WO2008010871A1 - Trading system and method using a virtual pari-mutuel pool - Google Patents

Trading system and method using a virtual pari-mutuel pool Download PDF

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WO2008010871A1
WO2008010871A1 PCT/US2007/012296 US2007012296W WO2008010871A1 WO 2008010871 A1 WO2008010871 A1 WO 2008010871A1 US 2007012296 W US2007012296 W US 2007012296W WO 2008010871 A1 WO2008010871 A1 WO 2008010871A1
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outcome
pari
investments
event
recited
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PCT/US2007/012296
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French (fr)
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Brian Pilcher
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Brian Pilcher
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    • 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 system and method for trading using a virtual pari-mutuel pool (VPP) to determine returns of investment for an investments in the outcome (or combination of outcomes) for a particular event. In an illustrative implementation, a electronic virtual pari-mutuel pool (VPP) is created using information from a 'dirt- world' pari-mutuel pool (DWPP) at an event site and investment information from online investments (e.g., online investments generating an online pool (OP)) on the outcome of the event which are agnostic to the DWPP. The VPP sets the return of investment on an investment made that predicts the correct outcome (or combination) of outcomes for the event. Further, in the illustrative implementation, the trading system and methods operatively can utilize an auction system and a pari-mutuel pool or virtual pari-mutuel pool system and incorporating limit orders to provide payouts for multiple outcomes on an individual events.

Description

TRADING SYSTEM AND METHOD USING A VIRTUAL PARI-MUTUEL POOL

CLAIM OF PRIORITY AND CROSS-REFERENCE

[0001] This non-provisional patent application claims priority to and the benefit of U.S. provisional patent application, 60/831,503, filed on July 17, 2006, entitled, "TRADING SYSTEM AND METHOD USING A VIRTUAL PARI-MUTUEL POOL" which is herein incorporated by reference in its entirety.

BACKGROUND

[0002] Pari-mutuel pools ("PP") allow members of the pool to obtain relative stakes (i.e., against other members of the pool) in the outcome of a particular event (e.g., which horse will win a particular horse race). The members of the pool can purchase a contract representative of the stake in a desired outcome. The value of the stake depends on the number of members of the entire pool desiring a particular outcome to come to fruition. With increasing number of members predicting one given outcome (from a plurality of possible outcomes), there are more members in a particular pool for a desired outcome and therefore the stake decreases in value (e.g., odds on a horse race decreasing as more people bet on a particular horse to win - i.e., a horse becoming a "favorite"). [0003] Pari-mutuel trading is a form of trading that leverages pari-mutuel pools to allow investors to invest on the outcome of an event with an event organizer to receive a return on the investment determined by the pari-mutuel pool if the investor correctly predicts the event outcome (or a combination of event outcomes). Pari-mutuel trading is frequently offered at certain kinds of sporting events of relatively short duration in which participants finish in a ranked order, notably horse racing, greyhound racing, and jai alai. This type of trading occurs principally in various environments at the event site (e.g., "dirt- world" event). The odds generated at the "dirt-world" location are then used at venues other than the event location (e.g., "off track" horse betting establishments), and through online transactions. [0004] Under pari-mutuel trading, all investments (e.g., a bet) of a particular type are placed together in a pool, amounts might be deducted for taxes and a management fees, and return on the investments (e.g., payoff odds) are calculated by sharing the pool proportionally among all investments on the winning outcome, and rounding down to a denomination interval (in the United States, typically 10 cent intervals are used). The fewer correctly placed investments on the winning outcome there are in relation to the entire pool, the greater the payoff. T.here may be several different types of investments, in which case each type of investment has its.own pool. The basic investments involve predicting the order of finish for a single participant. For example, in the context of horse racing: Win - A first place finisher receives a return on their investment (wherein the return is calculated based on the number of people who bet that first place finisher would finish in first place); Place - Either a first or a second place finisher receives a return on their investment; or Show - First, second, or third place finisher receives a return on their investment.

