WO2012021587A2

WO2012021587A2 - System and method for electronic trading of financial instruments

Info

Publication number: WO2012021587A2
Application number: PCT/US2011/047196
Authority: WO
Inventors: Daniel Joseph Hill; Joseph Leonard Russo
Original assignee: Rait Securities, Llc
Priority date: 2010-08-10
Filing date: 2011-08-10
Publication date: 2012-02-16
Also published as: WO2012021587A3

Abstract

A computer system and computer-implemented method offering and purchase of certificates of deposit and/or commercial paper (Paper) comprising directly entering by an issuer at an issuer computer terminal an offer of Paper at a first interest rate level, communicating said offer of Paper to a central computer system programmed to post said offer of Paper and permit a plurality of investors to view and bid on said offer, the bid being either an acceptance of said offer at the first interest rate level, or counter-offer at a second, higher interest rate level, wherein the bids of the investors are communicated directly to the issuer which has posted the offer.

Description

SYSTEM AND METHOD FOR ELECTRONIC TRADING OF FINANCIAL

INSTRUMENTS

BACKGROUND OF THE INVENTION

[0001] This invention relates to the field of electronic systems and methods for facilitating trading of financial instruments. More specifically the invention relates to systems and methods for facilitating trading of continuously offered money market products, like commercial paper and certificates of deposit.

[0002] Commercial paper (CP) and certificates of deposit (CDs), collectively referred to herein as "Paper" are most typically sold and purchased by a process which requires the issuer to list its Paper with a dealer by calling, faxing, or emailing one or more dealers with requests to offer a certain face amount of Paper at a certain interest rate and term, and whether "subject" or "non- subject." The dealer in turn usually posts the offer of Paper on Bloomberg Offers on Money Market (BOOM) and/or other similar systems such as Tradeweb. The posting specifies the maturity date, size, yield, ratings, and discount rates, known in the trade as a Level, and whether the offer is "subject" or "non-subject." If the offer is "non-subject," the dealer is not obligated to confirm whether the Paper is still on the market and is currently being offered before committing to sell to an investor at the issuer's ask price. If the offer is "subject, the dealer must present any bids to the issuer who in turn either accepts a bid or rejects it because the Paper is no longer available for sale. When a bid is received by the dealer from an investor in response to an issuer's offer as posted on BOOM or a similar system, the bid may match the offered Level or may be for a higher Level, which would mean that the investor is counter-offering to buy an issuer's paper at a higher interest rate than is being offered. The dealer typically presents a bid to the issuer but does not identify the investor making the bid, and will usually add an amount to the bid so that if the bid with the added amount is accepted by the issuer, the investor receives a lower Level than the issuer is paying, with the difference being retained by the dealer as commission.

[0003] There is no facility in current systems for the issuer to post its Paper on BOOM or the like since only a dealer may post offers, nor is there any facility in current systems for an issuer to see bids on its Paper made by investors since the current systems are programmed to hide the details of offers from investors and investors' identities from the issuer, only making it available to the dealer which has posted the Paper for sale. Investors who are in the market to purchase Paper see all of the offerings of Paper which have been posted by dealers, including discount rates, interest, prices, identity of the dealer, and identities of the issuers of the Paper currently on the market, where they can compare offerings and make bids to dealers if they are so inclined, usually by telephone or by email or fax. The dealer posts are referred to in this art as Offers, and the investors submit Bids. Upon a match of an Offer and a Bid, a transaction automatically takes place. If a Buyer wishes to submit a Bid which does not match an Offer, a dealer receives the Bid and attempts to negotiate changes in either the Offer or the Bid until there is a match, in which case a transaction takes place and is cleared. The actual Bid details are not communicated by the dealer to the issuer. Rather, the dealer will generally mark up the interest level of the bid so that the investor would pay a higher interest rate level than is bid by the investor, and the dealer keeps the difference.

[0004] Because of the uncertainty of how much the dealer is keeping as commission and because of delays which are built into the current system due to dealer delays at the posting step and the bid communication step, the present system is inefficient and disadvantageous to the issuers and investors.

[0005] It is an object of the present invention to provide an improved computer-assisted method and computer system for facilitating the sale of commercial paper and/or certificates of deposit.

