HK1109487A - Process for providing timely quality indication of market trades - Google Patents

Description

Method for providing timely market trade quality indication

Technical Field

The present invention relates to electronic communication networks for securities trading and, more particularly, to a system and method that allows real-time or near real-time performance quality indications to be provided to financial market traders and others.

Background

Markets have existed for centuries that allow people to buy and sell securities (e.g., stocks, futures, options, commodities, etc.). In the united states today, these markets are, for example: new York Securities Exchange (NYSE), the national securities and Association of securities automatic reporting (NASDAQ) system, and the American securities exchange (AMEX). These modern securities markets achieve transactions of over two billion shares per business day.

Investors place orders with brokers, either in person or generally through professional intermediaries (hereinafter collectively referred to as "traders"), who then execute the orders, generally by buying or selling financial instruments (stocks, investment instruments, options, bonds, etc.) in the open market. For large orders, the process to obtain financial instruments is not trivial — the trader or broker has to manipulate the way the order impacts the market to avoid impacting the price, and generally obtain the best possible price for the trader. Traders are interested in the performance of brokers in this regard. The trader will prefer to use a broker that gets a better price.

"Broker report cards" and "ranking tables" are used to determine which broker is the best for a given financial instrument, the need for "Broker report cards" and "ranking tables" is well known, and several companies have provided such services. For example, TAG provides a monthly report showing such information. A problem with the current state of the art is that information cannot be obtained in real time. When a particular order is actually being executed in the marketplace, it would be beneficial if the trader were able to see how the broker worked on that order. Accordingly, there is a need for a method for providing an indication of execution quality in real-time or near real-time so that a trader knows immediately whether a particular order or series of orders is being processed well.

Disclosure of Invention

The present invention is a system that tracks order execution quality in real time or near real time so that the inventor knows immediately whether a particular order is being handled well. In addition, statistics can be maintained over a longer period of time, so that broker performance can be monitored over a longer period of time than a day or an order.

Currently, the execution is sent back electronically from the execution location to the trader. The present invention introduces interception in the electronic data connection between the executing broker and the trader's order management system. The non-intrusive intercept may record orders and executions without interfering with communications between the trader and the execution location, and send information to an execution quality calculation module ("EQCM"). The EQCM also accesses market data via an electronic link. The EQCM calculates the execution quality in real time (or near real time) and displays the results to the trader.

According to a preferred embodiment of the invention, the execution quality is calculated as the difference between the volume weighted average price ("VWAP") executed by the trader and the VWAP of the market data for the security over the lifetime of the order. The difference may be displayed as a number or graphically represented. In particular, the present invention may track the execution quality of one or more orders and indicate to the trader whether the value is deviating from certain limits. The warning may be visual and/or audible. Further, an indication of the impact of the price of the order on the market may be given by displaying to the trader the relative size of his own executed trade compared to the volume being traded in the security by other market participants.

Drawings

FIG. 1 is a diagram illustrating normal communications between traders and brokers.

FIG. 2 is a diagrammatic representation of one aspect of the system of the present invention.

Figure 3 is a diagrammatic representation of additional optional features in the process of the present invention.

FIG. 4 is a screen used by the system to display the quality of execution in real time (or near real time) in relation to orders that are not currently executed (open order).

FIG. 5 is a screen used by the system to display the historical relative performance ranking of the executing broker, performance benchmarks being execution quality, volume impact, trader votes, and total volume.

Fig. 6 is a screen used by the system to display the historical performance of a particular broker, with performance benchmarks being execution quality, volume impact, trader votes, and total volume.

FIG. 7 is a screen used by the system to display historical details and market data pertaining to a particular order, as well as performance benchmarks for execution quality, volume impact, trader voting, and total volume.

Detailed Description

The entity wishing to buy or sell a security performs the particular transaction (transaction) involved, either in person or by some other entity (collectively referred to herein as a "trader"). Traders buy or sell direct financial instruments through the services of an executing broker. The process of processing the order requires experience and skill. The trader should not only obtain the best price for the investor (i.e. himself or his customer, as the case may be), but in doing so, also manipulate the way in which the particular order under consideration affects the market, as this effect may affect the price paid. It is therefore important for the trader to work with the best performing broker from the trader's point of view, and this of course involves considerably the skill of the broker selected. Especially for large trading activities, it is important to be able to assess the performance of the selected broker so that the best broker can be selected for subsequent business.

