US20050055304A1

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Publication number: US20050055304A1
Application number: US10/890,602
Authority: US
Inventors: Howard Lutnick; Michael Sweeting
Original assignee: Individual
Current assignee: BGC Partners Inc
Priority date: 2003-09-10
Filing date: 2004-07-13
Publication date: 2005-03-10
Also published as: US20050055305A1; US20210182971A1; US10937092B2; EP1515258A1; US20230169590A1; US11556987B2; CA2481185A1

Abstract

An electronic trading system including various rules is described herein. Many of the rules relate to implementing periods of exclusive priority in trading. For example, in one of the rules, an exclusive period of trading may be controlled by an aggressor and a designated passive participant. The aggressor may have exclusive rights on his side of the trade at a particular price point for a particular time. The aggressor may elect to change the price point at which he controls the trade to a new price point which is more favorable to him. Thereafter, another participant may assume the exclusivity of the trade by entering the trade on the same side of the aggressor at the old price point. In so doing, the other participant also preferably truncates the aggressor's exclusivity at the new price point.

Description

CROSS REFERENCE TO RELATED APPLICATIONS

This application claims priority from U.S. Provisional Patent Applications No. 60/502,051, filed Sep. 10, 2003, 60/512,879, filed Oct. 20, 2003, and 60/513,664, filed Oct. 22, 2003.

BACKGROUND OF THE INVENTION

This invention relates to trading application program interfaces. More particularly, this invention relates to a trading application program interface suitable for use with quantitative analysis trading.

Quantitative analysis trading (colloquially known as “program trading” or “quant trading”) refers to a trading strategy that makes use of information technology to substantially remove the human element from the decision-making process involved in trading. Such techniques typically depend on highly sophisticated computer models that often draw elements from a broad range of scientific and mathematical disciplines. Quantitative implementations may make use of both fundamental and technical data, and at their most complex, may balance multiple portfolios over a broad range of markets, communicating electronically with market makers, in real time, with substantially no human intervention.

Because quantitative analysis involves electronic communication and computer trading, it is critical that a trading application program interface being used for quantitative trading provides information regarding options available for immediate trading.

It would therefore be desirable to provide a trading application program interface suitable for quantitative analysis trading.

It would also be desirable to provide a trading application program interface that conforms to a set of preferably real-time trading rules and is suitable for quantitative analysis trading.

It would also be desirable to provide users with a trading application program having an application program interface (API) that is suitable for quantitative analysis trading and adapted to take advantage of first buyer/first seller privileges afforded by the trading application's interactive trading rules.

It would also be desirable to allow such users to identify and trade prices outside the boundaries of a current trading application's interactive trading rules and according to their particular requirements and where suitable logic allows.

SUMMARY OF THE INVENTION

It is an object of this invention to provide a trading application program interface suitable for quantitative analysis trading.

It is another object of this invention to provide a trading application program interface that conforms to a set of preferably real-time trading rules and is suitable for quantitative analysis trading.

It is yet another object of this invention to provide users with a trading application program having an application program interface (API) that is suitable for quantitative analysis trading and adapted to take advantage of first buyer/first seller privileges afforded by the trading application's interactive trading rules.

It is still another object of this invention to allow such users to identify and trade prices outside the boundaries of a current trading application's interactive trading rules and according to their particular requirements and where suitable logic allows.

One embodiment of the invention preferably includes a system for trading an item between an aggressor participant and one or more passive participants. The system includes a first workstation that receives bids or offers from the passive participants for the item at select prices and volumes, a second workstation that receives a trade command from the aggressor participant to hit or lift one or more of the bids or offers in order to sell or buy a desired volume of the item at a desired price and a programmed computer.

The programmed computer is preferably coupled to the workstations. The computer provides two different states. The first state is a system bid/offer state enabling the passive participants to participate by entering bids or offers with respect to the item and that, in response to a hit or lift of one or more of the entered bids or offers. The second state is a system trading state. In the system trading state, a trade transaction is executed in accordance with the hit or lift at a defined price set by the hit or lift, a period of exclusivity is provided enabling the aggressor participant and a designated passive participant to control subsequent trading by executing transactions between the aggressor and designated passive participant of additional volume of the item at the defined price to the exclusion of other participants desiring to participate in the trading, and, finally, during the period of exclusivity, the other participants are allowed to hit or lift a bid or offer at a price other than the defined price.

