CA2432025A1 - System and method for performing automated currency conversion and order update - Google Patents
System and method for performing automated currency conversion and order update Download PDFInfo
- Publication number
- CA2432025A1 CA2432025A1 CA002432025A CA2432025A CA2432025A1 CA 2432025 A1 CA2432025 A1 CA 2432025A1 CA 002432025 A CA002432025 A CA 002432025A CA 2432025 A CA2432025 A CA 2432025A CA 2432025 A1 CA2432025 A1 CA 2432025A1
- Authority
- CA
- Canada
- Prior art keywords
- order
- received
- converted
- executed
- currency
- Prior art date
- Legal status (The legal status 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 status listed.)
- Abandoned
Links
Classifications
-
- G—PHYSICS
- G06—COMPUTING; CALCULATING OR COUNTING
- G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
- G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
- G06Q40/04—Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
Abstract
Published without an Abstract
Description
SYSTEM AND METHOD FOR PERFORMING AUTOMATED
CURRENCY CONVERSION AND ORDER UPDATE
BACKGROUND TO THE INVENTION
Field of Invention This invention relates to the field of international commerce and in particular to the field of currency conversion and order updating in a stock trading environment.
Description of the Related Prior Art Historically, stock exchanges were manual in nature wherein simultaneous trading in stocks was made possible through multiple trading posts situated on the trading floor of an exchange. The member brokers would send their orders for trades on all stocks to their agent on the exchange.
The floor broker would then take these orders to the trading post for that stock. At the post, a trader or specialist in one or more stocks accepted orders. The specialist might match the new order with a prior order and act as an agent for buyer and seller, receiving a commission from both. Alternatively, the specialist might enter the trade as a principal, negotiating to buy or sell the stock. In some cases, two parties at a post might consummate a trade independently of the trader or specialist.
Many stock exchanges are now automated which has eliminated the use of specialists manually processing orders on the trading floor of the exchange. A typical computer based stock exchange includes a central computer and remote terminals for each of the brokers utilizing the system.
The brokers submit orders which identify the stock, the size of the order, whether it is to buy or sell (i.e. the side of the order), and whether it is a price (limit) order or a market order. All of the buy orders are collected, broken down into 100 share orders and sequenced first by price from WO 01/44995 _2_ PCT/CA00/01429 highest to lowest, and second, by time of order. A similar sequence is made of sell orders from the lowest price to the highest price.
The public's interface to the exchange is the broker who receives and executes orders forwarded by client's who have entered into a relationship with the broker to provide trading services.
Client's often wish to purchase stocks appearing on exchanges in foreign markets. For example, American clients may wish to purchase stocks appearing on Canada's Toronto Stock Exchange (TSE), Vancouver Stock Exchange (VSE) or Montreal Stock Exchange (MSE). Such transactions are complicated by the fact that orders are often placed in one currency and must be executed in another currency as the foreign exchange will only accept buy and sell orders denominated in the currency of the country in which it is resident. The exchange rate for the currencies involved typically vary throughout the day based on the varying strength of one currency against another arising from a number of macroeconomic factors.
Brokers who perform such transactions risk losing money if the rate varies significantly before the transaction is complete e.g. A limit order is placed at USD $10.00/share and converted to CAD at an exchange rate of 1.43 so that the order is placed at CAD $14.30/share. If the rate drops to 1.39 before the transaction is complete then the order will be converted back to USD currency at a rate of 1.39 giving USD $10.29/share, 29~ above the limit price of USD $10.00. The broker must take the 29~ loss since they had guaranteed the purchase price of USD $10.00/share.
There is of course less risk of loss to the broker where orders are executed in near real-time, but many orders are held for longer periods until a desired purchase price is reached. In these cases the potential for the broker to lose money due to fluctuating rates is high.
Further, if an order is not executed in a timely manner, there is also a risk that the order will not be executed as a result of a changing rate, since the effective price at which the stock can be purchased is no longer within the parameters of the order. This would ultimately result in customer dissatisfaction and a loss of the commission associated with the trade. It will also be appreciated by those in the art, that a commission is normally associated with each transaction to compensate the broker for performing the trade. This commission must be factored into the conversion to ensure that the price ultimately presented to the client falls within the limit price associated with the order.
WO 01/44995 ~_ PCT/CA00/01429 To date, no sophisticated system has been developed to handle currency conversion and order update. Typically, a broker will receive a telephone call from a foreign client requesting the purchase of certain stocks, with the order given in a foreign currency. The broker will then manually calculate an order amount in the currency used in the stock exchange of interest and subsequently submit the order. The broker will then monitor the exchange rate to determine if the order should be re-booked. If the volume of trades is high, a broker would have difficulty monitoring all orders and processing order changes manually. Further, it is nearly impossible for the broker to monitor all of the factors which might impact on the decision to re-book the order.
For example, the absolute stock price, the closeness of the order to the market and the exchange rate are just some factors to be considered.
SUMMARY OF THE INVENTION
The present invention seeks to overcome the deficiencies of the prior art by providing an automated order conversion system which also updates orders presented to the exchange to ensure that a dated currency exchange rate is not applied to the transaction.
The present invention allows stock buy or sell orders to be placed in one currency, executed in a second currency and settled in the first currency. Orders destined for a foreign trading exchange are received in a first currency. The orders are converted to a second currency based on a conversion algorithm that takes into account the foreign exchange rate, broker conversion rate spreads and commissions.
The order is then sent to the trading exchange for execution. As the orders are filled, the present invention will automatically convert the fill price from the second currency to the first currency, including commissions. Filled orders are then returned to the client by the broker executing the trade. To minimize the risk of the broker losing money due to a fluctuating exchange rate, the exchange rate is monitored and the order re-booked at the trading exchange, if the exchange rate varies beyond defined parameters.
In accordance with one aspect of the present invention, there is provided a method of performing automated currency conversion and order updating comprising the steps of : (a) receiving an order in a first currency; (b) converting the received order from a first currency to a second WO 01/44995 ~ PCTlCA00/01429 currency; (c) submitting the received and converted order to a trading exchange for execution;
(d) receiving an executed order from the trading exchange; (e) converting the executed order from the second currency to the first currency; (f) reporting the executed and converted order to the client; wherein step (b) is performed using a first exchange rate and step (d) is performed using a second exchange rate; and wherein the first exchange rate is monitored and the received order re-converted and re-submitted if the first exchange rate changes beyond defined upper and lower thresholds; and wherein the first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
In accordance with another aspect of the present invention there is provided a computer-readable medium having stored thereon computer-executable instructions for performing the steps of: (a) receiving an order in a first currency; (b) converting the received order from a first currency to a second currency; (c) submitting the received and converted order to a trading exchange for execution; (d) receiving an executed order from the trading exchange; (e) converting the executed order from the second currency to the first currency; and (f) reporting the executed and converted order to the client; wherein step (b) is performed using a first exchange rate and step (d) is performed using a second exchange rate; and wherein the computer-readable medium further comprises computer-executable instructions for monitoring the first exchange rate, and re-converting and re-submitting the received order if the first exchange rate changes beyond defined upper and lower thresholds; and wherein the first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
In accordance with yet another aspect of the present invention there is provided a system for performing automated currency conversion and order updating comprising: (a) means for receiving orders from a client order management system; (b) means for storing the received orders and computer-executable instructions; (c) first processing means for converting the received orders from a first currency to a second currency; (d) means for communicating with a trading exchange to facilitate execution of the received and converted orders;
(e) second processing means for converting the executed orders from the second currency to the first currency; and (f) means for reporting the executed orders to the client order management system;
wherein the conversion of the received orders is performed using a first exchange rate and the conversion of the executed order is performed using a second exchange rate;
and wherein the first processing means acting on the computer-executable instructions, monitors the first exchange rate and the received order is re-converted and re-submitted if the first exchange rate changes beyond defined upper and lower thresholds; and wherein the first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
BRIEF DESCRIPTION OF THE DRAWINGS
A better understanding of the invention will be obtained by reading the description of the invention below, with reference to the following drawings, in which Figure 1 is a system overview;
Figure 2 is a flowchart describing the method of the present invention;
Figure 3 is a graph depicting the relationship of the CAD limit price with and without the use of hysteresis;
Figure 4 depicts a hysteresis loop;
Figure 5 is a block diagram depicting a second embodiment of the present invention;
Figure 6 depicts a typical screen layout of the order information presented to a broker; and Figure 7 depicts a typical screen layout used by a broker in processing a filled order DESCRIPTION OF THE PREFERRED EMBODIMENT
Referring to figure l, a system overview is provided. Client's premises, indicated generally as 2 are located in a foreign country. For the purposes of describing the preferred embodiment the client will be presumed to be resident in the United States and the stock exchange of interest will WO 01/44995 _~ PCT/CA00/01429 be located in Canada, although it will be understood by those skilled in the art that many other country combinations are possible. An executing broker in the United States operates a client order management system 4, which tracks the orders to be executed, using, among other information, the symbol of the stock to be traded, the size of the order, and the exchange where the order is to be placed. It is not unusual for the OMS 4 to track upwards of 10,000 orders simultaneously. The client's OMS 4 is connected via a data link to the conversion and order update subsystem integral to the present invention and which is generally depicted as 6. The protocol used to allow communication over the data link is the financial information exchange (FIX) protocol, well known to those skilled in the art. It should be noted that OMS 4 may also include the ability to provide Canadian stock quotations to clients in USD
through a link with one or more data management services well known in the art. This is desirable, as often clients wish to know the price of a foreign stock in USD, so that they can place orders in a currency with which they are familiar.