[0005] Pari-mutuel trading provides a market clearing price for each outcome of an observed event which has a number of benefits that can include: 1) All investors on a given event outcome receive the same return on investment should the investors correctly predict the event's outcome (or combination of outcomes - e.g., odds/payout); 2) All investors have the same period to make investment selections and such period continues right up to the time of the event to incorporate the most information possible about the event. In practice, the PP and the payout are set at the last moment after all investors have made their investments; 3) The PP reduces the ability for someone with inside information on one of the outcomes to profit to the detriment of another investor- such scenario can arise since all other investors in the pool who have the same outcome receive the same payout as a given investor, and since as the investor invests more on this outcome the payout on the outcome drops and the payouts on all other outcomes increase. The investor with insider information can invest to the point where the insider information is correctly incorporated into the calculation of the return of investment that can create a disincentive for the insider investor to invest; and 4) The PP provides a convenient system for the pool operator to receive compensation that basically comes from the payouts to the winning investments. [0006] Depending on the facility rules, which might vary from event to event, other investments may also be offered which allow the user to pick the finish of more than one participant, or more than one event. These are called exotics, and generally have higher payoffs. Such investments include: Exacta - Picks the first and second place finisher, in order; Quinella - Picks the first and second place finisher, but the order doesn't matter; Trifecta - Picks the first, second, and third place finisher, in order; Daily Double - Picks the first place finisher in two straight events; and Pick 6 - Picks the winner in six consecutive events.

[0007] Pari-mutuel trading can be implemented in the context of wagering observed in horse betting. In this context, horserace betting at a horse track occurs through pari-mutuel pools. The bets placed at a horseracing track are pooled and that pool (e.g., after subtracting a percentage of the investment — e.g., 17% for the track and state) is then paid out to the winning bettors. The actual odds for a bet are not set until the windows are closed just prior to the race. At the track, or at "off track" betting establishments, bettors receive the same odds for bets on the same horse.

[0008] With the proliferation of communication technologies, trading on horseracing has found a home on the Internet with online sites. Current online practices operate in two ways: 1) those that use the odds determined by the pari-mutuel pool created at the event site (e.g., horse track) and the investment is made between the investor and the online site, and 2) those that trade futures or other investments between two investors at fixed prices at any time prior to the start of the event (e.g., horse race) or the period for investment lapses (e.g., windows closing at the horse track). In the first case, the online site is simply an extension of the event site (e.g., horse track) similar to an "off-track" betting establishment or the online site is actually taking investments (e.g., bets) opposite the investors (e.g., bettors).

[0009] In the second case, where traders trade with each other at fixed odds prior to the race ("Fixed Odds Futures Trading" or FOFT), all the advantages of pari-mutuel trading are absent. Stated differently, the return of investments of an FOFT trade between two investors can be substantially different from the odds that investors (e.g., bettors) receive at the event (e.g., horse track) and can be different from every other investor investing on the online betting site that invests on the same outcome. In this context, there is no market clearing price and during the investment period, the return of investments can vary wildly from minute to minute. Also, with a FFOT trade, inside information can put uninformed investors at huge disadvantages to informed investors. In practice, FOFT online trading sites operate to charge all investors a fee rather than just the winning investors. [0010] In practice, auctions are frequently used to determine the market clearing price for a single asset such as a security in financial markets or a painting in art markets. There are many different types of auctions including reverse auctions, reserve-set auctions, and traditional auctions. In financial markets, for example, the opening of the stock on the New York Stock Exchange is done through an auction that includes market orders and limit orders with the specialist stepping in either buy or sell to create an orderly market. In these manners, assets get allocated to individuals based on their relative desire for those assets (i.e., price) and the outcome of the investment and their payout is determined by the future price movement of the asset and to some extent their performance in future auctions.

[0011] Investments can also occur on events that happen with two or more outcomes. For example, online wagering services can operate to create contracts which are investments between two parties that have differing viewpoints about the outcome of an event. Payouts on events with two outcomes are frequently determined by an investment in one of the outcomes. In practice, for example, an illustrative two outcome event can be sporting events (e.g., football games, baseball games, basketball games, etc.). A contract on a sporting event might be just Team A or Team B, or it might be Team A minus some point spread versus Team B plus the same point spread, or it might be a contract on Team A with a payout of some odds (e.g., 3-1) and Team B with a different odds (e.g., 1-4). These contracts might have short lives of a week or less until the outcome and payout is determined. Some contracts can have a longer duration (e.g., whether Hillary Clinton will be President in 2008 or not). Contracts on events with more than two outcomes can be accomplished by having a contract on the occurrence of each outcome (e.g., Hillary Clinton, or an individual horse winning the Kentucky Derby)

[0012] Pricing for contracts that are for events having multiple outcomes can generally occur in one of two ways: a) market makers setting bids and offers for each contract on an individual outcome with prices changing over time ("market maker pricing" or "MMP"), and b) pari-mutuel pools ("PP"). In the context of pari-mutuel pools, such pools are generally observed at venues where an athletic event occurs and a market clearing price is determined between multiple investors before the event begins (e.g., generally within minutes or seconds before the event is to occur).