In other aspects of the invention, an exclusive priority that may previously have been associated with the aggressor, the designated passive participant or other suitable participant, may be transferred by the aggressor, the designated passive participant or other suitable participant to another price behind the touch price of the original trade. Once transferred, the original exclusive priority at the touch price may then be assumed by another party, thereby truncating the priority of the aggressor, the designated passive participant or other suitable participant at the designated price.

In yet another aspect of the invention, a system delta may be implemented whereby hits or lifts that are a predetermined number of price levels away from the touch price are rejected.

In still another aspect of the invention, certain prices are guaranteed by the system following certain sequences of events which will be described in more detail below.

BRIEF DESCRIPTIONS OF THE INVENTION

Further features of the invention, its nature and various advantages will be apparent from the following detailed description of the preferred embodiments, taken in conjunction with the accompanying drawings, in which like reference characters refer to like parts throughout, and in which:

FIG. 1 is an illustration of an electronic implementation of a system in accordance with some embodiments of the present invention;

FIG. 2 is an illustration, in greater detail, of an electronic implementation of a system in accordance with some embodiments of the present invention;

FIG. 3 is an illustration of an electronic trading interface in accordance with some embodiments of the present invention;

FIG. 4 is an illustration of another electronic trading interface in accordance with some embodiments of the present invention;

FIG. 5 is an illustration of yet another electronic trading interface in accordance with some embodiments of the present invention; and

FIG. 6 is an illustration of an electronic user interface in accordance with some embodiments of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

Referring toFIG. 1,exemplary system100 for implementing the present invention is shown. As illustrated,system100 may include one ormore workstations101.Workstations101 may be local or remote, and are connected by one ormore communications links102 tocomputer network103 that is linked viacommunications links105 toserver104.Server104 is linked viacommunications link110 to backoffice clearing center112.

Insystem100,server104 may be any suitable server, processor, computer, or data processing device, or combination of the same.Server104 and backoffice clearing center112 may form part of the electronic trading system. Furthermore,server104 may also contain an electronic trading system and application programming interface and merely transmit a Graphical User Interface or other display screens to the user at the user workstation.

Computer network

103 may be any suitable computer network including the Internet, an intranet, a wide-area network (WAN), a local-area network (LAN), a wireless network, a digital subscriber line (DSL) network, a frame relay network, an asynchronous transfer mode (ATM) network, a virtual private network (VPN), or any combination of any of the same.

Communications links

102 and105 may be any communications links suitable for communicating data betweenworkstations101 andserver104, such as network links, dial-up links, wireless links, hard-wired links, etc.

Workstations

101 may be personal computers, laptop computers, mainframe computers, dumb terminals, data displays, Internet browsers, Personal Digital Assistants (PDAs), two-way pagers, wireless terminals, portable telephones, etc., or any combination of the same.Workstations102 may be used to implement the electronic trading system application and application programming interface according to the invention.

Backoffice clearing center112 may be any suitable equipment, such as a computer, a laptop computer, a mainframe computer, etc., or any combination of the same, for causing transactions to be cleared and/or verifying that transactions are cleared.Communications link110 may be any communications links suitable for communicating data betweenserver104 and backoffice clearing center112, such as network links, dial-up links, wireless links, hard-wired links, etc.

The server, the back office clearing center, and one of the workstations, which are depicted inFIG. 1, are illustrated in more detail inFIG. 2. Referring toFIG. 2,workstation101 may includeprocessor201,display202,input device203, andmemory204, which may be interconnected. In a preferred embodiment,memory204 contains a storage device for storing a workstation program for controllingprocessor201.Memory204 also preferably contains an electronictrading system application216 according to the invention.

Electronictrading system application216 may preferably includeapplication program interface215, or alternatively, as described above, electronictrading system application216 may be resident in the memory ofserver104. In this embodiment, the electronic trading system may containapplication program interface215 as a discrete application from the electronic trading system application which also may be included therein. The only distribution to the user may then be a Graphical User Interface which allows the user to interact with electronictrading system application216 resident atserver104.

Processor

201 uses the workstation program to present ondisplay202 electronic trading system application information relating to market conditions received throughcommunication link102 and trading commands and values transmitted by a user ofworkstation101. Furthermore,input device203 may be used to manually enter commands and values in order for these commands and values to be communicated to the electronic trading system.