Subsystem 6, consists of: an execution server 8; a USD order bookl0; a fill reporter 12; and a rates book 14. As shown in the diagram, subsystem 6 communicates with one or more brokers (shown generally as 16) as well as the stock exchanges of interest (shown generally as 18).
Brokers 16 are Canadian and are designated by the stock exchange 18 as the execution broker in Canada for a given transaction. As such, they are responsible for clearance and settlement of a each transaction. The specific broker chosen for a transaction is called the "give up" broker.
Execution server 8 is necessary to receive orders from US clients and to report fills against those orders. Execution server 8 comprises storage means (not shown) and processing means (not shown) wherein the storage means used includes random access memory, read-only memory, floppy disk drive, hard drive memory, CD ROM or the like, and the processing means includes a microprocessor, a micro controller, a central processing unit, a microcomputer or the like.
Rates book 14 stores all commission and exchange rate information specific to all brokers. As will be understood by those in the art, a third party currency vendor provides an exchange rate to the broker (the benchmark exchange rate). The exchange rate is typically given in a spread WO 01/44995 _~_ PCT/CA00/01429 format e.g. 1.47 (for buys) ~ 1.48 (for sells). To this rate the broker adds or subtracts their own spread e.g. add/subtract 0.01 to give 1.46 (for buys) ~ 1.49 (for sells). USD
order book 10 stores orders received from the client's OMS 4 which includes such information as stock symbol, side (buy or sell), quantity, USD limit price (if applicable), give up broker, expiry date (e.g. day, good till cancel (GTC), good till (date), etc.), and order attributes (such as all or none (AON), fill or kill (FOK), minimum fill quantity, etc.). The USD Order Book Monitor (not shown) associated with the USD Order Book 10 displays orders currently active in the USD order book.
The information displayed includes the order date, the order side, the order quantity, the filled quantity, the USD limit price and the current CAD limit price (if applicable), the USD/CAD
exchange rate, and the date and time the order was booked with the stock exchange. USD order book 10 is linked to stock exchange 18 to facilitate transmission of orders.
As will be explained below, depending on the type of order, the order may be converted to CAD prior to transmission.
The fill reporter 12 receives executed orders from the stock exchange 18 in CAD and converts the executed order to USD using the CAD fill price, the exchange rate and the commission rate of the broker. As discussed above, the exchange rate includes the rate quoted from the vendor plus or minus the executing brokers spread depending on whether a buy or sell order has been executed. The spread entry and fill monitor 20 allows brokers 16 to set the exchange rate spread they offer clients, with the spread data being stored in the rates book 14.
The fill reporter 12 is used by brokers to monitor the volume of foreign exchange trading in which they are engaged using the system. The fill monitor displays the fill and conversion data using the CAD fill data (volume and price), the conversion rate, the applicable commission and the USD
reported price.
The data displayed by the fill monitor may be used for clearance and settlement purposes.
Finally, there is the spread monitor 22 positioned at client premises 2 which displays the exchange rate spreads offered by brokers 16 linked to the system. The spread monitor 22 receives spread data from the rates book 14. Additionally the spread monitor 22 may also display the commission rates of the brokers 16.
Referring to figure 2, at step 24 orders are sent from the client OMS 4 to the execution server 8 which in turn forwards the order to USD order book 10. A determination is made at step 26 as to whether the order is a market order or a limit order. If the order is a market order, the price at WO 01/44995 _g_ PCT/CA00/01429 which the order is filled is not critical as the client simply wants the order to be filled at the current market price e.g. buy 100 shares of Air Canada (AC) at the present market price. As indicated in step 28, such an order is sent directly to the exchange associated with the stock with the symbol, side and quantity- parameters highlighted. No conversion of the price is required.
However, once the order is filled (and the CAD purchase price therefore known), the fill will be reported to the U.S. client in USD and all settlement with the client is done in USD. As a result, filled orders are converted from CAD to USD using the exchange rate quoted by the broker which is a combination of the benchmark rate and the broker spread. Once the order has been executed the filled order in CAD is received at the fill reporter 12. At step 30, the benchmark exchange rate, broker spread rate and broker commission are obtained from the rates book I4.
The order is then converted from the CAD fill price to the USD fill price at step 32 by dividing the CAD fill price by the exchange rate. If the order is a sell, the broker spread rate is added to the benchmark rate to determine the effective exchange rate. If the order is a buy, the broker spread is subtracted from the benchmark to determine the effective exchange rate. The converted price is normally rounded to the nearest cent. As discussed earlier, each broker has their own spread rate, so that for any given order there must be an associated broker.
The Canadian broker chosen by a client is indicated in one of the data fields contained in the original order forwarded from the OMS 4. Once the currency conversion has been completed, a determination is made at step 34 as to whether the order is a buy or sell. If the order is a sell, the specified broker's commission is subtracted from the USD fill price at step 36. If the order is a buy, then the specified broker's commission is added to the USD fill price at step 38. The converted price with the commission added or subtracted is then presented to the client OMS 4 via the execution server 8 as indicated at step 40. It should also be noted that if the order is a buy and the resulting USD fill price is greater than the USD limit price, then the USD fill price is set to the USD limit price. As well, if the order is a sell and the resulting USD fill price is less than the USD limit price of the order, then the USD fill price is set to the USD limit price.
A limit order is handled quite differently. With a limit order, the client requests that a certain number of shares be purchased at or below a price specified. Therefore, when all conversions are calculated and commissions added, the price in USD must be no more than the upper limit WO 01/44995 -g_ PCT/CA00/01429 specified by the client. A limit order is received by execution server 8 and forwarded to the USD
order book 10 where it is converted into a CAD limit order, as discussed below, and sent to a specified exchange 18. As discussed earlier, USD limit orders are converted to CAD limit orders based on the market exchange rate, the broker's exchange spread and the broker's commission rate. The resulting calculation will generally not produce a price suitable for submission to the exchange i.e. normally prices are presented to the exchange to the nearest "tick". As understood by someone skilled in the art, the value of a tick varies depending on the stock price: if the stock price is 0 -~ $0.50 a tick is '/2 cents; if the stock price is $0.51 ~ $5.00 a tick is 1 cent; and if the stock price is over $5.00 a tick is 5 cents. Therefore, an algorithm is required to convert the CAD
converted price to an acceptable CAD limit price. The general rule applied is that buys are rounded down to the nearest tick size, while sells are rounded up to the nearest tick size.
Additionally, for buys the commission in USD is subtracted from the USD limit price prior to conversion, while the commission is added to the USD limit price for sells.
For example, At 1005 hours the exchange rate (including brokers spread) is 1.4550 (buy) 1.4570 (sell) and Air Canada is trading at CAD $12.85 to $12.90. The Commission is USD $0.03/ share. An order is placed to buy 1000 shares at USD
$8.95/ share. Firstly, since the commission is included in the USD limit price, the commission of $0.03 /share is subtracted out giving USD $8.92/ share. Since this is a buy, the CAD limit price is calculated as $8.92 * 1.4550 = CAD $12.9786.
The price is then rounded down to the nearest tick size or CAD $12.95 and submitted to the exchange.
It will be understood by those skilled in the art that the manner in which buy and sell orders are rounded may vary, depending on the level of risk desired by a user. That is to say that an ordered which is rounded in a particular manner may be more or less likely to execute. Different rounding techniques may be employed to maximize the number of successful executions, and thereby the commission earned. Risk arises because the rounding technique which is employed may result in losses due to currency conversion. The rounding technique chosen attempts to balance the risk of currency conversion loss with the number of orders executed. The general rule described above is considered to be very conservative and typically used as a starting point.
Referring again to figure 2, a USD order is sent from the client's OMS 4 at step 24. When the USD order is received at the USD order book 10, a determination is made at step 26 as to whether the order is a market or limit order. If the order is a limit order then at step 42 the WO 01/44995 _10_ PCT/CA00/01429 benchmark, broker spread rate and broker commission are obtained from the rates book 14. At step 44, a determination is made as to whether or not the order is a buy or sell order. If the order is a buy, then at step 48 the commission is subtracted from the USD limit order price. If the order is a sell then at step 46 the commission is added to the USD limit price. If the order is a buy, at step 52, the spread is subtracted from the benchmark rate. If the order is a sell, at step 50 the spread is added to the benchmark rate. After the adding or subtracting of the spread rate, the USD limit order is converted to a CAD limit order at step 54. As described above, the converted amount is then rounded up or rounded down to the nearest tick depending on whether the order side is buy or sell. At step 56, the CAD limit order is then, based on the stock symbol, side and quantity, forwarded to the appropriate exchange 18 for execution.
Once the order has been executed, there may be some time before the order is actually executed at the exchange 18. Once the order is filled, the filled order in CAD is received at the fill reporter 12. At step 58, the benchmark exchange rate (defined as (second currency) /
(first currency)), broker spread rate and commission are obtained from the rates book 14. The CAD
fill price is then converted to the USD fill price at step 60 by dividing the CAD fill price by the exchange rate. If the order is a sell, the broker spread rate is added to the benchmark rate to determine the effective exchange rate. If the order is a buy, the broker spread is subtracted from the benchmark to determine the effective exchange rate. The converted price may be rounded to a convenient amount, typically the nearest cent. Once the currency conversion has been completed, a determination is made at step 62 as to whether the order is a buy or sell. If the order is a sell the commission is subtracted from the USD fill price at step 66. If the order is a buy then the commission is added to the USD fill price at step 64. For example, If the order discussed above is filled at CAD $12.90 (the best asking price) then the fill will be reported back at CAD $12.90 )1.4550 = USD $8.866. The converted price is then rounded down to the nearest cent or USD $8.86. The commission of $0.03 /share is then added (since the order is a buy) to give USD
$8.89 (This is well below the upper limit of USD $8.95 / share placed on the order by the client) The converted price with the commission added or subtracted is then presented to the client OMS 4 via the execution server 8 as indicated at step 68. As with market orders, if the order is a WO 01/44995 _1 1- PCT/CA00/01429 buy and the resulting USD fill price is greater than the USD limit price, then the USD fill price is set to the USD limit price. As well, if the order is a sell and the resulting USD fill price is less than the USD limit price of the order, then the USD fill price is set to the USD limit price.
The process described above is what occurs in the most straightforward of transactions which are executed in near real-time. However, often orders are not processed immediately for a variety of reasons. For example, a Good Till Cancel (GTC) order remains open until filled or cancelled, only being executed when the asking price meets the CAD limit order price.
During the period in which the order is pending at the exchange 18, the benchmark exchange rate may vary many times. Brokers risk losing money if they allow the order to be executed at an unfavourable rate i.e. once the order is filled the rate in effect for the conversion back to USD may result in the broker losing money, since they will have filled the order at a price above the limit given by the client. Therefore, it is highly desirable for the system to be able to recognize when the exchange rate has moved sufficiently to warrant a change to the order. However, there must be criteria established to avoid a situation where orders are continuously updated due to minor fluctuations in the exchange rate. This would overload the exchange to which the orders are being sent, which would be unacceptable to the exchange administrators. An order change is accomplished by way of change former order (CFO) request or equivalent. In figure 2, steps 70 and 72 describe the process of monitoring the exchange rate and then executing a CFO if the rate fluctuates outside of a defined parameter as described below.
The system of the present invention uses hysteresis to determine when a CFO
should be initiated.
In general, hysteresis is a characteristic of a system whereby the output of the system or result produced is determined by both the input (stimulus) and the historic (previous) value of the output itself. In the context of the present invention, hysteresis is employed as a noise reduction technique. Without hysteresis, the number of CFO's resulting from small fluctuations in the exchange would be intolerable and thereby unacceptable to the stock exchanges.
Hysteresis has the effect of reducing the number of CFOs when the exchange rate fluctuates around certain values. To demonstrate the concept, consider the graph highlighted in figure 3. Here the WO 01/44995 _12_ PCT/CA00/01429 exchange rate data points are represented by square markers. It will be understood by those skilled in the art that the exchange rate can typically change every 90 seconds or less. The USD
price is assumed to be $10.00, so that the CAD converted amounted falls in the range of $14.40 to $14.50 (orders must be rounded to the nearest tick size), given an exchange rate which fluctuates between about 1.4400 and 1.4510. The line for the CAD price without hysteresis (depicted using diamonds) shows that the exchange rate can cause frequent changes (and corresponding CFO's) between $14.50 and $14.45 and later between $14.45 and $14.50. The line for the CAD price with hysteresis (depicted using triangles) shows that there is only one price change (and corresponding CFO) from $14.50 to $14.45, and later only one price change from $14.45 to $14.40. Figure 4 depicts a hysteresis loop demonstrating the relationship of the order price to the calculated price. As the calculated price varies incrementally within a five cent range due to corresponding fluctuations in the exchange rate, the order price may jump in a five cent increment depending on the criteria which have been defined in the hysteresis algorithm.
The size of the hysteresis loop is a measure of the noise reduction versus responsiveness. In some circumstances, it may be desirable to initiate a CFO when relatively small changes in the exchange rate arise. The resulting loop in such a case would be narrow, indicative of a system which has valued responsiveness over noise reduction. In contrast, if the loop is wide, it suggests that noise reduction has been emphasized over responsiveness and the corresponding number of CFOs generated would be reduced. The ability to dynamically adjust the system in this manner can be readily provided to a user of the system, to allow the user to vary the CFOs generated.
One method of determining when a CFO should be generated is to establish the range of values of the exchange rate that will not result in a change to the CAD limit price.
This can be calculated in the following manner. If the order is a buy then the tick rule is to round away. The calculated CAD
limit price is divided by the gross USD Limit price (which is the USD limit price - the commission rate for buys). The result is then rounded up to 4 decimal places to give the lower limit. In order to obtain the upper limit, one tick size is added to the CAD
limit price and the result is divided by the gross USD limit price. The result is then truncated to 4 decimal places.
If the order is a buy than the tick rule is to round toward. The calculated CAD limit price is then divided by the gross USD limit price and the result truncated to 4 decimal places to give the upper limit. In order to obtain the lower limit, one tick size is subtracted from the CAD limit price and the result is divided by the gross USD limit price. The result is rounded up to 4 decimal places It is not unusual for there to be hundreds of CFO's which must be processed as a result of the hysteresis analysis described above. In general, one or more of the following re-booking priorities is used to determine in what order a CFO should be sent:
(a) The total principle of the remaining order;
(b) The magnitude of the change in price (measured in ticks);
(c) The absolute stock price;
(d) The closeness of the order to the market; and (e) The side of order (i.e. buy or sell) and the direction of the exchange rate change.
With respect to (a), exposure to a changing exchange rate risk exists between the time an order ought to be re-booked and the time it actually is re-booked. The magnitude of the risk is defined by the product of the remaining order volume and the difference between the current price and the new calculated price.
With respect to (b) , it will be appreciated that calculated order prices change due to changes in the exchange rates. However, as previously discussed, orders are made in whole tick increments.
Orders that must be changed by a larger number of ticks are given a higher priority than orders that must be changed by fewer ticks. A CFO based on order price is performed using the following criteria WO 01/44995 _1 ~ PCT/CA00/01429 Price Band Sensitivity ( Over $25.00 1 tick is < 0.2% of the price )
CURRENCY CONVERSION AND ORDER UPDATE
BACKGROUND TO THE INVENTION
Field of Invention This invention relates to the field of international commerce and in particular to the field of currency conversion and order updating in a stock trading environment.
Description of the Related Prior Art Historically, stock exchanges were manual in nature wherein simultaneous trading in stocks was made possible through multiple trading posts situated on the trading floor of an exchange. The member brokers would send their orders for trades on all stocks to their agent on the exchange.
The floor broker would then take these orders to the trading post for that stock. At the post, a trader or specialist in one or more stocks accepted orders. The specialist might match the new order with a prior order and act as an agent for buyer and seller, receiving a commission from both. Alternatively, the specialist might enter the trade as a principal, negotiating to buy or sell the stock. In some cases, two parties at a post might consummate a trade independently of the trader or specialist.
Many stock exchanges are now automated which has eliminated the use of specialists manually processing orders on the trading floor of the exchange. A typical computer based stock exchange includes a central computer and remote terminals for each of the brokers utilizing the system.
The brokers submit orders which identify the stock, the size of the order, whether it is to buy or sell (i.e. the side of the order), and whether it is a price (limit) order or a market order. All of the buy orders are collected, broken down into 100 share orders and sequenced first by price from WO 01/44995 _2_ PCT/CA00/01429 highest to lowest, and second, by time of order. A similar sequence is made of sell orders from the lowest price to the highest price.
The public's interface to the exchange is the broker who receives and executes orders forwarded by client's who have entered into a relationship with the broker to provide trading services.
Client's often wish to purchase stocks appearing on exchanges in foreign markets. For example, American clients may wish to purchase stocks appearing on Canada's Toronto Stock Exchange (TSE), Vancouver Stock Exchange (VSE) or Montreal Stock Exchange (MSE). Such transactions are complicated by the fact that orders are often placed in one currency and must be executed in another currency as the foreign exchange will only accept buy and sell orders denominated in the currency of the country in which it is resident. The exchange rate for the currencies involved typically vary throughout the day based on the varying strength of one currency against another arising from a number of macroeconomic factors.
Brokers who perform such transactions risk losing money if the rate varies significantly before the transaction is complete e.g. A limit order is placed at USD $10.00/share and converted to CAD at an exchange rate of 1.43 so that the order is placed at CAD $14.30/share. If the rate drops to 1.39 before the transaction is complete then the order will be converted back to USD currency at a rate of 1.39 giving USD $10.29/share, 29~ above the limit price of USD $10.00. The broker must take the 29~ loss since they had guaranteed the purchase price of USD $10.00/share.
