AUTOMATED SECURITIES TRADING SYSTEM
BACKGROUND AND SUMMARY OF THE
INVENTION
This invention relates to business systems and, more specifically, to an improved data processing based system for implementing an automated trading market for one or more securities. The system retrieves and stores the best current bid and asked prices; qualifies customer buy/sell orders for execution; executes the orders; and reports the trade particulars to customers and to national stock price reporting systems. The system apparatus also determines and monitors stock inventory and profit for the market maker.
There are various modes of buying or selling ("trading") securities, e.g., common stocks. Aside from interparty private transactions, stock trading is typically effected on a national or regional exchange, or in what is known as the over the counter ("OTC") market. For either exchange or over the counter trading, there is one or more market maker (called a "specialist" for an exchange) who accommodate the trading wishes of buyers and sellers of securities for which they make a market.
The principles of the present invention are generically applicable to securities trading in any market where the market maker acts as a principal, i.e., fills customer buy orders by selling the security from the 30 market maker's inventory position (long or short), buying to increase a long position or reduce a short position for customer sell orders. For purposes of illustration only, the discussion herein will treat over the counter trading as a discussion vehicle because the largest number of common stocks are traded on this basis; and because major brokerage houses are free to and often do make markets in selected over the counter traded stocks but are restricted in their ability to make a market for stocks listed on an exchange(s) by exchange rules.
It is an object of the present invention to provide an improved data processing apparatus for making an automated market for one or more securities.
More specifically, it is an object of the present invention to provide an automated market making system for 45 qualifying and executing orders for securities transactions.
It is a further object of the present invention to provide automated market making program controlled apparatus which monitors the securities position of the 50 market maker, and which develops and provides information characterizing the market maker's trading profits.
The above and other objects of the present invention are realized in specific, illustrative data processing 55 based apparatus which makes an automated trading market for one or more securities. The system retrieves the best obtaining bid and asked prices from a remote data base covering the ensemble of institutions or others making a market for the relevant securities. Data char- 60 acterizing each security buy/sell order requested by a customer is supplied to the system. The order is qualified for execution by comparing its specific content fields with predetermined stored parameters. The stored parameters include such as the operative bid and 65 asked current market prices, the amount of stock available for customer purchase or sale as appropriate, and the maximum acceptable single order size.
Once qualified, the order is executed and the appropriate stored parameters are updated. The system provides inventory (position) control and profit accounting for the market maker. Finally, the system reports the executed trade details to the customer, and to national stock price reporting systems. Upon a change in the quoted price for a security, the system updates all relevant order qualification parameters.
BRIEF DESCRIPTION OF THE DRAWINGS
The above and other features and advantages of the present invention will become apparent from the discussion hereinbelow of a specific, illustrative embodiment thereof presented in conjunction with the accompanying drawings, in which:
FIG. 1 is a block diagram of the system for effecting the securities trading of the present invention;
FIG. 2 is a flow chart illustrating data processing for qualifying an order for execution;
FIG. 3 is a flow chart illustrating data processing for order execution and accounting;
FIGS. 4 and 4A are flow charts illustrating data processing for inventory and profit updating; and
FIG. 5 is a flow chart of data processing upon a change in insider market price of a security.
DESCRIPTION OF THE PREFERRED
EMBODIMENTS
As used herein, the terms "buy" and "sell" refer to customer purchases and sales. It should be noted that when a customer purchases stock, the market maker sells stock from its position, either reducing a long position, increasing a short position, or both where the number of shares sold to the customer exceeds the initial long position. When a customer sells stocks, the market maker adds stock to its position and/or reduces a short position in the security.
The system may be implemented by any digital data processing equipment per se well known to those skilled in the art, e.g., any common bus system interconnecting a digital processor, manual data entry terminal apparatus, one or more memories (one of which contains the controlling program), and output signalling apparatus such as a cathode ray tube and printer. The system may be coded in any program language per se well known to those skilled in the art. The process variables may be of any form which conform to the constraints of the particular language being used and the below listed variables are for purposes of illustration only.
In the operation of an illustrative system, the below listed process variables may be utilized:
