WO2000070506A1 - Network-based trading system and method - Google Patents

Network-based trading system and method Download PDF

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Publication number
WO2000070506A1
WO2000070506A1 PCT/US2000/007561 US0007561W WO0070506A1 WO 2000070506 A1 WO2000070506 A1 WO 2000070506A1 US 0007561 W US0007561 W US 0007561W WO 0070506 A1 WO0070506 A1 WO 0070506A1
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WO
WIPO (PCT)
Prior art keywords
customer
trade
risk rating
computer
team
Prior art date
Application number
PCT/US2000/007561
Other languages
French (fr)
Inventor
Kim-E. Miral
Original Assignee
Mek Securities Llc
Priority date (The priority date is an assumption and is not a legal conclusion. Google has not performed a legal analysis and makes no representation as to the accuracy of the date listed.)
Filing date
Publication date
Priority to US13495699P priority Critical
Priority to US60/134,956 priority
Application filed by Mek Securities Llc filed Critical Mek Securities Llc
Priority claimed from AU39082/00A external-priority patent/AU779731B2/en
Publication of WO2000070506A1 publication Critical patent/WO2000070506A1/en
Priority claimed from AU2005201973A external-priority patent/AU2005201973B2/en

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Classifications

    • GPHYSICS
    • G06COMPUTING; CALCULATING; COUNTING
    • G06QDATA PROCESSING SYSTEMS OR METHODS, SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL, SUPERVISORY OR FORECASTING PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL, SUPERVISORY OR FORECASTING PURPOSES, NOT OTHERWISE PROVIDED FOR
    • G06Q40/00Finance; Insurance; Tax strategies; Processing of corporate or income taxes
    • G06Q40/04Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A network based trading system and method are provided which combine economies-of-scale enjoyed by institutional investors and mutual funds with direct ownerships of securities to permit individual investors to participate in the bond market in a cost effective manner. Through team investing (600), 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 trade in the institutional market rather than many smaller trades in the inefficient retails 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.

Description

NETWORK-BASED TRADING SYSTEM AND METHOD

Claim of Priority

This application claims priority from U.S. Provisional Patent Application Serial No. 60/134,956 filed May 19, 1999.

Field of the Invention

The present invention relates to an improved system and method for trading

financial instruments such as bonds, as well as fractional portions of traded

instruments, and more particularly to a system and method which applies trade-

approval rules to a proposed trade so that the customer's proposed trade can be

approved without manual intervention, which provides anonymous customer-to-

customer trading, and which permits aggregated trading among anonymous

customers with common investment goals.

Background of the Invention

Traditionally, the securities markets have not been hospitable to individual

investors. This is especially true of the bond market. Bonds exist in minimum units

of $1 ,000 principal amount for taxable bonds or $5,000 for municipal bonds. It is

essentially an over-the-counter market, i.e., there is in practice no central exchange

for bond trading. The prospects of a national bond exchange are dim in view of the

fact that broker dealers are presently enjoying large profits through the status quo. Moreover, except for U.S. Government securities, bond price quotes are only

readily available to brokers and dealers. While some bonds trade on the New York

and American Stock Exchanges, such trading is limited to listed issues, of which

there are very few corporate bonds and no municipal bonds or Treasury bonds.

Fewer corporations are now listing their bonds, even though the listing service is free

to stock-listed companies.

As a group, individual investors have an enormous asset base. However,

trading by individual investors is fragmented among relatively tiny pools of money,

resulting in small trades of $5,000 to $10,000. The individual investor attempting to

execute a $10,000 trade must compete with million-dollar institutional orders,

particularly in the bond market. At this size of trade, pricing for, and availability of,

bonds is unattractive and therefore trading and participation by individual investors in

the bond market is relatively infrequent. While there exists an active "odd-lot"

market, that is, a less-than-institutional sized market, for individual bond trades, the

choices are limited (e.g., choice of issuer, credit rating, maturity, interest rate, call

protection, etc.) unless the investment is an "individual round lot" of $100,000 or

more. Even at this larger size of trade, however, attractive prices and bond selection

are not assured. For individual investors, the spreads are large, with 2 to 6 points

(i.e., % of principal amount) being common, and, when coupled with commission

charges, the return-on-investment (ROI) can be significantly compromised. In

addition, the time for execution ranges on the order of days rather than seconds as

in the more liquid equity markets. Individual investors have the same fixed costs in trading bonds as institutional

investors Trade-processing costs average about $50 per trade regardless of the

size of the trade For a $1 million trade this cost is negligible But for a $5,000

trade, such costs constitute a full point before considering the spread Such costs

have also discouraged trading and direct ownership of bonds by individual investors

Accordingly, the typical investors in the bond markets have been large

institutional investors, primarily pension funds, mutual funds and insurance

companies With asset pools of $100 million or more, such institutions can trade

regularly in amounts of $1 million or more Both the corporate and municipal

markets are highly liquid for institutional investors, with bid/offer spreads being on

average 1/8-1/2 points in price, depending on maturity

Another problem with the current securities markets is that there is currently

no vehicle by which securities holders may readily trade securities, or fractional

shares thereof, directly with one another Buyers and sellers must, therefore, use an

intermediate broker and incur the high fees and costs associated therewith As

discussed above, such fees and costs can be prohibitive, particularly when relatively

small transactions are involved Furthermore, as there is no central exchange for

bonds, it may be difficult for a buyer who is seeking to purchase a specific bond to

locate a seller who is selling that specific bond This is particularly true when only a

small number of bonds, or a fractional share of a bond, are at issue Thus, the bond market is an illiquid market in that even if an investor is able to purchase a small

number of bonds, or a fractional share of a bond that investor may not readily sell

such bonds if cash is quickly needed or desired Ownership of bonds, therefore, has

not been regarded as an attractive alternative to cash-on-hand for the individual investor

A further problem with the current bond market relates to longstanding

securities industry regulations which require that the firm through which the trade is

made ensure that the customer's investing activity is suitable for that customer

based upon the customer's financial situation and investing expertise Traditionally,

these regulations have been met by intermediate brokers by manually reviewing and

approving each trade prior to settlement As far as the inventor is aware, this

approach continues today with known Internet-based trading systems, such as those

made available by E*Trade, Charles Schwab and Fidelity, with back office staff

reviewing each order and manually approving same Such manual review and

approval increases the costs associated with securities trading

What is desired, therefore, is a securities trading system which permits

individuals to own and trade bonds directly through a cost effective trading system,

which makes short-term bonds an attractive alternative to cash-on-hand for the

individual investor, and which provides an expert system for effectuating automated

trade approvals for each securities trade of each individual investor Summary of the Invention

Accordingly, it is an object of the present invention to provide a securities

trading system which is hospitable to individual investors

Another object of the present invention is to provide a securities trading system

which encourages trading and direct ownership of bonds by individual investors

Another object of the present invention is to provide a securities trading system

having the above characteristics and which capitalizes on the large asset base of

individual investors as a group

A further object of the present invention is to provide a securities trading system

having the above characteristics and which facilitates the execution of relatively small

bond trades

Still another object of the present invention is to provide a securities trading

system having the above characteristics and which reduces the time and costs

associated with executing bond trades

Yet a further object of the present invention is to provide a securities trading

system having the above characteristics and which provides a vehicle by which bond

holders may readily trade bonds, or fractional shares of bonds, directly with one

another Still a further object of the present invention is to provide a securities trading

system having the above characteristics and which provides a central exchange for

bonds

Still another object of the present invention is to provide a securities trading

system having the above characteristics and which facilitates the pairing of a buyer

who is seeking to purchase a specific bond with a seller who is selling that specific

bond

Yet another object of the present invention is to provide a securities trading

system having the above characteristics and which automates required reviewing and

approving processes for each trade prior to settlement

These and other objects of the present invention are achieved by provision of

a system which combines 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

In one respect, the invention provides a method for approving a proposed

trade of a financial instrument which was received from a customer in an electronic

form This method takes advantage of the electronic transmission of orders to buy

or sell a financial instrument by electronically parsing the trade ticket to obtain the

transaction details of the proposed trade Also, the automated system obtains

account information for the customer who submitted the electronic form, including

that customer's "risk rating " As described below, a risk rating is assigned to each

customer participating in the trading system upon opening an account and

characterizes the experience of the customer and the nature of the account (e g ,

individual, IRA, custodial, etc ) Periodically, the risk rating may be updated to reflect

current financial conditions of the account or to comply with regulatory requirements

The suitability of the proposed trade for that customer is then determinable using

the transaction details of the proposed trade The method automatically approves

the proposed trade if the risk rating and the suitability bear a predetermined

relationship to one another which indicates that the proposed trade should be, in

fact, suitable for that customer

In a preferred form, the automated trade approval method of the invention

applies one or more rules from a rule base to the transaction details of the proposed

trade The rule base may also use the account information of the customer in determining the suitability of the proposed trade Once the proposed trade is

approved the system may automatically generate a confirmation notice of the

approval On the other hand, trades which may be unsuitable result in the automatic

display of an unsuitability warning

Another aspect of the invention provides a method for aggregating the

common investment desires of several customers so that they can purchase, as a

team, a quantity of a common financial instrument in one trade This method calls

for each customer to anonymously post over the Internet for other customers of the

system to see, a desire to effect a team trade Each customer desirous of

participating in the team trade then anonymously provides a tentative financial

commitment to the automated system This commitment is also obtained over the

Internet, and team members may join the team and communicate anonymously with

other team members to exchange concerns and ideas about how a particular

investment goal might be achieved Once the transaction is finalized by the team

members, financial commitments are also finalized The system thereafter

purchases in a single trade a quantity of the financial instrument, which has a total

cost no greater than the sum of the obtained financial commitments The accounts

of each of the team members is then charged in an amount up to their respective

financial commitments Also, each team member's account is credited with

ownership of a proportionate share of the financial instrument that was just

purchased A customer's proportionate share is the amount charged to the

customer divided by the total cost of the purchase In another aspect, the invention provides a method for directly trading a

financial instrument directly between two customers without an intermediate broker