In one embodiment of this invention, Trade-Through-the-Stack trading rules (TTS) preferably allow the user to identify and trade prices outside the boundaries of the best prices shown by the trading system. Such a trade may not invoke the trading system (or alternatively, the trading application's) interactive trading rules as will be described in more detail below. Preferably, price improvement (PI) benefits, which are described in U.S. patent application Ser. No. 10/171,009, filed on Jun. 11, 2002, which is hereby incorporated by reference herein in its entirety, may also be applicable in some form in TTS trading.

To fully understand the TTS system and method according to the invention, it is important to understand an interactive trading system according to the invention upon which the TTS rules are implemented. One embodiment of an interactive trading system is described in U.S. Pat. No. 6,560,580, which is hereby incorporated by reference herein in its entirety.

Interactive trading may use a number of trading states to define the ability of users to negotiate and trade with one another. Each of the various states may be associated with a user interface display screen. Alternatively, all of the various states may be associated with a single display screen that includes various indicators to denote the current system state. The user interface may appear as follows:

FIG. 3 shows anillustrative trading interface300 for interactive trading that is adapted for implementing systems and methods according to the present invention. The interface includes a top line301 (alternatively referred to herein as the touch line, or the headline.) Top line301 may preferably be adapted to include the price that should be initially aggressed to start a trade or, alternatively, top line301 may show the status of the actual aggressed trade (as shown below inFIG. 4). In either case, top line301 is typically located at the top of the quad (quad being defined as the display area related to trading of a particular instrument.) Top line301 may includeitem302,price304,size306 andlast price308.Interface300 also includesmarket depth information310, which shows price and size for items that have not yet been traded (commonly known as the book). Also shown ininterface300 are bid and offer

stacks

312 and314, respectively. Bid and offer

stacks

312 and314 may indicate the size of one or many market participants are bidding or offering at thecurrent price304. Note that price304 (shown as 100.00+-100.012) in this exemplary example is shown in a traditional United States Government Bond pricing format.

InFIG. 3,interface300 shows a bid/offer state. This state enables participants to enter into the system bids and offers at select prices and volumes for the item being traded.

A system trading state typically referred to as the workup state is shown inFIG. 4. This showsinterface300 after receiving a first hit—i.e., an acceptance of a pending bid—(or take—i.e., an acceptance of a pending offer—) trade command from an aggressor participant—i.e., a participant who initiates a trade—responding to presented bids and offers. The hit (or take) is for transacting a trade of a desired volume of the item at a desired price. In response to the hit (or take), the trading system preferably transitions from the bid/offer system state to the workup state in order to transact a trade of the item at a desired price.

It should be noted that once trading has commenced in the workup state, the participant that posted the bid or offer and the participant that responded with the hit or lift of the bid or offer are generally awarded, under certain conditions, exclusive trading privileges for some pre-determined period. Systems and methods according to the invention, based on the TTS rules, preferably allow others—i.e., that do not enjoy exclusive trading privileges—to participate in trading the traded item during the pre-determined period, as will be explained in more detail below.

In one embodiment of the invention, the exclusivity of the two priority participants is limited to trading at the price at which the first hit or lift was transacted—i.e., the touch price. Thus, the two priority participants, and other participants who may join the trade following the termination of exclusive rights of one (or both) of the first two participants, retain exclusivity only at the touch price. The period of exclusivity may end either as a result of the timing out of either of the participants or the election by either or both of the participants to terminate their exclusive trading session. Following the exclusive period, no one can control the trade to the exclusion of others. The system then tests for and executes any new transactions entered by new Participants preferably at the touch price.

In one embodiment of interactive trading, any new bid or offer is shown as clear to trade only to the highest price/time priority existing contra order in the system for a predetermined, preferably exclusive time period in bid/offer state. Another trading state, referred to herein as a when state, is triggered by a trading command in the workup state against an uncleared bid/offer by an aggressor who is not one of the original participants on the contra-side of the uncleared bid/offer.

As stated above in brief, system controls preferably do not allow this trading command by the new aggressor to be instantaneously executed. In accordance with system logic, the trading processor creates a time interval or delay, and thereby provides the original participants time to assess the new situation and to respond to the uncleared entry on the passive side. In one embodiment of the invention, the non-priority contraparties to the aggressor's order—i.e., the contraparties that are listed in the book at worse prices (or later times, or both worse prices and later times) than the touch price may be prevented from canceling their respective orders until either (a) the orders are executed or (b) the aggressor's order is filled or canceled. The state in which the non-priority contraparties are prevented from canceling their respective orders is known as the guarantee state (which may alternatively referred to herein as the hold state).

