`Silverman et al.
`
`[54] ANONYMOUS MATCHING SYSTEM
`[75] Inventors: David L. Silverman, Nesconset;
`Norman Keller, Mt. Sinai, both of
`N.Y.
`_
`
`[73] Assignee: Reuters Limited, London, England
`[2]] App]. No.: 357,478
`[22] Filed:
`May 26, 1989
`
`[51] Int. Cl.5 ...................... .. G06F 15/20; GO6G 7/52
`[52] us. a. .................................................. .. 364/408
`[58] Field of Search .............................. .. 364/401, 408
`[56]
`References Cited
`U.S. PATENT DOCUMENTS
`
`3,573,747 4/1971 Adams et a1. ..................... .. 364/408
`3,697,693 10/1972
`364/403
`4,677,552 6/1987
`364/408
`4,766,293 8/1988
`364/408
`4,774,663 9/1988 Musamanno et a].
`364/408
`4,903,201 2/1990 Wagner ............................. .. 364/900
`
`OTHER PUBLICATIONS
`Welles, Institutional Investor “The Computer Assault on
`New York's Foreign Exchange Market"; May 1976, 32.
`Primary Examiner-Dale M. Shaw
`Assistant Examiner-Laura Brutman
`Attorney, Agent, or Firm——Bryan Cave
`ABSTRACT
`i [57]
`A matching system for trading instruments in which
`bids are automatically matched against offers for given
`
`US005136501A
`Patent Number:
`Date of Patent:
`
`[11]
`{45]
`
`5,136,501
`Aug. 4, 1992
`
`trading instruments for automatically providing match
`ing transactions in order to complete trades for the
`given trading instruments, includes a host computer
`means (20) comprising means for anonymously match
`ing active bids and offers in the system by trading in
`strument based on a variable matching criteria, which
`comprises counterparty credit limit between counter
`parties (24a, 26b) to a potential matching transaction.
`The system also includes a transaction originating key
`station (240) for providing a bid on a given trading
`instrument to the system for providing the potential
`matching transaction; :1 counterparty keystation (26b)
`for providing an offer on the given trading instrument
`involved in the potential matching transaction; and
`network means (22) for interconnecting the host com
`puter means (20), the transaction originating keystation
`(24a) and the counterparty keystation (26b) in the sys
`tem for enabling data communications therebetween.
`Both the transaction originating keystation (24a) and
`the counterparty keystation (26b) for the potential
`matching transaction each have an associated counter
`party credit limit, with the system (20) blocking com
`pletion of the potential matching transaction between
`the transaction originating keystation (24a) and the
`counterparty keystation means (26b) when the potential
`matching transaction has an associated value in excess
`of counterparty credit limit. The assigned credit limits
`may be reset or varied by the users (24a, 26b) to change
`the ability of the user or subscriber to effectuate deals.
`
`57 Claims, 14 Drawing Sheets
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`ANONYMOUS MATCHING SYSTEM
`
`5,136,501
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`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
`keystations 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 of network overhead that is required is
`signi?cantly 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 identi?cation of the parties which iden
`ti?cation is not to be provided for the subset books at
`the keystations 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
`counterparty 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 foward because the new resulting
`anonymous gross counterparty credit limit then 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
`
`CROSS-REFERENCE TO RELATED
`APPLICATIONS
`This application is related to the commonly owned
`co'pending U.S. Patent Applications entitled “Distrib
`uted Matching System", ?led May 25, 1989, and nam
`ing, David L. Silverman, Alfred M. Scholldorf and
`Norman Keller as joint inventors thereof; and “Distrib
`uted Matching System Method", also ?led May .25,
`1989 and naming David L. Silverman, Alfred M.
`Scholldorf and Norman Keller as joint-inventors
`thereof; the contents of each of which is speci?cally
`incorporated by reference herein in their 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 speci?ed
`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
`Information retrieval systems for ?nancial 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
`35
`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 ?nancial information are
`disclosed in commonly owned U.S. Pat. Nos. 4,531,184;
`4,525,779 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. 4,412,287, 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.
`3,573,747, 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
`detennine 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
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`displayed. In this regard, 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 US. Pat. Nos. 4,745,559
`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 art.
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`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
`party 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 party credit limits for each of
`the counterparties involved in the potential matching
`transaction.
`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
`keystation for providing a bid on a given trading instru
`ment to the system for providing the potential matching
`transaction, a 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 keystation 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 keystations 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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`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
`keystation 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
`party 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 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, 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 keystation book display depth
`range of relative values. The subset keystations 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 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, com
`prises displayable data having a de?ned keystation book
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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 offers 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 keystation 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.
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`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.
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`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 US. Pat.
`Nos. 4,531,184; 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
`central role is to identify a buyer and a seller who are
`willing to trade with one another based on speci?ed
`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 de?ned 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 260 or
`26b illustrated in FIG. 1, by way of example, interacts
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`BRIEF DESCRIPTION OF DRAWINGS
`FIG. 1 is an overall system functional block diagram
`of the distributed matching system of the present inven
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`tion;
`FIG. 2 is a functional block diagram of the system of
`FIG. 1 illustrating the ?ow 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 ?ow 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
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`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
`?ow 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. 4,
`illustrating a book market entry position, at market,
`based on the example of FIG. 4;
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`FIG. 14 is an illustrative diagram similar to FIG. 4 of
`book market entry position, with the creation of a new
`subobook based on the book illustration of FIG. 4;
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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
`20 validates the transaction request, processes the bid,
`offer, hit or take according to the rules of the market,
`and attempts to ?nd 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. If a match is found, and satis?es 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
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`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, 26b 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 26b 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 260 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