10013] MPP, in practice, provides an ongoing market with an opportunity to undertake price discovery during a continuum surrounding the event(s). However, MPP does not allow all participants to have access and/or observer a contract at any given time resulting in generating a price that may not accurately reflect the participants' interest. Comparatively, PP pricing, in practice, gives a market clearing price at the last instant (i.e., prior to an event occurring), in effect, operating to create an simultaneous auction for the multiple outcomes. PP pricing, however, occurs very close to the beginning of an observed (i.e., contracted for) event, and as such the investor is not able to realize the investment price until the auction finishes. Additionally, for effective deployment, PPs generally require a large group of investors to participate.

[0014] It is appreciated that there exists a need for an electronic trading system and methods that ameliorate the shortcomings of existing event driven and outcome dependent investment practices for events with multiple outcomes that can provide a market clearing price for large number of investors, that can happen at multiple times prior to the event, reflect existing prices in other markets, and allow investors to be selective about the price they are willing to pay for a given contract.

SUMMARY

[0015] A trading system and methods are provided that utilize a virtual pari-mutuel pool ("VPP") to determine the return of investments made on the trading system, hi an illustrative implementation, an exemplary trading system comprise, one or more participating investors, one or more investments representative of a stake in the outcome of at least one event, "dirt- world" information representative of the "dirt-world" pari- mutuel pool ("DWWP"), and a trading engine operative to provide one or more instructions for the processing of trades (or investments) and DWWP information to generate a VPP for use by the trading engine to determine the return of investments for trades (investments)

[0016] In an illustrative operation, the VPP is generated using information from DWPP for a particular event (e.g., horse race) and the information generated by online investments on the event ("Online Pool - OP") such that the OP is agnostic to the DWPP information. In the illustrative operation, participating investors can interface with the trading system to trade investments (e.g., an investment representative of a stake) with other investors in the outcome of a particular event. In the illustrative implementation, the OP can be calculated by the online investment site operator and can represent the investments as open contracts for a given event. In the illustrative operation, the trading engine accepts as input the DWPP information, the OP information to generate the VPP. [0017] Additionally, in the illustrative operation, the trading engine operates to set the return of investment represented by the investors' investments on a given outcome (or a combination of outcomes) of an event based on a calculation of the VPP divided by the total number of virtual investments (VI) for a particular outcome. In the illustrative implementation, VIs can include, for each outcome, the investments made online to generate the OP and the investments made into the DWPP at the "dirt-world" event site that are virtually added in the same manner as the DWPP is added to the OP to form the VPP. In the illustrative implementation, the investments can be processed by the exemplary trading system (using the trading engine) to set return of investments for investments made on the trading system.

[0018] In an illustrative implementation, depending on the outcome of the event the correctly predicting investors are paid a return on their investment such that the return is calculated using the calculated return of investment and the investor's investment amount (e.g., if the return of investment was set to be for every dollar invested the investor receives two dollars if the outcome is predicted correctly - i.e., 2-1, then for a one dollar investment, the investor would receive two dollars in addition to the initial investment.) [0019] In another illustrative implementation, trading system and methods are provided that utilize an auction system and a pari-mutuel pool or virtual pari-mutuel pool system and incorporating limit orders to provide payouts for multiple outcomes on an individual events. In an illustrative operation, the trading system can operate to execute at several identified points prior to the event and can incorporate any number of investors large or small as well as provide a market clearing price, and allow individual investors to choose between certainty of execution with a market order or certainty of price with a limit order.

[0020] Additional features of the herein described systems and methods are described in more detail below.

BRIEF DESCRIPTION OF THE DRAWINGS

[0021] The pari-mutuel trading systems and methods are further described with reference to the accompanying drawings in which:

[0022] Figure 1 is a block diagram of an exemplary computing environment in accordance with an implementation of the herein described systems and methods;

[0023] Figure 2 is a block diagram showing the cooperation of exemplary components of an illustrative implementation in accordance with the herein described systems and methods;

[0024] Figure 3 is a block diagram showing an illustrative block representation of an illustrative trading system in accordance with the herein described systems and methods;

[0025] Figure 4 is a flow diagram of the processing performed in an illustrative operation in accordance with the herein described systems and methods;

[0026] Figure 5 is a flow diagram of the processing performed in another illustrative operation in accordance with the herein described systems and methods; and

[0027] Figure 6 is a flow diagram of the processing performed in another illustrative operation in accordance with the herein described systems and methods.