SUMMARY OF THE INVENTION

[0006] These objects and others which will become apparent from the following description and accompanying drawings are addressed by the present invention which comprises in one aspect a system and method of the invention allow an issuer to post its own levels, prices, and all other relevant criteria of an offer on a network hosted by conventional systems such as the Bloomberg BOOM system and to receive data corresponding to the price and time of each acceptance or counter-offer by a buyer, resulting in the issuer seeing the trading price of its Paper, which is unconventional and a great advantage to issuers, especially during periods of market volatility which result in extreme spreads between bids and offers which in the prior art are revenue to dealers. In the system of the invention, the host, which can be a dealer, can charge a disclosed flat fee for a completed transaction rather than an undisclosed spread which has been the state of the art.

[0007] The system can be implemented by programming an issuer terminal such as a

Bloomberg terminal with a special button which when clicked displays on the issuer computer terminal a special input page where the issuer inputs price and other terms for an offer, which gets posted in real time rather than with delays caused by dealer intervention systems where the offer must be posted by a dealer.

[0008] In another aspect the invention comprises a computer assisted method for offering and purchase of certificates of deposit and/or commercial paper (Paper) comprising directly entering by an issuer at an issuer computer terminal an offer of Paper at a first interest rate level, communicating said offer of Paper to a central computer system programmed to post said offer of Paper and permit a plurality of investors to view and bid on said offer, the bid being either an acceptance of said offer at the first interest rate level, or counter-offer at a second, higher interest rate level, wherein the bids of the investors are communicated directly to the issuer which has posted the offer.

[0009] The method is implemented on a computer system for trading interests including a plurality of investors terminals having an output device and an input device, and a central computer linked to the buyer terminals by a communication system, a dealer terminal having an output device and an input device, and a plurality of investor terminals linked to the

communication system, the central computer programmed to receive and post offerings of commercial paper and/or certificates of deposit (Paper) for viewing on said investor computer terminals and to receive bids on said Paper from said investor computer terminals, the improvement wherein the central computer is programmed to accept from and post offerings of said issuer directly and to display completed trade statistics in real time at the issuer's terminal. BRIEF DESCRIPTION OF THE DRAWINGS

[0010] Other objects and advantages of the invention will become apparent upon reading the following detailed description and upon reference to the accompanying drawings in which:

[0011] Fig. 1 is a flow chart of a system according to the prior art.

[0012] Fig. 2 is a flow chart of a system according to the invention.

[0013] Figs. 3-19 are GUI screen illustrations of screens presented at various points in the process of the invention to issuers.

[0014] Fig. 20 is a circle with blocks indicating some advantages of the present invention. DETAILED DESCRIPTION

[0015] Referring first to Fig. 1 , the method of the prior art starts 11 when an issuer

communicates 12 Paper for sale details to a dealer. The details will include term, amount for sale, interest rate level, usually referred to as a "level," and whether or not subject to issuer approval of any offers, usually referred to as "subject" or "non-subject." If subject 13, the dealer posts 14 the offer on Boom at the ask price level and indicates that it is subject. The investors terminals display 15 all current offerings of Paper. If an investor wishes to purchase an offering of an issuer at the issuer's ask level, the investor sends 16 through its investor terminal to the host central computer (BOOM), the dealer sends 17 an order message to the issuer at the issuer's ask level. If the issuer accepts 18, the dealer completes 99 the order on behalf of the issuer and communicates the completed orders to the issuer.

[0016] If the investor decides 16 to send 19 a bid to the dealer at other than the issuer ask level, the dealer in turn sends 20 a bid message to the issuer at, often, a second, higher level. The issuer either accepts 21 the second higher level received from the dealer, in which case the dealer completes 99 the order on behalf of the issuer and communicates the completed orders to the issuer, or the issuer either passes on the higher level bid or counters 22 to the investor through the dealer. If the issuer passes, the process ends, but if the issuer counters, the dealer sends 22 the issuer's counter-offer to the investor. The investor at this point either accepts 23 the counter and then the dealer completes the order 99, or the investor rejects the counter and the process ends 100.