There is of course less risk of loss to the broker where orders are executed in near real-time, but many orders are held for longer periods until a desired purchase price is reached. In these cases the potential for the broker to lose money due to fluctuating rates is high.
Further, if an order is not executed in a timely manner, there is also a risk that the order will not be executed as a result of a changing rate, since the effective price at which the stock can be purchased is no longer within the parameters of the order. This would ultimately result in customer dissatisfaction and a loss of the commission associated with the trade. It will also be appreciated by those in the art, that a commission is normally associated with each transaction to compensate the broker for performing the trade. This commission must be factored into the conversion to ensure that the price ultimately presented to the client falls within the limit price associated with the order.
WO 01/44995 ~_ PCT/CA00/01429 To date, no sophisticated system has been developed to handle currency conversion and order update. Typically, a broker will receive a telephone call from a foreign client requesting the purchase of certain stocks, with the order given in a foreign currency. The broker will then manually calculate an order amount in the currency used in the stock exchange of interest and subsequently submit the order. The broker will then monitor the exchange rate to determine if the order should be re-booked. If the volume of trades is high, a broker would have difficulty monitoring all orders and processing order changes manually. Further, it is nearly impossible for the broker to monitor all of the factors which might impact on the decision to re-book the order.
For example, the absolute stock price, the closeness of the order to the market and the exchange rate are just some factors to be considered.
SUMMARY OF THE INVENTION
The present invention seeks to overcome the deficiencies of the prior art by providing an automated order conversion system which also updates orders presented to the exchange to ensure that a dated currency exchange rate is not applied to the transaction.
The present invention allows stock buy or sell orders to be placed in one currency, executed in a second currency and settled in the first currency. Orders destined for a foreign trading exchange are received in a first currency. The orders are converted to a second currency based on a conversion algorithm that takes into account the foreign exchange rate, broker conversion rate spreads and commissions.
The order is then sent to the trading exchange for execution. As the orders are filled, the present invention will automatically convert the fill price from the second currency to the first currency, including commissions. Filled orders are then returned to the client by the broker executing the trade. To minimize the risk of the broker losing money due to a fluctuating exchange rate, the exchange rate is monitored and the order re-booked at the trading exchange, if the exchange rate varies beyond defined parameters.
In accordance with one aspect of the present invention, there is provided a method of performing automated currency conversion and order updating comprising the steps of : (a) receiving an order in a first currency; (b) converting the received order from a first currency to a second WO 01/44995 ~ PCTlCA00/01429 currency; (c) submitting the received and converted order to a trading exchange for execution;
(d) receiving an executed order from the trading exchange; (e) converting the executed order from the second currency to the first currency; (f) reporting the executed and converted order to the client; wherein step (b) is performed using a first exchange rate and step (d) is performed using a second exchange rate; and wherein the first exchange rate is monitored and the received order re-converted and re-submitted if the first exchange rate changes beyond defined upper and lower thresholds; and wherein the first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
In accordance with another aspect of the present invention there is provided a computer-readable medium having stored thereon computer-executable instructions for performing the steps of: (a) receiving an order in a first currency; (b) converting the received order from a first currency to a second currency; (c) submitting the received and converted order to a trading exchange for execution; (d) receiving an executed order from the trading exchange; (e) converting the executed order from the second currency to the first currency; and (f) reporting the executed and converted order to the client; wherein step (b) is performed using a first exchange rate and step (d) is performed using a second exchange rate; and wherein the computer-readable medium further comprises computer-executable instructions for monitoring the first exchange rate, and re-converting and re-submitting the received order if the first exchange rate changes beyond defined upper and lower thresholds; and wherein the first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
In accordance with yet another aspect of the present invention there is provided a system for performing automated currency conversion and order updating comprising: (a) means for receiving orders from a client order management system; (b) means for storing the received orders and computer-executable instructions; (c) first processing means for converting the received orders from a first currency to a second currency; (d) means for communicating with a trading exchange to facilitate execution of the received and converted orders;
(e) second processing means for converting the executed orders from the second currency to the first currency; and (f) means for reporting the executed orders to the client order management system;
wherein the conversion of the received orders is performed using a first exchange rate and the conversion of the executed order is performed using a second exchange rate;
and wherein the first processing means acting on the computer-executable instructions, monitors the first exchange rate and the received order is re-converted and re-submitted if the first exchange rate changes beyond defined upper and lower thresholds; and wherein the first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
BRIEF DESCRIPTION OF THE DRAWINGS
A better understanding of the invention will be obtained by reading the description of the invention below, with reference to the following drawings, in which Figure 1 is a system overview;
Figure 2 is a flowchart describing the method of the present invention;
Figure 3 is a graph depicting the relationship of the CAD limit price with and without the use of hysteresis;
Figure 4 depicts a hysteresis loop;
Figure 5 is a block diagram depicting a second embodiment of the present invention;
Figure 6 depicts a typical screen layout of the order information presented to a broker; and Figure 7 depicts a typical screen layout used by a broker in processing a filled order DESCRIPTION OF THE PREFERRED EMBODIMENT
Referring to figure l, a system overview is provided. Client's premises, indicated generally as 2 are located in a foreign country. For the purposes of describing the preferred embodiment the client will be presumed to be resident in the United States and the stock exchange of interest will WO 01/44995 _~ PCT/CA00/01429 be located in Canada, although it will be understood by those skilled in the art that many other country combinations are possible. An executing broker in the United States operates a client order management system 4, which tracks the orders to be executed, using, among other information, the symbol of the stock to be traded, the size of the order, and the exchange where the order is to be placed. It is not unusual for the OMS 4 to track upwards of 10,000 orders simultaneously. The client's OMS 4 is connected via a data link to the conversion and order update subsystem integral to the present invention and which is generally depicted as 6. The protocol used to allow communication over the data link is the financial information exchange (FIX) protocol, well known to those skilled in the art. It should be noted that OMS 4 may also include the ability to provide Canadian stock quotations to clients in USD
through a link with one or more data management services well known in the art. This is desirable, as often clients wish to know the price of a foreign stock in USD, so that they can place orders in a currency with which they are familiar.
Subsystem 6, consists of: an execution server 8; a USD order bookl0; a fill reporter 12; and a rates book 14. As shown in the diagram, subsystem 6 communicates with one or more brokers (shown generally as 16) as well as the stock exchanges of interest (shown generally as 18).
Brokers 16 are Canadian and are designated by the stock exchange 18 as the execution broker in Canada for a given transaction. As such, they are responsible for clearance and settlement of a each transaction. The specific broker chosen for a transaction is called the "give up" broker.
Execution server 8 is necessary to receive orders from US clients and to report fills against those orders. Execution server 8 comprises storage means (not shown) and processing means (not shown) wherein the storage means used includes random access memory, read-only memory, floppy disk drive, hard drive memory, CD ROM or the like, and the processing means includes a microprocessor, a micro controller, a central processing unit, a microcomputer or the like.
Rates book 14 stores all commission and exchange rate information specific to all brokers. As will be understood by those in the art, a third party currency vendor provides an exchange rate to the broker (the benchmark exchange rate). The exchange rate is typically given in a spread WO 01/44995 _~_ PCT/CA00/01429 format e.g. 1.47 (for buys) ~ 1.48 (for sells). To this rate the broker adds or subtracts their own spread e.g. add/subtract 0.01 to give 1.46 (for buys) ~ 1.49 (for sells). USD
order book 10 stores orders received from the client's OMS 4 which includes such information as stock symbol, side (buy or sell), quantity, USD limit price (if applicable), give up broker, expiry date (e.g. day, good till cancel (GTC), good till (date), etc.), and order attributes (such as all or none (AON), fill or kill (FOK), minimum fill quantity, etc.). The USD Order Book Monitor (not shown) associated with the USD Order Book 10 displays orders currently active in the USD order book.
The information displayed includes the order date, the order side, the order quantity, the filled quantity, the USD limit price and the current CAD limit price (if applicable), the USD/CAD
exchange rate, and the date and time the order was booked with the stock exchange. USD order book 10 is linked to stock exchange 18 to facilitate transmission of orders.
As will be explained below, depending on the type of order, the order may be converted to CAD prior to transmission.
The fill reporter 12 receives executed orders from the stock exchange 18 in CAD and converts the executed order to USD using the CAD fill price, the exchange rate and the commission rate of the broker. As discussed above, the exchange rate includes the rate quoted from the vendor plus or minus the executing brokers spread depending on whether a buy or sell order has been executed. The spread entry and fill monitor 20 allows brokers 16 to set the exchange rate spread they offer clients, with the spread data being stored in the rates book 14.
The fill reporter 12 is used by brokers to monitor the volume of foreign exchange trading in which they are engaged using the system. The fill monitor displays the fill and conversion data using the CAD fill data (volume and price), the conversion rate, the applicable commission and the USD
reported price.
The data displayed by the fill monitor may be used for clearance and settlement purposes.