DETAILED DESCRIPTION

[0028] Figure 1 depicts an exemplary computing system 100 in accordance with herein described system and methods. The computing system 100 is capable of executing a variety of computing applications 180. Computing applications 180 can comprise a computing application, a computing applet, a computing program and other instruction set operative on computing system 100 to perform at least one function, operation, and/or procedure. Exemplary computing system 100 is controlled primarily by computer readable instructions, which may be in the form of software. The computer readable instructions can contain instructions for computing system 100 for storing and accessing the computer readable instructions themselves. Such software may be executed within central processing unit (CPU) 110 to cause the computing system 100 to do work. In many known computer servers, workstations, and personal computers, CPU 110 is implemented by micro-electronic chips called microprocessors. A coprocessor 115 is an optional processor, distinct from the main CPU 110 that performs additional functions or assists the CPU 110. The CPU 110 may be connected to co-processor 115 through interconnect 112. One common type of coprocessor is the floating-point coprocessor, also called a numeric or math coprocessor, which is designed to perform numeric calculations faster and better than the general-purpose CPU 110.

[0029] In operation, the CPU 110 fetches, decodes, and executes instructions, and transfers information to and from other resources via the computer's main data-transfer path, system bus 105. Such a system bus connects the components in the computing system 100 and defines the medium for data exchange. Memory devices coupled to the system bus 105 include random access memory (RAM) 125 and read only memory (ROM) 130. Such memories include circuitry that allows information to be stored and retrieved. The ROMs 130 generally contain stored data that cannot be modified. Data stored in the RAM 125 can be read or changed by CPU 110 or other hardware devices. Access to the RAM 125 and/or ROM 130 may be controlled by memory controller 120. The memory controller 120 may provide an address translation function that translates virtual addresses into physical addresses as instructions are executed.

[0030] In addition, the computing system 100 can contain peripherals controller 135 responsible for communicating instructions from the CPU 110 to peripherals, such as printer 140, keyboard 145, mouse 150, and data storage drive 155. Display 165, which is controlled by a display controller 163, is used to display visual output generated by the computing system 100. Such visual output may include text, graphics, animated graphics, and video. The display controller 163 includes electronic components required to generate a video signal that is sent to display 165. Further, the computing system 100 can contain network adaptor 170 which may be used to connect the computing system 100 to an external communication network 160.

Trading System Using a Virtual Pari-mutuel Pool:

[0031] Figure 2 shows an illustrative implementation of exemplary trading environment 200. As is shown, exemplary trading environment 200 comprises observed event 215, "dirt-world" pari-mutuel pool ("DWPP") 210, online pool ("OP") 225, virtual pari-mutuel pool ("VPP") 220, investors in "dirt-world" pari-mutuel pool 205, and online investors 230 whose investments comprise OP 225. In an illustrative implementation, information from "dirt- world" pari-mutuel pool 210 (e.g., DWPP Info 235) and information from OP 225 (e.g., OP Info 240) act as input to virtual pari-mutuel pool 220. [0032] In an illustrative operation, investors 205 and 230 provide investments on the outcome of observed events 215. Investments made between investors 230 act as a basis to create OP 225. The virtual addition of DWPP 210 and OP 225 less any fees deducted by trading environment operator (not shown) determines VPP 220. In the illustrative operation, the VPP can be created by equal or unequal proportions of DWPP information 235 and OP Information 240. For example, the VPP can be defined to comprise half of the DWPP and the entire OP. For each outcome of an event, a trading system operator (not shown) can calculate the return of investment for each investment (e.g., contract payout) by dividing the VPP by the number of virtual investments (VI). Again, VIs can comprise investments made online and investments made through the DWPP.