As shown in fig. 1, normal securities business involves: the FIX from trader to executive broker is typically used to make specific electronic orders for purchases or sales, as well as the transfer of business details from broker to trader during or after the business. In the marketplace, orders may not be finalized for extended periods of time, even days, weeks, or months, and then, as partial execution occurs in the marketplace, the transactions may be continually updated. The present invention will enable a trader to maintain an overview of execution quality at all times, even before the order is fully fulfilled. Typically, the order information from the trader to the broker and the execution information from the execution location to the trader are electronically accomplished in machine-readable form through appropriate communication links.

Thus, the entity responsible for the communication link between the trader and the broker is in such a particular strategic position: the determination and communication to the final investor or other trader whether the executing broker is operating in an optimum manner or whether the executing broker is operating in an optimum manner is communicated to the final investor or other trader because the trader/broker and market communications are accessible in real time by the communication entity. Thus, in accordance with the present invention, and as shown in FIG. 2, when a particular order or orders need to be evaluated, the relevant order communication is sensed by the message interceptor and the identity of the order or orders to be evaluated is sent to the EQCM where that information is stored. When the order is processed, the place of execution sends execution information back to the trader over a suitable accessible communication link. The message interceptor will intercept the relevant execution information identified by the previously stored order information (a single order often involves multiple executions) and send the execution information to the EQCM. The module also receives, in real time, up-to-date market data about the business in question and compares the relevant market data with the execution data. It then communicates the comparison, which is a measure of the quality of the particular execution under consideration, to the entity seeking that information (the "trader"). The interception of order data and in most cases of execution data is performed without limiting the data transmission between traders and or market brokers; the relevant data is only accessed and sent to the computing module. The module may be connected to a common market data source that maintains up-to-date data about the current price of the security in question, from which the calculation module obtains data about the particular security being evaluated.

The execution quality of a particular transaction or transactions is preferably calculated by the difference between the volume-weighted average price of the execution under consideration during the order lifetime and the volume-weighted average price of the market data (VWAP) for that security. Alternatively, the comparison may be made with the last execution price before the order was entered, or with the average (possibly VWAP) execution price at some time before the order was entered. The difference may be displayed in any suitable manner, such as by a number or by a graphical representation. In particular, the process may track the execution quality of one or more orders from a given trader and indicate to the trader whether the value is deviating from certain limits. The warning may be visual, audible, or both.

It is also preferred that the system indicates the impact of the volume of a given order on the market by displaying to the trader the relative size of his own executions compared to the volume of other market participants in the security.

Although one of the main advantages of the system of the present invention is that it works in real time according to trader-client transmissions without interfering with the transmissions, there is a set of situations in which the process of the present invention can be designed to interfere with the transmission of performance information from broker to trader, if desired, without hindering the real-time assessment of quality of service. Currently, an execution site or broker may "bundle" executions together into larger batches before transmitting them to traders (e.g., 5 executions of 100 shares each may be sent as 1 execution of 500 shares at the 5 average price). Traditionally, this is a service that brokers offer to facilitate traders-freeing traders from processing a large number of small executions. Also, some order management systems are known to suffer from performance degradation when provided with large flows of small executions. The main disadvantages of performing broker "binding" are: with such "bundling," traders cannot track execution quality in real time unless all executions are transmitted at or near the time they actually occur in the market. Thus, if desired, and as shown in FIG. 3, the execution broker may still send execution data to the trader as soon as the relevant business occurs, allowing the system to perform real-time execution quality calculations, but in this embodiment the interceptor itself may act as a "binding" agent, aggregating the executions and only transmitting them to the trader in larger batches, the size of the batch being determined by the trader. By thus bundling multiple small executions into a smaller number of larger executions, the average price of the business can be calculated by the system and communicated to the trader and, if desired, used as a criterion for evaluation.

Although the quality assessment may be communicated to the trader in a number of ways, a particularly effective and helpful (to the trader) way is by means of a computer-aided display. We have invented a display protocol, which is disclosed in fig. 4-7, which is very valuable both in general and in detail.

In FIG. 4, the computer system provides a means for the trader to see the execution quality. The trader selects an order from the list 401 as an input field to confirm the order to be analyzed in the display panel 402. The row of balls at the left of the list 401 displays a color indicating the execution quality of the order under consideration. The dot diagram shows market execution data for the stock symbol for the selected order as green dots 407, while other people's executions in the stock symbol are overlaid with red dots 407. The volume of each transaction is represented by bar 409. The abscissa axis is the time of day 410 and the coordinates 403 are volume for the lower graph and price for the upper graph.