The guarantee state is described in detail as follows. If the same or another participant elects to execute a trade and enters an order for a price that is worse than an available touch price and the currently available touch price is not clear to the participant, then the contraparties to this order are prevented from canceling their respective orders until either (a) those orders of the contraparties are executed or (b) the order for the price that is worse than the available touch price is filled or canceled. The order from the aggressing contraparty, who effectively created the when state, may also be prevented from canceling until the conclusion of the when state as the system transitions from the workup state into the next state in the circumstance that the original aggressors decline to trade with the new aggressor.

In systems and method based on the TTS rules of the invention, participants other than the priority participants are permitted to trade with other non-priority participants during the exclusive period, with certain restrictions. Preferably, each of these other, non-priority participants are restricted to trade at prices other than the touch price in order to maintain exclusivity for the priority participants at the touch price. To reiterate, this type of trading by non-priority participants is referred to herein as TTS (Trade-Through-the-Stack) trading.

The following principles may preferably guide TTS trading rules according to the invention.

A first rule according to one embodiment of the claimed invention is as follows: the priority participants or workers in the workup state control priority at the touch price of the trade, but desperate traders can “trade and run”—i.e., trade in a one-time fashion, with preferably no ability to continue the trade after that trade—at limit order prices behind them in the book—i.e., at levels worse than the touch price. (A limit order is an order to buy or sell a predetermined amount of an instrument at a specified price or better than the specified price. Limit orders also may allow an investor to set the length of time an order can be outstanding before cancelled.)

Based in part on this understanding, the second rule, according to the invention may be described. The second rule may include implementing trading at finer pricing granularity—e.g., for the granularity to be ½ the normal listed minimum increment for the traded security. For example, the normal granularity for a five year note is ¼ of one thirty-second of a point (one one-hundredth of a percent of the total value of the instrument).

In one embodiment of a system according to the invention, {fraction (1/8)}ths of one thirty-second of a point may be available in the 5 year note on a restricted view basis during workup state. For example, these finer granularity prices may only be available, preferably during workup state, to participants that participate in a trade. Alternatively, these finer granularity prices may be available to all viewers of the screen during when state or guarantee state. Thus, instead of limiting pricing granularity to 100.002, 100.00+, 100.006, other additional prices such as 100.001, 100.003, 100.005, and 100.007 may also be available to participants in TTS trading. These prices may also be available to viewers of the screen, preferably only subject to the conditions enumerated above.

In yet another group of alternative embodiments, the finer granularity prices may be available to all viewers, yet the size associated with the finer granularity prices may only be available to the participants in the trade, or the size associated with the finer granularity prices may not be available to anyone (excluding the party who provided the finer granularity price). Alternatively, a non-standard bid or offer may be displayed only when the bid or offer is between the best bid and the best offer. In yet another alternative embodiment, the trading system state may guarantee the completion at a price between the price of the queued hit or lift and the trading price.

In still another alternative embodiment, a hit or lift at a defined price may be guaranteed to be traded without identifying, or, alternatively, without confirming a passive participant. Such a hit or lift at a defined price may be guaranteed to be traded without identifying or, alternatively, confirming the price at which the hit or lift will, in fact, be traded.

One particular example of a trade which implements the second rule of TTS trading is one that in bid/offer state is at 100.00+/100.006 which then goes, in the workup state, to TAKE 100.006. The second rule states that, in such a trade, the displayed 100.00+ bid may originally have been a 100.005 bid in the book (more finely granular than the standard ¼ increment, the standard increment being defined as the smallest allowable price difference (which may be a system set or exchange set value) between the best bid and the best offer when the best bid and the best offer are not the same) but is only shown in the touch line at a standard increment. While it can be acted upon in the trade as 100.005, nevertheless, it was only displayed in bid/ask state (or, alternatively, in the book at any time) as a 100.00+ bid in order to maintain the displayed spread of ¼ of a thirty-second a point. Additionally, the more granular 100.005 may become part of the book in the workup state. This price may be available either to the priority participants or, alternatively, may be available in a when state or trade (alternatively referred to herein as a “hit-and-run”)-and run-trade to non-priority participants during workup state.