[0033] It is appreciated that although the stakes for the individual investors are defined using the VPP divided by the VI, OP 225 can be considered to not be a PP. Rather, OP 225 can be considered a pool of the outstanding investments that can be made online between various investors. Unlike a PP where the investments made by participating investors are enough to mutually pay off the winning investors (i.e., investors predicting the correct outcome or combination of outcomes of an event), OP 225 can operate so that there is no money in the Online Pool and the amounts that online investors individually, or in total, pay out to each other can be greater or lesser than the amount invested individually or in total. [0034] In another illustrative implementation, trading system 200 can provide a fixed price for online investors' investments (e.g., Investment Contracts). The event site organizer or some proxy ("Facilitator") can sell those contracts to participating investors. Additionally, the Facilitator can then buy the equivalent number of contracts ("Insurance Contracts") from other investors/market makers ("Pool Insurers") that can operate to insure that the return of an investment will be paid on a given investment (from the online pool) for a particular event. When deployed, the Insurance Contracts can require proportional payout for each insurance contract of the total payout on the investments comprising OP 225. Such payout can be determined by multiplying the number of investments on the appropriate outcome of the event by the return of investment (e.g., payout) for that investment utilizing information from VPP 220. In this illustrative implementation, VPP 220 can be determined using information from DWPP 210 and information from OP 225. Additionally, in this illustrative implementation, OP 225 can consist of only those investments made between the online investors and Facilitator (e.g., only Investment Contracts) and does not double count Insurance Contract purchased by the Facilitator from Pool Insurers.

[0035] In doing so, online investors can be allowed to pay the same price as each other for a contract (e.g., investment) and receive the same return on the investment (e.g., payout). Such process is similar to the process that occurs at the event site. In this context, pool insurers can sell a diversified risk against many outcomes. Additionally, a result of this illustrative implementation can be the ability to provide liquidity across all potential investments (e.g., including outcomes having large payouts — i.e., large return of investments for a particular investment on a peculiar outcome) that would otherwise be difficult to transact in existing online trading environments. [0036] Figure 3 shows an illustrative implementation of exemplary trading environment 300. As is shown, exemplary trading environment 300 comprises server computing environment 305, communications network 310, cooperating client computing environments 315, and "dirt-world" pari-mutuel data that is provided by observed "dirt- world" event 330. Further, as is shown, server computing environment 305 comprises online pool ("OP") 320, virtual pari-mutuel pools ("VPP") 325, and pool insurer information and processes 350. Also, as is shown, OP 320 comprises OP information 322 which can be representative of information about OP 320 including but not limited to the number of investments made 320 and the number of members participating in OP 320. [0037] In an illustrative operation, one or more of cooperating client computing environments 315 cooperate with server computing environment 305 to provide information representative of investments 340 that can be used to establish OP 320. During the investment time period, server computing environment 305 can make an approximation of the return of investments for given investments placed by participating investors (not shown) using cooperating client computers 315 cooperating with server computing environment 305 over communications 310. Such processing can be realized by server computing environment 305 by processing "dirt-world" pari-mutuel pool information (DWPP) 335 and online pool information 322 estimating the return of investment (e.g., payout odds) at the time of investment. After the investment period lapses at the event site and before the event commences, server computing environment 305 can calculate VPP 325 and the actual payouts for each stake on each outcome. Moreover, server computing environment can operate to execute pool insurer processes 350 and leverage pool insurer information 350 to calculate the value of an Insurance Contract.

[0038] In an illustrative operation, responsive to the communication of information from cooperating client computing environments 315, server computing environment 305 processes investment information 340 to generate OP 320 and also to generate VPP 325 using "dirt-world" pari-mutuel ("DWPP") information 335 (which can be created by investments from "dirt-world" investors (not shown), and online pool information 322 trading information 320 (e.g., information agnostic to DWPP information and that can be generated by investments (not shown) exclusively provided to generate an "dirt-world" agnostic online pari-mutuel pool). Additionally, server computing environment 305 can operate to execute one or more computing applications (not shown) to calculate a return of investment (e.g., a contract payout) information 345 for investments that correctly predict an observed event's outcome (or a combination of event outcomes) as well as values for Insurance Contracts (not shown). Return of investment information 345 (e.g., contract payout information) and Insurance Contract values (not shown) can be communicated from server computing environment 305 to cooperating client computing environment 315 over communications network 310.

10039] It is appreciated that although exemplary electronic trading environment 300 is shown to have various components cooperating in various configurations that such description is merely illustrative as the inventive concepts described herein can be applied to various electronic trading environments having various components cooperating in various configurations.

