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`U.S. Patent
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`Dec. 31, 1991
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`Sheet 1 of 13
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`Dec. 31, 1991
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`Dec. 31, 1991
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`Dec. 31, 1991
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`Dec. 31, 1991
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`U.S. Patent
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`Dec. 31, 1991
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`U.S. Patent
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`Dec. 31, 1991
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`U.S. Patent
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`Dec. 31, 1991
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`Sheet 13 of 13
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`0014
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`

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`5,017,665
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`1
`
`DISTRIBUTED MATCHING SYSTEM
`
`CROSS-REFERENCE TO RELATED
`APPLICATIONS
`
`2
`employed between the keystations in the system and the
`central system to update the local entry order data bases
`and broadcast messages are employed to update the
`keystation book which is a restricted subset of the host
`or central system book. Moreover. none of these prior
`art system employ summary books at the local keysta-
`tions as subsets of the host or central system book.
`In the system of the present invention. as opposed to
`the prior art known to applicants, the central system
`maintains a data base consisting of all of the trading
`instruments available for trade. credit information. and
`the bids and offers that are present throughout the sys-
`tem, while the client sites or keystations maintain copies
`of only the best bids and offers and use those to generate
`a display. Thus, the client sites have some restricted
`subset of the total depth of the system book located at
`the central data base. By transmitting only subsets of the
`total system book from the host. the amount of network
`overhead that is required is significantly reduced. which
`reduction is further enhanced by the use of only sum-
`mary information in the lteystation books. Moreover,
`this enables the central data base maintaining a full set of
`information for every entry including identification of
`the parties which identification is not to be provided for
`the subset books at the keystations in an anonymous
`trading system. The only time that
`the lceystation is
`made aware of the parties involved in the transaction is
`after the transaction has been completed. Thus. in the
`system of the present invention, the host may enforce a
`structure on the client site data bases which is the maxi-
`mum depth of displayable queue or display depth for a
`particular trading instrument. By a single parameter
`change at the host or central system. the view of the
`trading instrument throughout the entire matching sys-
`tem “world" can be effectively changed. For example.
`if the host system sets the display depth equal to one,
`then none of the keystations would be able to look
`further into the book. If desired, this procedure can be
`dynamically varied from the host so that at given times
`or given days different aspects of the trading environ-
`ment can be displayed. Although, dynamic control of
`the content of a local receiver data base from a transmit-
`ted data base in an information retrieval communication
`network has been previously employed by applicants
`assignee such as disclosed in U.S. Pat. Nos. 4.745.559
`and 4,750,} 35, these systems are different from the type
`of system control employed in the system of the present
`invention in which restricted subsets of the host book
`are maintained as summary books at the keystation local
`data bases. Thus. the system of the present invention for
`providing a distributed matching system overcomes the
`disadvantages of the prior art.
`DISCLOSURE OF THE INVENTION
`
`A matching system for trading instruments is pro»
`vided in which bids are automatically matched against
`offers for given trading instruments for automatically
`providing matching transactions in order to complete
`trades for the given trading instruments in which con-
`trollable subsets of a distributable system trading book
`may be selectively provided to trading keystations in
`the matching system from the host computer or central
`system for controllably masking the available trading
`market. The system comprises the host computer for
`maintaining a hosi book data base comprising all of the
`active bids and offers in the system by trading instru-
`ment, a transaction originating keystation at a client site
`
`This application is related to the commonly owned
`co-pending U.S. Patent Application entitled “Distrib-
`uted Matching System Method", contemporaneously
`filed herewith and naming the applicants herein as joint-
`inventors thereof, the contents of which is specifically
`incorporated by reference herein in its entirety.
`TECHNICAL FIELD
`
`The present invention relates to matching systems for
`effectuating trades of trading instruments through auto-
`matic matching in which buyers and sellers who are
`willing to trade with one another based on specified
`criteria may automatically trade when matching events
`occur satisfying these criteria, and more particularly to
`such matching systems in which the book of bids and
`offers may be distributed under control of the central
`system or host computer, to the participating keysta-
`tions or client sites in the system.
