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`IBG 1010
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`U.S. Patent
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`Aug. 4, 1992
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`Sheet 1 of 14
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`U.S. Patent
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`Aug. 4, 1992
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`5,136,501
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`1
`
`ANONYMOUS MATCHING SYSTEM
`
`CROSSREFERENCE TO RELATED
`APPLICATIONS
`
`This application is related to the commonly owned
`co-pending U.S. ‘Patent Applications entitled “Distrib-
`uted Matching System“, filed May 25, 1939, and nam-
`ing, David L. Silverman, Alfred M. Scholldorf and
`Norman Keller as joint inventors thereof; and "Distrib-
`uted Matching System Method", also filed May .25,
`I939 and naming David I... Silverrnan, Alfred M.
`Scholldorf and Norman Keller as joint-inventors
`thereof; the contents of each of which is specifically
`incorporated by reference herein in their entirety.
`TECHNICAL FIELD
`
`The present invention relates to matching systems for
`elfectuating 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, such as price, quantity and credit, may auto-
`matically trade when matching events occur satisfying
`these criteria. and more particularly to such matching
`systems in which real time prices are subject to real time
`credit in determining the quantity of permissible match.
`BACKGROUND ART
`
`lnfon-nation retrieval systems for financial informa-
`tion, such as stock market
`type of information and
`money market infonnation, 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 nor 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. 4,531.] 84;
`4,525,?'.~'9 and 4,404,551, by way of example. Prior art
`examples of matching systems used in connection with
`the trading of trading instruments are disclosed in U.S.
`Pat. No. 4,412,237, 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‘.-'3.7-$7. which discloses an anonymous trading sys-
`tem for selling fungible properties between subscribers
`to the system; U.S. Pat. No. 3,581,072, which discloses
`the use of a special purpose digital computer for match-
`ing 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 trading system.
`However, none of these prior art matching systems
`implements or suggests the use of credit controls to
`determine the quantity of permissible match at the low-
`est common credit limit and the best bid/ask price for
`the largest available quantity to automatically complete
`
`it)
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`2
`a match at trade in which real time prices are subject to
`real time credit, such as a gross counterparty credit limit
`between potential parties to a matching transaction.
`Moreover no prior art matching systems are known to
`applicants in which an anonymous “more quantity" bid
`may be employed for additional orders at
`the same
`price. In addition, no prior art matching systems are
`known to applicants in which directed messages are
`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. Furthermore, none of these
`prior art system employ summary books at the local
`Iteystations 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 with
`respect to potential counterparties which may be dy-
`namically varied by the keystations, and the bids and
`offers that are present throughout the system, while the
`client sites or keystations. which are subject to gross
`counterparty credit limits in determining permissible
`matches. 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 trans-
`mitting only subsets of the total system book from the
`host. the amount ofnetwork overhead that is required is
`significantly reduced. which reduction is further en-
`hanced by the use of only summary information in the
`keystation books. Moreover. this enables the central
`data base maintaining a full set of information for every
`entry including identification of the parties which iden-
`tification is not to be provided for the subset books at
`the lreystations in an anonymous trading system, and the
`assigned counterparty credit limit for all potential coun-
`terparties in the system, with these counterparty credit
`limits not being provided to the keystations and. thus,
`the gross counterparty credit limits are kept anonymous
`in the system. The only time that the keystation is made
`aware of the parties involved in the transaction is after
`the transaction has been completed. but they are prefer-
`ably never made aware of the counterparty credit limits
`assigned to them. In this regard. if the anonymous gross
`oounterparty credit limit is exceeded by the potential
`transaction the transaction will not be completed. Thus,
`in the system of the present invention, the host may
`anonymously inhibit
`the occurrence of trades even
`though the price and quantity would otherwise match.
`The various credit limits are individually set by the
`keystations. with the anonymous gross counterparty
`credit limit being the minimum of the two credit limits
`between counterparties to a potential matching transac-
`tion. The individual keystations may reset all credit
`limits or dynamically vary individual credit limits with
`such variations sometimes enabling previously inhibited
`trades to then go toward because the new resulting
`anonymous gross counterparty credit limit than may no
`longer be exceeded.
`Apart from the above gross counterparty credit con-
`trol of the trading environment. the host may also dy-
`namically vary the display depth of the book distributed
`to the local keystation. so that at given times or given
`days different aspects of the trading environment can be
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`displayed. In this regard. although dynamic control of
`the content ofa local receiver data base from a transmit-
`ted data base in an infonnation retrieval communication
`network has been previously employed by applicants‘
`assignee. such as disclosed in U.S. Pat. Nos. -1345.559
`and 4.750.135. these systems are. nevertheless. different
`from the type of system control employed in the system
`of the present invention in which real time prices are
`subject to real time credit control or in which restricted
`subsets of the host book are maintained as summary
`books at the keystation local data bases. Thus. the sys-
`tem of the present invention for providing a distributed
`matching system varying real time credit control over
`the matching process overcomes the disadvantages of
`the prior an.