This method leverages the Internet by bringing a seller together with a prospective

buyer or a buyer together with a prospective seller The method includes the step of

initially establishing a secure and anonymous communication link between the two

customers on the Internet Through the secure connection the customers negotiate

a price for a proposed trade without knowing each other's identity However, both

customers are customers of the system When the customers have agreed upon a

price for the proposed trade, that price is provided to, or obtained by, the automated

system which then executes the proposed trade

In a preferred form, this customer-to-customer trading method includes the

additional step of confirming, without human intervention, that the agreed upon price

is fair prior to executing the proposed trade This is of particular value in illiquid

markets such as some bonds and stocks Also in a preferred form, the customer-to-

customer trading method utilizes the automated trade approval methodology

referred to above and described in detail herein

The present invention also relates to trading systems which are accessible

through the Internet A system in accordance with one or more aspects of the

invention is configured as a programmed computer or server which implements the

above described methods, including one or more of the following approving proposed trades of financial instruments without human intervention aggregating the orders of

several customers for a common financial instrument to purchase/sell in a single trade

a larger quantity of that financial instrument executing a trade of a common

investment package for a team of customers permitting direct and preferably

anonymous trading of financial instruments between first and second customers and

providing customer support services such as prospectus information, news account

balance and credit information chat rooms and advice and answers to customer

inquiries The computer or server includes a processor which is programmed as by a

software program to implement the trading system, data storage which maintains

customer data including account balance information and current holdings, and

communication links which permit electronic data interchange between the trading

system's computer and the computers of sponsoring broker-dealers and/or customers

which are used to access the trading system The process flows illustrated in the

accompanying Drawings illustrate the programs that are implementable on the trading

system's computer or server

The invention and its particular features and advantages will become more

apparent from the following detailed description considered with reference to the

accompanying drawings

Brief Description of the Drawings

Fig. 1 illustrates a hardware arrangement that may be used to implement a

system and method in accordance with the present invention, Fig. 2 is a block diagram of an automated risk assessment and trade approval portion of the system of FIG 1

Fig. 3 is a block diagram of a team trading portion of the system of FIG 1

Fig. 4 is a block diagram of a customer to customer trading portion of the

system of FIG 1 ,

Fig. 5 is a flow diagram of a main or home page provided by the system of

FIG 1 ,

Fig. 6 is a flow diagram of a customer enrollment process provided by the

system of FIG 1 ,

Fig. 7 is a flow diagram of customer login and services pages provided by

the system of FIG 1 ,

Fig. 8 is a flow diagram for trading pages including street trades provided by

and executable through the system of FIG 1 ,

Fig. 9 is a flow diagram of team trading pages that are provided by the

system of FIG 1 in accordance with one aspect of the invention, Fig. 10 is a flow diagram of customer-to-customer trading pages that are

provided by the system of FIG 1 in accordance with another aspect of the invention,

Fig. 11 is a flow diagram of negotiation pages that may be used by

customers to implement the customer-to-customer trades of FIG 10,

Fig. 12 is a flow diagram for automated trade approval of trades of financial

instruments and investment packages that is provided by the system of FIG 1 in

accordance with a further aspect of the invention,

Fig. 13 illustrates transaction details of a completed trade wherein a

purchasing customer bought a bond,

Fig. 14 illustrates a team investing web page which identifies the team web

pages of active teams;

Fig. 15 illustrates a form for starting a new team web page,

Fig. 16 illustrates a bonds-for-sale web page,

Fig. 17 illustrates a bonds-wanted web page, Fig. 18 illustrates a bonds-for-sale data entry form

Fig. 19 illustrates a bonds-wanted data entry form and

Fig. 20 illustrates an order form that may be used to submit a purchase or

sale order of a particular financial instrument

Detailed Description of the Invention

By way of overview and introduction a server 100 which is configured to

implement the system and method of the invention is illustrated in FIG 1 FIG 1

shows a hardware arrangement 102 including an automated trading/clearing server

100 with a bilateral communication line 103 for communication over the Internet or

other networks 104 By way of the Internet 104, the automated trading/clearing

server communicates with plural customers 106 using remote stations or personal

computers 108 The server 100 also communicates with Sponsoring Broker

Dealers (SBD) 110 through the Internet 104 The customers 106 and the SBDs 110

connect to the Internet over respective communication lines 112, 114 A plurality of

customers 106 at widely dispersed geographic locations can communicate with the

server 100 through the Internet 104 Likewise, any number of SBDs can refer

customers to the automated trading/clearing server 100 through the Internet 104 or

other means. Each SBD has a number of its own customers 116 that access the

automated trading/clearing server 100 through the SBD 110 or through direct

connections to the Internet 104 by way of connection 117 Referring now to FIG 2, an automated risk assessment and trade approval

routine 120 of the system is shown When a customer 106 logs onto the system for

the first time customer 106 transmits customer information 122 to server 100 The

information includes information concerning such matters as the customer s financial

resources, the customer's trading experience, the type of customer account, and the

like Risk assessment and trade approval routine 120 receives the customer

information 122, and uses this information to assign a customer risk rating ("CRR")

to the new customer which CRR is stored on a database 124 of customer CRRs

The CRR reflects the customer's financial resources (such as net worth, annual

income data, etc ) and investment expertise The CRR is determined automatically

for each customer in response to the financial and investment background

information provided in the application form, and is based upon a set of customer

risk assessment rules stored on a database 126

Later, when a customer 106 attempts to execute a trade by sending a trade

ticket 128 to server 100, the customer's trades are reviewed and approved

automatically by risk assessment and trade approval routine 120 which assesses the

suitability of a trade for that particular customer 106 The server 100 obtains the

transaction details of the proposed trade from the trade ticket 128 The transaction

details include all of the information entered into the trade ticket by the customer

106 Risk assessment and trade approval routine 120 used these transactions

details to retrieve that customer's CRR from database 124 and to assign a trade risk rating (TRR) to the proposed trade The TRR reflects the underlying economic risks

of the instrument itself or the nature of the trade within the overall context of the

customer s risk profile (which is reflected in the CRR), and is based upon a set of

trade risk assessment rules stored on a database 130

After the TRR is determined it is compared to the customer s CRR that is,

the TRR is gauged to the risk rating that was assigned to the particular customer

who is seeking approval for the trade The gauge is preferably whether CRR is

≤ TRR although other predetermined relationships can be used Thus, if the

customer risk rating is less than or equal to the determined trade risk rating, then the

trade is automatically approved by risk assessment and trade approval routine 120

Trade confirmation notices 132 are provided to the buyer, seller, and their SBDs

136, and trade settlement is scheduled by the server 100 If the customer risk rating

is not less than or equal to the determined trade risk rating, the details in the

proposed trade ticket trigger an unsuitability warning 134 which is transmitted to

customer 106 The warning 134 can advise the customer 106 of the potentially high

market risk, potential impact on the customer's investment portfolio or other warning

Preferably, the suitability of the proposed trade is rated for both the buyer and

seller Also preferably, each party is not made aware of any unsuitability

determination associated with the other party to the trade

Referring now to FIG 3, team trading, in accordance with an aspect of the present invention, permits individual investors to aggregate their respective buy or

sell orders for execution as a single order of a given quantity of a common financial

instrument or investment package Necessarily, the team members must share an

investment goal and agree to a common investment vehicle A team trading routine

138 executing on system server 100 enables this by bringing together investors with

common interests and permitting them to exchange ideas and obtain system-

provided information relevant to their investment goal, such as, for example, specific

bonds which according to present market conditions satisfy the goal

A user 106 must first decide whether to start a new team or review existing

teams and perhaps join and participate in them A team creator 140 starts a team

by entering a start-team request and providing start team information 142 The start

team information specifies, generally, the investment goal that the team creator 140

has in mind, such as the type of issuer (e g , household name corporation or

municipality), the credit quality (e g AAA or AA ), the maturity (e g , 1 or 5 years),

and the purpose of the investment (e g college education or retirement)

The team trading routine 138 examines the team pages database 143 to

determine whether or not one or more teams exist which address the stated

investment goal of the team creator 140 and if not, establishes a team page which

addresses that goal and stores the newly created team page on team pages

database 143 In other words, if a need for an additional team is confirmed, then a

new team page is created Because a number of team pages are provided by the system each having its own investment goal and investment package (which may

comprise only one financial instrument) the customer may be better served by being

directed to an existing team than to be the sole member of a new team If such is

the case, team creator 140 essentially becomes a potential team member 144

Upon creating the new team web page, the system processes the information

in the start team information 142 in view of current market conditions and posts on

the team web page the specific instruments which can be purchased in order to

reach the team investment goal

Other customers, or potential team members 144, of the system 100 are

notified of the new team, for example, by email by a banner notice to all customers

upon logging on to the system, or simply by including the new team web page for

display along with the other team web pages Preferably, potential team members

144 can review a list of existing teams to find one of interest, or can perform a

search for a particular team using a standard website search engine Once a team

page of interest 146 has been located in the list, it is displayed to potential team

members 144 A potential team member 144 may then send a request to join the

team, or if already a member, may send a team page update request 148 to

exchange messages, open a chat session or obtain updated parameters that may

be posted on the team web page 146 from time-to-time Thus through the team

web page, team members 144 may exchange ideas, discuss important topics and

debate differences of opinion prior to making a team trade As the trade date approaches then a final financial commitments request 150

is sent to the team members 144 to aggregate sufficient funds to implement a single

larger trade preferably an institutional-sized round lot trade Each team member

144 can specify his or her investment in terms of total amount of dollars to be

invested (which may result in the ownership of fractional bonds) or in terms of face

amount of whole bonds Each customer specifies his or her respective commitment

152 by posting that commitment 152 to the system Once commitments 152 are

received from all team members 144 the team is closed and the trade executed

Referring now to FIG 4, a customer-to-customer (C2C) trading routine 154 is

shown In accordance with this aspect of the invention, one customer trades directly

with another for the instrument that he or she wishes to purchase or sell without an

intermediate broker The C2C trading routine 154 receives from a selier 156 an

indication 158 of a bond held by the seller 156 which is available for direct sale to

another customer The C2C trading routine 154 also receives from a buyer 160 an

indication 162 of those bonds or types of bonds, that particular buyer 160 is

interested in purchasing The indications 158, 162 may be in the form of 'bonds for

sale" and/or "bonds wanted" lists as described fully below although such is not

required

Once a potential trade is found to exist, that is, a seller 156 is matched with a

buyer 160, the seller 156 and buyer 160 qualifications for negotiating the trade are venfied Specifically the C2C trading routine 154 confirms that the buyer 160 has

sufficient funds by examining the customer s account to determine how much cash is

available, and perhaps how much credit can be extended in any associated margin

account The C2C trading routine 154 also confirms that the seller 156 has the bond

being sold in his portfolio

Once the seller 156 and buyer 160 qualifications have been verified, the C2C

trading routine 154 generates and transmits to the seller 156 and the buyer 160 a

notification 164 of the potential trade and establishes a communication link between

the two customers Thus, the seller 156 is able to send/receive messages 166

to/from the buyer 160, and the buyer 160 is able to send/receive messages 168

to/from the seller 156, thus allowing for communication and negotiation between the

parties

The C2C trading routine 154 also determines the fair market value 170 of the

bond at issue, and transmits the fair market value 170 to the seller 156 and the

buyer 160 as a base line comparison value to guide the parties to a fair trade The

fair value of the listed bond is calculated in light of the trade date, settlement date,

accrued interest, appropriate Treasury yield and other relevant market information