Such a trade carries on from the above-described trade as follows: after the TAKE at 100.006 created a workup state at 100.006, a third, non-priority, participant may enter, for example, a bid for 100.005 (or alternatively, the original touch line bid may be now revealed to show that it was not a 100.00+ bid but rather a 100.005 bid). Then, the priority participant who is contra to the 100.005 bid may elect to hit the 100.005 bid if the seller at 100.006 has terminated. When the priority participant elects to sell at 100.005 to the new bidder, the workup state would effectively go from 100.006 immediately to a workup state at 100.005. Or, alternatively, a non-priority participant may elect to hit the 100.005 bid, and wait until the priority contra participant either hits the bid, terminates or times out. This would also effectively change the trade from 100.006 immediately to a workup state at 100.005.

In yet another rule relating to pricing at finer granularity, the following sequences may be implemented. While a more granular price—i.e., the 100.005 price described above—may be listed in the book and may be available in a hit and run or other TTS trade, nevertheless, this price may never show (or in an alternative embodiment, be available to trade) at the touch line. Rather, whenever the price reaches the touch line, either because it became the best bid or offer in the system or because it was acted upon, it automatically shows at the nearest conventional granularity—i.e., a bid of 100.005 shows as a bid of 100.004 in the touch line and an offer of 100.005 shows as an offer of 100.006 in the touch line.

A third rule may be that the first/priority worker retains priority rights—i.e., the exclusive ability to trade the particular instrument on the side (buy/sell) for which the worker entered—at the initial traded price, and may be able to re-bid/offer at a slightly worse price during (or immediately following) the workup state. If a better price comes in after the priority worker has changed his price to a slightly worse price, the better price does not assume priority, but may truncate the exclusive first buyer/seller priority at the touch price. Alternatively, in this particular scenario, the priority worker's priority may preferably be truncated, while any new participant may assume priority at the original touch price, if the new participant entered his price after the priority worker changed his trading price.

Price improvement may preferably be available on all finer granularity price levels that may be available in the bid/offer state. Thus, price improvement may be implemented on such {fraction (1/8)}th prices as may be used for TTS trading. In one embodiment, price improvement in general, and different levels of price improvement in particular—e.g., where relatively more and less aggressive levels of price improvement are permitted, may be (a) revealed to—i.e., viewable by—participants in the trade, (b) revealed to select participants in the trade (e.g., market makers, the status of whom may be determined by a pre-selected criteria (one such criteria may define market makers as being participants whose bids or offers were displayed during bid/offer state, (or, alternatively, market makers may be defined as the participants whose bids or offers were displayed during bid/offer state within a predetermined time before the transition to trade state) or other suitable method), (c) revealed to viewers of the trade (d) or revealed to any combination of (a), (b) and (c). (It should be noted that participants may enter bids below the headline trading price or at any other suitable price and offers above the headline trading price or at any other suitable price into the book during trade state. These bids and offers may or may not qualify the associated participants as market makers.) Alternatively, the finer granularity price levels themselves may be restricted in their viewability in the same way that the price improvement restrictions are defined above.

It should be noted that, with respect to price improvement and interactive trading, the term aggressive characterizes a willingness to trade at a price level beyond—i.e., worse than—the touch price. Thus, when the more aggressive trader is a buyer, he is willing to buy at price that is higher than the price offered in the touch line. When the more aggressive trader is a seller, he is willing to sell at a price that is lower than the price bid in the touch line.

The following is a description of TTS trading in the workup state. Limit orders from the book are accessible from the workup state. The information on the status of each order for a user is preferably shown to the user. It is also shown to the user when that status is changed and when the limit order is promoted from the book to the “touch price” position (and any corresponding change in availability). This allows users to know not only when a price is accessible to them, but also when a price is accessible to only them.

TTS allows for users to trade through a price from bid/ask state, to a limit price worse than the touch price, if the users show enough size and aggression on the price (preferably, the aggression is restricted to a pre-determined system delta from the touch price. The delta may be a price difference, a size difference or a price and size difference between the user-entered price and the head line price. Alternatively, the delta may be a predetermined number of book entries—e.g., three—away from the head line. One advantage of this pre-determined system delta is that it preferably protects against user error by preventing orders that are too distant from the touch price from being executed). This may encourage users to add prices to the order book, thereby increasing liquidity and transparency, in the hope of having the users' respective orders filled.

When a TTS in the workup state happens, all trades behind the touch price at non-touch limit prices (preferably executed without continuing priority) are treated as a substantially simultaneous execution (or, alternatively, the TTS trades occur at the end of the priority period or at any other suitable time) of a trade together with the original trade rather than an individual workup at a new trade price. Thus, an {fraction (1/8)}th incremental price is preferably barred from becoming the touch trading price, but rather the system carries on showing the headline price trading, with {fraction (1/8)}th limit orders in the book flashing HIT or TAKE underneath the headline price. This trade is shown inFIG. 5.

