WO2001033515A2

WO2001033515A2 - System and method for allocating shares in an offering

Info

Publication number: WO2001033515A2
Application number: PCT/US2000/030311
Authority: WO
Inventors: Howard B. Berger
Original assignee: Ipo Market.Com Corp.
Priority date: 1999-11-04
Filing date: 2000-11-03
Publication date: 2001-05-10
Also published as: EP1228469A4; WO2001033515A3; EP1228469A2; HK1045384A1; AU1459301A

Abstract

A system and method for allocating shares among plural account holders is disclosed. Account holders engage in qualifying tasks that are take place through a distributed computer network such as the Internet in order to participate in an offering such as an initial public offering of shares, a private placement, or a follow-on offering (210). Each qualifying task elevates the account holder's ranking and/or number of position points (230). Shares are allocated to those account holders who have indicated interest in participating (260) in the offering on the basis of their ranking and/or number of position points (240). The account holder's ranking or number of position points, or both, can be decremented after been allocated shares to better ensure that other account holders will be able to participate in future offerings (250). The invention is preferably implemented by a program running on a server connected to an account-holder database as well as a distributed computer network such as the Internet.

Description

SYSTEM AND METHOD FOR ALLOCATING SHARES IN AN OFFERING

FIELD OF THE INVENTION

The present invention relates to systems and methods for allocating shares in initial public offerings, private placements, follow-on offerings and the like, and more particularly relates to systems and methods which allocate such shares based on at least one predetermined criterion

BACKGROUND OF THE INVENTION

In recent years, an increasing number of Americans and other individuals have been participating in direct investments in stocks and other financial instruments. The proliferation of Internet-based brokerage services has contributed to this increase by making the markets more accessible to the public. There remain, however, many investments that are unavailable to the average investor either because the investor does not have an account with the underwriter or is not affiliated with the syndicate of the selling group. Initial public offerings, private placements and follow- on offerings (more generally, "offerings") fall within this category. The minimum balances required to establish and maintain an account with such underwriters can exceed the means of a typical retail investor who nevertheless has the resources to make a modest investment in a new offering.

What is needed in the art and has heretofore not been available is a system and method for allocating shares in new offerings among retail investors. What would be of further benefit in this art is such a system and method in which investors earn the right to participate in an offering by engaging in qualifying tasks. The present invention satisfies these and other needs. SUMMARY OF THE INVENTION

The invention provides a system and method for allocating shares among plural account holders who have indicated an interest in participating in an offering such as an initial public offering of shares, a private placement, or a follow- on offering. In order to participate in the offering, account holders must engage in qualifying tasks that are to take place through a distributed computer network such as the Internet, or in the physical world. The degree and/or frequency of desired actions by an account holder governs the likelihood that such account holder will ultimately be entitled to participate in the offering. According to one aspect of the invention, a method for allocating shares among plural account holders who have indicated an interest in participating in an offering is described. The method includes the steps of awarding position points to a particular account holder in response to his or her having engaged in qualified tasks. That account holder is ranked in accordance with the number of position points that have been awarded, and shares are allocated to those account holders who have indicated interest in participating in the offering on the basis of their ranking.

According to another aspect of the invention, a similar method is described in which shares are again allocated among plural account holders. This method allocates shares to those account holders who have indicated an interest in participating in an offering and comprises the steps of ranking each account holder in accordance with the qualified tasks in which such account holder has engaged, and allocating shares from the offering to the account holders on the basis of their ranking. A feature that is included in a preferred embodiment of the invention is to decrement the number of position points that have been awarded to the account holder after shares have been allocated to such account holder. This feature better ensures that other account holders will be able to participate in future offerings.

The invention further provides a system for allocating shares in an offering among plural account holders. The system includes a server connected to the Internet, a database communicatively connected to the server, and a share-allocation program which allocates shares in the offering based on data contained in the database in response to a triggering condition. The database contains information on the plural account holders including at least either a number of position points or a ranking.

Further aspects and features of the present invention can be appreciated from the appended Figures and accompanying written description.

BRIEF DESCRIPTION OF THE DRAWINGS

Fig. 1 illustrates a network arrangement that can be used to practice a preferred embodiment of the present invention;

Fig. 2 illustrates a flow diagram of the process for allocating shares among plural account holders; and

Fig. 3 graphically illustrates the contents of an account holder database in accordance with the preferred embodiment of the invention.

