Transaction system for employee stock options and other compensation programs

• US 8,180,700 B1
• Filed: 04/15/2011
• Issued: 05/15/2012
• Est. Priority Date: 12/01/2006
• Status: Active Grant

• Current Assignee: Morgan Stanley Services Group Inc. (Morgan Stanley)
• Original Assignee: Morgan Stanley
• Inventors: Madhavan, Raghavachari, Kovel, Chris, Riehl, Lynn M., Johnson-Laird, Ben, Guo, Yimei, Arnold, Caroline L., Sargison, Andrew
• Primary Examiner(s): Subramanian, Narayanswamy
• Assistant Examiner(s): Donlon, Ryan D
• Application Number:
  US13/087,634
• Time in Patent Office: 396 Days
• Field of Search: 705 35- 37
• 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

Systems and methods of selling employee stock options (ESOs) and other compensation instruments. The method may comprise receiving a sale order for the employee stock options from a seller. The method may also comprise the step of determining a winning bidder based on bids submitted by at least two bidders that specify a price for the employee stock options. The method may further comprise suspending the auction until there are qualifying bids from at least two bidders. The method may also comprise transferring a derivative in place of the employee stock options to the winning bidder, wherein the derivative entities the holder thereof to buy a quantity of securities of an issuer at the price.

Claims

1. A computer implemented method for auctioning compensation instruments issued by an issuer, the method comprising:

receiving, by a computer-based automated transaction system, via, an electronic data communications network, sell orders for a plurality of sellers, where, in each sell order is an order to sell a quantity of a specified compensation instrument issued by the issuer to the seller, wherein exercise of the compensation instrument by the seller entitles the seller to an underlying financial, security, wherein the automated transaction system comprises at least one computerized transaction engine that implements auction transactions in connection with the specified compensation instrument, wherein the computerized transaction engine comprises at least one processor that executes instructions stored on a computer readable medium; and

wherein the sell orders are processed by the transaction;

system in a received time order;

receiving, by the transaction system, via a plurality of electronic communication links, a plurality of bids from a plurality of computer-based automated bid systems each associated with one of a plurality of bidders, wherein each of the plurality of bids is for a product corresponding to the specified compensation instrument and indicates a bid price and a bid quantity, wherein the transaction engine adds the bids to its book in order to execute the auction transactions and wherein when the auction for a pending sell order is won by a winning bid, the transaction system is configured m decrement the bid quantity of the winning bid by an amount corresponding to the quantity of the pending sell order;

determining for each of the auction transactions, by the transaction system, whether each of the bids is a qualifying bid comprising at least verifying that the bids are either (i) at or above a predetermined minimum bid quantity, or (ii) at or above the bid quantity for the pending sell order where a pending bid is below the predetermined minimum bid quantity because the transaction system decremented the pending bid due to the pending bid having won a prior auction;

transaction;

determining for each of the auction transactions, by the transaction system, whether there are at least a predetermined required plurality of qualifying bids, and if not then suspending the auction transaction;

determining for a suspended auction transaction, by the transaction system, when there are at least the predetermined required plurality of qualifying bids, in determining when there are at least the predetermined required plurality of qualifying bids for the suspended auction, one or more automated bid system bids below the predetermined minimum bid quantity due to decrementing of bid quantity associated with one or more prior auction transactions are enabled to count toward the predetermined required plurality of qualifying bids and are enabled to participate as one or more active auction bids, even prior to the one or more automated bid systems refreshing the one or more automated bid system bids to at least the predetermined minimum bid quantity; and

upon a determination that there, are at least the predetermined required plurality of qualifying bids proceeding with the suspended auction transaction by the transaction system

wherein proceeding with the suspended auction transaction comprises;

determining a winning highest bid among the qualifying bids; and

decrementing the bid quantity of the winning highest bid.

2. The method of claim 1, wherein the compensation instruments comprise employee stock options.

3. The method of claim 1, wherein the transaction system comprises a plurality of transaction engines, wherein received sell orders are for a plurality of specified compensation instruments, wherein received bids are for a plurality of products corresponding to a plurality of specified compensation instruments, and wherein each of the plurality of transaction engines implement auctions for different groupings of the products, the method further comprising:

providing, by the transaction system, the received sell orders to the appropriate transaction engines based on the specified compensation instrument of the sell order, whereby the auctions for different groupings of products are executed in parallel.

4. The method of claim 1, further comprising:

sending, by the transaction system, a listing of the products available for bidding to the automated bid systems, wherein the listing provides an indication of strike price and strike date for each available compensation instrument.

5. The method of claim 4, further comprising:

receiving, by the transaction system, a bid file from each automated bid system, the bid file indicating bids for a plurality of specified products, wherein the bids include a bid quantity and a bid price.

6. The method of claim 5, wherein the bid file from each automated bid system comprises a bid for all products in the listing sent to the automated bid systems.

7. The method of claim 1, wherein the transaction system is configured to limit the quantity of the specified compensation instrument that a seller can sell in a single auction transaction for the specified compensation instrument, wherein the limit is a predetermined maximum number, and wherein the transaction system is configured to permit multiple pending sell orders for the seller for the specified compensation instrument even where the aggregate number of the specified compensation instrument for sale across the multiple pending seller orders for the seller exceeds the predetermined maximum number, the method further comprising:

permitting, by the transaction system, multiple pending sell orders for the seller corresponding to the specified compensation instrument even where in the aggregate greater than the predetermined maximum number are offered; and

not permitting, by the transaction system, a single auction for the specified compensation instrument where greater than the predetermined maximum number are offered.