[0040] Figure 4 shows an illustrative processing performed by exemplary trading environment 300 of Figure 3. As is shown, processing begins at block 400 where "dirt- world" pari-mutuel pool ("DWPP") information about an event is received as input. Processing then proceeds to block 410 where information about investor trades online is received. After the investing period lapses, at block 420 online pool information is calculated. Such information is agnostic to the DWPP information. From there, processing proceeds to block 430 where the virtual pari-mutuel pool ("VPP") is calculated using the information from block 400 (e.g., information from DWPP) and block 420 (e.g.. information from the online pool). A value of the return of investment for an investment that correctly predicted the outcome of an event (or a combination of correct outcomes of the event) is then calculated at block 440.

[0041] Figure 5 shows another illustrative processing performed by exemplary trading environment 300 of Figure 3. As is shown, processing begins at block 500 where DWPP information about an event is received as input. Processing then proceeds to block 510 where investors buy contracts from a facilitator (e.g., an event organizer or a proxy). Such investments are agnostic to the DWPP information. The facilitator can then purchase an equal number of contracts from pool insurers (e.g., market makers) at block 520. After the investing time period has lapsed, at block 530 the online pool is calculated by counting the outstanding contracts purchased from the facilitator. At block 540, virtual pari-mutuel pool (VPP) is then calculated using information generated at block 500 (e.g., information from the DWPP) and block 530 (e.g., information from online pool). The return for investments (e.g., contract payout) for each outcome is then determined at block 550 by dividing the VPP by the number of virtual investments (e.g., a virtual investment can comprise, for each outcome, the investments made online to generate the OP and the investments made into the DWPP at the "dirt-world" event site that are virtually added in the same manner as the DWPP is added to the OP to form the VPP). At block 560, the trading system communicates the total to be paid to each investor for investors correctly predicting the outcome of an event (or combination of outcomes for an event) and the total to be paid out by each Pool Insurer.

Investments Using Limit Orders:

[0042] hi an illustrative implementation, a trading system operator can communicate the start time of an auction (e.g., auction on a given number of event outcomes) to participating users. In an illustrative operation, participating users (e.g., investors), at a time prior to the start of an auction, can enter limit or market orders for any of the potential outcomes. Operatively, these orders can either be rescinded or accepted according to selected threshold requirements. As an exemplary order book develops, the exemplary trading system can operate to calculate a market clearing price ("MCP") and communicate data representative of the MCP (e.g., indications) to participating users. At a selected auction-close time, the auction is closed and the order book can be used as the basis for calculating the MCP. Illustratively, the MCP can be calculated according for the PP according to a selected algorithm that can be based on one or more of the following: 1) all market orders must be filled, 2) limit orders are filled when the price betters the MCP, but are filled at the MCP on a one price opening basis, and 3) limit orders at the MCP are filled on a first entered, first filled basis and filled only the amount necessary to maintain that MCP.

[0043] For a pari-mutuel pool, the algorithm ("pari-mutuel pool algorithm with limit orders" "PPAWLO") can illustrative operate according to the following exemplary steps as shown in Figure 6. At block 600, using only market orders create a PP ("Initial Parimutual Pool" "IPP") and then to block 610 where the initial contract payouts (ICP) using PP technology are calculated, subtracting out any expenses and/or fees from the pool, then determine the ICP as the resulting pool divided by the investments for each outcome. From there, processing proceeds to block 620 where for each outcome, review the limit orders and select the limit orders which better the ICP for that outcome. At block 630, for each outcome, take the best limit order (i.e., the one that betters the ICP by the greatest amount "BLO") and determine the amount of additional investments on that outcome in the IPP that would yield the price on the best limit order. Processing then proceeds to block 640 where if the number of additional limit orders is less than the amount of the existing limit orders then add that quantity of the limit order into the PP, if that number is greater than the amount of the limit order, then add the amount of the limit order to the PP and do the same calculation with the next best limit order for that outcome. From there, processing proceeds to block 650 where once this calculation has occurred for all outcomes, the new PP ("NPP") which includes all the better limit orders can be used to calculate the new contract payouts ("NCP") for each outcome. From there processing proceeds to block 660 where the NPP and the NCP are treated as if they were the EPP and ICP and then rinsed and repeated according to the processing described in blocks 610 to 650 to reach a point where there are no better limit orders (i.e., the MCP can be reached for each outcome and all market orders and all limit orders that were added to the pool to get to that point are executed at that point and the MCP is the final NCP). A similar exemplary method can be performed for virtual pari-mutuel pools, but with the virtual investments added into the PP from the beginning to form a VPP. [0044] In an illustrative example, an event with two outcomes is observed - having Outcome A and Outcome B. Suppose 10,000 market orders are placed on A and 5,000 market orders are placed on B (e.g., assuming no expenses or fees by the facilitator). Contract payouts would be set at 1.5 for Outcome A and 3.0 for Outcome B. Now, suppose that there were limit orders as follows: for Outcome A, 10,000 at 1.4 contract payout and 1,000 at 1.2 contract payout, for Outcome B, 2,000 at 2.8, and 3,000 at 3.2 contract payout. To calculate the MCP, the 1.2 limit order for A and determine the number of limit orders the pool for A can take (i.e., (10,000 + l,000)/1.2< 15,000 +1,000). Next, how much of the limit order at 1.4 can be absorbed is then determined. Algebraically, 16,000 + x=(l 1,000 + x)*1.4 which equals .4x=16,000-15,400 so that x=1500. As a result, 1500 of the limit orders at 1.4 can be absorbed in the pool. [0045] Outcome B is now processed by adding 2000 of the limit orders at 2.8. Such step would operate to move the odds to 17,000/7,000=2.43 which indicates that such order can not be absorbed. Algebraically, 15,000+ x= (5,000 + x)*2.8, 1.8x= 15,000- 5,000*2.8, x= 555. So now we have 12,500 orders for Outcome A and 5,555 orders for Outcome B. The NPP = 12,500 + 5555= 18055 and the NCP (Outcome A)= 18055/12500= 1.44 and the NCP (Outcome B)= 18055/5555=3.25. Those would become the new IPP and ICP. The process is then illustratively repeated to generate the following results.