DETAILED DESCRIPTION OF A PREFERRED EMBODIMENT By way of overview and introduction, the present invention is described in connection with a preferred embodiment in which shares in an initial public offering are allocated among account holders of a brokerage firm through a Web-based trading system. The invention, however, can be implemented in non- Web-based trading systems and can be used to allocate shares, rights, warrants, or other instruments in different types of offerings including private placements and follow-on offerings.

With reference now to Fig. 1, a network arrangement 100 is illustrated in which a host provider has a trading system and method in accordance with the invention programmed to operate from a server 110. In this preferred embodiment, the server 110 is connected to the Internet 120 in a conventional manner. The server hosts a Web site which permits account holders to exchange "position points" for participation in specific offerings, or to earn the right to participate based upon their ranking, which preferably is a tiered hierarchical ranking in which the number of position points a given account holder has defines which tier that account holder is in. The position point data and/or ranking for each account holder is stored in a database 300, described below. Account holders access the server 110 through client stations 130. The client stations conventionally take the form of a personal computer running a standard Web browser such as Netscape Communicator of Netscape Communications Corporation of Mountain View, California or Internet Explorer of Microsoft Corporation of Redmond, Washington. Other client stations can be used with equal advantage and facility such as WebTV^® terminals, Palm Pilots^®, cellular communications devices, and other hardware which can send and receive digital information.

Individuals enter the IP address of the server 110 in any conventional manner and load pages from the Web site maintained at the server 110. Thereafter, the individual enters his or her account identifier (e.g., social security number and password) and, if the account information is correct, the account holder is permitted sufficient access to the server 110 so that he or she can indicate an interest in participating in an offering. The manner of establishing an account is not material to the invention.

Participation in any given offering is preferably restricted to those account holders that have achieved a predetermined rank by the time that their rank is tested. In accordance with a salient aspect of the invention, an account holder's rank is influenced by engaging in qualifying tasks. "Qualifying tasks" as used in this patent specification include, but are not limited to the following:

1. Making transactions through the server (e.g., trading stock or other financial instruments);

2. Paying commissions for transactions through the server;

3. Referring new customers to the server who open accounts;

4. Purchasing goods and services through affiliates;

5. Clicking-through to advertisers and sponsoring Web sites of the server;

6. Maintaining a margin balance (which generates income to the host provider); 7. Transferring accounts from other brokers and dealers to the host provider; and

8. Performing certain tasks in the physical world which can be confirmed or authenticated at the host server (e.g., by electronic transfer of information from a credit (or debit) card issuer to the server).

Each of these (and other) qualifying tasks can constitute a basis for advancing an account holder's rank or position toward a next rank. Common to all qualifying tasks, as that term is used herein, is that the tasks involve actions through a distributed computer system such as the Internet, or that the tasks can be tracked or confirmed to have been performed at a machine connected to a distributed computer system such as the Internet. Preferably, position points are assigned to each qualifying task so that account holders know in advance what they must do to advance their respective rankings. For example, a predetermined number of position points can be awarded to account holders for referring new customers who open accounts, and a number of position points can be awarded for each dollar spent purchasing goods and services through a vendor affiliated with the host provider (e.g., an online book seller). Also, a fixed number of position points can be awarded for each trade (e.g., the purchase or sale of stock) made through the server 110, or a variable number of position points can be awarded based on the size of the trade or commission paid. In short, both fixed and scheduled amounts of position points can be assigned to a variety of qualifying tasks. When account holder engages in qualifying tasks at affiliate sites, the affiliate site register's the account holder's actions so that the host provider can be apprized of the activity. For example, if an account holder links from the server 110 to an online bookseller and makes a purchase at that online site, the host provider can record the click-through to the bookseller and later be advised by the bookseller of the purchase using conventional software tools. In the event that a purchase is made, a number of position points can be awarded to that account holder. The host provider may additionally receive a percentage of the sale from the online retailer or some other royalty. Other sources of revenue for the host provider include advertising revenue for ads displayed along with the host provider's content, and for customer referral fees from third party vendors when account holders link to or shop at a third party vendor's site. Alternatively, the host provider can be apprized of a qualifying task that occurs off-line, for example, at a retail store, by communication between the retail store and the server 110, either directly or through an intervening entity such as a credit or debit card issuer.