[0017] In the exceptional case where the issuer communicates paper for sale non-subject 13, again the dealer posts 24 the order on BOOM, investors see 15 all offers on BOOM and if an investor wishes to buy the Paper at the ask level, it sends 26 an order message at ask level to the dealer and the dealer completes the order. On the other hand, if the investor sends 19 a bid to the dealer at other than the issuer ask, e.g., at a higher level, the dealer sends 20 a bid message to the issuer at, often, a second, higher level. The issuer which has received the bid message at the dealer's higher level decides 21 whether to accept, in which case the dealer completes 99 the order, or either to pass, in which case the process ends 100, or to counter 22 to the investor. If the issuer has countered, the investor decides 23 to accept the counter, the dealer completes 99 the order and the process ends 100, otherwise the process ends with the investor deciding 23 to reject the counter.

[0018] Referring now to Fig. 2 which is a flow chart of an embodiment according to the invention, the process starts 11 with an issuer posting 14 an offer for paper for sale on BOOM. This step is implemented by specially programming the issuer's computer terminal with an icon such as a button which can be selected or clicked and which opens a special offer entry screen. Only issuers who have been authorized by a dealer will have the icon and the ability to post an offer directly on BOOM, and the offer will appear on BOOM under the dealer's name. The offer will appear to investors as if it was being made through the dealer and any responses will be routed to the dealer.

[0019] If the offer is subject 13, which is the exceptional case according to the invention, the investors see 15 all offers on BOOM as in the prior art system and method, and the system routes 27 any bid messages from any investors at a first level to the dealer but according to a novel feature of the invention the investor bid message is automatically routed 28 to the issuer who decides 18 whether to accept or reject the order. If accepted, the dealer completes 34 the order on behalf of the issuer and the sale is completed. According to the invention, the system allows the investor to see completed trade stats in real time, electronically, and then the process ends 100. [0020] If the offer is non-subject 13, which is the norm according to the invention, the investors see 15 all offers on their terminals and may send 29 an order message at the investor ask level through the dealer. The system is programmed to automatically route 30 the investor order message to the issuer as a deal pending and displays a deal pending message. The trade automatically clears 31 and no dealer involvement in clearing, i.e., completing the order on behalf of the issuer is required. As with subject offers, the system allows 35 the investor to see completed trade stats in real time, electronically, and then the process ends 100.

[0021] Among the differences between the computer-assisted process according to the invention illustrated in Fig. 2 and that of the prior art as illustrated in Fig. 1 is that because the issuer has fingertip control they will normally decide 13 post their offers as non-subject and since the issuer is able to see completed trades and stats in real time through the computer system, no communication is needed between the issuer and the dealer when the trade auto clears 31 since the dealer does not have to clear 35 the order.

[0022] Fig. 3 is a GUI screen illustration where new CP offers can be input (step 31 in Fig. 2) by an issuer wherein a commercial Paper specific "Enter Money Market Commitment" input screen appears on Bloomberg after issuer clicks on RAIT P.O.S.T. CP button that was specifically created and enabled for specific issuer. In Fig. 3, issuer has entered a cash (same day settle) Commercial Paper offering of $500mm available in a combination of 3 date ranges at specified offer rates. Issuer has added an exception date of 9/15 and "free to trade" or "not subject to trade" as depicted by the "N" in the "SUBJECT" field.

[0023] Fig. 4 is a GUI illustration of the output generated by the data input in Fig. 3 on RAIT's dealer-specific BOOM page and Bloomberg's co-mingled BOOM page. Note: amounts, dates and rates match Fig. 3. Issuer inputs.

[0024] Fig. 5 is an illustration of a screen illustrating a CP input page with multiple offerings by an issuer wherein the same issuer in Figs. 3 and 4 opens a second "Enter Money Markets Commitment" input screen after clicking a RAIT P.O.S.T. CP button again and adds an additional date specific, overnight posting to this issuer's original posting in Fig. 3. [0025] Fig. 6 is an illustration of a screen illustrating the output following the second CP input wherein output created by issuer's input of Fig. 3. and Fig. 5. combined, on a dealer's dealer- specific BOOM page and Bloomberg's co-mingled BOOM page. Note: amounts, dates and rates match Fig. 3. and Fig. 5 issuer inputs.