Iterations

First Second Third Seventh

NPP NCP NPP NCP NPP NCP NPP NCP

Outcome

A 12500 1.444444444 13888.89 1.5 17361.11 1.444444 21000 1.454545

Outcome

B 5555.555556 3.25 6944.444 3 7716.049 3.25 9545.455 3.2

Total 18055.55556 20833.33 25077.16 30545.45

As such, the market clearing prices are contract payouts of 1.4545 for Outcome A and 3.2 for Outcome B and the total pool is 30,545. We took all of the limit orders for Outcome A entered at 1.2 and all of the limit orders entered at 1.4 and filled them at 1.4545, a better price. 21,000 orders were filled. For Outcome B, all the limit orders entered at 2.8 were filled and 2545 of the 3,000 limit orders at 3.2 were filled all at the 3.2 price [0046] Figure 6 shows exemplary processing when calculating the MCP for a given pool. As is shown, processing begins at block 600 where

10047] It is understood that the herein described systems and methods are susceptible to various modifications and alternative constructions. There is no intention to limit the invention to the specific constructions described herein. On the contrary, the invention is intended to cover all modifications, alternative constructions, and equivalents falling within the scope and spirit of the invention.

[0048] It should also be noted that the present invention may be implemented in a variety of computer environments (including both non- wireless and wireless computer environments), partial computing environments, and real world environments. The various techniques described herein may be implemented in hardware or software, or a combination of both. Preferably, the techniques are implemented in computing environments maintaining programmable computers that include a processor, a storage medium readable by the processor (including volatile and non-volatile memory and/or storage elements), at least one input device, and at least one output device. Computing hardware logic cooperating with various instructions sets are applied to data to perform the functions described above and to generate output information. The output information is applied to one or more output devices. Programs used by the exemplary computing hardware may be preferably implemented in various programming languages, including high level procedural or object oriented programming language to communicate with a computer system. Illustratively the herein described apparatus and methods may be implemented in assembly or machine language, if desired. In any case, the language may be a compiled or interpreted language. Each such computer program is preferably stored on a storage medium or device (e.g., ROM or magnetic disk) that is readable by a general or special purpose programmable computer for configuring and operating the computer when the storage medium or device is read by the computer to perform the procedures described above. The apparatus may also be considered to be implemented as a computer- readable storage medium, configured with a computer program, where the storage medium so configured causes a computer to operate in a specific and predefined manner. [0049] Although an exemplary implementation of the invention has been described in detail above, those skilled in the art will readily appreciate that many additional modifications are possible in the exemplary embodiments without materially departing from the novel teachings and advantages of the invention. Accordingly, these and all such modifications are intended to be included within the scope of this invention. The invention may be better defined by the following exemplary claims.