`BACKGROUND ART
`
`Information retrieval systems for financial informa-
`tion. such as stock market
`type of information and
`money market information, normally employ a transfer
`of data in a high-performance, real-time information
`retrieval network in which update rates. retrieval rates
`and subscriber and/or user population are generally
`very high. An example of such a system is REUTERS
`DEALING SERVICE which is used in the foreign
`exchange or money market. Such systems, while pro-
`viding rapid video conversation capability, are not
`anonymous systems not do they provide for automated
`anonymous trading such as is possible in a matching
`system. Of course. conversational dealing systems have
`their place in the market and serve particular needs
`where appropriate. However. anonymous matching
`systems are also often desired and, by their very nature,
`do not normally employ a conversation capability since
`the parties to the transactions are unknown until the
`transaction has been completed. Examples of satisfac-
`tory prior art video conversational systems for use in
`connection with trading of financial
`information are
`disclosed
`in
`commonly owned U.S. Pat. Nos.
`4,53l.l84:4.525.'l79 and 4,404,551, by way of example.
`Prior art examples of matching systems used in connec-
`tion with the trading of trading instruments are dis-
`closed in U.S. Pat. No. 4,412,287, which discloses as an
`automated stock exchange in which a computer
`matches buy and sell orders for a variety of stocks; U.S.
`Pat. No. 3,5't'3.74?, which discloses an anonymous trad-
`ing system for selling fungible properties between sub-
`scribers to the system: U.S. Pat. No. 3.581.072, which
`discloses the use of a special purpose digital computer
`for matching orders and establishing market prices in an
`auction market for fungible goods; and U.S. Pat. No.
`4.674.044. which discloses an automated securities trad-
`ing system. However. none of these prior art matching
`systems implements or suggests the use of a broadcast
`capability for messages from the host computer or cen-
`tral system which is employed to update a trading book
`of bids and offers locally stored at the keystations to
`provide restricted subsets of the host book at these
`keystations. In Addition. no prior art matching systems
`are known to applicants in which directed messages are
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`for providing a bid on a given trading instrument to the
`system for providing a potential matching transaction, at
`counterparty keystation for providing an offer on the
`given trading instrument
`involved in the potential
`matching transaction. and a network for interconnect-
`ing the host computer. the transaction originating key-
`station and the counterparty keystation in the system
`for enabling data communication therebetween. Both
`the transaction originating keystation and the counter-
`party keystation, which of course can comprise more
`than one counterparty for a given transaction. for the
`potential matching transaction each have an associated
`local data base keystation book comprising a subset of
`the host book. The content of each of the keystation
`books has an associated display depth range which in
`controllable by the host computer and is updatable by
`transaction update broadcast messages received from
`the host computer through the network. The network is
`preferably transparent
`to the transactions communi-
`cated via the network. The transaction originating key-
`stations and the counterparty keystation or keystations
`comprise means responsive to the received transaction
`update broadcast messages for updating the associated
`keystation books and further comprise means for pro-
`viding directed messages to the host computer corre-
`sponding to the bid and the offer. respectively. The
`directed messages are processed and used to update the
`-host book. The host computer comprises means for
`conditionally providing the transaction broadcast up-
`date messages to the keystations in the system in re-
`sponse to the presence of an update condition. The
`update condition comprises updating of the host book
`and the received bid or offer having a relative value
`compared with other bids or offers within the host book
`.which is within the keystation book display depth
`range of relative values. Preferably the host computer
`processes the matching transaction for a given trading
`instrument in time order entry to the matching system.
`The subset keystations books preferably comprise accu-
`mulated summaries of corresponding bids and offers in
`the host book. with the summaries comprising an accu-
`mulation of common price bids and an accumulation of
`common price offers. Preferably. the bids and offers
`comprise logical data. Tokens are used in the system for
`transmission of the data with respect to users and other
`information. The keystation book. as was previously
`mentioned. comprises displayable data having a defined
`keystation book display depth range, such as the best
`bid or offer, the next best bid or offer, and so forth, and
`bids and offers which fall outside that display depth
`range are not displayed. Thus.
`the keystation books
`each comprise a restricted subset of the total depth of
`the host book with respect to the best bids and offers
`present in the host book data base. These bids and offers
`contained in the keystatiort books are anonymous prior
`to the completion to the matching transaction. In this
`regard. preferably a display depth of one for the keysta-
`tion books would prevent looking into the host book at
`the keyslation. In the system of the present invention.
`the broadcast messages from the host or central system
`are broadcast lo all of the keystations in the matching
`system and are used to update the keystation books
`whereas the directed messages which are sent from the
`central system or host are directed back only to the
`keystations involved in the actual matching transaction.