Label 404 indicates: whether the selected order is a buy, sell or sell-as well as order volume, stock symbol and special handling instructions such as Not helld. At the right part of the screen, the pie chart indicates: a proportion 412 of the market volume executed for the selected order, and a proportion 411 of the market volume executed by the other market participants.

Below the pie chart, the average price for the selected order 413, as well as the average prices for other market participants 414, are indicated. The label 415 indicates execution quality.

A row of buttons 405 provides a means for entering a trader vote. Once the trader selects one of the values, the opportunity (not shown) to make written evaluations of the selected order is provided.

Turning to fig. 5, the purpose of this screen is to rank the execution venues (brokers) according to performance benchmark execution quality, volume impact, trader vote, and total volume. The panel 501 provides a means for selecting a time period for analysis using a means for quickly setting the standard time period 503. The results are shown in the table with columns in the table as Firm Name 504, Quality 505 (execution Quality), Impact 506 (percentage of market Volume captured), Volume 506 (trader Vote), Volume 508 (total Volume traded). The values in these columns are the sums over a selected time period. By clicking on one of the column headers, the table will typically be sorted in descending order by the value in that column. Optionally, the information in the table can be made to belong to a single symbol by providing an input in panel 502.

The data in the table is also graphically displayed in the right portion of FIG. 5, with the legend 513 also serving as a means of selecting the data that the user wishes to display on the graph (in this example, selecting display "Quality", "Volume", and "Volume"). The abscissa 518 for all data is a corporate mnemonic that identifies each broker. The total volume is shown as a bar graph 517 with coordinates 509. The trader vote and execution quality are shown as bar graphs 511 and 512, respectively, having coordinates 510.

At the bottom of the screen, the currently selected company is shown in panel 514. The company's identifying mnemonic is shown in panel 516.

The screen display in fig. 6 is similar to the information of fig. 5, with the main difference being that the information only applies to the selected company (shown in panels 608 and 609). The orders for the selected companies for the selected time period are listed in a table entitled "Date" 610 (order Date), "symbol" 611 (stock ticker symbol), "Qty" 611 (order volume), "Impact" 615 (the proportion of the market volume that is required when the order is not finalized). The column entitled "Vote" (trader Vote) is not shown, but may be made visible by means of a horizontal scroll bar 616. By clicking on the title of the table, the table can be sorted as in the screen of FIG. 5. Also shown in fig. 6 is an "Impact" bar graph 606, which is visible because it was selected in panel 607. The abscissa on the figure is the stock ticker symbol 614. The coordinates of the "impact" bar are at the top left of the graph 605.

Turning to FIG. 7, the screen displays detailed information regarding all orders for the selected company on the selected date. The date is selected by clicking on the calendar 701. The orders are shown in the table below the calendar with the titles "Order ID" 708 (Order identifier), "Symbol" 709 (stock ticker Symbol), "OrderQty" 710 (Order quantity), "Executed" 711 (quantity actually Executed), "Avg Price" 712 (Order average Price), "VWAP" 713 (Order volume weighted average Price). A particular order is selected by clicking in this table. By means of some check boxes, a diagram 707 (which is similar to fig. 4) can be made to display various information. A control 702 labeled "Show Impact Pie" enables or disables display of the Pie chart. The control 703 labeled "Show VWAP" enables/disables the display of VWAP prices as a line on the price map. A control 704 labeled "Show Own fils" enables and disables the display of the execution of its Own order on the price map. The control 705 labeled "Show Market Data" enables and disables display of Market Data that does not belong to the selected order. A control 706 labeled "Link across days" prompts the system to display data value for several days for orders that remain outstanding for more than one trading day. Details of the execution relative to the selected order are shown in the table below the figure, with the tables titled "Transaction Ref" 714 (business identifier), "Time" 715 (date/Time of execution), "Qty" 716 (amount of execution), "Price" 717 (execution Price), "Quality" 718 (execution Quality), and "Impact" 719 (percentage market share for the order).

Although only a limited number of embodiments of the invention have been specifically described above, it will be evident that many changes may be made in the above-described embodiments, all without departing from the spirit of the invention as described in the appended claims.