When the seller 156 and the buyer 160 believe that they have come to an

agreement, including an agreement as to price, each party submits (posts) his or her

respective trade ticket 172 and the C2C trading routine 154 determines whether the terms from the two trade tickets 172 match If the tickets do not match, then the

buyer and seller are notified of the discrepancy 174 and communications may again

proceed to correct the discrepancy or cease negotiations If the terms do match

however, then, in accordance with a further aspect of the invention, the fairness of

the agreed upon terms to both parties is assessed automatically and without manual

intervention, as described fully below

If the price is not deemed fair then the buyer and seller are advised of this

discrepancy 174 and the anonymous communications between the buyer and seller

can again proceed This mechanism ensures that one customer does not take

advantage of another in a direct trade However, if the price is determined to be fair

(or if buyer and seller both agree to the negotiated price despite a system warning),

then the buyer and seller are notified that the trade can be executed 174 and the

system obtains the confirmation 176 from both parties that the trade is to be

executed in accordance with the trade tickets 172 Thereafter, the trade may be

executed and subsequently settled

The present invention will now be described in more detail with respect to

FIGS 5-20

With reference now to FIG 5, a person connecting to the server 100 through

the Internet 104 first accesses the server at step 200 Preferably, access is

achieved using a standard web browser such as commercially available from Microsoft Corporation of Redmond Washington under the name Internet Explorer® or from Netscape Communications Corporation under the name Netscape®

Communicator or through a customized application developed specifically for use

with this system The customer 106 116 communicates with the server 100 using

any conventional electronic data communication link such as a modem

Upon initial access to the server 100, a main page 212 is displayed at step

202 which includes buttons or links to further pages within the website Through

buttons or links, the person accessing the server 100 is queried at step 204 to input

data concerning whether the person is a new customer an existing customer or a

member of the public seeking information about the trading and investing services

that are provided by the system of the present invention At steps 206 and 208, the

user's input is tested to see whether the user is a new customer or an existing

customer, respectively If the user is a new customer, then the user will be directed

to further pages in the website to complete an application Otherwise, the system

tests the user's input at step 208 to determine whether the user is an existing

customer If the user is an existing customer, then the customer is directed to

customer-only services provided by the system, described below

If the user who has accessed the server is neither a new customer nor an

existing customer then the server restricts that user's access, at step 210, to only the

public pages, which may provide marketing or other information concerning the

trading and investing services that are available to customers 1. New Customers and Customer Risk Rating Assignments

In FIG 6 the application and review process 300 commences in response to

the user inputting at step 204 that he or she is a prospective new customer The

application and review process comprises one or more secure pages within the

website of the trading system 100 Initially the prospective new customer is

presented at step 302 with basic disclosure information as required by the SEC and

other organizations, as well as the rules of operation of the broker operating the

trading system 100 Preferably, this information is presented in summary form The

prospective new customer must assent at step 304 to conditions required to open

and maintain an account with the firm In addition, the new customer must review

full disclosure documentation in order to be provided with a new customer

application form

The conditions for opening an account with the firm may include the

customer's agreement to having "normal" communications conducted electronically

by e-mail or through the website "Normal" communications include receipt of trade

confirmations, account statements, prospectuses and official statements Other

communications may include account balances, relationships with other firms, and

other indicia of experience in trading or financial ability

In the event that the prospective new customer does not agree to conducting

business in the manner required by the firm, then that person may be provided with a questionnaire at step 306 so that the firm may better understand what guided that person's decision That person is then directed to the main page at step 308 (see

step 212 of FIG 5)

In the event that the customer is comfortable with the conditions for opening

an account with the firm, then at step 310 the customer is presented with a page

which provides full disclosure documentation to the prospective new customer The

page may itself include full copies of the disclosure documents or may include links

to full text files which may be stored at the server 100 as a word processing file,

plain text file or in a proprietary format such as Adobe Acrobat® of Adobe Systems

Incorporated The prospective new customer can click on each of the links to read

and review the documents immediately or to download them to their computer 108

for future reference Once the user has downloaded the disclosure documents and

confirmed at step 312 that he or she has read the disclosure documentation, an

application form is provided to the customer at step 314

The page (or frame) containing the application form is conveyed to the

customer 106,116 through a secure socket layer (SSL) connection The individual

completes the application form and submits it at step 315 to the firm in a

conventional manner, for example, by clicking a submit button in the application

form. It should be understood that the application form may comprise a series of

pages, each of which requires different and additional information in order to set up

an account The information includes the customer's name, address, information concerning the trading experience of the customer, and the like As each form is

submitted to the server 100, the information in that form may be saved in a database

118 (see FIG. 1 ) Also, as each form is completed (e g. , by pressing a submit

button) an embedded script or server-side program can be used at step 316 to

validate the entries and prevent the omission of any required information. Invalid

entries are flagged at step 317. In the event that required information is not

included in the form and these are flagged entries, as tested at step 318, then the

form is redisplayed to the individual with previously entered information echoed (that

is, included) in the form. The individual can now correct or provide further

information and resubmit the form at step 315 for further review. Some data may

require manual review, but substantially all of the information can be processed

automatically.

In the event that the form is correctly filled out, the application is digitally

"signed" by the new customer with a "sigNETure." The "sigNETure" includes specific

information concerning the customer such as a date, the customer's name and

social security number and perhaps further information to identify the customer.

The digital signature is obtained at step 320 and signifies that the customer has

agreed to all of the terms for opening an account and that the requisite disclosure

documents have been read.

At step 322, an account number is generated and sent to the customer's

browser along with further instructions on how to open the account. At step 323, a customer risk rating ("CRR") is assigned to the new customer and the new account

and customer data is stored in the database 118 at step 324 The CRR is based on

the customer's financial resources (such as net worth annual income data, etc ) and

investment expertise The CRR is determined automatically for each customer in

response to the financial and investment background information provided in the

application form The risk assignment routine parses the contents of the submitted

forms, extracts data from some of the fields, and uses that data to determine the

CRR The risk rating for each customer preferably comprises a code consisting of

an integer relating to experience, understanding, and risk tolerance and an

alphabetic character which characterizes the type of the account The Risk Rating

Table below illustrates some exemplary CRR codes that can be assigned in different

combinations to different customers

RISK RATING TABLE

Number/Letter Meaning

1 Advanced understanding of risk, extensive experience with individual securities, has extensive financial resources

2 Moderate understanding of risk, limited or no experience with individual securities, invests primarily in mutual funds, has moderate financial resources

3 Beginning investor, limited understanding of risk, little or no investing experience, besides money market instruments or funds, has limited financial resources

A Extensive financial resources, qualifies as an

"accredited investor" M Custodial/Trust account for a minor

R Retirement account

X Missing important information for determining suitability O No extra suitability considerations If a customer does not supply the information necessary to assign a risk

rating, a 3X default rating is assigned That rating will cause all securities purchases

to be considered potentially unsuitable Preferably, the customer is advised of this

fact and encouraged at the time that the application is being submitted to provide the

information that is needed to complete his or her CRR assignment and that

information is maintained in confidence by the system

At step 326, the customer is advised as to how to fund the account, including

how to transfer securities from another account into the new account and how to

send or wire cash The trading system 100 then awaits the receipt of funds which is

tested periodically at step 336 If the funds have been received, then at step 338 the

customer is provided with access to the trading/customer services of the trading

system 100 The customer is notified of this new status at step 340, preferably by

email, and the customer intake process of FIG 6 terminates at step 342 On the

other hand, if funds have not been received within a predetermined interval at step

344, then a reminder is sent at step 346 to advise the applicant that funding has not

yet been received This provides the applicant with notice to follow-up with his or

her prior broker or IRA trustee to determine why funds have not yet been

transferred If a substantially long period of time has passed without funding the

account, the application may be canceled and an email notice may be sent to the

applicant regarding the same When the customer is notified of access to the trading/customer services, he or she may be further notified of further instructions on how to start using the

account

Certain documents may require a manual signature for example a request to

transfer funds from another broker Such forms can be downloaded by the customer

from the trading system 100 or sent by regular mail for completion signature and

mailing to the institution holding such securities Such documents also would be

used by outside service providers such as a IRA trustee or prior broker who may not

permit sigNETures

2. Services For Enrolled Customers

Any customer already enrolled in the trading system 100 can access the

trading and customer services pages of the system by identifying themselves as a

customer at step 204 (FIG 5) That person is then directed to the customer-only

portion of the website which includes various routines and processes commencing at

step 400 of FIG 7 At step 402, the customer enters his or her identification at a

secure customer login page The customer name and password (or other suitable

identifiers known only to the customer and the trading system 100) are entered at

the login page and tested at step 404 for validity If the identifier is not known to the

system 100, the person is given at least one more chance at step 405 to enter the

correct identifier, or to return to the main page at step 212 Only customers who input identifying information which matches the

information previously stored in the database 118 at the server 100 can access the

financial planning services and trading web sites made available by the server 100

Once identified, the customer selects from a variety of services including

financial planning services, trading services and other functions and services that

are made available by the system The customer selects the service he or she

desires at step 406

a. Financial Planning Services

If financial planning services are selected, as determined at step 408, then

investment objective data is provided by the customer at step 410 which the system

processes against current market data to determine a potential investment strategy

Financial planning is not the subject of the present invention, however, it may

include the determination of a series of transactions to be made in order to invest

funds so as to meet or exceed long-term or short-term investment goals Briefly, the

investment objectives data includes an investment goal such as preservation of

assets or the degree of risk tolerance permitted to accumulate funds to finance a 10

year old's college education The investment objective data may further include

personal and family financial information such as liquidity, indebtedness (e g , any

mortgage or credit card debts), insurance coverage, number, age and income

generated by family members, prior year tax information, real estate and partnership

interests, and the like Using the data entered by the customer at step 410, a potential investment strategy determination is made at step 412 The determination may be based upon further information such as the risk level assigned to the

customer (see step 323) and current market data 414 provided from a data store or

other information source (e g , another website) The determination of the

investment strategy is made by an optimization routine which selects from among

many potential investment vehicles one or more transactions which the model

concludes will lead to the customer s investment goal The determined strategy is

displayed at step 416 and the customer if not done at step 417, can thereafter

provide new or further assumptions at step 418 to have a revised strategy

determined at step 412, or can return to the selection command page by looping

back to step 406 through a suitable link from the display strategy page

The customer can execute one or more electronic trades which implement the

strategies outlined by the financial planning services of the trading system 100,

however, the invention is not so limited The present invention concerns electronic

trades which are not driven or directed by the financial planning routines that may be

offered by the trading system 100

b. Trading Services With Automated Approvals

If trading services are selected at step 406, as determined at step 420, then

the bond/security trading pages are accessed at step 422 From the trading pages,

the customer can execute a street trade a customer-to-customer trade, a team trade

or some other trade for an SBD to execute In accordance with a salient aspect of the invention, the customer's trades can be reviewed and approved automatically

using an artificial intelligence routine which assesses the suitability of a trade for that

particular customer This aspect of the invention departs from conventional

approaches wherein a principal must review and approve each trade prior to

settlement, as far as the inventor is aware this approach continues today in the

Internet-based trading systems made available by E*Trade, Charles Schwab

Fidelity, and the rest, with back office staff reviewing each order and manually

approving same The conventional approach flows from longstanding securities

industry regulations which require that the firm through which the trade is made

ensure that the customer's investing activity is suitable for that customer based upon

the customer's financial situation

The suitability of a trade for a given customer is gauged relative to the risk

rating that is assigned to that customer when he or she establishes an account (see

step 323 of FIG 6) An automated trade approval routine determines the suitability

of the trade for a particular customer With reference to FIG 12, the automated

trade approval routine starts at step 450 The system 100 obtains the transaction

details of the proposed trade from the trade ticket or other electronic form that is

completed by the customer at step 452 The transaction details include all of the

information entered into the trade ticket by the customer The trade ticket identifies

the customer, and that customer's CRR and other relevant information is obtainable

from the database 118 at step 454 The suitability of the proposed trade is rated at step 456 for both the buyer and seller Whether a trade is suitable or not is rated by applying a series of

analyses Each analysis explores the underlying economic risks of the instrument

itself or the nature of the trade within the overall context of the customer's risk profile