`These directed messages are used to update the local
`entry data base or order book at the local keystations
`involved in the transaction so as to indicate what has
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`happened to the offer or bid at that particular keystation
`made in the connection with the matching transaction.
`Thus, by employing the distributed matching system of
`the present invention, controllable subsets of a distribut-
`able system trading book may be selectively provided to
`the various trading keystations in the matching system
`from the host or central system in order to controllably
`mask the available trading market and efficiently trans-
`mit only the required matching information to those
`keystations which require it.
`BRIEF DESCRIPTION OF DRAWINGS
`
`FIG. I is an overall system functional block diagram
`of the distributed matching system of the present inven-
`tion;
`FIG. 2 is a functional block diagram of the system of
`FIG. 1 illustrating the flow of information in connec-
`tion with the entry ofa bid and the entry of an offer in
`the distributed matching system of FIG. 1;
`FIG. 3 is a functional block diagram similar to FIG.
`2 of the flow of information in the distributed matching
`system of the present invention in connection with a hit
`bid or trade:
`FIG. II is an illustrative diagram of a logical model of
`a book market. pre-posting. at the host or central system
`of the present invention and illustrates the central sys-
`tem book in accordance with the present invention:
`FIG. 5 is an illustrative diagram similar to FIG. 4
`iliustrating a typical keystation book as a subset of the
`central system book illustrated in FIG. 4;
`-
`FIG. 6 is a functional block diagram illustrating the
`flow of information in the system of the present inven-
`tion in connection with a typical matching transaction;
`FIGS. 7-12 are illustrative diagrams of a typical IXM
`update broadcast message structure in accordance with
`the system of the present invention;
`FIG. 13 is an illustrative diagram similar to FIG. 6.
`illustrating a book market entry position. at market.
`based on the example of FIG. 4:
`FIG. 14 is an illustrative diagram similar to FIG. 4 of
`book market entry position. with the creation of a new
`sub-book based on the book illustration of FIG. 4;
`FIG. 15 is an illustration similar to FIG. 4 of an auc-
`
`tion market entry position. market equal. based on the
`book of FIG. 4;
`FIG. 16 is an illustrative diagram similar to FIG. 15
`of the auction market entry position, with the market
`be-ttered, based on the book of FIG. 4;
`FIG. 17 is an illustration of a logical model of the
`book market, similar to FIG. 4. after posting; and
`FIG. 18 is an illustrative diagram simiiar to FIG. 4 of
`the logical model of the book market of FIG. 4 after
`trade.
`
`BEST MODE FOR CARRYING OUT THE
`INVENTION
`
`Referring now to to drawings in detail and initially to
`FIG. 1 thereof, the system of the present invention is a
`distributed anonymous matching system for use in trad-
`ing various trading instruments. such as different for-
`eign exchange currencies. In the system of the present
`invention as described herein. the trading is effectuated
`through anonymous matching as opposed to through
`the conversation video system described in U.S. Pat.
`Nos. 4.531.134; 4.525.779: and 4.404.551. commonly
`owned by applicants‘ assignee herein. Thus. the distrib-
`uted matching system of the present invention may be
`thought of as a computerized exchange in which its
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`central role is to identify a buyer and a seller who are
`willing to trade with one another based on specified
`criteria. such as price. quantity and credit. W hen such a
`matching event occurs, preferably the buyer and seller
`are informed of the trade and sufficient information is
`then provided to them to complete the physical clearing
`of the transaction. In order to support this central func~
`tion.
`the matching system requires various support
`functions one of which is preferably the maintenance of
`summary market information on the participant's work-
`station or lteystation displays at the various client sites.
`Preferably in the system of the present invention, at all
`times the system will display the best inside price for
`every instrument traded on the system. The best inside
`price is preferably defined to be the highest value bid
`and the lowest value offer in the system. Preferably the
`prices are displayed together with the quantity bid or
`offered at the specified price so that the trader at the
`keystatiort can observe the market activity.
`By observing the market activity. the trader can de-
`cide whether to enter a bid. or enter an offer into the
`market in an effort to complete a matching transaction.
`Preferably. the anonymous matching system of the pres-
`ent invention essentially maintains a book of bids and
`offers in the central system 20 or host computer. A user
`or keystation at a client site. such as client site 26:: or
`26b illustrated in FIG. I, by way of example, interacts
`with the book by submitting bid, offer. hit, or take trans-
`actions. The order entry function is preferably conven-
`tionally achieved through data entry using a conven-
`tional keyboard, pointing device such as a mouse or any
`other conventional data entry tool. The central system
`20 validates the transaction request, processes the bid.