FIG. 5 includes a TTS trade that occurs during a workup state.Display500 shows a display in which a TTS trade occurs during a workup state. In this trade, a trade at 100.06 is occurring in thetouchline502. Typically, the current participants in the trade enjoy a priority.Line504 shows an additional trade (for a volume of ten of the item that shows that the bid price has been hit) is occurring at a price—i.e., 100.57—that is worse than the touch price.

The following are one set of possible rules for Trade-Through-the-Stack trading. It should be noted that one or all of the following rules may be used according to the invention. It becomes important for users to also view the order book of prices behind the touch price (even when the touch price is unclear—i.e., not available—to those users). Users can attempt to trade with the prices in the limit book preferably according to one or more of the following rules.

1) If a TTS order exceeds the allowable system delta (from the headline trading price), the order is preferably rejected before any size is traded. The trade is likely to be an error even if the size being hit or lifted is available in the book of orders.

2) Preferably, only one priority worker is allowed per side on the touch line during a workup state. A priority worker can carry on the priority strikes in the current manner. For example, during the workup state when 100.00+ is trading, and first seller can type <10 SELL> in order to trade more at 100.00+ or he can carry on his priority at a different level. He can do this by typing <100.005 10 SELL> to “back himself up” to 100.005 and have priority at that level. Nevertheless, if he backs up beyond the next limit order available, then he may be forced to lose priority immediately because he has essentially made his price worse than the existing market price.

Once the priority participant has backed up—i.e., made his price worse by moving a bid/buy down, or an offer/sell up a small increment to try to “do better” for himself at the expense of his future contraparty—his price to 100.005, then, if someone else types <100.00+ SELL>, the priority participant loses priority at the original touch price. Nevertheless, priority preferably can only be removed in this way when a priority worker has changed his bid/offer to a level less competitive—i.e., puts in a bid lower than the bid the priority worker put in originally, or puts in an offer higher than the offer he put in originally—than the touch line trading price. This preferably prevents gaming for advantage by other users trading just a small volume of the item at an {fraction (1/8)}th of a thirty second more aggressive than the priority user at the touch line trading price, to truncate the priority of that first user.

To reiterate, where a seller has backed up to a worse price, he remains priority seller in the trade unless bettered. After the trade is concluded, as a result of an expiration of a pre-determined period of time, or some other suitable impetus, the remaining priority participant should retain first priority “on the follow”—i.e., in the bid/ask stack of the next trade at the same price level according to existing last trader/last priority rules.

3) All sizes shown in the Buy and Sell “breakout stack” (such as312 and314 inFIG. 3, 412 and414 inFIGS. 4 and 512 and514 inFIG. 5) are for the touch trading price only. Sizes available outside the touch price (the limit book) may preferably be shown aggregated next to their respective price levels.

4) If priority is lost on both sides of a deal, and a trader uses TTS while the trade is still working—i.e., during the period of time wherein the system tests for and executes any new transactions and no party can control the trade to the exclusion of others—then all TTS trades are tested for and, if possible executed at the touch price as well. Then all sizes are traded at the touch price, and then, if necessary, trades are executed to the limit price requested to fill the order (flashing the HIT or TAKE accordingly at that limit price level).

5) If priority is lost on the same side as the TTS attempt but is still current on the contra side (e.g. a TTS HIT when the first seller in the deal is done, but first buyer still has exclusive priority), then the system preferably trades all contra size at the touch price and then queues—i.e., holds, preferably for a predetermined period of time—the remainder of the TTS order, while disallowing further cancellation of the remainder of the TTS order. The necessary limit amounts behind the first buyer will be held from canceling the amounts that match the remainder of the TTS order. These matching amounts will be held until the first buyer has either bought the remainder of the TTS sell, elected to end his order, or has timed out.

In one example of this rule, the touch line may show

- “100.00+HIT 10 10×zero”
  There may be a further indication in the touch line that shows that the seller is done¹.
  ¹At this point of the trade, a termination of the seller's priority may occur either as a result of the seller's election or because the seller times out.

The buyer, on the other hand, retains priority. Then, there may be a bid behind the priority buyer for 90 m (million) at 100.002 (a price which is, in fact lower than the outstanding bid and, therefore, which is a price “behind” or “beyond” the priority buyer (or bidder)).