`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 such as foreign
`exchange currencies. in which real time prices are sub-
`ject to real time credit controls to anonymously block
`or inhibit the completion of potential matching transac-
`tions which do not satisfy an anonymous gross counter-
`pany credit limit. Each of the keystations or client sites
`in the system assigns trading party credit limits to the
`other client sites in the system with which it is desired to
`trade. with these trading party credit limits being main-
`tained anonymously by the host computer and being
`used by the host computer to anonymously determine
`gross counterparty credit
`limits for each potential
`matching transaction. The gross counterparty credit
`limit for a given potential matching transaction is the
`minimum of the trading patty credit limits for each of
`the counterparties involved in the potential matching
`transaction.
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`computer may provide a credit limit alert to the assign-
`ing keystation when the assigned trading party credit
`limit for another keystation goes below a predetermined
`value. such as 25% of the original value of the assigned
`trading party credit limit.
`The host computer in anonymously matching the
`active bids and offers in the system. determines the
`quantity of permissible match at the lowest common
`counterparty credit limit and the best bid ask price for
`the largest available quantity for automatically complet-
`ing the potential matching transaction. Preferably. the
`host computer. which dynamically updates the prices
`based on the best available bids in the system, processes
`the matching transactions for a given trading instrument
`in time order entry to the matching system. with the
`matching criteria further comprising an order priority
`based on price. quantity type and time order entry. With
`respect to quantity type. it may be a primary quantity
`type or a more quantity type, with the primary quantity
`type being disclosed to the other keystations in the
`system while the more quantity type is maintained as a
`hidden value of the additional quantity beyond the dis-
`closed primary quantity at which a given keystation is
`willing to trade for a given trading instrument. Prefera-
`bly, the primary quantity type has a higher order prior-
`ity than the more quantity type in the system.
`Both the transaction originating keystation and the
`counterparty keystation. which. of course, can com-
`prise more than one counterparty for a given transac-
`tion. for the potential matching transaction each have
`an associated local data base keystation book compris-
`ing a subset of the host book. The content of each of the
`lteystation books has an associated display depth range
`which is controllable by the host computer and is upda-
`table by transaction update broadcast messages re-
`ceived from the host computer through the network.
`although the keystation books do not contain counter-
`patty credit limits or gross counterparty credit limits
`which are kept anonymous by the host. The network is
`preferably transparent
`to the transactions communi-
`cated via the network. The transaction originating key-
`stations and the counterparty lteystation or keystations
`comprise means responsive to the received transaction
`update broadcast messages for updating the associated
`lceystation 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, which may include the assigning.
`changing or resetting of trading party credit limits by
`the keystations, 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 lteystation book display depth
`range of relative values. The subset lreystations books
`preferably comprise accumulated summaries of corre-
`sponding bids and offers in the host book, with the
`summaries comprising an accumulation of common
`price bids and an accumulation of common price olfers.
`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. com-
`prises displayable data having a defined lteystation book
`
`The host computer anonymously matches active bids
`and offers in the system based on a variable matching
`criteria which includes the gross counterparty credit
`limit between counterparties to a potential matching
`transaction. price. and available quantity. The system
`comprises the host computer, a transaction originating
`Iteystation for providing a bid on a given trading instru-
`ment to the system for providing the 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 inter-
`connecting the host computer. the transaction originat-
`ing keystation. and the counterparty keystation for en-
`abling data communications therebetween. Both the
`transaction originating lteystation and the counterparty
`keystation for the potential matching transaction each
`have an associated counterparty credit limit, with the
`system blocking or inhibiting completion of the poten-
`tial matching transaction between the transaction origi-
`nating keystation and the counterparty keystation when
`the potential matching transaction has an associated
`value in excess of the counterparty credit limit. The
`individual Iteystations or client sites may individually
`vary the assigned trading party credit limits which will.