`offer. hit or take according to the rules of the market,
`and attempts to find matches between this new entry
`and the other bids and offers posted in the system book.
`if a match is found. then the trade is automatically exe-
`cuted, the participants to the trade are informed. all
`databases and trader screens are updated as to the quan-
`tities traded and the quantities remaining and, if desired.
`a clearing agency may be informed as to the details of
`the trade so that payments and exchanges may be com-
`pleted. If, on the other hand. a match cannot be found.
`then the system preferably either disposes of the entry
`for hit or take or keeps the entry for bid or offer for later
`processing. Preferably in all cases transactions are pro-
`cessed to completion according to certain rules and the
`various client sites 260. 265 preferably receive real-time
`updates of the new status of the trading instruments.
`Thus. as shown and preferred in FIG. 1. the client site
`systems 266 and 266 only two of which are shown by
`way of example in FIG. 1, submit transactions, such as
`represented by reference numeral 30,
`to the central
`system 20 via the communication network 22. As will
`be explained in greater detail hereinafter with reference
`to FIG. 6. the submission of a transaction 30 from a
`client site 260 or 265 to the central system 20 will pref-
`erably result in one or more messages, represented by
`reference numeral 32, going directly back as a directed
`message to the client site 26:: in this example, which
`initiated the transaction message. Another effect of the
`transaction message 30 being sent to the central system
`20 is that for certain sorts of transactions. a broadcast
`message 34 is generated by the central system 2!} which
`is then delivered to all client sites 260. 26!: attached to
`the central system 20. Thus. the directed response or the
`directed message 32 only goes back to the particular
`client site 260 and. more particularly,
`the particular
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`keystation. 24:: by way of example. at that client site 269
`which initiated the transaction message whereas the
`broadcast message 34 goes to all client sites 260. 261) and
`all of the various keystations associated at those client
`sites 26a. 26b. By way of example. in FIG. I a typical
`client site 269 is shown as having keystations 240. 24b.
`24:‘ through to 24 n with the number of keystations
`merely being limited by the capacity of the system and
`the desired processing time. With respect to the distri-
`hution of the functionality in the system of the present
`invention.
`the communication network 22 preferably
`does not really play a part in that it is transparent to
`transactional information. By this what is meant is that
`when the transactional information leaves the client site
`260. for example, it could be. if desired. encrypted or
`garbled in a way that the only other entity which could
`understand it would be the central system 20 and that
`would be irrelevant to the function of the network 22
`since the network does not look at the messages, does
`not process the messages, and merely transfers these
`messages to the appropriate parts of the system, such as
`to the central system 20. In this regard. the network 22
`is functioning similar to a paired cable in that it is a
`conduit
`to pass the information back and forth. Of
`course. the network 22 has various other communica-
`tion functions which, however. for purposes of under-
`standing the present invention are unnecessary to go
`into. Suffice it to say that preferably, the communica-
`tion network 22 uses a protocol which can be temted
`hierarchal fan-out in which one node transmit to multi-
`ple nodes which in turn transmits to multiple other
`nodes. Thus. network 22 helps implement broadcast
`capabilities integrated with a message switching net-
`work to achieve full tolerance and broadcast distribu-
`tion. lt should be noted. when a match occurs. the cen-
`tral system 20 will preferably send directed messages or
`responses to all of those parties in the system that were
`involved in the match, so that, in some instances, two,
`three or more client site 26 maybe involved in receiving
`the directed message. However. this still differs from
`the broadcast message which is sent to all client sites
`irrespective of their involvement in a particular match.
`Referring now to FIG. 2, this figure illustrates a typi-
`cal data flow in accordance with the system of the
`present invention for entry of a bid or entry of an offer.
`with the network 22 being omitted since, as was previ-
`ously mentioned, it is transparent to transactional infor-
`mation. First discussing the enter bid event in accor-
`dance with the system of the present invention, keysta-
`tion I or 240, submits a bid transaction to the central
`system 20. The directed message or directed response
`32 which it receives back from the central system or
`host 20 is termed a bid acknowledgment or BID-ACK.
`This acknowledgment is a command acknowledgment
`which is preferably followed by an entry position mes-
`sage and is as was previously mentioned,
`is directed
`directly back to the keystation 24-a.