Thereafter, a new seller sends a TTS “100.002 sell 50 m”—i.e., a sell order that is below the touch price. Immediately, the TTS hits the bid for the remaining 10 m of the priority buyer's order. This leaves the remainder of the TTS sell order to match with 40 m bid at 100.002. Nevertheless, this trade for the remaining 40 m is not yet executed because the priority buyer still retains the right to buy at 100.00+.

Thereafter, a new seller sends “100.002 sell 50 m”—i.e., a sell order that is below the touch price. Immediately, the TTS hits the bid for the remaining 10 m of the priority buyer's order. This leaves the remainder of the TTS sell order to match with the 40 m bid at 100.002. Nevertheless, this trade for the remaining 40 m is not yet executed because the priority buyer still retains the right to buy at 100.00+.

In this particular example, the 100.002 bidder then cannot cancel 40 m of his original order—i.e., 40 m of his bid is held until the resolution of the priority buyer. At this point, the TTS order (characterized as the 100.002 seller) is there to sell 40 m more at 100.00+ if the priority buyer (or subsequently anyone else) wants to buy them at 100.00+. The TTS seller also cannot cancel the 40 m remaining of his sell order because it will be matched at the first opportunity (either at 100.00+ or later, by the next buyer below in the stack, at 100.002). It is significant here that the untraded, yet about-to-be matched orders cannot cancel. It should be noted that in one embodiment of the invention, the guarantee state may preferably only occur in workup state. Alternatively, the guarantee state may be implemented in bid/offer state as well, as will be explained in more detail below.

When the trade continues, a trading system according to the invention preferably waits (up to 4 seconds in one embodiment for United States government securities) for the initial priority buyer to buy more out of the 40 m for sale at 100.00+ before the trading system allows the HIT to occur at the 100.002 bid in the size balance left over. Thereafter, the 100.002 limit bid is free to cancel any untraded size that may still remain.

6) If priority is current only on the same side as the TTS attempt, the following rule may apply. The system preferably allows the TTS order to trade immediately at the targeted limit price behind the touch price, as a “trade and run and cleared” part of the overall trade workup. Thus, the TTS order bypasses the size at the best price (which is temporarily reserved for the priority worker), and trades behind immediately. In this case, the TTS order may be considered to have circumnavigated the first buyer, first seller rules by trading at a more aggressive price.

For example, if the headline shows 100.00+HIT 10 where the buyer has no priority, and there is a 100.002 bid for 90 m behind, and the first seller still has priority, then, if a new seller sends “100.002 sell 50 m,” the 100.002 bid trades immediately in 50 m at 100.002 with the new seller.

7) In yet another rule, which applies to action occurring during a workup state, if a TTS order has assumed the priority position and exhausted all possible contra size available to its price (within some range which may be predetermined by a system delta), it preferably becomes the touch line order in the buy/sell stack at the touch price (or alternatively, the TTS bid/offer becomes the headline price beyond the touch price—i.e., at one of the exhausted prices), albeit with no matching contra order. In one embodiment, this TTS order may be adapted to re-engage any new orders that are behind the touch price when they appear, to the extent that its original price limit applies to match newly entered orders.

8) Another rule which applies to TTS trading relates to “hidden size.” A hidden size functionality in a trading system according to the invention allows a user to show a predetermined portion of a larger order size. In one embodiment of the invention, hidden size contra orders, that are engaged in workup state TTS according to the rules above, may be fully exposed up to the amount that can be traded, before the next contra order, or price level, is touched.

In another aspect of the invention, new approaches to providing system transparency are provided. In an interactive trading application interface according to the invention, users can visually determine whether they are priority participants during the trading system state by observing the screen colors in this state with respect to the other participants. If they see a zero in a predetermined color at the top of the breakout stacks referred to above, users know they have the priority worker status. If users see a zero in another predetermined color, they know someone else has priority. Participants can also see the limit bid and offer orders in the book below and above the trading price. Seeing the limit orders allows the participants to make a judgment with respect to what to do when the present trading system state terminates if participants do not trade at the touch price.

Two approaches according to the invention preferably adapt a trading system application trading interface (API) according to the invention to help users, and user APIs (notably, in an automated fashion), to see what the user eye & mind can deduce in interactive trading systems. This preferably promotes system transparency because it allows users, and user APIs, to access information relating to priority. Then other non-priority users may access the next price without waiting. This preferably increases trading efficiency.

