolio trades being received over at least one of:

a telecommunications line;

a wireless telecommunication;

an Internet-based upload; and

an electronic transfer.

38. The method of claim 37, wherein said receiving a first intended portfolio trade comprises:

receiving an invisible intended portfolio trade, said invisible intended portfolio trade being configured to prevent a sponsor from viewing the contents of said invisible intended portfolio trade.

39. The method of claim 1, further comprising:

transmitting a sponsor'"'"'s promise to execute said first intended portfolio trade included in said one combination at said passively determined price for said per-share commission.

40. The method of claim 39, wherein said intended portfolio trades included in said one combination for which said sponsor has committed to trade, are transmitted to said sponsor for execution and executed by said sponsor, after the close of trading on the day in which said approval to trade is received.

41. The method of claim 1, wherein one of said at least one other of said plurality of intended portfolio trades is received from a broker dealer, said broker dealer acting as a sponsor who can execute all or part of said one combination.

42. A method for evaluating securities portfolios for trading, comprising:

receiving a plurality of intended portfolio trades including a first intended portfolio trade, said first intended portfolio trade submitted by a client, each of said plurality of intended portfolio trades including at least two orders to trade different securities;

evaluating, via a computer, risk associated with combinations of said first intended portfolio trade with at least one other of said plurality of intended portfolio trades, said risk evaluation including determining whether a risk profile for execution of any of said combinations is lower than an aggregated risk profile of the respective component portfolios evaluated individually, said risk profile incorporating a per-share commission at which the client is willing to commit to the execution of said first intended portfolio trade at passively determined prices;

transmitting one of said combinations for execution after the close of trading on the day in which said risk evaluation is performed.

43. The method of claim 42, wherein said receiving a first intended portfolio trade comprises either:

receiving an intended portfolio trade from a broker-dealer;

or

receiving an intended portfolio trade from an institutional investor.

44. The method of claim 42, wherein said evaluating risk associated with combinations of said first intended portfolio trade with at least one other of said plurality of intended portfolio trades comprises:

crossing component trades for each security in said first intended portfolio trade and said at least one other of said plurality of intended portfolio trades to create a combined portfolio trade, said combined portfolio trade including crossed component trades for each security.

45. The method of claim 42, further comprising:

receiving approval to trade one of said combinations.

46. The method of claim 42, wherein said transmitting said one combination for execution after the close of trading on the day in which said risk evaluation is performed comprises:

transmitting said first intended portfolio trade and said at least one other of said plurality of intended portfolio trades included in said one combination.

47. The method of claim 46, wherein said transmitting occurs after the close of trading on the day in which said risk evaluation is performed.

48. The method of claim 42, wherein said transmitting said one combination for execution after the close of trading on the day in which said risk evaluation is performed comprises:

transmitting said one combination to be executed as a principal trade.

49. The method of claim 42, wherein said transmitting said one combination for execution after the close of trading on the day in which said risk evaluation is performed comprises:

transmitting said one combination to be executed as an agency trade.

50. The method of claim 42, wherein one of said at least one other of said plurality of intended portfolio trades is received from a broker-dealer, said broker-dealer acting as a sponsor who can execute all or part of said one combination.