`in turn. cause the host computer to change the anony-
`mous gross counterparty credit
`limits
`in response
`thereto. or may reset all
`trading credit party limits
`which will. in turn. again cause the host computer to
`change or vary the anonymous gross counterparty
`credit limits in response thereto. In this regard. the host
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`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 dis-
`played. 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 olTers contained in the
`keystation books are anonymous prior to the comple-
`tion to the matching transaction. In this regard, prefera-
`bly a display depth of one for the keystation books
`would prevent looking into the host book at the keysta-
`tion. In the system of the present invention, the broad-
`cast messages from the host or central system are broad-
`cast to all of the keystations in the matching system and
`are used to update the lteystation books whereas the
`directed messages which are sent from the central sys-
`tem or host are directed back only to the keystations
`involved in the actual matching transaction. These di-
`rected 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 happened to
`the offer or bid at that particular keystation made in
`connection with the matching transaction. Thus, by
`employing the distributed matching system of the pres-
`ent invention. real time prices are subject to real time
`credit controls which may be dynamically varied, to
`control potential matches which would otherwise
`occur based on price and quantity. and controllable
`subsets of a distributable 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 mar-
`ket and efficiently transmit only the required matching
`information to those keystations which require it.
`BRIEF DESCRIPTION OF DRAWINGS
`
`FIG. 1 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 of a 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. 4 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
`illustrating 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. ‘I-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. 4,
`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;
`
`6
`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
`bettered. 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;
`FIG. 18 is an illustrative diagram similar to FIG. 4 of
`the logical model of the book market of FIG. 4 after
`trade;
`
`FIG. 19 is an illustrative diagram showing typical
`order types which may be implemented with the system
`of the present invention; and
`FIG. 20 is an illustrative diagram of a typical credit
`limit display of assigned trading party credit limits at
`given client site in accordance with the system of the
`present invention.
`
`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. 4,531,184; 4.525.779; and 4.4-04.551, 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
`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, with, as will
`be described in greater detail hereinafter,
`real
`time
`prices preferably being subject to real time credit. Thus.
`preferably. credit controls are used to determine the
`quantity of permissible match ‘at the lowest common
`credit limit and the best bid/ask price for the largest
`available quantity to automatically complete a matched
`trade in the anonymous trading system of the present
`invention. When such a matching event occurs. prefera-
`bly the buyer and seller are informed of the trade and
`sufficient information is then provided to them to com-
`plete the physical clearing of the transaction. In order to
`support this central function. the matching system re-
`quires various support functions one of which is prefer-
`ably the maintenance of summary market information
`on the participant's workstation or keystation 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 keystation 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
`26!: illustrated in FIG. I. by way of example, interacts
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`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
`2|} 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.
`subject to gross counterparty credit limits, as will be
`described in greater detail hereinafter, between the
`potential counterparties to a potential matching transac-
`tion. Ifa match is found, and satisfies all criteria. includ-
`ing not exceeding the gross counterparty credit limit.
`then the trade is automatically executed.
`the partici-
`pants to the trade are informed, all databases and trader
`screens are updated as to the quantities 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 completed. If, on the
`other hand, a match cannot be found, or the gross coun-
`terparty credit limit is exceeded by the potential match
`which would otherwise match based on price and quan-
`tity per se. 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 transac-
`tions are processed to completion according to certain
`rules to be described in greater detail hereinafter and
`the various client sites 26a. 26!: preferably receive real-
`time updates of the new status of the trading instru-
`ments. Thus. as shown and preferred in FIG. 1, the
`client site systems 260 and 26:5 only two of which are
`shown by way of example in FIG. 1, submit transac-
`tions. such as represented by reference numeral 30, as
`well as assigned trading party credit limits. to the cen-
`tral system 20 via the communication network 22. As
`will be explained in greater detail hereinafter with refer-
`ence to FIG. 6, the submission of a transaction 30 from
`a client site 260 or 26b to the central system 20 will
`preferably result in one or more messages, represented
`by reference numeral 32. going directly back as a di-
`rected 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
`20 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 26a and. more particularly, the
`particular Iteystation. 244 by way of example. at that
`client site 260 which initiated the transaction message
`whereas the broadcast message 34 goes to all client sites
`26a. 26b and all of the various lteystations associated at
`those client sites 26a. 266. With respect to the assigned
`trading party credit limits, it is these limits which are
`used by the central system 2lJ to determine the anony-
`mous gross counterparty credit limits which are used to
`control the completion of matching transactions. By
`way of example, in FIG. 1 a typical client site 26¢: is
`shown as having keystations 24a. 24b. 24c through to
`24:: with the number of keystations merely being limited
`by the capacity of the system and the desired processing
`time. With respect to the distribution of the functional-
`ity in the system of the present invention, the communi-
`cation 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 infor-
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`it could
`mation leaves the client site 26a, for example.
`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
`communication functions which. however. for purposes
`of understanding the present invention are unnecessary
`to go into. Suffice it to say that preferably, the commu-
`nication networlc 22 uses a protocol which can be
`termed hierarchal fan—out in which one node transmit to
`multiple 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. It should be noted. when a potential match occurs,
`and the gross counterparty credit limit is not exceeded
`for that potential match. the central system 10 will pref-
`erably