The following includes approaches to providing system transparency according to the invention. When the trading system API carries a price to a user, or user API, the following attributes or flags may also be sent from the trading system to that user so the users are cognizant of the manner of bid/ask, workup state, or other suitable trading state that they presently are operating in. In one alternative embodiment, these messages may be sent as audio files whereby the workstation associated with a participant may provide audio messages corresponding to the messages in the following table.



	Trade State Attributes	Associated Message

	Price/Size Clear to You	A particular
		buy/sell/bid/offer is clear
		for a user to trade
		immediately -- i.e., no
		order queuing delay would
		result from such a trade
		attempt
	Price/Size Unclear to You	A particular
		buy/sell/bid/offer is not
		clear for a user to trade
		immediately -- i.e., another
		user has priority over the
		this user and a subsequent
		trade attempt would result
		in a queued message from a
		trading system, and a delay
		for this user for inclusion
		into a workup state
	Price/Size Clearing to You	A particular
		buy/sell/bid/offer is
		clearing only to the
		particular user. Included
		with this message may be an
		indication of how long the
		exclusive priority period
		may last

It should be noted that the exclusive right to trade a particular buy/sell/bid/offer is an option provided to the priority user and may have considerable market use as well as substantial cumulative net value. Traders who have priority in a particular security or instrument can electronically trade related derivatives markets, such as futures markets for the security or instrument, with the knowledge that no other party can take over priority to trade the security or instrument at that time (in the particular trading system where the trader enjoys priority for the instrument.)

In the embodiment of the invention that relates to audio files being sent to the participant that correspond to the status of trading that the participant is engaged in, the following disclosure applies as well. Before electronic trading, voice brokers provided a service not just in terms of execution, but also in terms of confirmation in addition to providing other trade data. Voice brokerage was supplemented by the electronic broadcast of such information. However, to buy, sell or access market information, one needed to call the voice broker.

With the advent of electronic trading, confirmation and trading data are preferably all returned to the trader in text form. While a number of alert sounds could be set up, these notify the trader only that something has happened. Traders therefore use sight and sound to gauge market conditions with the help of voice brokering supplemented with electronic trade data.

The audio files described above form a part of systems and methods for traders to receive instantaneous confirmation of trade execution and post-trade execution data. Such information and other market information may be relayed via a data to voice service in an electronic trading system. Such a system may be implemented to alert active market participants of the status of a trade in real-time, and to provide instantaneous audio files relating to trade confirmation.

The system may alert a designated active customer of the availability of a better bid/offer than what was previously available. The alerts may be reported by issue—i.e., any better bid/offer in a particular issue—by side of market (bid or offer)—i.e., by any better bid/offer on a particular side of the market—by price—i.e., the best price available—by current status—i.e., changes in status past a pre-determined delta—or by any other suitable parameter.

FIG. 6 shows yet another aspect of the present invention. This aspect of the invention preferably helps participants quantify and execute a portfolio of bonds in middle market trading system (MMTS)—i.e., a trading system for odd lots of holding of securities. After a customer inputs size, price, and bid/offer wanted, the program returns the value of the portfolio in an easy-to-read dollar value format.

Display

600 includes

portions

610 and620.Portion610 ofFIG. 6 shows the prices that are available for a particular issue in the MMTS. These prices represent available prices—i.e., current bids and offers—for odd lots—i.e., non-standard amounts—of issues.Portion620 ofFIG. 6 shows a customer's portfolio of odd lots of issues. In one embodiment of the invention, a spreadsheet, such as an Excel spreadsheet, may be adapted whereby the customer preferably inputs a target value—either a profit or loss—at which the customer wishes to trade some or all of his portfolio of odd lots of issues. When the spread sheet determines, based on the values obtained from MMTS and the values input by the participant, that the target value of the customer has been achieved, the system may automatically execute the trades necessary to liquidate the portfolio.

For example, even though the average price differential between many of the odd lots and the available bid/offers on MMTS may be large—e.g., 1.1 tics from what the participant desires—the total loss incurred by trading all of the participant's portfolio may be preferably limited because of the relatively small size of the lots. In such a case, it may be highly likely that the customer would execute this odd lot portfolio given the small total value differential. This system preferably obtains advantage as an extremely accurate gauge of the customer odd lot portfolio position.

It will be understood that the foregoing is only illustrative of the principles of the invention, and that various modifications can be made by those skilled in the art without departing from the scope and spirit of the invention.