Finally, there is the spread monitor 22 positioned at client premises 2 which displays the exchange rate spreads offered by brokers 16 linked to the system. The spread monitor 22 receives spread data from the rates book 14. Additionally the spread monitor 22 may also display the commission rates of the brokers 16.
Referring to figure 2, at step 24 orders are sent from the client OMS 4 to the execution server 8 which in turn forwards the order to USD order book 10. A determination is made at step 26 as to whether the order is a market order or a limit order. If the order is a market order, the price at WO 01/44995 _g_ PCT/CA00/01429 which the order is filled is not critical as the client simply wants the order to be filled at the current market price e.g. buy 100 shares of Air Canada (AC) at the present market price. As indicated in step 28, such an order is sent directly to the exchange associated with the stock with the symbol, side and quantity- parameters highlighted. No conversion of the price is required.
However, once the order is filled (and the CAD purchase price therefore known), the fill will be reported to the U.S. client in USD and all settlement with the client is done in USD. As a result, filled orders are converted from CAD to USD using the exchange rate quoted by the broker which is a combination of the benchmark rate and the broker spread. Once the order has been executed the filled order in CAD is received at the fill reporter 12. At step 30, the benchmark exchange rate, broker spread rate and broker commission are obtained from the rates book I4.
The order is then converted from the CAD fill price to the USD fill price at step 32 by dividing the CAD fill price by the exchange rate. If the order is a sell, the broker spread rate is added to the benchmark rate to determine the effective exchange rate. If the order is a buy, the broker spread is subtracted from the benchmark to determine the effective exchange rate. The converted price is normally rounded to the nearest cent. As discussed earlier, each broker has their own spread rate, so that for any given order there must be an associated broker.
The Canadian broker chosen by a client is indicated in one of the data fields contained in the original order forwarded from the OMS 4. Once the currency conversion has been completed, a determination is made at step 34 as to whether the order is a buy or sell. If the order is a sell, the specified broker's commission is subtracted from the USD fill price at step 36. If the order is a buy, then the specified broker's commission is added to the USD fill price at step 38. The converted price with the commission added or subtracted is then presented to the client OMS 4 via the execution server 8 as indicated at step 40. It should also be noted that if the order is a buy and the resulting USD fill price is greater than the USD limit price, then the USD fill price is set to the USD limit price. As well, if the order is a sell and the resulting USD fill price is less than the USD limit price of the order, then the USD fill price is set to the USD limit price.
A limit order is handled quite differently. With a limit order, the client requests that a certain number of shares be purchased at or below a price specified. Therefore, when all conversions are calculated and commissions added, the price in USD must be no more than the upper limit WO 01/44995 -g_ PCT/CA00/01429 specified by the client. A limit order is received by execution server 8 and forwarded to the USD
order book 10 where it is converted into a CAD limit order, as discussed below, and sent to a specified exchange 18. As discussed earlier, USD limit orders are converted to CAD limit orders based on the market exchange rate, the broker's exchange spread and the broker's commission rate. The resulting calculation will generally not produce a price suitable for submission to the exchange i.e. normally prices are presented to the exchange to the nearest "tick". As understood by someone skilled in the art, the value of a tick varies depending on the stock price: if the stock price is 0 -~ $0.50 a tick is '/2 cents; if the stock price is $0.51 ~ $5.00 a tick is 1 cent; and if the stock price is over $5.00 a tick is 5 cents. Therefore, an algorithm is required to convert the CAD
converted price to an acceptable CAD limit price. The general rule applied is that buys are rounded down to the nearest tick size, while sells are rounded up to the nearest tick size.
Additionally, for buys the commission in USD is subtracted from the USD limit price prior to conversion, while the commission is added to the USD limit price for sells.
For example, At 1005 hours the exchange rate (including brokers spread) is 1.4550 (buy) 1.4570 (sell) and Air Canada is trading at CAD $12.85 to $12.90. The Commission is USD $0.03/ share. An order is placed to buy 1000 shares at USD
$8.95/ share. Firstly, since the commission is included in the USD limit price, the commission of $0.03 /share is subtracted out giving USD $8.92/ share. Since this is a buy, the CAD limit price is calculated as $8.92 * 1.4550 = CAD $12.9786.
The price is then rounded down to the nearest tick size or CAD $12.95 and submitted to the exchange.
It will be understood by those skilled in the art that the manner in which buy and sell orders are rounded may vary, depending on the level of risk desired by a user. That is to say that an ordered which is rounded in a particular manner may be more or less likely to execute. Different rounding techniques may be employed to maximize the number of successful executions, and thereby the commission earned. Risk arises because the rounding technique which is employed may result in losses due to currency conversion. The rounding technique chosen attempts to balance the risk of currency conversion loss with the number of orders executed. The general rule described above is considered to be very conservative and typically used as a starting point.
Referring again to figure 2, a USD order is sent from the client's OMS 4 at step 24. When the USD order is received at the USD order book 10, a determination is made at step 26 as to whether the order is a market or limit order. If the order is a limit order then at step 42 the WO 01/44995 _10_ PCT/CA00/01429 benchmark, broker spread rate and broker commission are obtained from the rates book 14. At step 44, a determination is made as to whether or not the order is a buy or sell order. If the order is a buy, then at step 48 the commission is subtracted from the USD limit order price. If the order is a sell then at step 46 the commission is added to the USD limit price. If the order is a buy, at step 52, the spread is subtracted from the benchmark rate. If the order is a sell, at step 50 the spread is added to the benchmark rate. After the adding or subtracting of the spread rate, the USD limit order is converted to a CAD limit order at step 54. As described above, the converted amount is then rounded up or rounded down to the nearest tick depending on whether the order side is buy or sell. At step 56, the CAD limit order is then, based on the stock symbol, side and quantity, forwarded to the appropriate exchange 18 for execution.
Once the order has been executed, there may be some time before the order is actually executed at the exchange 18. Once the order is filled, the filled order in CAD is received at the fill reporter 12. At step 58, the benchmark exchange rate (defined as (second currency) /
(first currency)), broker spread rate and commission are obtained from the rates book 14. The CAD
fill price is then converted to the USD fill price at step 60 by dividing the CAD fill price by the exchange rate. If the order is a sell, the broker spread rate is added to the benchmark rate to determine the effective exchange rate. If the order is a buy, the broker spread is subtracted from the benchmark to determine the effective exchange rate. The converted price may be rounded to a convenient amount, typically the nearest cent. Once the currency conversion has been completed, a determination is made at step 62 as to whether the order is a buy or sell. If the order is a sell the commission is subtracted from the USD fill price at step 66. If the order is a buy then the commission is added to the USD fill price at step 64. For example, If the order discussed above is filled at CAD $12.90 (the best asking price) then the fill will be reported back at CAD $12.90 )1.4550 = USD $8.866. The converted price is then rounded down to the nearest cent or USD $8.86. The commission of $0.03 /share is then added (since the order is a buy) to give USD
$8.89 (This is well below the upper limit of USD $8.95 / share placed on the order by the client) The converted price with the commission added or subtracted is then presented to the client OMS 4 via the execution server 8 as indicated at step 68. As with market orders, if the order is a WO 01/44995 _1 1- PCT/CA00/01429 buy and the resulting USD fill price is greater than the USD limit price, then the USD fill price is set to the USD limit price. As well, if the order is a sell and the resulting USD fill price is less than the USD limit price of the order, then the USD fill price is set to the USD limit price.
The process described above is what occurs in the most straightforward of transactions which are executed in near real-time. However, often orders are not processed immediately for a variety of reasons. For example, a Good Till Cancel (GTC) order remains open until filled or cancelled, only being executed when the asking price meets the CAD limit order price.
During the period in which the order is pending at the exchange 18, the benchmark exchange rate may vary many times. Brokers risk losing money if they allow the order to be executed at an unfavourable rate i.e. once the order is filled the rate in effect for the conversion back to USD may result in the broker losing money, since they will have filled the order at a price above the limit given by the client. Therefore, it is highly desirable for the system to be able to recognize when the exchange rate has moved sufficiently to warrant a change to the order. However, there must be criteria established to avoid a situation where orders are continuously updated due to minor fluctuations in the exchange rate. This would overload the exchange to which the orders are being sent, which would be unacceptable to the exchange administrators. An order change is accomplished by way of change former order (CFO) request or equivalent. In figure 2, steps 70 and 72 describe the process of monitoring the exchange rate and then executing a CFO if the rate fluctuates outside of a defined parameter as described below.
The system of the present invention uses hysteresis to determine when a CFO
should be initiated.
In general, hysteresis is a characteristic of a system whereby the output of the system or result produced is determined by both the input (stimulus) and the historic (previous) value of the output itself. In the context of the present invention, hysteresis is employed as a noise reduction technique. Without hysteresis, the number of CFO's resulting from small fluctuations in the exchange would be intolerable and thereby unacceptable to the stock exchanges.