8. The method of claim 7, wherein the predetermined maximum number equals the predetermined minimum bid quantity.

9. The method of claim 1, wherein the transaction system is configured to accept bids from the automated bid systems where the bid quantity is a predetermined minimal bid quantity, and wherein the step of determining whether there are at least a predetermined required plurality of qualifying bids, and if not then suspending the auction transaction, further comprises:

excluding any bid having the predetermined minimal bid quantity when determining whether there are at least the predetermined required plurality of qualifying bids.

10. The method of claim 9, wherein the predetermined minimal bid quantity is zero.

11. The method of claim 9, wherein there is a predetermined minimal bid price of one cent for the bids.

12. A system for auctioning compensation instruments issued by an issuer, the transaction system comprising:

a computer-based transaction system comprising at least one transaction engine, wherein the at least one transaction engine comprises at least one processor for executing software code stored on a computer readable medium, wherein file transaction, system is programmed to;

receive, via an electronic data communications network, sell orders from a plurality of sell orders, wherein each sell order is an order to sell a quantity of a specified compensation instrument issued by the issuer to the seller, wherein exercise of the compensation instrument by the seller entitles the seller to an underlying financial security, and wherein, when the at least, one transaction engine executes the software code, the transaction, engine implements auction transactions in connection with the specified compensation instrument, and wherein the sell orders are processed by the transaction system in a received time order;

receive, via a plurality of electronic communication links, a plurality of bids from a plurality of computer-based automated bid systems each associated with one of a plurality of bidders, wherein each of the plurality of bids is for a product corresponding to the specified compensation instrument and indicates a bid price and a bid quantity, wherein the transaction system adds the bids to its book in order m execute the auction transactions, and wherein when the auction for a pending sell order is won by a winning bid, the transaction system is configured to decrement the bid quantity of the winning bid by an amount corresponding to the quantity of the pending sell order;

determine for each of the auction transactions whether each of the bids is a qualifying bid by at least verifying that the bids are either (i) at or above a predetermined minimum bid quantity, or (ii) at or above the bid quantity for the pending sell order where a pending bid is below the predetermined minimum bid quantity because the transaction system decremented the pending bid due to the pending bid having won a prior auction transaction;

determine for each of the auction transactions whether there am at least a predetermined required plurality of qualifying bids, and if not then suspending the auction transaction;

determine for a suspended auction transaction when there are at least the predetermined required plurality of qualifying bids, in determining when there are at least the predetermined required plurality of qualifying bids for the suspended auction, one or more automated bid systems below the predetermined minimum bid quantity due to decrementing of bid quantity associated with one or more prior auction transactions are enabled to count towards the predetermined required plurality of qualifying bids and are enabled to participate as one or more active auction bids, even prior to the one or more automated bid systems refreshing the one or more automated bid system bids at least the predetermined minimum bid quantity; and

upon a determination that there are at least the predetermined required plurality of qualifying bids, proceeding with the suspended auction transaction, wherein proceeding with the suspended auction transaction comprises;

determining a winning highest bid among the qualifying bids; and

decrementing the bid quantity of the winning highest bid.

13. The system of claim 12, wherein the compensation instruments are employee stock options.

14. The system of claim 12, wherein the transaction system comprises a plurality of transaction engines, wherein received sell orders are for a plurality of specified compensation instruments, wherein received bids are for a plurality of products corresponding to a plurality of specified compensation instruments, and wherein each of the plurality of transaction engines implement auctions for different groupings of the products, and wherein the system further comprises a router for providing the received sell orders to the appropriate transaction engines based on the specified compensation instrument of the sell order, whereby the auctions for different groupings of products are executed in parallel.

15. The system of claim 12, wherein the transaction engine system is programmed to send a listing of the products available for bidding to the automated bid systems, wherein the listing provides an indication of strike price and strike date for each available compensation instrument.

16. The system of claim 15, wherein the transaction system is programmed to receive a bid file from each automated bid system, the bid file indicating bids for a plurality of specified products, wherein the bids include a bid quantity and a bid price.

17. The system of claim 16, wherein the bid file from each automated bid system comprises a bid for all products in the listing sent to the automated bid systems.

18. The system of claim 12, wherein the transaction system is configured to limit the quantity of the specified compensation instrument that a seller can sell in a single auction transaction for the specified compensation instrument, wherein the limit is a predetermined maximum number, and wherein the transaction system is configured to permit multiple pending sell orders for the seller for the specified compensation instrument even where the aggregate number of the specified compensation instrument for sale across the multiple pending seller orders for the seller exceeds the predetermined maximum number, and wherein the transaction system permits multiple pending sell orders for the seller corresponding to the specified compensation instrument even where in the aggregate greater than the predetermined maximum number are offered, and does not permit a single auction for the specified compensation instrument where greater than the predetermined maximum number are offered.

19. The system of claim 18, wherein the predetermined maximum number equals the predetermined minimum bid quantity.

20. The system of claim 12, wherein the transaction system is configured to accept bids from the automated bid systems where the bid quantity is a predetermined minimal bid quantity, and wherein the transaction system is programmed to determine whether there are at least a predetermined required plurality of qualifying bids, and if not then suspends the auction transaction, by excluding any bid having the predetermined minimal bid quantity when determining whether there are at least the predetermined required plurality of qualifying bids.

21. The system of claim 20, wherein the predetermined minimal bid quantity is zero.

22. The system of claim 20, wherein there is a predetermined minimal bid price of one cent for the bids.