(which is reflected in the CRR) After final analysis the trade is assigned a "Trade

Risk Rating" or "TRR" which is compared directly with the CRR to provide a "Yes" or

"No" suitability determination at step 458

Obtaining a meaningful TRR requires at least two sequential analyses The

first analysis is a qualitative judgment as to whether the type of trade or investment

(with no consideration of the specific instrument to be bought or sold) is suitable for

the type of account which the customer holds (with no consideration to the financial

resources or expertise of the customer) For example, a proposed short sale in a

retirement account would be deemed unsuitable regardless of the instrument being

sold or the wealth of the customer, since uncovered short sales are speculative

trades and any trade considered speculative is generally not suitable for a tax-

deferred retirement account Rejection of a trade as unsuitable at this first step will

depend on regulations set by regulatory authorities, the legal documents governing

the account, and policies set by the SBD or system operator The qualitative

analysis is performed using a set of rules in a rule base or a look-up table including,

among other rules, a no-uncovered-short-sale-in-retirement-account rule A series

of such rules is established and referenced to determine as a threshold matter

whether a trade can be done in the specified account If a trade passes the first analysis it is then subjected to a quantitative test

which compares the Value-At-Risk ("VAR ) of the trade to the financial resources of

the customer VAR is the potential loss that might occur after the trade is settled if

the market moves in an adverse manner VAR calculations are well-known in the art

and are a standard means of quantifying potential trading loss The VAR s

magnitude is customer independent and is compared to the specific customer's

financial resources (e g , income, liquid net worth, total net worth) to determine a

TRR value for that customer Based on preset threshold triggers the trade is

assigned a TRR, where "1" represents the greatest risk of potential harm to wealth

and "3" the least risk The TRR can be refined to take into account other relevant

factors, such as the maturity of the bonds versus the customer s stated investment

horizon, the outlook for improvement/deterioration of a bond issuer s credit, etc

After the TRR is determined it is compared to the CRR for both the buyer and

seller (step 458) The TRR is gauged to the risk rating that was assigned to the

particular customer who is seeking approval for the trade At step 458, the gauge is

preferably whether CRR is < TRR, although other predetermined relationships can

be used In the automated trade approval routine of FIG 12, if the customer risk

rating is less than or equal to the determined trade risk rating, then the trade can be

automatically approved at step 460 Otherwise, the details in the proposed trade

ticket trigger an unsuitability warning in the form of a pop-up dialog box, web page,

or the like which is displayed to the customer, as at step 462 The warning can advise the customer of the potentially high market risk potential impact on the

customer s investment portfolio or other warning

Customer Trade

Risk Rating Risk Rating Unsuitability Warning

3 3 No (automatic trade approval)

3 1 or 2 Yes

2 3 or 2 No (automatic trade approval)

2 1 Yes

1 1 2 or 3 No (automatic trade approval)

R,X 3 No (automatic trade approval)

R,X 1 or 2 Yes

The trade is deemed suitable if the CRR is less than or equal to the TRR (i e ,

the customer's ability to withstand risk is greater than the risk associated with the

trade) If the trade is suitable for both the buyer and seller it is approved at step 460

Trade confirmation notices are provided to the buyer, seller, and their SBDs (step

476), and trade settlement is scheduled by the system at step 478

If the trade is deemed unsuitable for one of the parties at step 458, he is

alerted to this fact at step 462 with details as to why the trade was deemed

unsuitable Each party is not made aware of any unsuitability determination

associated with the other party at this stage

At step 464, the customer enters a response to the unsuitability warning The

customer can accept the trade as is or cancel it If the customer elects to accept the trade as is at step 470, despite the unsuitability warning, the customer's having

overridden the warning is noted on the trade ticket at step 472 In limited

circumstances, a separate confirmation may be required to approve a proposed

trade with an unusually high amount of risk If the customer wishes to cancel the

trade as a result of the warning, he or she enters that response at step 464 At step

473, a trade cancellation notice is sent to the other party, the anonymous

chat/communication link is terminated, and the trade is canceled The customer is

then returned at step 474 to the customer command input at step 406 of FIG. 7.

In the event that the proposed trade was automatically approved at step 460

or the unsuitability warning was overridden at step 464 (with that fact noted at step

472), the process flow continues by generating a trade confirmation notice at step

476 and the trade is set up for settlement at step 478. Trade settlement includes an

exchange of cash and securities between the buyer and seller, a charge of a

commission to both, and a credit of a commission to any SBD that was involved in

the trade. The process flow then goes to step 474 to display on the customer's web

browser the customer command input at step 406 of FIG. 7

With reference now to FIG. 8, links to several different trading pages are

displayed at the main trading page menu, step 500. Depending on the command

input by customer at step 502, the trading pages for either a street trade, a

customer-to-customer trade, a team trade or some other trade for an SBD to execute are called up and displayed on the customer s web browser These trading

pages are described in turn

i. Street Trade Trading Pages

If the customer selected the street trade trading pages, as determined at step

504, then various market makers' lists of instruments (e g , bonds), their price,

maturity date, interest rate, coupons etc are displayed on the customer's web

browser application The lists are maintained and are available to the system 100

from a data store 508 Accompanying each listing is further information such as the

credit history of the issuer and other disclosure documents that may be pertinent to

an investment decision, all of which are retrievable electronically through the web

browser using links 510 The links are provided to the customer after a selection

has been made from the market makers' lists The customer can sell or buy the

selected instrument at steps 512 and 514, respectively, by completing a trade ticket

form displayed on his or her web browser and posting it to the system 100 The

transaction details are extractable (that is, can be obtained) from the trade ticket

form as digital data

Prior to setting up and executing any trade, the system 100 reviews the

transaction details in the trade ticket form and seeks confirmation of the trade from

the customer If the trade is a sale of a particular instrument, the customer must

own the instrument, as determined at step 516, and if he owns the instrument, the

details of the proposed sales transaction are echoed to the customer for confirmation at step 518 On the other hand if the customer is seeking to purchase a particular instrument, as determined at step 514 the system 100 determines

whether the customer has sufficient funds to do so at step 530, and if so, the

transaction details are presented to the customer for confirmation at step 518 If the

customer confirms the transaction then the risks attendant with the proposed trade

and the suitability of the proposed trade for that customer are determined using the

automated trade approval routine of FIG 12 As described above, the proposed

trade may be automatically approved if it is 'suitable ' for the customer or may

require a customer response to an unsuitability warning ' prior to executing the

trade

As can be appreciated from FIG 8, if (a) the customer does not own the

instrument that he or she proposes to sell at step 512, (b) does not have sufficient

funds to buy the proposed instrument at step 514 or (c) declines to confirm the

transaction details at step 518 then the trade is canceled at step 522 In any of

these circumstances, the trading/services page is redisplayed

ii. Team Trade Trading Pages

From the main trading menu (step 500), the team trade trading pages may be

selected at step 502, as determined and called up onto the customer's web browser

at step 540 Team trading, in accordance with an aspect of the present invention,

permits individual investors to aggregate their respective buy or sell orders for

execution as a single order of a given quantity of a common financial instrument or investment package An investment package' may include one or more financial

instruments, including different types of instruments such as stocks and bonds which

are grouped to satisfy an investment goal of the team

Necessarily the team members must share an investment goal and agree to

a common investment vehicle The team trading pages enable this by bringing

together investors with common interests and permitting them to exchange ideas

and obtain system-provided information relevant to their investment goal, such as,

for example, specific bonds which according to present market conditions satisfy the

goal Team trading provides an alternative to buying or selling from a dealer, and

each team member owns the instruments that are purchased and retains

management control over the investment, rather than owning a share of an

investment which may be actively managed by someone else or not managed at all

Moreover, the fixed transaction costs associated with the team order are far less

than would have been incurred were the individual orders processed separately and

are shared by the team members, thus improving the economics to the individual

investors A further advantage of a team order is that it is more apt to obtain a better

price as a single large order rather than as many small orders

With reference now to FIG 9, the team trading pages are displayed at step

600. The team trading pages constitute a number of pages, and the customer is

presented with different pages depending on what he or she wants to do The basic choice that must first be made is whether to start a new team or review existing teams and perhaps join and participate in them

a. Starting a Team

A customer starts a team by entering a start-team command at step 604 and

thereafter completing a team-start form at step 606 The team-start form specifies,

generally, the investment goal that the customer has in mind The form guides the

format of data entry and solicits information such as the type of issuer (e g ,

household name corporation or municipality), the credit quality (e g , AAA or AA ),

the maturity (e g., 1 or 5 years), and the purpose of the investment (e g , college

education or retirement)

The system operator will establish a team page using the information if there

do not already exist team pages which address the customer's stated investment

goal, as determined at step 608 In other words, if a need for an additional team is

confirmed, then a new team page is created at step 614 Because a number of

team pages are provided by the system, each having its own investment goal and

investment package (which may comprise only one financial instrument), the

customer may be better served by being directed to an existing team, as at step

610, than to be the sole member of a new team The determination at step 608

causes fewer teams to be created and better ensures that the existing teams are

filled. Upon creating the new team web page, the system processes the information in the team-start form in view of current market conditions and posts on the team

web page the specific instruments which can be purchased in order to reach the

investment goal at step 616 For example, a ten-year protect-pnncipal growth

strategy might be best satisfied by a portfolio consisting of 70% 7-10 year A-rated

bonds and 30% blue-chip stocks Preferably, the investment goals are determined

automatically and without user intervention However, a financial advisory

professional may review the investment goal and post his or her suggestions at step

616 on the team web page, as a service provided by the firm operating the system

100 Optionally, the customer can request such guidance by selecting such a

feature in the team-start form

Other customers of the system 100 are notified of the new team at step 618,

for example, by email, by a banner notice to all customers upon logging on to the

system, or simply by including the new team web page for display along with the

other team web pages (see step 652)

The customer starting, or any other customers joining, a new team may not

be a suitable candidate to participate in the team At step 620, the system

determines whether the customer has the finances or risk tolerance required for the

type of investments that are required to satisfy the team goal This is done by

reviewing the CRR and comparing it to the TRR which is determined for the specific

instruments required to meet the investment goal, as described above in connection with step 456 of FIG. 12. The suitability test may be as at step 458 of FIG. 12. if the customer is not suitable for the new team, the customer is so advised at step 622

and the process flow goes back to the main team trading page (step 600). If there

are no other team members, the system may eliminate the newly created team or

keep it and display the team along with the other team web pages. If the customer

is suitable for the new team, he or she is included at step 624 and will thereafter

receive pre-trade progress reports at step 626 regarding team issues such as: new

members, tentative financial commitments to date, proximity to reaching an

institutional-sized round lot, etc.