Hysteresis has the effect of reducing the number of CFOs when the exchange rate fluctuates around certain values. To demonstrate the concept, consider the graph highlighted in figure 3. Here the WO 01/44995 _12_ PCT/CA00/01429 exchange rate data points are represented by square markers. It will be understood by those skilled in the art that the exchange rate can typically change every 90 seconds or less. The USD
price is assumed to be $10.00, so that the CAD converted amounted falls in the range of $14.40 to $14.50 (orders must be rounded to the nearest tick size), given an exchange rate which fluctuates between about 1.4400 and 1.4510. The line for the CAD price without hysteresis (depicted using diamonds) shows that the exchange rate can cause frequent changes (and corresponding CFO's) between $14.50 and $14.45 and later between $14.45 and $14.50. The line for the CAD price with hysteresis (depicted using triangles) shows that there is only one price change (and corresponding CFO) from $14.50 to $14.45, and later only one price change from $14.45 to $14.40. Figure 4 depicts a hysteresis loop demonstrating the relationship of the order price to the calculated price. As the calculated price varies incrementally within a five cent range due to corresponding fluctuations in the exchange rate, the order price may jump in a five cent increment depending on the criteria which have been defined in the hysteresis algorithm.
The size of the hysteresis loop is a measure of the noise reduction versus responsiveness. In some circumstances, it may be desirable to initiate a CFO when relatively small changes in the exchange rate arise. The resulting loop in such a case would be narrow, indicative of a system which has valued responsiveness over noise reduction. In contrast, if the loop is wide, it suggests that noise reduction has been emphasized over responsiveness and the corresponding number of CFOs generated would be reduced. The ability to dynamically adjust the system in this manner can be readily provided to a user of the system, to allow the user to vary the CFOs generated.
One method of determining when a CFO should be generated is to establish the range of values of the exchange rate that will not result in a change to the CAD limit price.
This can be calculated in the following manner. If the order is a buy then the tick rule is to round away. The calculated CAD
limit price is divided by the gross USD Limit price (which is the USD limit price - the commission rate for buys). The result is then rounded up to 4 decimal places to give the lower limit. In order to obtain the upper limit, one tick size is added to the CAD
limit price and the result is divided by the gross USD limit price. The result is then truncated to 4 decimal places.
If the order is a buy than the tick rule is to round toward. The calculated CAD limit price is then divided by the gross USD limit price and the result truncated to 4 decimal places to give the upper limit. In order to obtain the lower limit, one tick size is subtracted from the CAD limit price and the result is divided by the gross USD limit price. The result is rounded up to 4 decimal places It is not unusual for there to be hundreds of CFO's which must be processed as a result of the hysteresis analysis described above. In general, one or more of the following re-booking priorities is used to determine in what order a CFO should be sent:
(a) The total principle of the remaining order;
(b) The magnitude of the change in price (measured in ticks);
(c) The absolute stock price;
(d) The closeness of the order to the market; and (e) The side of order (i.e. buy or sell) and the direction of the exchange rate change.
With respect to (a), exposure to a changing exchange rate risk exists between the time an order ought to be re-booked and the time it actually is re-booked. The magnitude of the risk is defined by the product of the remaining order volume and the difference between the current price and the new calculated price.
With respect to (b) , it will be appreciated that calculated order prices change due to changes in the exchange rates. However, as previously discussed, orders are made in whole tick increments.
Orders that must be changed by a larger number of ticks are given a higher priority than orders that must be changed by fewer ticks. A CFO based on order price is performed using the following criteria WO 01/44995 _1 ~ PCT/CA00/01429 Price Band Sensitivity ( Over $25.00 1 tick is < 0.2% of the price )
(2) $1.00 to $4.99, $5.00 to 1 tick is 0.2% to 1.0% of the price $24.95
(3) $0.250 to $0.495, $0.50 1 tick is 1.0% to 2.0% of the price to $1.00
(4) Under $0.250 1 tick is > 2.0% of the price Note that the tick size as a percent of price indicates the sensitivity of an order to a change in order price. A small relative tick size means that a small change in the exchange rate may result in a price change of a large number of ticks. Within each of the bands listed above, the higher priced orders will always have greater tick size changes than the lower priced orders. In cases (2) and (3) two price bands are equally sensitive to exchange rate changes. For example, in case (2) and order at $4.50 would have the same priority as an order at $22.50, and one at $2.00 would have the same priority as one at $10.00.
With respect to (c) the selection of the actual thresholds for re-booking depends on the absolute stock price i.e. higher priced stocks have higher thresholds associated with them.
With respect to (d) above, orders close to the market value of the stock and most likely to execute are re-booked before orders farther away from the market and less likely to execute.
"Close to market" is defined as within a set number of ticks of the best price for the symbol.
With respect to (e) above, an increase in the effective exchange rate (e.g.
1.3700 -~ 1.3705) will cause buy orders to move closer to the market price of the stock, and sell orders to move farther away from the market price of the stock. Conversely, a decrease in the effective rate will cause buy orders to move farther away and sell orders to move closer to the market.
With respect to (c) the selection of the actual thresholds for re-booking depends on the absolute stock price i.e. higher priced stocks have higher thresholds associated with them.
With respect to (d) above, orders close to the market value of the stock and most likely to execute are re-booked before orders farther away from the market and less likely to execute.
"Close to market" is defined as within a set number of ticks of the best price for the symbol.
With respect to (e) above, an increase in the effective exchange rate (e.g.
1.3700 -~ 1.3705) will cause buy orders to move closer to the market price of the stock, and sell orders to move farther away from the market price of the stock. Conversely, a decrease in the effective rate will cause buy orders to move farther away and sell orders to move closer to the market.
5 _15_ PCT/CA00/01429 The system described above is fully automated in that the functionality described (order submission, conversion, order updating, etc.) are all performed using off the-shelf and proprietary hardware and software, the hardware being programmed to execute instructions to perform the method of the present invention without the need for human intervention.
However, brokers utilizing the system are able to monitor and override the system based either on input from the client or their own interpretation of the data presented to them regarding a particular trade. For example, if the broker is monitoring the exchange rate, they may initiate a CFO if they believe that an order change is warranted, despite the fact that the system has not generated a CFO through its hysteresis analysis.
Although the system has been described in relation to an automated system, it will be understood by those in the art that the system could operate in a semi-automatic form without departing from the spirit of the invention. In particular, all of the functionality described above would be present with a physical separation between subsystem 6 of figure l, and a stock exchange. As shown in figure 5, client OMS 74 connects to FIX server 76 which has connected to it workstation 78. USD
limit orders would be received and converted and at workstation 78, a broker (not shown) would be presented data of a form and type as indicated in figure 6. The broker would then manually enter the converted USD limit order into trading terminal 80 e.g. CATS
(Computer Assisted Trading System) for execution by the CATS order management system (OMS) 82 in the selected stock exchange 84. If the exchange rate varied beyond defined parameters, than the broker would be presented with information suggesting that a CFO be entered. Alternatively, the broker would monitor the exchange rate and initiate order changes independently. Once the order is filled the executed order would be reported to the broker at trading terminal 80. The broker would in turn enter the fill data into workstation 78 using a screen display such as the one depicted in figure 7.
When all of the fill information had been verified, the filled order would be reported to the client OMS 74 as having been completed.
The advantages of the present invention are now readily apparent. Utilizing the currency conversion and order update system of the present invention, clients located in a foreign country WO 01/44995 _1 ~ PCT/CA00/01429 can submit orders in the currency of the country in which they are resident and be assured that the order will be filled in the currency associated with the stock exchange of interest. From the broker's perspective, the risk of losing money as a result of an unfavourable fluctuation in exchange rates between the time the order is placed and the time the order is executed is minimized.
A person skilled in the art may now conceive of alternate structures and embodiments or variations of the above. All those which fall within the scope of the claims appended hereto are considered to be part of the present invention.
However, brokers utilizing the system are able to monitor and override the system based either on input from the client or their own interpretation of the data presented to them regarding a particular trade. For example, if the broker is monitoring the exchange rate, they may initiate a CFO if they believe that an order change is warranted, despite the fact that the system has not generated a CFO through its hysteresis analysis.
Although the system has been described in relation to an automated system, it will be understood by those in the art that the system could operate in a semi-automatic form without departing from the spirit of the invention. In particular, all of the functionality described above would be present with a physical separation between subsystem 6 of figure l, and a stock exchange. As shown in figure 5, client OMS 74 connects to FIX server 76 which has connected to it workstation 78. USD
limit orders would be received and converted and at workstation 78, a broker (not shown) would be presented data of a form and type as indicated in figure 6. The broker would then manually enter the converted USD limit order into trading terminal 80 e.g. CATS
(Computer Assisted Trading System) for execution by the CATS order management system (OMS) 82 in the selected stock exchange 84. If the exchange rate varied beyond defined parameters, than the broker would be presented with information suggesting that a CFO be entered. Alternatively, the broker would monitor the exchange rate and initiate order changes independently. Once the order is filled the executed order would be reported to the broker at trading terminal 80. The broker would in turn enter the fill data into workstation 78 using a screen display such as the one depicted in figure 7.
When all of the fill information had been verified, the filled order would be reported to the client OMS 74 as having been completed.