`In addition. as
`shown and preferred in FIG. 2, a bid update message is
`broadcast by the central station 20 to all keystations in
`the system. such as represented by reference numeral
`34:: in FlG.2. This broadcast message 34:: preferably
`occurs if this new bid 32:: was the new best bid in the
`system, or was an additional quantity being bid at the
`best price in the system. Thus. if this new bid 320 is at
`the highest price or better or higher, then it will result
`in a bid update broadcast message 340 going out
`throughout the system. In addition. as also shown by
`way of example in FIG. 2. if it is desired to disseminate
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`an external ticker 60, then the ticker information 60 will
`also be provided of the best bid or best offer. Preferably.
`the same procedure is followed with respect to entry of
`an offer with the messages. in this instance. being identi-
`fied as offer. given reference numeral 51, offer acknowl-
`edgment or OFFER-ACK. given reference numeral
`321:, and the broadcast message for offer update, being
`given reference numeral 34!).
`Referring now to FIG. 3, the data flow in accordance
`with the present invention is illustrated with respect to
`I situation in which there is a hit bid resulting in a trade.
`In this situation. there is substantially more activity than
`in the situation previously described with reference to
`FIG. 2. Thus. as shown and preferred in FIG. 3.
`if
`Iteystation 24b submits a transaction called "hit bid“,
`represented by reference numeral 62,
`to the central
`station or host 20. a hit acknowledgment or HIT-ACK,
`represented by reference numeral 64, is provided back
`to keystation 24!: as a directed message. At that point,
`the central system 20 will recognize that a match is
`possible because the “hit bid" message says that keysta-
`tion 24:) is willing to trade at the bid price. Assuming
`that credit is OK and does not play a role beyond that
`in this transaction. the central system 20 determines that
`a match is possible put. preferably, before committing to
`the match. it may get involved in a risk limiting proto-
`col using a transaction desk 70 which determines
`whether the trade is possible, and if so. acknowledges
`this to the central system 20. Assuming that a trade is
`possible, then a match occurs. At
`that point several
`messages are generated from the central system 20. One
`of these messages is termed the match message. given
`reference numeral 65, which is a directed message that
`goes to the bidder. which in this instance is keystation
`24b. and to the keystation 244 which originally owned
`the bid. Thus, in this instance. directed messages go to
`more than one lteystation 24. Preferably. every match
`must be acknowledged so there is a match acknowledg-
`ment message, MATCH-ACK which comes back from
`the buyer and seller keystations 24b and 240 and is used
`to detennine that the match was in fact received cor-
`rectly and that the deal can be considered complete at
`that point. In addition. a broadcast message is generated
`that a trade has occurred which trade update message,
`given reference numeral 67, may possibly cause a new
`best bid to occur or could affect the quantity or price at
`the top of the book. Again. if the trades and best bids go
`into the ticker 60, then this information is provided to
`the ticker as well. Similarly. if clearing information is
`provided to a clearing house. this too occurs as repre-
`sented by reference numeral 69. In addition. as shown
`and preferred.
`trade tickets may also be generated.
`Thus, trade ticket information is also preferably pro-
`vided to the participating keystations 24:: and 24!; so
`that the trade tickets can be generated.
`Referring now to FIGS. 4 and 5, illustrations of typi-
`cal boolts employed in the distributed matching system
`of the present invention are shown, with FIG. 4 illus-
`trating a typical book at the central system 20 and FIG.
`5 illustrating a typical keystation book at a typical key-
`station such as keystation 24.9, based on the book of
`FIG. 4. The central station or host book illustrated in
`FIG. 4 is a logical model ofthe book market pre-posting
`and is divided into a bid side and an offer side. Each box
`in the diagram preferably stands for an entry into the
`side of the market. The value in the upper left hand
`corner of the box represents the price of the trading
`instrument and the value in the lower right hand corner
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`represents the primary quantity of the trading instru-
`ment. As further shown and preferred in FIGS. 4 and 5.
`on the bid side the highest absolute value is at the top of
`the book and the lowest absolute value is at the bottom
`ofthe book, whereas on the offer side the worst relative
`offer value is at the top of the book and the best relative
`offer value is at the bottom of the book. In addition the
`time order of bids and offers goes from left to right
`with, on the bid side, the last bid being left most and the
`firs! bid being right most, whereas on the offer side. the
`first offer is left most and the last o