Once an account holder has garnered a prescribed number of position points, he or she can advance to a new ranking tier. By way of illustration only, the tiers can be defined as follows:

Number of Position Points Ranking Tier

<10,000 5

10,000 to 15,000 4

15,001 to 20,000 3

20,001 to 30,000 2

30,001+ 1

The cumulative number of unused position points earned by an account holder can be used to determine that account holder's rank or tier based on a relationship table as shown above. It should be understood, however, that an allocation of shares in a given offering if based upon a number of position points is tantamount or equivalent to basing such allocation on rank; the two bases being interchangeable within the context of the present invention. The use of position points together with ranking tiers is, however, preferred.

An account holder's ranking can be influenced solely by engaging in qualifying tasks, as described above, or can be further influenced by activities of other account holders. In the latter arrangement, a competitive environment is established in which a high ranking can only be achieved by engaging in comparatively more qualifying tasks or by earning comparatively more position points than other account holders. Thus, a given account holder's ranking can be influenced by events beyond that account holder's control. For example, if other account holders engage in qualifying tasks while a first account holder sits idle or engages in fewer qualifying tasks, the other account holders can garner a sufficient number of position points to cause the first account holder to drop from one ranking tier to a lower tier. Thus, to maintain position and better ensure an ability to participate in a given offering, an account holder must continue to engage in qualifying tasks until a period of time set for qualifying for the offering is closed.

Account holders can view their rank and/or number of position points earned on a real-time basis by accessing the server 110. In addition, account holders can be apprized of their standing relative to other account holders, either by accessing the server 110 (passive) or by sending an electronic message to the account holder of changes in status (e.g., by proactively sending an electronic mail message or an instant message).

With reference now to Fig. 2, a method for allocating shares among plural account holders is described. At step 210, a number of shares is obtained by the host provider for allocation among its account holders. One way in which the host provider can obtain shares before an offering trades publically is if it is or is affiliated with an underwriter of the offering in which case the host provider will have a number of shares to resell to institutions and investors of its choosing. Another way in which the host provider can obtain shares before an offering trades publically is by participating in a syndicate of a selling group. By allocating to the host provider a percentage of the total number of shares or other instrument being offered, the underwriter obtains publicity and favorable word-of-mouth and other advertising by making the shares available to retail customers. Regardless of how the shares are obtained, the host provider announces the availability of a limited number of shares for allocation among its account holders, at step 220. Preferably, any criterion that must be satisfied in order to participate in the share allocation is also announced.

All the while, account holders engage in qualifying tasks to improve their respective rankings. The server 110 tracks the qualifying tasks engaged in by each account holder at step 230, and assigns position points or otherwise assesses the influence on that account holder's ranking at step 240. In response to engaging in a qualifying task, the account holder's rank is updated at step 250 in accordance with at least one predetermined criterion, for example, (1) in view of the total number of unused position points that the account holder has earned, (2) in view of the relative number of unused position points that the account holder has compared to other account holders, (3) absolute ranking, (4) relative ranking compared to the ranking of other account holders, or (5) some other basis such as denial of the right to participate in other offerings, non-participation in other offerings, or longevity with the host provider. An account holder's ranking preferably can be updated and improved until a window (that is, a period of time allotted indicating an interest in participating in a given offering) closes. An account holder can indicate his or her interest in participating in a given offering by providing notice to the host provider. At step 260, the server obtains interest from account holders when the account holders indicate their interest from the client station 130. This can be done, for example, by completing an HTML form or pressing a button at the client station 130 and submitting the form or other response to the server 110. Interest can be solicited by the host provider and obtained from account holders so long as the window remains open, as tested at step 270. Once the window has closed for a particular offering in response to a triggering condition (e.g., the passage of time or obtaining sufficient interest from account holders to allocate all of the shares that have been obtained), account holders who have indicated an interest in participating in that offering are allocated shares on the basis of rank, as indicated at step 280. Preferably, any account holder to whom shares are allocated, is decremented in rank or position points, or both (if both are used), after being allocated shares, as indicated at step 290. It is preferred that shares be allocated in round lot intervals, that is, in 100 share increments.

If account holders earn position points for engaging in qualifying tasks, then share allocation can be to those account holders having the highest number of position points. Equivalently, if account holders are ranked in response to engaging in qualifying tasks, then share allocation can be to those account holders having the highest rank. Alternatively, share allocation can be to any account holder who has achieved (and maintained) a predetermined rank.

