Network-based trading system and method

• US 7,840,480 B2
• Filed: 11/01/2006
• Issued: 11/23/2010
• Est. Priority Date: 05/19/1999
• Status: Expired due to Term

• Current Assignee: Kioba Processing, LLC (IP Investments Group LLC)
• Original Assignee: SF IP Properties 35 LLC (Intellectual Ventures LLC)
• Inventors: Kim-E, Miral
• Primary Examiner(s): Colbert; Ella
• Application Number:
  US11/555,549
• Publication Number:
  US 20070061231A1
• Time in Patent Office: 1,483 Days
• Field of Search: 705/1, 705/7, 705 35- 38, 707/609, 707/705, 709/228, 709/229, 235/279
• 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

A network based trading system and method are provided which combine economies-of-scale enjoyed by institutional investors and mutual funds with direct ownership of securities to permit individual investors to participate in the bond market in a cost effective manner. Through team investing, institutional economies-of-scale are created for individuals by allowing groupings of individuals to buy and sell bonds as a “team,” thereby executing one cost-efficient trade in the institutional market rather than many smaller trades in the inefficient retail market. Also, through customer-to-customer (C2C) trading, customers are allowed to negotiate a trade directly with one another as an alternative to selling in the inter-dealer market. The system and method also incorporate an automatic risk assessment and trade approval routine for evaluating a proposed trade of a financial instrument which was received from a customer in an electronic form.

Claims

1. A system comprising:

a computer configured as a server for securities trading, the computer including at least a memory and a processor configured to execute trading software that is implemented as an interface to automate a trade of a financial instrument between a buyer and a seller, the trading software configured to;

receive a seller notice that the financial instrument is for sale, and receive a buyer notice to initiate a purchase of the financial instrument;

match the seller and the buyer for a proposed trade of the financial instrument based on the seller notice and the buyer notice;

determine a fair market value of the financial instrument to facilitate negotiation of a sales price of the financial instrument for the proposed trade between the seller and the buyer;

receive a buyer trade ticket that includes buyer terms to purchase the financial instrument, and receive a seller trade ticket that includes seller terms to sell the financial instrument;

determine that the buyer terms match the seller terms of the proposed trade of the financial instrument, and that the sales price of the financial instrument is fair to both the buyer and the seller; and

execute the proposed trade of the financial instrument based at least in part on the match of the seller terms and the buyer terms, and based on the sales price of the financial instrument being fair to both the buyer and the seller.

2. The system of claim 1 wherein the trading software is further configured to determine the fair market value of the financial instrument based at least on a trade date, a settlement date, accrued interest of the financial instrument, and a treasury yield.

3. The system of claim 1 wherein the trading software is further configured to determine that the sales price of the financial instrument is fair in response to determining that the sales price is between a current quoted price for an institutional-size round lot and a prevailing price on an odd lot market for financial instruments comparable to the financial instrument of the proposed trade.

4. The system of claim 1 further comprising:

a trader rules database configured to store buyer risk assessment rules and seller risk assessment rules;

a transaction rules database configured to store trade risk assessment rules;

wherein the trading software is further configured to;

receive buyer information and generate a buyer risk rating based at least in part on the buyer information and the buyer risk assessment rules;

receive seller information and generate a seller risk rating based at least in part on the seller information and the seller risk assessment rules;

generate a trade risk rating of the proposed trade of the financial instrument based at least in part on the buyer terms of the buyer trade ticket, the seller terms of the seller trade ticket, and the trade risk assessment rules; and

automatically approve the proposed trade of the financial instrument in response to determining that the buyer risk rating, the seller risk rating, and the trade risk rating bear a predetermined relationship to one another.

5. The system of claim 4 wherein the buyer risk rating, the seller risk rating, and the trade risk rating each comprise alphanumeric identifiers of a trade risk associated with the proposed trade of the financial instrument.

6. The system of claim 5 wherein the trading software is further configured to automatically approve the proposed trade of the financial instrument in response to determining that the buyer risk rating and the seller risk rating are not greater than the trade risk rating.

7. The system of claim 4 further comprising:

a trader risk rating database, wherein the trading software is further configured to;

store the buyer risk rating and the seller risk rating in the trader risk rating database;

retrieve the buyer risk rating from the trader risk rating database at least one time that the buyer participates in a trade negotiation; and

retrieve the seller risk rating from the trader risk rating database at least one time that the seller participates in a trade negotiation.

8. The system of claim 4 wherein the buyer risk rating is indicative of buyer financial resources and investment experience of the buyer, wherein the seller risk rating is indicative of seller financial resources and investment experience of the seller.