From time to time, the system determines at step 628 whether the goals of

the team will be met. For example, the goal may include trading by a particular date

which does not appear likely due to lack of team members or financial commitment.

Because market conditions fluctuate and a team may be undersubscribed by a trade

date, the creation of the team at step 614 does not mean that the team will be able

to execute a team trade.

If it turns out that the team goals will not be met, then the team members are

advised of this (step 630) and they must confirm that they wish to continue (step

632). If the team is to continue, then the team goals are revised at step 616 using

updated parameters and analysis by the system 100 and/or financial advisory

professional in view of any changes in market conditions. On the other hand, if the team members do not wish to continue with the team, then at step 634 the team is canceled

As the trade date approaches and the team goals can be met (as determined

at step 628), then the final financial commitments of the team members are obtained

or collected at step 636 to aggregate sufficient funds to implement a single larger

trade, preferably an institutional-sized round lot trade Each customer can specify

his or her investment in terms of total amount of dollars to be invested (which may

result in the ownership of fractional bonds) or in terms of face amount of whole

bonds Each customer specifies his or her respective commitment by posting that

commitment to the system, for example, in response to a notice from the system that

financial commitments are now required to participate in the team trade Once a

commitment is made and a team trade has not been aborted, the customer's

committed funds are unavailable for other use Preferably, a team is fully subscribed

when at least an institutional-sized order is achieved An over-subscribed team may

be cut-back to a predetermined size on a first-come-first served basis, however, a

team can be cut-back on a pro-rata basis to reduce the investment amount to a

targeted investment amount Alternatively, the target can be raised to accommodate

the demand for that team investment

Thereafter, at step 638, the team is closed and the trade executed, at step

640 Once the trade has been executed, it is settled by allocating the ownership and

cost among the team members, at step 642 For a bond purchase, funds are taken from each team member's accounts in an amount up to his or her respective

financial commitment (plus, perhaps, an additional amount for commissions), and a

number of financial instruments, including any fractional portions, are allocated to

each team member's account in a proportionate share of the quantity of financial

ιnstrument(s) that was just purchased The proportionate share of the quantity

purchased is the amount charged to each customer divided by the total cost for the

trade, exclusive of commissions Because each customer now owns the financial

instruments that were purchased, the team has no further purpose, and each

customer can retain or sell the instruments at his or her own discretion For a team

bond sale, an analogous process occurs

It should be understood that the time between creating a team at step 614

and a team trade being executed at step 640 is on the order of one or two days up

to about two weeks If financial commitments are made but the trade is not

executed by a settlement date, for example, the commitment is discharged and the

funds in the customer's account will then be available for other use Alternatively,

funds are restricted only when a customer is given notice that the trade is to be

executed.

b. Joining And Participating In An Existing Team

From the main team trading page 600, customers can review a list of existing

teams to find one of interest by entering the review-existing-teams command at step

650 This command displays at the customer's web browser a list of existing teams at step 652 In addition, the customer may enter a search query to search for a

particular team using a standard website search engine Once a team page of

interest has been located in the list, it is displayed at step 610 The customer

interacts with the team page by selecting it at step 612 The system determines at

step 654 whether the customer is a member of the team already, and, if so, the

customer may exchange messages chat or obtain updated parameters that may be

posted from time-to-time by the system operator at step 656 Through the team

web page, team members exchange ideas, discuss important topics and debate

differences of opinion prior to making a team trade The forum provided at the web

page fosters a sense of community among the team members and better ensures

that the members are all striving for a common investment goal

If the customer is not a team member already, he or she can request to join

the team at step 658, and will be joined if suitable, as determined at step 620, or

advised that he or she cannot join, at step 622, as described above If the customer

is included in the team at step 624, the process flow continues from that step as

previously described Specifically, he or she will be provided with pre-trade progress

reports, including whether the goals will be met, and if so, financial commitments will

be collected so that the trade can be executed

iii. Customer To Customer ("C2C") Trading Pages

From the main trading menu 500, the customer can also select customer-to-

customer (C2C) trading pages at step 502 In response, the system 100 directs the customer to the C2C trading pages at step 544 In accordance with this aspect of the invention one customer trades directly with another for the instrument that he or

she wishes to purchase or sell without an intermediate broker This direct customer-

to-customer trading is done anonymously to maintain customer privacy When

coupled with the automated trade approval routine, customers can directly trade with

one another through the system 100 without any human intervention in the transaction, thereby reducing commission charges and fees

With reference now to FIG 10 the C2C trading pages are displayed on the

customer's web browser at step 700 The C2C trading pages are described in the

context of bond trading, but it should be understood that the C2C concept applies to

trading of other financial instruments such as stocks, stock options and other

financial and derivative instruments Also, customers can be individuals, institutions,

or brokers Further, fractional bonds or portions of other financial instruments may

be bought and sold through the C2C trading pages

The C2C trading pages of FIG 10 include "bonds for sale" lists and "bonds

wanted" lists The "bonds for sale" list includes a list of those bonds that are held by

a customer which are available for direct sale to another customer The "bonds

wanted" list includes those bonds, or types of bonds, that particular customers are

interested in purchasing At step 702, a customer elects to either buy or sell a bond. The "bonds for

sale" list is displayed at step 704 if the customer has elected to buy a bond. At step

706, the customer either purchases a bond selected from the "bonds for sale" list, or

posts a bond that he or she wants to purchase. Prior to purchasing a bond that has

been "listed" by another customer, links are displayed at step 708 to further

information concerning the selected bond. After reviewing that information, the

customer must confirm his or her desire to make the purchase, at step 710. If the

customer decides not to purchase that bond, the "bonds for sale" list is again

displayed (step 704); otherwise, the customer qualifications for negotiating the trade

with the customer who listed the bond (the "listing customer") is determined.

Specifically, the system 100 confirms that the buy-side customer has sufficient funds

at step 712 by examining the customer's account to determine how much cash is

available, and perhaps how much credit can be extended in any associated margin

account. The system also confirms that the purchase is suitable for that customer at

step 714 by examining the customer's ability to withstand the potential loss of

principal inherent in the investment, substantially as described above in connection

with steps 454 through 458 of FIG. 12. If the customer can afford the trade and

tolerate the risk, the negotiation pages are called up at step 716. The negotiation

pages are described below in connection with FIG. 11. However, if either of the

tests at steps 712 and 714 fails, the "bonds for sale" list is again displayed to the

customer so that a different selection can be made. It may be that the customer reviewing the "bonds for sale" list does not find a

listed bond of interest. In that case, the C2C trading pages permit the customer to

post the bond(s) he or she wants to purchase on a "bonds wanted" list. The bonds

wanted list complements the bonds-for-sale list and creates demand for such bonds

that otherwise may not exist in any current system. A bond is posted to the "bonds

wanted" list at step 720 by completing a bonds-wanted form. Each entry in the

"bonds wanted" list is generated in response to a customer having completed a

bonds-wanted form at the client-side browser and submitting (posting) the form to

the server 100. The server then updates the "bonds wanted" web page using the

information in the completed form. Likewise, entries into the "bonds for sale" list are

made by a prospective seller completing a bonds-for-sale form, as described below.

Prior to updating the "bonds wanted" list, the system 100 confirms that the

customer submitting the form has sufficient cash and is a suitable purchaser at steps

722 and 724, substantially as described above in connection with step 712 and 714.

If the proposed purchase transaction is beyond the means of or is not suitable for

that customer, the proposed posting is canceled and the "bonds for sale" list is

displayed again, at step 704. Otherwise, the posting is added to the "bonds wanted"

list at step 726 and an ID is assigned to that customer and associated with the new

posting at step 728. Thereafter, a next customer command is obtained at step 406

of FIG. 7, for example, to obtain other information, obtain financial planning services,

or monitor or implement other trades. As noted above, the customer can elect to sell a bond at step 702. In this

case, the "bonds wanted" list is displayed at step 740 from which the seller selects

and reviews a buyers posting of a bond wanted to purchase. The prospective seller

can select a listed bond wanted for purchase, at step 742, and review the details

posted by the buyer as well as any comments that were provided, at step 744. The

prospective seller makes a determination of whether to sell his or her bond(s) at step

746. If the seller decides that he does not want to sell his bond based on the

buyer's posting, then the seller is returned to the display of the "bonds wanted" list at

step 740. Otherwise, the seller identifies a bond in his portfolio at step 748 and the

transaction proceeds to negotiation at step 750 (see FIG. 11).

Optionally, for any detailed listing in the "bonds wanted" list, the system 100

can determine whether any customer has the listed bond in his or her portfolio, and if

so, can identify to the customer which listings in the "bonds wanted" list are in his or

her portfolio. This may occur automatically or in response to a user request.