Claims (17)

1. A real-time or near real-time method of assessing the quality of trading activity of a securities broker and notifying its entities, the method comprising, for a given transaction involving communication between traders and brokers:

(a) intercepting execution communications from the broker to the trader and accessing the execution data;

(b) accessing substantially contemporaneous market data for a security service under consideration; and

(c) comparing the data of (a) with the data of (b), and notifying the entity of the result of the comparison.

2. A method as claimed in claim 1, wherein order communications from traders to brokers are first intercepted, order data from them accessed, and the order data used in step (a).

3. The method of claim 1, wherein the accessed (a) execution data is one or more volume-weighted average prices for execution (hereinafter "VWAP"), and wherein the accessed (b) data is volume-weighted average prices for market data for the security VWAP.

4. The method of claim 2, wherein the accessed execution data of (a) is one or more executed volume-weighted average prices, VWAP, and wherein the accessed data of (b) is volume-weighted average prices, VWAP, of market data for the security.

5. The method of any one of claims 1-4, performed to perform a comparison of a plurality of orders of one or more securities, and which produces the comparison in step (c).

6. The method of any one of claims 1-4, comprising accessing and communicating to the entity a relative size of one or more executions thereof compared to a volume of substantially simultaneous trades in one or more securities involved by other market participants.

7. The method of any one of claims 1-4, wherein step (c) involves intercepting a plurality of execution communications and forwarding the communications to the trader only after the communications are aggregated into a predetermined size of traffic.

8. The method of claim 1, wherein step (c) comprises one or more of:

(1) displaying to a particular broker an identification of a plurality of securities orders;

(2) displaying a visual identification of the listed approximate quality assessments that have been assessed earlier or currently for the order;

(3) providing means for selecting an order of interest for the security of interest;

(4) displaying a graphical indication of a parameter of a plurality of transaction events over a period of time;

(5) displaying an indication of a proportion of the particular order of interest that has been executed; and

(6) means are provided for the watcher to record his opinion of the activity of a particular broker in relation to one or more orders.

9. The method of claim 8, further comprising displaying, for a predetermined period of time, one or more of the following for a plurality of selected brokers:

(1) averaging the quality assessments;

(2) the proportion of the broker's trade volume compared to the total business volume of the securities involved; and

(3) the recorded opinion of the observer.

10. The method of claim 9, wherein the display is limited to activities of the broker in question with respect to a particular security.

11. The method of claim 9, wherein the plurality of selected brokers are listed in a selected one of categories (1), (2), and (3) in order of goodness.

12. The method of claim 8, further comprising displaying, for a predetermined period of time, a visual identification of one or more of the following for a particular broker:

(1) a particular order grouped by a selected one of a symbol, a date, or an aggregation, and a graphical indication of a plurality of characteristics including quality is displayed for each such category.

13. The method of claim 8, further comprising displaying executions associated therewith for a particular order.

14. A real-time or near real-time method of assessing the quality of a securities broker's trading activity and notifying its entities, the method comprising:

(1) intercepting order and fulfillment communications between brokers and traders, and evaluating inventions of one or more orders by comparing one or more specific businesses with substantially contemporaneous market data of one or more securities businesses under consideration, and communicating the results of that comparison to the entity, the method comprising, after such evaluation, one or more of:

(2) displaying to a particular broker an identification of a plurality of securities orders;

(3) displaying a visual identification of the listed approximate quality assessments that have been assessed earlier or currently for the order;

(4) providing means for selecting an order of interest for the security of interest;

(5) displaying a graphical indication of a parameter of a plurality of transaction events over a period of time;

(6) displaying an indication of a proportion of the particular order of interest that has been executed; and

(7) means are provided for the watcher to record his opinion of the activity of a particular broker in relation to one or more orders.

15. The method of claim 14, further comprising displaying, for a predetermined period of time, one or more of the following for a plurality of selected brokers:

(1) averaging the quality assessments;

(2) the proportion of the broker's trade volume compared to the total business volume of the securities involved; and

(3) the recorded opinion of the observer.

16. The method of claim 14, further comprising displaying, for a predetermined period of time, a visual identification of one or more of the following for a particular broker:

(1) a particular order grouped by a selected one of a symbol, a date, or an aggregation, and a graphical indication of a plurality of characteristics including quality is displayed for each such category.

17. The method of claim 14, further comprising displaying executions associated therewith for a particular order.