The advantages of the present invention are now readily apparent. Utilizing the currency conversion and order update system of the present invention, clients located in a foreign country WO 01/44995 _1 ~ PCT/CA00/01429 can submit orders in the currency of the country in which they are resident and be assured that the order will be filled in the currency associated with the stock exchange of interest. From the broker's perspective, the risk of losing money as a result of an unfavourable fluctuation in exchange rates between the time the order is placed and the time the order is executed is minimized.
A person skilled in the art may now conceive of alternate structures and embodiments or variations of the above. All those which fall within the scope of the claims appended hereto are considered to be part of the present invention.
Claims (27)
1. In a stock trading environment, a method of performing automated currency conversion and order updating comprising the steps of:
(a) receiving an order in a first currency;
(b) converting said received order from a first currency to a second currency;
(c) submitting said received and converted order to a trading exchange for execution;
(d) receiving an executed order from said trading exchange;
(e) converting said executed order from said second currency to said first currency;
and (f) reporting said executed and converted order to said client;
wherein step (b) is performed using a first exchange rate and step (d) is performed using a second exchange rate;
and wherein said first exchange rate is monitored and said received order re-converted and re-submitted if said first exchange rate changes beyond defined upper and lower thresholds;
and wherein said first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
(a) receiving an order in a first currency;
(b) converting said received order from a first currency to a second currency;
(c) submitting said received and converted order to a trading exchange for execution;
(d) receiving an executed order from said trading exchange;
(e) converting said executed order from said second currency to said first currency;
and (f) reporting said executed and converted order to said client;
wherein step (b) is performed using a first exchange rate and step (d) is performed using a second exchange rate;
and wherein said first exchange rate is monitored and said received order re-converted and re-submitted if said first exchange rate changes beyond defined upper and lower thresholds;
and wherein said first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
2. The method of claim 1 further comprising the steps of (a) if said received order is a buy, subtracting a commission before converting said received order; and (b) if said received order is a sell, adding said commission before converting said received order.
3. The method of claim 2 further comprising the step of rounding said received and converted order.
4. The method of claim 3 further comprising computer-executable instructions for performing the steps of:
(a) if said received order is a buy, rounding said received and converted order down to the nearest tick; and (b) if said received and converted order is a sell, rounding said received and converted order up to the nearest tick.
(a) if said received order is a buy, rounding said received and converted order down to the nearest tick; and (b) if said received and converted order is a sell, rounding said received and converted order up to the nearest tick.
5. The method of claim 4 wherein a tick is defined as:
(a) one half cent if said received and converted order is less than or equal to fifty cents;
(b) one cent if said received and converted order is greater than fifty cents and less than or equal to five dollars; and (c) five cents if said received and converted order is greater than five dollars.
(a) one half cent if said received and converted order is less than or equal to fifty cents;
(b) one cent if said received and converted order is greater than fifty cents and less than or equal to five dollars; and (c) five cents if said received and converted order is greater than five dollars.
6. The method of claim 3 further comprising the steps of:
(a) if said received order is a buy, adding a commission to said executed and converted order before reporting said executed and converted order to said client;
and (b) if said received order is a sell, subtracting said commission from said executed and converted order before reporting said executed and converted order to said client.
(a) if said received order is a buy, adding a commission to said executed and converted order before reporting said executed and converted order to said client;
and (b) if said received order is a sell, subtracting said commission from said executed and converted order before reporting said executed and converted order to said client.
7. The method of claim 6 wherein the order in which said received and converted order should be forwarded to said trading exchange is based on a monitoring of one or more of the following parameters:
(a) the total principle remaining in said received and converted order;
(b) the magnitude of the change in said received and converted price measured in ticks, as a result of fluctuations in said first exchange rate;
(c) the absolute stock price;
(d) the closeness of the order to the market; and (e) the side of the order and the direction of the change in said first exchange rate.
(a) the total principle remaining in said received and converted order;
(b) the magnitude of the change in said received and converted price measured in ticks, as a result of fluctuations in said first exchange rate;
(c) the absolute stock price;
(d) the closeness of the order to the market; and (e) the side of the order and the direction of the change in said first exchange rate.
8. The method of claim 1 further comprising the step of : after receiving said order in a first currency, determining if said order is a market order or a limit order.
9. The method of claim 8 further comprising the steps of:
(a) if said received order is a market order, submitting said received order directly to said trading exchange;
(b) receiving said executed market order from said trading exchange;
(c) converting said executed order from said second currency to said first currency;
and (d) reporting said converted and executed order to said client.
(a) if said received order is a market order, submitting said received order directly to said trading exchange;
(b) receiving said executed market order from said trading exchange;
(c) converting said executed order from said second currency to said first currency;
and (d) reporting said converted and executed order to said client.
10. The method of claim 1 further comprising the steps of:
(a) if said received order is a buy, adding a commission to said executed and converted order before reporting said executed and converted order to said client;
and (b) if said received order is a sell, subtracting said commission from said executed and converted order before reporting said executed and converted order to said client.
(a) if said received order is a buy, adding a commission to said executed and converted order before reporting said executed and converted order to said client;
and (b) if said received order is a sell, subtracting said commission from said executed and converted order before reporting said executed and converted order to said client.
11. A computer-readable medium having stored thereon computer-executable instructions for performing the steps of:
(a) receiving an order in a first currency;
(a) converting said received order from a first currency to a second currency;
(b) submitting said received and converted order to a trading exchange for execution;
(c) receiving an executed order from said trading exchange;
(d) converting said executed order from said second currency to said first currency;
and (e) reporting said executed and converted order to said client;
wherein step (b) is performed using a first exchange rate and step (d) is performed using a second exchange rate;
and wherein said computer-readable medium further comprises computer-executable instructions for monitoring said first exchange rate, and re-converting and re-submitting said received order if said first exchange rate changes beyond defined upper and lower thresholds;
and wherein said first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
(a) receiving an order in a first currency;
(a) converting said received order from a first currency to a second currency;
(b) submitting said received and converted order to a trading exchange for execution;
(c) receiving an executed order from said trading exchange;
(d) converting said executed order from said second currency to said first currency;
and (e) reporting said executed and converted order to said client;
wherein step (b) is performed using a first exchange rate and step (d) is performed using a second exchange rate;
and wherein said computer-readable medium further comprises computer-executable instructions for monitoring said first exchange rate, and re-converting and re-submitting said received order if said first exchange rate changes beyond defined upper and lower thresholds;
and wherein said first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
12. The computer-readable medium of claim 11 further comprising computer-executable instructions for performing the steps of (a) if said received order is a buy, subtracting a commission before converting said received order; and (b) if said received order is a sell, adding said commission before converting said order.
13. The computer-readable medium of claim 12 further comprising computer-executable instructions for performing the steps of rounding said received and converted order.
14. The computer-readable medium of claim 12 further comprising computer-executable instructions for performing the steps of:
(a) if said received order is a buy, rounding said received and converted order down to the nearest tick; and (b) if said received and converted order is a sell, rounding said received and converted order up to the nearest tick.
(a) if said received order is a buy, rounding said received and converted order down to the nearest tick; and (b) if said received and converted order is a sell, rounding said received and converted order up to the nearest tick.
15. The computer-readable medium of claim 14 wherein a tick is defined as (a) one half cent if said received and converted order is less than or equal to fifty cents;
(b) one cent if said received and converted order is greater than fifty cents and less than or equal to five dollars; and (c) five cents if said received and converted order is greater than five dollars.
(b) one cent if said received and converted order is greater than fifty cents and less than or equal to five dollars; and (c) five cents if said received and converted order is greater than five dollars.
16. The computer-readable medium of claim 13 further comprising computer-executable instructions for performing the steps of (a) if said received order is a buy, adding a commission to said executed and converted order before reporting said executed and converted order to said client;
and (b) if said received order is a sell, subtracting said commission from said executed and converted order before reporting said executed and converted order to said client.
and (b) if said received order is a sell, subtracting said commission from said executed and converted order before reporting said executed and converted order to said client.
17. The computer-readable medium of claim 16 further comprising computer-executable instructions for monitoring of one or more of the following parameters to determine the order in which said received and converted order should be forwarded to said trading exchange:
(a) the total principle remaining in said received and converted order;
(b) the magnitude of the change in said received and converted price measured in ticks, as a result of fluctuations in said first exchange rate;
(c) the absolute stock price;
(d) the closeness of the order to the market; and (e) the side of the order and the direction of the change in said first exchange rate.
(a) the total principle remaining in said received and converted order;
(b) the magnitude of the change in said received and converted price measured in ticks, as a result of fluctuations in said first exchange rate;
(c) the absolute stock price;
(d) the closeness of the order to the market; and (e) the side of the order and the direction of the change in said first exchange rate.
18. A system for performing automated currency conversion and order updating comprising:
(a) means for receiving orders from a client order management system;
(b) means for storing said received orders and computer-executable instructions;
(c) first processing means for converting said received orders from a first currency to a second currency;
(d) means for communicating with a trading exchange to facilitate execution of said received and converted orders;
(e) second processing means for converting said executed orders from said second currency to said first currency; and (f) means for reporting said executed orders to said client order management system;
wherein the conversion of said received orders is performed using a first exchange rate and the conversion of said executed order is performed using a second exchange rate;
and wherein said first processing means acting on said computer-executable instructions, monitors said first exchange rate and said received order is re-converted and re-submitted if said first exchange rate changes beyond defined upper and lower thresholds;
and wherein said first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
(a) means for receiving orders from a client order management system;
(b) means for storing said received orders and computer-executable instructions;
(c) first processing means for converting said received orders from a first currency to a second currency;
(d) means for communicating with a trading exchange to facilitate execution of said received and converted orders;
(e) second processing means for converting said executed orders from said second currency to said first currency; and (f) means for reporting said executed orders to said client order management system;
wherein the conversion of said received orders is performed using a first exchange rate and the conversion of said executed order is performed using a second exchange rate;
and wherein said first processing means acting on said computer-executable instructions, monitors said first exchange rate and said received order is re-converted and re-submitted if said first exchange rate changes beyond defined upper and lower thresholds;
and wherein said first and second exchange rates are received from an exchange rate quotation device connected to a currency vendor.
19. The system of claim 18 wherein said received orders are limit orders.
20. The system of claim 18 wherein said computer-executable instructions further comprise instructions for performing the steps of (a) if said received order is a buy, subtracting a commission before converting said received order; and (b) if said received order is a sell, adding said commission before converting said order.
21. The computer-readable medium of claim 20 further comprising computer-executable instructions for performing the steps of rounding said received and converted order.
22. The system of claim 20 wherein said computer-executable instructions further comprise instructions for performing the steps of (a) if said received order is a buy, rounding said received and converted order down to the nearest tick; and (b) if said received order is a sell, rounding said received and converted order up to the nearest tick.
23. The system of claim 22 wherein a tick is defined as (a) one half cent if said received and converted order is less than or equal to fifty cents;
(b) one cent if said received and converted order is greater than fifty cents and less than or equal to five dollars; and (c) five cents if said received and converted order is greater than five dollars.
(b) one cent if said received and converted order is greater than fifty cents and less than or equal to five dollars; and (c) five cents if said received and converted order is greater than five dollars.
24. The system of claim 21 wherein said computer-executable instructions further comprise instructions for performing the steps of (a) if said received order is a buy, adding a commission to said executed and converted order before reporting said executed and converted order to said client;
and (b) if said received order is a sell, subtracting said commission from said executed and converted order before reporting said executed and converted order to said client.
and (b) if said received order is a sell, subtracting said commission from said executed and converted order before reporting said executed and converted order to said client.
25. The system of claim 24 further comprising computer-executable instructions to determine the order in which said received and converted order should be forwarded to said trading exchange based on a monitoring of one or more of the following parameters:
(a) the total principle remaining in said received and converted order;
(b) the magnitude of the change in said received and converted price measured in ticks as a result in fluctuations in said first exchange rate;
(c) the absolute stock price;
(d) the closeness of the order to the market; and (e) the side of the order and the direction of the change in said first exchange rate.
(a) the total principle remaining in said received and converted order;
(b) the magnitude of the change in said received and converted price measured in ticks as a result in fluctuations in said first exchange rate;
(c) the absolute stock price;
(d) the closeness of the order to the market; and (e) the side of the order and the direction of the change in said first exchange rate.
26. The system of claim 25 wherein said processing means is taken from the group consisting of a microprocessor, a micro controller, a central processing unit or a microcomputer.
27. The computer system of claim 26 wherein said storage means is taken from the group consisting of random access memory, read-only memory, floppy disk drive, hard drive memory and CD ROM.
Applications Claiming Priority (3)
| Application Number | Priority Date | Filing Date | Title |
|---|---|---|---|
| US46472199A | 1999-12-16 | 1999-12-16 | |
| US09/464,721 | 1999-12-16 | ||
| PCT/CA2000/001429 WO2001044995A2 (en) | 1999-12-16 | 2000-11-30 | System and method for performing automated currency conversion and order update |
Publications (1)
| Publication Number | Publication Date |
|---|---|
| CA2432025A1 true CA2432025A1 (en) | 2001-06-21 |
Family
ID=23844981
Family Applications (1)
| Application Number | Title | Priority Date | Filing Date |
|---|---|---|---|
| CA002432025A Abandoned CA2432025A1 (en) | 1999-12-16 | 2000-11-30 | System and method for performing automated currency conversion and order update |
Country Status (3)
| Country | Link |
|---|---|
| AU (1) | AU2132601A (en) |
| CA (1) | CA2432025A1 (en) |
| WO (1) | WO2001044995A2 (en) |
Cited By (3)
| Publication number | Priority date | Publication date | Assignee | Title |
|---|---|---|---|---|
| US7933835B2 (en) | 2007-01-17 | 2011-04-26 | The Western Union Company | Secure money transfer systems and methods using biometric keys associated therewith |
| US8504473B2 (en) | 2007-03-28 | 2013-08-06 | The Western Union Company | Money transfer system and messaging system |
| US8818904B2 (en) | 2007-01-17 | 2014-08-26 | The Western Union Company | Generation systems and methods for transaction identifiers having biometric keys associated therewith |
Families Citing this family (4)
| Publication number | Priority date | Publication date | Assignee | Title |
|---|---|---|---|---|
| US6829590B1 (en) | 2000-01-31 | 2004-12-07 | Goldman, Sachs & Co. | Enhanced online sales risk management system |
| US7979347B1 (en) | 2000-03-16 | 2011-07-12 | Goldman Sachs & Co. | Automated online sales risk management |
| US8027901B2 (en) * | 2003-05-23 | 2011-09-27 | Omx Technology Ab | Automatic generation of an order in an instrument in a specified currency |
| CN111008826B (en) * | 2019-12-06 | 2023-11-14 | 深圳前海微众银行股份有限公司 | Multi-currency transaction method, apparatus, device and computer readable storage medium |
-
2000
- 2000-11-30 WO PCT/CA2000/001429 patent/WO2001044995A2/en active Application Filing
- 2000-11-30 AU AU21326/01A patent/AU2132601A/en not_active Abandoned
- 2000-11-30 CA CA002432025A patent/CA2432025A1/en not_active Abandoned
Cited By (6)
| Publication number | Priority date | Publication date | Assignee | Title |
|---|---|---|---|---|
| US7933835B2 (en) | 2007-01-17 | 2011-04-26 | The Western Union Company | Secure money transfer systems and methods using biometric keys associated therewith |
| US8818904B2 (en) | 2007-01-17 | 2014-08-26 | The Western Union Company | Generation systems and methods for transaction identifiers having biometric keys associated therewith |
| US9123044B2 (en) | 2007-01-17 | 2015-09-01 | The Western Union Company | Generation systems and methods for transaction identifiers having biometric keys associated therewith |
| US8504473B2 (en) | 2007-03-28 | 2013-08-06 | The Western Union Company | Money transfer system and messaging system |
| US8762267B2 (en) | 2007-03-28 | 2014-06-24 | The Western Union Company | Money transfer system and messaging system |
| US10311410B2 (en) | 2007-03-28 | 2019-06-04 | The Western Union Company | Money transfer system and messaging system |
Also Published As
| Publication number | Publication date |
|---|---|
| WO2001044995A2 (en) | 2001-06-21 |
| AU2132601A (en) | 2001-06-25 |
| WO2001044995A8 (en) | 2002-02-21 |
Similar Documents
| Publication | Publication Date | Title |
|---|---|---|
| US7418416B2 (en) | Gamma trading tool | |
| US7047218B1 (en) | Method and apparatus for trading securities or other instruments on behalf of customers | |
| US7904371B2 (en) | Method and system for initiating pairs trading across multiple markets having automatic foreign exchange price hedge | |
| US8214283B2 (en) | Computer implemented and/or assisted methods and systems for providing rapid execution of, for example, listed options contracts using toxicity and/or profit analyzers | |
| US8799130B2 (en) | System and method for preventing cross trading | |
| CA2518772C (en) | Electronic completion of cash versus futures basis trades | |
| CA2396011A1 (en) | Automated batch auctions in conjunction with continuous financial markets | |
| AU4672500A (en) | Systems and methods for trading | |
| CA2459878A1 (en) | Systems and methods for sharing excess profits | |
| JP2006524391A (en) | Minimize securities holding risk during portfolio transactions | |
| US7756766B2 (en) | Method and apparatus for price setting | |
| US20040078317A1 (en) | Method and system for generating a dual quote | |
| JP4397761B2 (en) | Securities trading order system, securities trading order processing method, order processing server, and program | |
| CA2432025A1 (en) | System and method for performing automated currency conversion and order update | |
| WO2002103950A2 (en) | Methods and systems for reconciling a forward conversion securities strategy | |
| AU2002214004B2 (en) | Computer system and method for hedging a currency exchange rate risk | |
| AU718538B1 (en) | Method and apparatus for price setting | |
| JP2002329076A (en) | System, method and program for asset management | |
| JP2003076930A (en) | Transaction system and its method | |
| Cropp et al. | Futures Trading in Cheese: How Will it Work? |
Legal Events
| Date | Code | Title | Description |
|---|---|---|---|
| FZDE | Discontinued | ||
| FZDE | Discontinued |
Effective date: 20061130 |