Alternatively, the prospective seller can add a bond from his or her portfolio to

the "bonds for sale" list. By completing and submitting a bonds-for-sale form, the

seller posts the bond on the "bonds for sale" list at step 760. The server then

updates the bonds-for-sale web page. If the system 100 determines that the bond

is owned by the sell-side customer at step 762, then the posting is added to the list

at step 764 and is displayed to prospective purchasers who elect to "buy" bonds at

step 702. In addition, the seller is assigned an ID at step 766 which is associated with the newly listed bond Thereafter the customer is returned to the command prompt at step 406 of FIG 7

It should be understood from the foregoing that prospective purchasers add

to the 'bonds wanted" list and prospective sellers add to the bonds for sale ' list by

navigating the C2C trading pages in the manner described above and shown in FIG

10

Preferably, the identities of listing customer on the one hand and the

prospective buyer or seller on the other hand are concealed That is, buyers looking

to buy a bond from the "bonds for sale" list and sellers looking to sell a bond listed

on the "bonds wanted" list do not know each other's identities Instead, the

negotiation between the two customers proceeds anonymously, using identifiers that

are assigned to the listing customer (at step 728 or step 766) and to the prospective

buyer/seller at step 810 of FIG 11 , discussed next

With reference now to FIG 11 the negotiation pages are called up in

response to a customer's interest in buying or selling a "listed" instrument, that is, a

bond which is listed on the "bonds for sale" or "bonds wanted" lists At step 810, the

customer who is responding to a listed bond is assigned an ID for that transaction

The system 100 establishes a communication link (including an exchange of

assigned IDs) between the two customers In particular, if a customer is responding

to a "bonds for sale" listing, then the ID is assigned to the prospective buyer (the 'buy-side customer") and, if the customer is responding to a "bonds wanted" listing,

then the ID is assigned to the prospective seller (the "sell-side customer") At step

820, the fair value of the bond is determined by the system 100 using an online

calculator The fair value is reported to the two parties to the proposed trade as a

base line comparison value to guide the customers to a fair trade The fair value of

the listed bond is calculated in light of the trade date, settlement date, accrued

interest and appropriate Treasury yield

At step 830, anonymous communication between the two customers, namely,

the buyer and seller, proceeds on the Internet using the IDs that were assigned to

them The goal of the anonymous communication is to negotiate and ultimately

agree upon price The negotiations transpire within a secure portion of the system

website When each of the parties to the trade believes that they have come to an

agreement, including an agreement as to price, then at step 840 the parties are

provided with a trade ticket form to complete online Each party submits (posts) his

or her respective trade ticket form and the system determines at step 842 whether

the terms from the two trade tickets match If the tickets do not match, then the

buyer and seller are advised of the discrepancy at step 844 and communications

may again proceed as at step 830 to correct the discrepancy or cease negotiations

If the terms do match, however, then, in accordance with a further aspect of

the invention, the fairness of the agreed upon terms to both parties is assessed

automatically and without manual intervention, at step 846 Specifically, the system 100 ensures that customer-to-customer trades are made at a "fair" price which is

between bid and offer price quotes from odd lot dealers and third party services such

as BondTrac and Bond Express dealing in the same or comparable bonds That is,

a "fair" price is one which falls between two objectively determinable limits Such

prices are what customers would experience if they were bought or sold outside the

system 100 and is competitive with the traditional pricing that customers would be

advised of when using a conventional dealer to handle their order This objective

measure protects the buyer from over-paying and the seller from excessive

discounting, and is made by comparing the price in the completed trade ticket to the

price quote from such dealers and/or third party services Further, the system 100

encourages C2C trades to be made at a price which is similar to a price quote for

the same or comparable bonds in institutional-sized round lots that can be received

from institutional dealers or by monitoring new issuance levels and third party dealer

screens (e g , Telerate) which show the secondary institutional trading levels for

actively traded bonds Each of these comparisons and the determination of whether

a price is fair at step 846 relies upon data from one or more information sources 848

that are connected to or accessed by the system 100 The term "comparable bond"

as used herein refers to a bond which has similar characteristics such as type and

credit quality of the issuer, maturity, interest rate, etc

If the price is not deemed fair, then the buyer and seller are advised of this

discrepancy at step 844 and the anonymous communications between the buyer

and seller can again proceed at step 830 This mechanism ensures that one customer does not take advantage of another in a direct trade However if the price

is determined to be fair (or if buyer and seller both agree to the negotiated price),

then at step 850 the buyer and seller are notified that the trade can be executed and

the system obtains the confirmation from both that the trade is to be executed in

accordance with the trade tickets at step 852 Thereafter, the trade may be

executed and subsequently settled as at step 854 in a conventional manner, or

execution and trade settlement may include the automated trade approval routine of

FIG 12

c. Other Services

In addition to the financial planning services and trading web sites, the

customer can select other functions and services by entering a suitable command at

step 406, as shown at step 424, such as bond calculators and IRA analyzers

These other services are not material to the present invention and are thus not

described in detail

3. Data Entry Forms

Various forms are used in the process flows and methods of the present

invention, including a trade details form, a team-start form, a bonds-wanted form,

and a bonds-for-sale form Exemplary forms for entering this information and web

pages are shown in FIGS 13 through 20 With reference first to FIG 13 the transaction details of a completed trade

made by a purchasing customer are listed in the illustrated trade ticket The

transaction details in the trade ticket are conveyed to the customer over the Internet

in any conventional secure manner The transaction details may include many or all

of the following the trade number 1002 (which is common to the buy and sell sides

of the transaction and generated by the system for tracking and internal audit

purposes), the buying customer s account number 1004, the status of the trade 1006

(filled, partially filled, open, pending cancellation etc ), which side of the transaction

the customer was on 1008 (buy or sell side) the amount of the instrument

purchased 1010, the name of the instrument 1012, the type of the instrument 1014

(bond, stock, option), the CUSIP number 1016 for that instrument, the execution

method 1018 (e g , street trade, C2C team trade), conditions on the trade 1020

(market order, limit order) and values 1022 1024 on the conditions (e g price or

time limits), the time of the order 1026, the trade date 1028, the settlement date

1030, the price 1032, the accrued interest 1034, if any, the gross amount of the

trade 1036, the commission 1038, any SEC fee 1040, any tax 1042, any further

service charge 1044, the net amount of the transaction 1046, the market in which

the trade was executed 1048 (e g , C2C, NASDAQ, NYSE, etc ), and the SBD that

was involved in the trade 1050 Depending on the security type 1014, some of the

fields in the trade ticket may be empty or not provided to the customer because they

are not relevant (e g , there is no accrued interest in a purchase or sale of stock) In FIG 14 an exemplary 'team investing ' web page 1100 is displayed, such as is displayed at step 600 A selection of teams are available in an active teams list

1102, for the customer to choose from The active teams list in FIG 14 includes one

active team, team number T01123 called "The Broke Parents Club " The active

teams list includes data fields which identify for each team the team's investment

goal 1104, the number of members the team currently has 1106, the extent of

current commitments 1108, and the target date for the trade 1110 Further

information on each team can be obtained by click-selecting the team, for example,

by clicking on the team name field 1112 for a particular team The customer can

also start a new team by clicking hyperlinked-text such as the "Click here to Start a

New Team" text 1114

If the customer wishes to start a new team, then the team-start form referred

to above at step 606 is displayed at the customer's computer, that is in his or her

browser or application software An exemplary team-start form 1200 is illustrated in

FIG 15 and provides various fields in which customers name the proposed team

1202, define the action of the team (to buy or sell or implement a particular strategy)

1204, define the team goal field 1206, define their financial commitment 1208, state

a trade date 1210, and provide customer identifying information 1212 The team-

start form 1200 can be cleared using button 1214 or submitted using button 1216

In connection with customer-to-customer trading, bonds-wanted and bonds-

for-sale lists are displayed to customers from which a bond can be selected for trading If the bond is not included on one of these lists a bonds wanted' or bonds for sale notice can be posted by a customer for inclusion in the appropriate list

With reference now to FIG 16 the display of the bonds for sale" list, as

referred to above at step 704 may comprise a display such as the web page 1300

One or more bonds for sale are listed in a table which identifies, among other

information, the issuer 1302, the amount 1304, the rating 1306, coupon 1308,

maturity 1310, call date 1312, call price 1314, and the seller by way of an encoded

identifier 1316 known only to the system operator A customer interested in

purchasing a bond listed on the bonds for sale web page 1300 clicks the seller's

identifier 1316 to begin negotiations Of course, any row entry in the bonds for sale

list can be click-selected to initiate negotiations, and negotiations proceed after the

process steps of FIG 10 described above In the event that the customer does not

see a bond that he or she wishes to buy from the list, a "bonds wanted" notice can

be posted by clicking a button or hypertext-link such as the hypertext 1318

In like manner, the "bonds wanted" list referred to above at step 740, may

comprise a display such as the web page 1400 of FIG 17 One or more bonds

wanted are listed in a table which identifies, among other information, the issuer

1402, the amount 1404, a rating range 1406, a coupon range 1408, a maturity range

1410, whether the bond is callable 1412, and the buyer by way of an encoded

identifier 1416 known only to the system operator A customer interested in selling a

bond which is listed on the bonds wanted web page 1400 clicks the buyer's identifier 1416 or another row entry to begin negotiations with negotiations proceeding as

described in connection with FIG 10 In the event that the customer does not see a

bond that he or she wishes to buy from the list a bonds for sale notice can be

posted by clicking a button or hypertext-link such as the hypertext 1418

FIG 18 illustrates an exemplary bonds for sale form 1500 which includes

fields 1502-1516 that correspond to fields 1302-1316 respectively The seller-id

field 1516 obtains the selling customer s name, account number and e-mail address,

but none of this information is posted in the seller-ID field 1316 Instead, as

described at step 766, a seller-ID is assigned and included in the seller-ID field

1316 Erroneous entries can be cleared using a reset button 1518 and the bonds-

for-sale form 1500 is submitted using a post form button 1520

FIG 19 illustrates an exemplary 'bonds wanted" form 1600 which includes

fields 1602-1616 that correspond to fields 1402-1416, respectively The buyer-ID

field 1616 obtains the buying customer's name account number and e-mail address

but none of this information is posted in the buyer-ID field 1416 Instead, as

described at step 728, a buyer-ID is assigned and included in the buyer-ID field

1416 Erroneous entries can be cleared using a reset button 1618, and the bonds-

wanted form 1600 is submitted using a post form button 1620

FIG 20 illustrates an order form by which the customer enters information to

execute a trade, for example, a street trade, a customer to customer trade, or a team trade For C2C and team trades, the customer is assigned a coded identifier, as

described above The order form includes standard fields which form no part of the

present invention The actual fields that are provided to the customer may be

tailored to the specific type of transaction to be made Thus, for example, only fields

related to bonds are displayed if the customer has entered the bond trading pages

Briefly, the form 1700 may include one or more of the following fields, which

may require data to be typed in or a button switch to be set customer account

number 1704, the side of the transaction 1708, the amount to be spent 1710,

whether the customer will accept less any minimum amount and increment 1711a,

1711b, and 1711c, respectively, the type of instrument to be traded 1714, the price

1720, and any limits on price 1722, including a stop price 1723, and any limits on

time 1724 Depending on whether the instrument to be traded is a bond, stock or

stock option, further information is provided into the order form to identify the bond or

security to be traded coupon, callability, etc if a bond, and the strike price and strike

date if an option, as shown in FIG 20

Many of the web sites and processes require secure communications

between the server 100 and the customer 106,116 This is achieved in a

conventional manner by providing a secure socket layer (SSL) connection between

the customer's web browser and the server 100 If an SBD 110 is interposed

between the customer 116 and the server 100, than the SSL connection extends

from the customer 116, through the SBD, to the server 100 The principles of the present invention apply to various financial markets

other than the bond markets the presently preferred application For example the

invention can be used to facilitate trades in stock option commodity and derivatives

markets to automate trade approvals execute C2C transactions perform group

trades and implement other features described above To implement the invention

in other markets regulatory requirements may demand that further steps be taken

such as reporting trades in a timely manner or routing trades to the appropriate

exchange (e g , to the commodities exchange that handles a particular commodities

trade), however, such steps form no part of the present invention

The present invention, therefore, provides a bond trading system which

permits individuals to own bonds directly through a cost effective trading system,

which makes short-term bonds an attractive alternative to cash-on-hand for the

individual investor, and which provides an expert system for effectuating automated

trade approvals for each trade of each individual investor

While the invention has been described in detail with particular reference to

certain embodiments thereof, the invention is capable of different embodiments and

its details are capable of modifications in various obvious respects As would be

readily apparent to those skilled in the art, variations and modifications can be

affected while remaining within the spirit and scope of the invention Accordingly,

the foregoing disclosure, description, and Figures are for illustrative purposes only, and do not in any way limit the invention, which is defined only by the claims