9. The system of claim 4 wherein the trade risk rating is indicative of the underlying economic risks associated with the financial instrument of the proposed trade.

10. The system of claim 4 wherein the trading software is further configured to:

generate and communicate a buyer trade warning as a displayable message to the buyer regarding the proposed trade of the financial instrument when the buyer risk rating and the trade risk rating do not bear the predetermined relationship to one another; and

generate and communicate a seller trade warning as the displayable message to the seller regarding the proposed trade of the financial instrument when the seller risk rating and the trade risk rating do not bear the predetermined relationship to one another.

11. The system of claim 10 wherein the trading software is further configured to:

receive a buyer trade override that indicates the buyer authorizes the proposed trade of the financial instrument despite the buyer trade warning; and

automatically approve the proposed trade of the financial instrument in response to the buyer trade override.

12. The system of claim 10 wherein the trading software is further configured to:

receive a seller trade override that indicates the seller authorizes the proposed trade of the financial instrument despite the seller trade warning; and

automatically approve the proposed trade of the financial instrument in response to the seller trade override.

13. A computer-implemented method for securities trading at a server device, the method comprising:

executing trading software by a processor of the server device;

receiving a seller notice that indicates a seller has a financial instrument for sale;

receiving a buyer notice that indicates a buyer seeking to initiate a purchase of the financial instrument;

matching the seller and the buyer for a proposed trade of the financial instrument based on the seller notice and the buyer notice;

determining a fair market value of the financial instrument to facilitate negotiation of a sales price of the financial instrument for the proposed trade between the seller and the buyer;

receiving a buyer trade ticket that includes buyer terms to purchase the financial instrument;

receiving a seller trade ticket that includes seller terms to sell the financial instrument;

determining that the buyer terms match the seller terms of the proposed trade of the financial instrument, and that the sales price of the financial instrument is fair to both the buyer and the seller; and

executing the proposed trade of the financial instrument based at least in part on the match of the seller terms and the buyer terms, and based on the sales price of the financial instrument being fair to both the buyer and the seller.

14. The computer-implemented method for securities trading of claim 13, further comprising determining that the sales price of the financial instrument is fair in response to determining that the sales price is between a current quoted price for an institutional-size round lot and a prevailing price on an odd lot market for financial instruments comparable to the financial instrument of the proposed trade.

15. The computer-implemented method for securities trading of claim 13 further comprising:

storing buyer risk assessment rules and seller risk assessment rules in a trader rules database;

receiving buyer information and generating a buyer risk rating based at least in part on the buyer information and the buyer risk assessment rules;

receiving seller information and generating a seller risk rating based at least in part on the seller information and the seller risk assessment rules;

storing trade risk assessment rules in a transaction rules database;

assigning a trade risk rating to the proposed trade of the financial instrument based at least in part on the buyer terms of the buyer trade ticket, the seller terms of the seller trade ticket, and the trade risk assessment rules; and

approving the proposed trade of the financial instrument in response to determining that the buyer risk rating, the seller risk rating, and the trade risk rating bear a predetermined relationship to one another.

16. The computer-implemented method for securities trading of claim 15, further comprising:

defining the buyer risk rating, the seller risk rating, and the trade risk rating as alphanumeric identifiers representing a trade risk associated with the proposed trade of the financial instrument; and

approving the proposed trade of the financial instrument in response to determining that the buyer risk rating and the seller risk rating is not greater than the trade risk rating.

17. The computer-implemented method for securities trading of claim 15 further comprising:

storing the buyer risk rating and the seller risk rating in a trader risk rating database;

retrieving the buyer risk rating from the trader risk rating database at least one time that the buyer participates in a trade negotiation; and

retrieving the seller risk rating from the trader risk rating database at least one time that the seller participates in a trade negotiation.

18. The computer-implemented method for securities trading of claim 15 further comprising:

generating and communicating a buyer trade warning as a displayable message to the buyer regarding the proposed trade of the financial instrument when the buyer risk rating and the trade risk rating do not bear the predetermined relationship to one another; and

generating and communicating a seller trade warning as the displayable message to the seller regarding the proposed trade of the financial instrument when the seller risk rating and the trade risk rating do not bear the predetermined relationship to one another.

19. The computer-implemented method for securities trading of claim 18 further comprising at least one of:

receiving a buyer trade override that indicates the buyer authorizes the proposed trade of the financial instrument despite the buyer trade warning, and approving the proposed trade of the financial instrument in response to the buyer trade override, or

receiving a seller trade override that indicates the seller authorizes the proposed trade of the financial instrument despite the seller trade warning, and approving the proposed trade of the financial instrument in response to the seller trade override.