Claims

CLAIMSWhat is claimed is:
1. A trading system comprising: a first data store having information representative of dirt-world pari-mutuel pools established to allow participating investors to invest in the outcome of a particular event; a second data store having information representative of online investments in the outcome of particular event without using dirt- world pari-mutuel pool information; and a trading engine cooperating with the first and second data stores to generate a virtual pari-mutuel pool (VPP) for use in calculating the return of investments for an investment made in the outcome in the particular event, wherein the trading engine operates according to a selected trading/investment paradigm based on a pari-mutuel pool model.
2. The trading system as recited in claim 1 further comprising a payment processor for paying out returns on investments provided by participating users.
3. The trading system as recited in claim 1 wherein the trading system comprises a computing environment.
4. The trading system as recited in claim 3 wherein the trading engine comprises a computing application.
5. The trading system as recited in claim 4 further comprising a user interface allowing participating user to input data to the trading engine representative of investments, wherein the investments are representative of a stake in the outcome of the event.
6. The trading system as recited in claim 5 further comprising a communications network operative to facilitate communications between the trading system and cooperating parties comprising one or more of participating user computing environments and other electronic trading systems.
7. The trading system as recited in claim 1 further comprising a user data store operative to store data for participating users.
8. The trading system as recited in claim 7 wherein the participating user data store comprises data representative of the investment history for a participating user.
9. The trading system as recited in claim 6 wherein the dirt- world data store receives data from cooperating dirt-world venues in real-time for selected events.
10. The trading system as recited in claim 9 wherein the online investment data store receives data from cooperating trading systems in real-time for selected events.
11. A method for trading comprising: receiving as input dirt- world pari-mutuel pool information about an event, the outcome of the event being the basis of the investments in the dirt-world pari-mutuel pool; receiving as input online investment information about the event wherein the outcome of the event comprises basis of the investments that comprise an online pool, the online investment information being agnostic to the dirt-world pari-mutuel pool information; and creating a virtual pari-mutuel pool (VPP) using the dirt-world pari-mutuel pool information and the online pool information.
12. The method as recited in claim 11 further comprising receiving and processing investments from and between participating investors comprising an online pool, wherein information from the online pool comprises a portion of the VPP.
13. The method as recited in claim 12 further comprising calculating a return of investment for an investment that correctly predicts the outcome of the event using the VPP.
14. The method as recited in claim 13 further comprising selling insurance contracts for the outcome of the event.
15. The method as recited in claim 14 further comprising calculating the value of the insurance contracts after the event occurs.
16. A method for trading comprising:
(a) creating an initial pari-mutuel pool (IPP) using market orders;
(b) calculating initial contract payouts by dividing the IPP by the number of investments for each outcomes of a multiple outcome event; (c) for each outcome, select limit orders which better the ICP for a selected outcome;
(d) for each outcome, determine the best limit order (BLO);
(e) determine the mount of additional investments on a selected outcome for the IPP that could yield the price of the BLO; (f) adding the amount of additional limit orders to the IPP if the number of additional limit orders is less than the amount of existing limit orders;
(g) calculating a new pari-mutuel pool (NPP) using modified D?P; and (h) calculating new contract payouts (NCP) for each outcome using NPP.
17. The method as recited in claim 16 further comprising adding the amount of additional limit order to the IPP and repeating steps (c) and (d) if the number of additional limit orders is greater than the amount of existing limit orders.
18. The method as recited in claim 16 further comprising treating the NPP as the DPP and the NCP as the ICP and repeating steps (a) - (h) using the ICP and IPP.
19. The method as recited in claim 16 further comprising communicating a market clearing price to a participating user.
20. The method as recited inc claim 19 further comprising providing a payment processor for paying out returns on investments provided by participating users according to the market clearing price.
PCT/US2007/012296 2006-07-17 2007-05-24 Trading system and method using a virtual pari-mutuel pool WO2008010871A1 (en)

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US20090023493A1 (en) * 2007-07-20 2009-01-22 Tung Wan Cheng Betting-products matched bargain method and system

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US7693766B2 (en) * 2004-12-21 2010-04-06 Weather Risk Solutions Llc Financial activity based on natural events
US7584134B2 (en) * 2004-12-21 2009-09-01 Weather Risk Solutions, Llc Graphical user interface for financial activity concerning tropical weather events
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US20050171878A1 (en) * 2004-02-03 2005-08-04 Pennock David M. Dynamic pari-mutuel market

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