Claims

What is claimed is
1 A system for facilitating securities trading comprising
a computer,
a customer rules database accessible by said computer
a set of customer risk assessment rules stored on said customer rules
database,
software executing on said computer for receiving customer information from a
customer, for retrieving said set of customer risk assessment rules from said customer
rules database, and for assigning a customer risk rating to the customer based upon
the received customer information and said set of customer risk assessment rules,
a trade rules database accessible by said computer,
a set of trade risk assessment rules stored on said trade rules database,
software executing on said computer for receiving trade details from a customer
for a proposed trade, for retrieving said set of trade risk assessment rules from said
trade rules database, and for assigning a trade risk rating to the proposed trade based
upon the received trade details and said set of trade risk assessment rules, and
software executing on said computer for automatically approving the proposed
trade if the customer risk rating and the trade risk rating bear a predetermined
relationship to one another
2 The system for facilitating securities trading of Claim 1 wherein the customer
risk rating and the trade risk rating comprise numerical indications of associated risk
3 The system for facilitating securities trading of Claim 2 wherein the
predetermined relationship between the customer risk rating and the trade risk rating
for receiving automatic approval of the proposed trade is that the customer risk rating be no greater than the trade risk rating
4 The system for facilitating securities trading of Claim 1 wherein the system
determines the customer risk rating, and evaluates the relationship between the
customer risk rating and the trade risk rating, for each party to the proposed trade.
5. The system for facilitating securities trading of Claim 1 further comprising:
a customer risk rating database accessible by said computer; and
software executing on said computer for storing the customer risk rating
assigned to the customer on said customer risk rating database, and for retrieving the
stored customer risk rating for the customer each time that customer attempts to
participate in a trade, such that the customer risk rating for each customer must only
be assigned once.
6. The system for facilitating securities trading of Claim 1 wherein the customer
risk rating is indicative of the financial resources of and the investment experience of
the customer.
7 The system for facilitating securities trading of Claim 1 wherein the trade risk
rating is indicative of the underlying economic risks associated with an instrument
which is the subject of the proposed trade
8 The system for facilitating securities trading of Claim 1 further comprising
software executing on said computer for automatically generating and transmitting to
the customer a warning regarding the proposed trade if the customer risk rating and
the trade risk rating do not bear a predetermined relationship to one another and for
automatically approving the proposed trade if an override indication is received from
the customer
9 A system for facilitating securities trading comprising
a computer,
software executing on said computer for allowing the formation of a team
comprising a plurality of team members,
software executing on said computer for enabling team members to determine
a quantity of a financial instrument to be purchased in a single trade by the team,
software executing on said computer for obtaining a financial commitment from
each of the team members, software executing on said computer for automatically purchasing in a single
trade the quantity of the financial instrument, the quantity having a total cost which is
no greater than the sum of the obtained financial commitments, software executing on said computer for charging an account of each of the
team members in an amount up to each team member's respective financial commitment and
software executing on said computer for crediting the account of each of the
team members with a share of ownership proportionate to the amount charged to
each team member's account of the quantity of the financial instrument purchased
10 The system for facilitating securities trading of Claim 9 further comprising a
teams database accessible by said computer, said teams database having information
regarding a plurality of existing teams stored thereon, including an indication of each
team's investment objectives, and wherein the software executing on said computer
for allowing the formation of a team comprising a plurality of team members
comprises software executing on said computer for receiving from a customer an
indication of customer investment objectives,
software executing on said computer for determining if the indication of
customer investment objectives matches the investment objectives of an existing
team, software executing on said computer for allowing the customer to join an
existing team which has investment objectives which match the customer investment
objectives, and software executing on said computer for allowing the customer to create a new
team if the customer investment objectives do not match the investment objectives of any of the existing teams.
11. The system for facilitating securities trading of Claim 10 wherein the investment
objectives comprise indications of the type of financial instrument issuer, the credit
quality of the financial instrument, the maturity date of the financial instrument, and the
purpose of the investment.
12. The system for facilitating securities trading of Claim 9 further comprising
software executing on said computer for allowing anonymous communication between
team members.
13. The system for facilitating securities trading of Claim 9 further comprising:
a customer rules database accessible by said computer;
a set of customer risk assessment rules stored on said customer rules
database;
software executing on said computer for receiving customer information from
each of the team members, for retrieving said set of customer risk assessment rules
from said customer rules database, and for assigning a customer risk rating to each of
the team members based upon the received customer information and said set of
customer risk assessment rules;
a trade rules database accessible by said computer; a set of trade risk assessment rules stored on said trade rules database,
software executing on said computer for determining trade details of the
financial instrument for retrieving said set of trade risk assessment rules from said
trade rules database, and for assigning a trade risk rating to the proposed trade based
upon the trade details and said set of trade risk assessment rules and
software executing on said computer for automatically approving membership
in the team for each team member if the customer risk rating for each team member
and the trade risk rating bear a predetermined relationship to one another
14 The system for facilitating securities trading of Claim 13 wherein the customer
risk rating and the trade risk rating comprise numerical indications of associated risk
15 The system for facilitating securities trading of Claim 14 wherein the
predetermined relationship between the customer risk rating and the trade risk rating
for receiving automatic approval of membership in the team is that the customer risk
rating be no greater than the trade risk rating
16 The system for facilitating securities trading of Claim 13 further comprising
a customer risk rating database accessible by said computer, and
software executing on said computer for storing the customer risk rating
assigned to the customer on said customer risk rating database, and for retrieving the
stored customer risk rating for the customer each time that customer attempts to join a team such that the customer risk rating for each customer must only be assigned once
17 The system for facilitating securities trading of Claim 13 wherein the customer
risk rating is indicative of the financial resources of and the investment experience of the customer
18 The system for facilitating securities trading of Claim 13 wherein the trade risk
rating is indicative of the underlying economic risks associated with the financial
instrument
19 The system for facilitating securities trading of Claim 13 further comprising
software executing on said computer for automatically generating and transmitting to
the customer a warning regarding membership in the team if the customer risk rating
and the trade risk rating do not bear a predetermined relationship to one another and
for automatically approving membership in the team if an override indication is
received from the customer
20 A system for facilitating securities trading comprising
a computer, software executing on said computer for receiving an indication from a seller
that the seller desires to sell a financial instrument and an indication from a buyer that
the buyer desires to purchase the financial instrument, software executing on said computer for notifying the buyer and the seller of a proposed trade and for allowing for negotiation between the buyer and the seller,
software executing on said computer for determining a fair market value of the
financial instrument and for transmitting the fair market value to the buyer and the
seller,
software executing on said computer for receiving a buyer trade ticket from the
buyer and a seller trade ticket from the seller and for determining that the terms of the
buyer trade ticket match the terms of the seller trade ticket,
software executing on said computer for determining, if the terms of the buyer
trade ticket match the terms of the seller trade ticket, whether the terms of the
proposed trade are fair, and
software executing on said computer for automatically executing the trade if the
terms are fair
21 The system for facilitating securities trading of Claim 20 further comprising
software executing on said computer for, if the terms of the buyer trade ticket do not
match the terms of the seller trade ticket, generating and transmitting to the buyer and
the seller a notification that the terms do not match, and for allowing further negotiation
between the buyer and the seller
22. The system for facilitating securities trading of Claim 20 further comprising
software executing on said computer for, if the terms of the proposed trade are not fair, generating and transmitting to the buyer and the seller a notification that the terms
are not fair, and for allowing further negotiation between the buyer and the seller
23 The system for facilitating securities trading of Claim 20 wherein the fair market
value of the financial instrument is dependent upon a trade date, a settlement date, accrued interest of the financial instrument and the treasury yield
24 The system for facilitating securities trading of Claim 20 wherein said software
for determining whether the terms of the proposed trade is fair determines that the
terms are fair if the terms include a price which falls between a current quoted price for
an institutional-size round lot and a prevailing price on the odd lot market for financial
instruments comparable to the financial instrument which is the subject of the
proposed trade
25 The system for facilitating securities trading of Claim 20 further comprising
a customer rules database accessible by said computer,
a set of customer risk assessment rules stored on said customer rules
database, software executing on said computer for receiving customer information from
the buyer, for retrieving said set of customer risk assessment rules from said customer
rules database, and for assigning a customer risk rating to the buyer based upon the
received buyer customer information and said set of customer risk assessment rules, software executing on said computer for receiving customer information from the seller, for retrieving said set of customer risk assessment rules from said customer
rules database and for assigning a customer risk rating to the seller based upon the
received seller customer information and said set of customer risk assessment rules,
a trade rules database accessible by said computer,
a set of trade risk assessment rules stored on said trade rules database,
software executing on said computer for receiving trade details for the
proposed trade, for retrieving said set of trade risk assessment rules from said trade
rules database, and for assigning a trade risk rating to the proposed trade based upon
the received trade details and said set of trade risk assessment rules, and
software executing on said computer for automatically approving the proposed
trade if each of the buyer and seller customer risk ratings and the trade risk rating bear
a predetermined relationship to one another
26 The system for facilitating securities trading of Claim 25 wherein the buyer and
seller customer risk ratings and the trade risk rating comprise numerical indications of
associated risk.
27 The system for facilitating securities trading of Claim 26 wherein the
predetermined relationship between the buyer and seller customer risk ratings and the
trade risk rating for receiving automatic approval of the proposed trade is that each of
the buyer and seller customer risk ratings be no greater than the trade risk rating
28 The system for facilitating securities trading of Claim 25 further comprising a customer risk rating database accessible by said computer and
software executing on said computer for storing the customer risk ratings
assigned to the buyer and seller on said customer risk rating database, and for
retrieving the stored customer risk rating each time that customer attempts to
participate in a trade, such that the customer risk rating for each customer must only
be assigned once
29 The system for facilitating securities trading of Claim 25 wherein the customer
risk rating is indicative of the financial resources of and the investment experience of
the customer
30 The system for facilitating securities trading of Claim 25 wherein the trade risk
rating is indicative of the underlying economic risks associated with an instrument
which is the subject of the proposed trade
31 The system for facilitating securities trading of Claim 25 further comprising
software executing on said computer for automatically generating and transmitting a
warning regarding the proposed trade if the customer risk rating and the trade risk
rating do not bear a predetermined relationship to one another, and for automatically
approving the proposed trade if an override indication is received from the customer
32 The system for facilitating securities trading of Claim 31 wherein the warning is transmitted only to the customer whose customer risk rating does not bear the
predetermined relationship with the trade risk rating