With reference now to Fig. 3, a portion of an account-holder database 300 maintained by the server 110 is illustrated. The database includes among other fields, an account identifier field 310 which permits the server 110 to access records associated with each account holder and update the position points, ranking, and interest in participating in particular offerings. The database include a position points or ranking field 320 in which the present number of position points and present ranking of each account holder is stored. The database also includes one or more deal fields 330A, 330B, .... 330N (more generally, deal field 330) which store data relating to a given account holder's interest in an offering. The deal fields 330 include an interest field 332A, 332B, ... , 332N (more generally, field 332) in which account holder's express their interest in a particular deal (YES/NO). The interest field can be populated with "NO" by default and thereafter changed to "YES" at step 260 of Fig. 2 in response to account holder affirmatively indicating an interest in the offering. The deal field 330 also can include a cost/rank field 334A, 334B, ..., 334N (more generally, field 334) which specifies the number of position points necessary to participate in a share allocation for that offering or which specifies the ranking required to participate in that share allocation. Instead of including the cost/rank field in the database 300 can instead be stored in a rule base which defines at least one criterion for participating in an offering. The deal field 330 also can include a date/time field 336A, 336B, ..., 336N (more generally, field 336) which stores the date and time that each account holder expresses an interest in the offering or that the account holder reaches a specified number of position points or ranking.

The data in the date/time field 336 can be used by the server 110 to resolve share allocation issues among multiple account holders using standard dispute resolution techniques. A share allocation issue can arise, for example, when more account holders have expressed an interest in an offering than there are shares to allocate. Thus, if 10,000 shares have been obtained by the host provider for allocation in 100 share intervals, up to 100 account holders can participate in the offering. However, if 140 account holders express an interest in the offering and have the requisite ranking and/or position points to participate in the offering, then a decision must be made as to how to allocate the shares among the interested account holders. In the preferred embodiment, such a decision can be made automatically using a selected dispute resolution technique. One basis is to allocate the lots on a first-in- time basis with the first 100 account holders to express an interest in the offering being the ones to receive shares. This technique provides an automatic basis for closing the window of participation. Another basis is to allocate the lots on a first-to- reach-a-prescribed-ranking basis in which case the first 100 account holders to achieve a prescribed ranking will be allocated shares. This technique encourages account holders to engage in qualifying tasks quickly in order to achieve a ranking tier first. A similar basis keeps the window of participation open until a prescribed date and/or time with ranking tiers being relative to other account holders. This technique has account holders vying for increasingly higher rankings or numbers of position points until the offering period is over. The account holders who will ultimately participate in the offering are not known until the window of participation closes. The same methodologies can be applied with respect to position points, and share allocation disputes also can be resolved automatically based upon a random selection among account holders, although that approach is not preferred.

With further reference to Fig. 3, the contents of an exemplary database 300 are described for a better understanding of the preferred embodiment of the invention. Each account holder has a unique account identifier (e.g., 1, 2, 3, ..., N), typically composed of multiple alphanumeric characters. In response to engaging in various qualifying tasks, as described above, each account holder earns position points or increases his or her ranking, and the present status of each account holder is noted in field 320. Thus, account holders 1 and 2 each have more than 30,000 position points and have a ranking tier "1" whereas account holder 3 has only 12,000 position points and a ranking tier of "4." The database 300 further stores which account holders have expressed an interest in two different deals or offerings, "Deal 1" and "Deal 2." Account holders 1, 3, and N have expressed an interest in Deal 1 whereas account holders 1 and 2 have expressed an interest in Deal 2.

With reference now to Deal 1, the cost/rank field 334A indicates that a ranking tier " 1 " is required to be entitled to participate in the offering. This means that account holders 3 and N will not be able to participate in the offering due to their current ranking, unless they achieve the requisite ranking tier by the time the window closes. The data and time that each customer indicated an interest is noted in field 336A, but the server 110 optionally can update that data to a later date and time for account holders 3 and N to reflect the time when they achieve the requisite ranking tier. Based on the information shown in the database 300, however, account holder 1 is the only account holder who has expressed an interest in participating in Deal 1 and who has the requisite ranking tier to actually participate. Accordingly, only account holder 1 will participate in that Deal from among the account holders shown in the portion of the database 300 illustrated in Fig. 3. With reference to Deal 2, account holders 1 and 2 have expressed interest in that offering, and each has the requisite number of position points to participate in the offering. In particular, that offering requires account holders to have garnered at least 30,000 position points (see field 334B), and each of the account holders has more than this number, as shown in field 320. Accordingly, unless the offering is oversubscribed in view of qualifying interest of other account holders, both account holders 1 and 2 will actually participate in that offering. However, if the offering is oversubscribed, a dispute resolution technique can be automatically employed to resolve the share allocation issue as between account holders 1 and 2. If the basis for resolving the issue is a first-in-time rule, then, the data in field 336B can be used to allocate the shares to account holder 1 who expressed an interest in Deal 2 on the same day as account holder 2, but six minutes earlier, as shown in Fig. 3. If the basis used is a first-to-reach- a-prescribed-ranking rule, the data in field 336B also can be used for this rule, provided, however, that the information is updated to reflect the moment in time when the account holder has garnered the requisite position points or reached the ranking that has been prescribed for that deal. Alternatively, the share allocation issue might be resolved with neither account holder 1 nor 2 being allocated any shares due to a superior claim by another account holder under the selected dispute resolution rule.