20. A system comprising:

a computer configured as a server for securities trading, the computer including at least a memory and a processor configured to execute trading software that is implemented as an interface to automate a trade of a financial instrument between a buyer and a seller, the trading software configured to;

receive a seller notice that the financial instrument is for sale, and receive a buyer notice to initiate a purchase of the financial instrument;

match the seller and the buyer for a proposed trade of the financial instrument based on the seller notice and the buyer notice;

determine a fair market value of the financial instrument to facilitate negotiation of a sales price of the financial instrument for the proposed trade between the seller and the buyer;

receive a buyer trade ticket that includes buyer terms to purchase the financial instrument, and receive a seller trade ticket that includes seller terms to sell the financial instrument;

determine that the buyer terms do not match the seller terms of the proposed trade of the financial instrument; and

communicate a proposed trade warning as a displayable message to the buyer and to the seller to indicate that the buyer terms do not match the seller terms of the proposed trade of the financial instrument.

21. The system of claim 20 wherein the trading software is further configured to:

receive an additional buyer trade ticket that includes revised buyer terms to purchase the financial instrument;

determine that the revised buyer terms match the seller terms of the proposed trade of the financial instrument; and

execute the proposed trade of the financial instrument based on the match of the seller terms and the revised buyer terms.

22. The system of claim 20 wherein the trading software is further configured to determine that the sales price of the financial instrument is not fair, and communicate the proposed trade warning to the buyer and to the seller to indicate that the sales price of the financial instrument is not fair to at least one of the buyer or the seller.

23. The system of claim 22 wherein the trading software is further configured to:

receive an additional buyer trade ticket that includes revised buyer terms to purchase the financial instrument, and receive an additional seller trade ticket that includes revised seller terms to sell the financial instrument;

determine that the sales price of the financial instrument is fair to both the buyer and the seller; and

execute the proposed trade of the financial instrument based on the sales price of the financial instrument being fair.

24. The system of claim 20 wherein the trading software is further configured to:

receive an additional seller trade ticket that includes revised seller terms to sell the financial instrument;

determine that the buyer terms match the revised seller terms of the proposed trade of the financial instrument; and

execute the proposed trade of the financial instrument based on the match of the revised seller terms and the buyer terms.

25. A computer-implemented method for securities trading at a server device, the method comprising:

executing trading software by a processor of the server device;

receiving a seller notice that indicates a seller has a financial instrument for sale;

receiving a buyer notice that indicates a buyer seeking to initiate a purchase of the financial instrument;

matching the seller and the buyer for a proposed trade of the financial instrument based on the seller notice and the buyer notice;

determining a fair market value of the financial instrument to facilitate negotiation of a sales price of the financial instrument for the proposed trade between the seller and the buyer;

receiving a buyer trade ticket that includes buyer terms to purchase the financial instrument;

receiving a seller trade ticket that includes seller terms to sell the financial instrument;

determining that the buyer terms do not match the seller terms of the proposed trade of the financial instrument; and

communicating a proposed trade warning as a displayable message to the buyer and to the seller to indicate that the buyer terms do not match the seller terms of the proposed trade of the financial instrument.

26. The computer-implemented method for securities trading of claim 25 further comprising:

receiving an additional buyer trade ticket that includes revised buyer terms to purchase the financial instrument;

determining that the revised buyer terms match the seller terms of the proposed trade of the financial instrument; and

executing the proposed trade of the financial instrument based on the match of the seller terms and the revised buyer terms.

27. The computer-implemented method for securities trading of claim 25 further comprising determining that the sales price of the financial instrument is not fair, and communicating the proposed trade warning to the buyer and to the seller to indicate that the sales price of the financial instrument is not fair to at least one of the buyer or the seller.

28. The computer-implemented method for securities trading of claim 27 further comprising:

receiving an additional buyer trade ticket that includes revised buyer terms to purchase the financial instrument;

receiving an additional seller trade ticket that includes revised seller terms to sell the financial instrument;

determining that the sales price of the financial instrument is fair to both the buyer and the seller; and

executing the proposed trade of the financial instrument based on the sales price of the financial instrument being fair.

29. The computer-implemented method for securities trading of claim 25 further comprising:

receiving an additional seller trade ticket that includes revised seller terms to sell the financial instrument;

determining that the buyer terms match the revised seller terms of the proposed trade of the financial instrument; and

executing the proposed trade of the financial instrument based on the match of the revised seller terms and the buyer terms.