33 A method for facilitating securities trading comprising the steps of
providing a computer,
providing a customer rules database accessible by the computer,
storing a set of customer risk assessment rules on the customer rules
database,
receiving customer information from a customer, retrieving the set of customer
risk assessment rules from the customer rules database, and assigning a customer
risk rating to the customer based upon the received customer information and the set
of customer risk assessment rules,
providing a trade rules database accessible by the computer,
storing a set of trade risk assessment rules on the trade rules database,
receiving trade details from a customer for a proposed trade, retrieving the set
of trade risk assessment rules from the trade rules database, and assigning a trade
risk rating to the proposed trade based upon the received trade details and the set of
trade risk assessment rules, and automatically approving the proposed trade if the customer risk rating and the
trade risk rating bear a predetermined relationship to one another
34 The method for facilitating securities trading of Claim 33 wherein the customer
risk rating and the trade risk rating comprise numerical indications of associated risk
and said automatically approving step comprises the step of automatically approving
the proposed trade if the customer risk rating is no greater than the trade risk rating
35 The method for facilitating securities trading of Claim 33 wherein the customer
risk rating is determined, and the relationship between the customer risk rating and the
trade risk rating is evaluated, for each party to the proposed trade
36 The method for facilitating securities trading of Claim 33 further comprising the
steps of
providing a customer risk rating database accessible by the computer, and
storing the customer risk rating assigned to the customer on the customer risk
rating database, and
retrieving the stored customer risk rating for the customer each time that
customer attempts to participate in a trade, such that the customer risk rating for each
customer must only be assigned once
37 The method for facilitating securities trading of Claim 33 further comprising the
steps of automatically generating and transmitting to the customer a warning regarding
the proposed trade if the customer risk rating and the trade risk rating do not bear a
predetermined relationship to one another, and automatically approving the proposed trade if an override indication is received from the customer
38 A method for facilitating securities trading comprising the steps of
providing a computer,
allowing the formation of a team comprising a plurality of team members,
determining a quantity of a financial instrument to be purchased in a single
trade by the team,
obtaining a financial commitment from each of the team members,
automatically purchasing in a single trade the quantity of the financial
instrument, the quantity having a total cost which is no greater than the sum of the
obtained financial commitments,
charging an account of each of the team members in an amount up to each
team member's respective financial commitment, and
crediting the account of each of the team members with a share of ownership
proportionate to the amount charged to each team member's account of the quantity
of the financial instrument purchased
39. The method for facilitating securities trading of Claim 38 further comprising the
step of providing a teams database accessible by the computer, the teams database
having information regarding a plurality of existing teams stored thereon, including an
indication of each team's investment objectives, and wherein the allowing the formation of a team comprising a plurality of team members step comprises the steps of
receiving from a customer an indication of customer investment objectives,
determining if the indication of customer investment objectives matches the investment objectives of an existing team,
allowing the customer to join an existing team which has investment objectives
which match the customer investment objectives, and
allowing the customer to create a new team if the customer investment
objectives do not match the investment objectives of any of the existing teams.
40. The method for facilitating securities trading of Claim 38 further comprising the
step of allowing anonymous communication between team members.
41. The method for facilitating securities trading of Claim 38 further comprising the
steps of:
providing a customer rules database accessible by the computer;
storing a set of customer risk assessment rules on the customer rules
database; receiving customer information from each of the team members, retrieving the
set of customer risk assessment rules from the customer rules database, and
assigning a customer risk rating to each of the team members based upon the
received customer information and the set of customer risk assessment rules;
providing a trade rules database accessible by the computer, storing a set of trade risk assessment rules on the trade rules database,
determining trade details of the financial instrument, retrieving the set of trade
risk assessment rules from the trade rules database, and assigning a trade risk rating
to the proposed trade based upon the trade details and the set of trade risk assessment rules, and
automatically approving membership in the team for each team member if the
customer risk rating for each team member and the trade risk rating bear a
predetermined relationship to one another
42 The method for facilitating securities trading of Claim 41 wherein the customer
risk rating and the trade risk rating comprise numerical indications of associated risk
and wherein said automatically approving step comprises the step of approving
membership in the team for each team member if the customer risk rating for each
team member is no greater than the trade risk rating
43. The method for facilitating securities trading of Claim 41 further comprising the
steps of:
providing a customer risk rating database accessible by the computer,
storing the customer risk rating assigned to the customer on the customer risk
rating database; and retrieving the stored customer risk rating for the customer each time that
customer attempts to join a team, such that the customer risk rating for each customer
must only be assigned once
44 The method for facilitating securities trading of Claim 41 further comprising the steps of
automatically generating and transmitting to the customer a warning regarding
membership in the team if the customer risk rating and the trade risk rating do not bear a predetermined relationship to one another, and
automatically approving membership in the team if an override indication is
received from the customer
45. A method for facilitating securities trading comprising the steps of
providing a computer,
receiving an indication from a seller that the seller desires to sell a financial
instrument and an indication from a buyer that the buyer desires to purchase the
financial instrument;
notifying the buyer and the seller of a proposed trade and allowing for
negotiation between the buyer and the seller;
determining a fair market value of the financial instrument, and transmitting the
fair market value to the buyer and the seller,
receiving a buyer trade ticket from the buyer and a seller trade ticket from the
seller and determining whether the terms of the buyer trade ticket match the terms of
the seller trade ticket;
determining, if the terms of the buyer trade ticket match the terms of the seller
trade ticket, whether the terms of the proposed trade are fair, and automatically executing the trade if the terms are fair
46 The method for facilitating securities trading of Claim 45 further comprising the
step of, if the terms of the buyer trade ticket do not match the terms of the seller trade
ticket, generating and transmitting to the buyer and the seller a notification that the
terms do not match, and allowing further negotiation between the buyer and the seller
47 The method for facilitating securities trading of Claim 45 further comprising the
step of, if the terms of the proposed trade are not fair, generating and transmitting to
the buyer and the seller a notification that the terms are not fair, and allowing further
negotiation between the buyer and the seller
48 The method for facilitating securities trading of Claim 45 wherein said
determining whether the terms of the proposed trade are fair step comprises the step
of determining that the terms are fair if the terms include a price which falls between a
current quoted price for an institutional-size round lot and a prevailing price on the odd
lot market for financial instruments comparable to the financial instrument which is the
subject of the proposed trade
49 The method for facilitating securities trading of Claim 45 further comprising the
steps of providing a customer rules database accessible by the computer, stonng a set of customer risk assessment rules on the customer rules database,
receiving customer information from the buyer, retrieving the set of customer
risk assessment rules from the customer rules database, and assigning a customer
risk rating to the buyer based upon the received buyer customer information and the
set of customer risk assessment rules,
receiving customer information from the seller retrieving the set of customer
risk assessment rules from the customer rules database, and assigning a customer
risk rating to the seller based upon the received seller customer information and the
set of customer risk assessment rules,
providing a trade rules database accessible by the computer,
storing a set of trade risk assessment rules on the trade rules database,
receiving trade details for the proposed trade, retrieving the set of trade risk
assessment rules from the trade rules database, and assigning a trade risk rating to
the proposed trade based upon the received trade details and the set of trade risk
assessment rules, and
automatically approving the proposed trade if each of the buyer and seller
customer risk ratings and the trade risk rating bear a predetermined relationship to one
another
50 The method for facilitating securities trading of Claim 49 wherein the buyer and
seller customer risk ratings and the trade risk rating comprise numerical indications of
associated risk and wherein said automatically approving the proposed trade step compπses the step of automatically approving the proposed trade if each of the buyer and seller customer risk ratings is no greater than the trade risk rating
51 The method for facilitating securities trading of Claim 49 further comprising the
steps of
providing a customer risk rating database accessible by the computer,
storing the customer risk ratings assigned to the buyer and seller on the
customer risk rating database, and
retrieving the stored customer risk rating each time that customer attempts to
participate in a trade, such that the customer risk rating for each customer must only
be assigned once
52 The method for facilitating securities trading of Claim 49 further comprising the
steps of automatically generating and transmitting a warning regarding the proposed
trade if the customer risk rating and the trade risk rating do not bear a predetermined
relationship to one another, and
automatically approving the proposed trade if an override indication is received
from the customer
53. The method for facilitating securities trading of Claim 52 wherein said
automatically generating and transmitting a warning step is performed only for the customer whose customer risk rating does not bear the predetermined relationship with the trade risk rating.
54. A system for facilitating securities trading comprising:
a computer;
a customer rules database accessible by said computer;
a set of customer risk assessment rules stored on said customer rules
database;
software executing on said computer for receiving customer information from a
customer, for retrieving said set of customer risk assessment rules from said customer
rules database, and for assigning a customer risk rating to the customer based upon
the received customer information and said set of customer risk assessment rules;
a customer risk rating database accessible by said computer; and
software executing on said computer for storing the customer risk rating
assigned to the customer on said customer risk rating database;
software executing on said computer for receiving trade details from a customer
for a proposed trade and for automatically approving the proposed trade if the
customer risk rating is below a risk threshold for the proposed trade.
55. The system for facilitating securities trading of Claim 54 wherein the system
determines the customer risk rating and automatically approves the proposed trade for
each party to the proposed trade.
56. The system for facilitating securities trading of Claim 54 further comprising
software executing on said computer for retrieving the stored customer risk rating
stored on said customer risk rating database for the customer each time that customer
attempts to participate in a trade, such that the customer risk rating for each customer
must only be assigned once.
57. The system for facilitating securities trading of Claim 54 wherein the customer
risk rating is indicative of the financial resources of and the investment experience of
the customer.
58. The system for facilitating securities trading of Claim 54 further comprising software executing on said computer for automatically generating and transmitting to the customer a warning regarding the proposed trade if the customer risk rating is not below a risk threshold for the proposed trade, and for automatically approving the proposed trade if an override indication is received from the customer.
PCT/US2000/007561 1999-05-19 2000-03-22 Network-based trading system and method WO2000070506A1 (en)

Priority Applications (2)

Application Number Priority Date Filing Date Title
US13495699P true 1999-05-19 1999-05-19
US60/134,956 1999-05-19

Applications Claiming Priority (6)

Application Number Priority Date Filing Date Title
EP00918234A EP1121648A4 (en) 1999-05-19 2000-03-22 Network-based trading system and method
AU39082/00A AU779731B2 (en) 1999-05-19 2000-03-22 Network-based trading system and method
JP2000618880A JP2003524820A (en) 1999-05-19 2000-03-22 Trading system and trading method using the network
CA002338145A CA2338145A1 (en) 1999-05-19 2000-03-22 Network-based trading system and method
AU2005201973A AU2005201973B2 (en) 1999-05-19 2005-05-10 Network-based trading system and method
AU2005201966A AU2005201966B2 (en) 1999-05-19 2005-05-10 Network-based trading system and method

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EP1121648A1 (en) 2001-08-08

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