Depending on the response to an announcement of the availability of shares, share allocation can include the distribution of multiple lots to particular account holders (e.g., those account holders in the highest ranking tier), and can include distribution among multiple ranking tiers if the number of shares obtained by the host provider permits such a distribution.

The server 110 performs additional account management functions to implement allocation of shares to various account holders in a conventional manner. In particular, the number of shares that were obtained by the host provider are transferred in predetermined lot sizes to each of the accounts of the account holders to whom shares are being allocated. This transfer can be accomplished by updating data records as to who now owns the shares without a physical transfer of the stock certificates. The host provider remains custodian for the actual share certificates or other financial instrument, unless the account holder requests that the certificates be physically transferred to their care.

As used herein, the term "qualifying tasks" refers to actions and behavior by an account holder which occur through or which are subsequently reported to a distributed computer system such as the Internet and which can be recorded by the server 110, for example, in the database 300. As understood by those of skill in the art, the database 300 can be implemented in other manners without departing from the principles of the present invention.

The foregoing written description is of a preferred embodiment and particular features of the present invention and is not restrictive of the many applications or the breadth of the present invention which is instead defined by the claims appended hereto and substantial equivalents thereof.

Claims

I CLAIM:

1. A method for allocating shares among plural account holders who have indicated an interest in participating in an offering, comprising the steps of: a) awarding position points to an account holder in response to engaging in qualified tasks; b) ranking the account holder in accordance with the number of position points that have been awarded; and c) allocating shares to those account holders who have indicated interest in participating in the offering on the basis of their ranking.

2. The method as in claim 1, wherein the qualifying tasks include actions by an account holder which occur through a distributed computer system.

3. The method as in claim 1, wherein the step of allocating shares comprises allocating shares to those account holders who have achieved a predetermined rank.

4. The method as in claim 1, wherein the step of allocating shares comprises allocating shares starting with those account holders having the highest rank and continuing until all shares have been allocated.

5. The method as in claim 1, wherein the allocating step comprises allocating the shares in predetermined lots.

6. The method as in claim 1, wherein the allocating step occurs after a window of time for participating in the offering has closed.

7. The method as in claim 1, including the additional step of decrementing the number of position points awarded to the account holder after allocating shares to such account holder.

8. The method as in claim 7, including the additional step of updating the ranking in response to the decrementing step.

9. A method for allocating shares among plural account holders who have indicated an interest in participating in an offering, comprising the steps of: a) ranking each account holder in accordance with the qualified tasks in which such account holder has engaged; and b) allocating shares from the offering to the account holders on the basis of their ranking.

10. The method as in claim 1, wherein the qualifying tasks include actions by an account holder which occur through a distributed computer system.

11. The method as in claim 8, wherein the step of allocating shares comprises allocating shares to those account holders who have achieved a predetermined rank.

12. The method as in claim 8, wherein the step of allocating shares comprises allocating shares starting with those account holders having the highest rank and continuing until all shares have been allocated.

13. The method as in claim 8, wherein the allocating step comprises allocating the shares in predetermined lots.

14. The method as in claim 8, wherein the allocating step occurs after a window of time for participating in the offering has closed.

15. The method as in claim 8, including the additional step of decrementing the number of position points awarded to the account holder after allocating shares to such account holder.

16. The method as in claim 15, including the additional step of updating the ranking in response to the decrementing step.

17. A system for allocating shares in an offering among plural account holders, comprising: a) a server connected to the Internet; b) a database communicatively connected to the server and containing information on the plural account holders including at least one of a number of position points and a ranking; and c) a share-allocation program running on the server, the share-allocation program allocating shares in the offering based on the data contained in the database in response to a triggering condition.

18. The system as in claim 17 wherein the triggering condition is one of the passage of a prescribed period of time and the arrival of a prescribed moment in time.

19. The system as in claim 17 wherein the triggering condition is obtaining interest from a predetermined number of qualified account holders at the server.