[0026] Fig. 7 is an illustration of a screen illustrating a specific Commercial Paper Issuer's Multi-Post monitor page which appears after the issuer clicks on a RAIT Multi-Post button that was specifically created and enabled for specific issuer. The issuer uses this page to highlight an offering to be re-opened for updating.

[0027] Fig. 8 is an illustration of a screen showing updates of money market CP commitment wherein an issuer has highlighted the first posting from Fig. 3. and clicked on "RAIT Update" button opening the original (first) "Enter Money Market Commitment" page. In Fig. 8, the issuer has changed original offering amount from $500mm to $250mm and removed the 9/3-9/17 date range and removed the exception date as the range it was in is no longer posted.

[0028] Fig. 9 is an illustration of the output created following the update of the first CP input. The output was created by issuer's actions in Fig.'s 7. and 8. on RAIT's dealer-specific BOOM page and Bloomberg's co-mingled BOOM page.

[0029] Fig. 10 is an illustration of the output created after an investor purchase of a CP offering. The output created by investor's actions on RAIT's dealer- specific BOOM page and

Bloomberg's co-mingled BOOM page. The output in Fig. 10. indicates investor has purchased $50mm of issuer's offering in either the date range of 9/20-10/15 or 10/18/-11/16. Offering of $250mm from Fig. 8. is automatically decremented down to $200mm following investor purchase / issuer sale. Trade Workspace for specific issuer creates novel real-time transparency to issuer.

[0030] Fig. 11 is an illustration of a "Trade Workspace," which is an issuer trade transparency window which allows the investor to see all pending and completed deals allows the specific issuer immediate view of investor trade that occurred in Fig. 10. It shows both buy and sell side information, including dedicated investor account number that can be periodically monitored for activity but the investor name is not disclosed to the issuer. [0031] Fig. 12 is an illustration of a CD input page. Unlike Commercial Paper, all Certificate of Deposit market entries, adds, updates and edits occur on one screen depiction. There is one RAIT P.O.S.T. CD button with no needed "RAIT Mutli-Post" or "RAIT Update" button for issuers in the Certificate of Deposit environment. In Fig. 12, Certificate of Deposit specific "Enter Money Market Commitment" input screen appears on Bloomberg after issuer clicks on RAIT P.O.S.T. YCD or CD button that was specifically created and enabled for specific issuer. In Fig. 12, issuer has entered a cash(same day settle) Certificate of Deposit offering of $500mm available in a combination of 8 dates at specified offer rates.

[0032] Fig. 13 is an illustration of output created by the first EMC Input. Output created by issuer's input of Fig. 12. on RAIT's dealer specific BOOM page and Bloomberg's co-mingled BOOM page. Note: amounts, dates and rates match Fig. 12. issuer inputs.

[0033] Fig. 14 is an illustration of an Easy Money Market Commitment screen with added spot settlement wherein an issuer opens second Certificate of Deposit "Enter Money Market

Commitment" by copying original offering line from Fig. 12. In Fig. 14. issuer has added a spot settle or 2-day forward settle offering of $500mm available in only the longest 3 dates at slightly different rates.

[0034] Fig. 15 is an illustration of output created from issuer's CD input of Fig. 12. and Fig. 14. combined, on RAIT's dealer-specific BOOM page and Bloomberg's co-mingled BOOM page. Note: amounts, dates and rates match Fig. 12. and Fig. 14 issuer inputs. Settlements are differentiated by days to settle in the "SD" column.

[0035] Fig. 16 is an illustration of an update on Money Market CD commitment wherein an issuer re-accesses their Certificate of Deposit posting page and updates their cash offerings. In Fig. 16. issuer has decreased original cash offering (Fig. 12.) to $100mm from $500mm and removed the longest 3 dates posted.

[0036] Fig. 17 is an illustration of output created following an issuer's update of the first CD input of Fig. 12. with no action taken on Fig. 14. This shows on RAIT's dealer-specific BOOM page and Bloomberg's co-mingled BOOM page. Note: changes made to amounts and dates of Fig. 12. and Fig. 14 issuer inputs are unchanged and still show original posted amounts, dates and settlements that are still differentiated by days to settle in the "SD" column.

[0037] Fig. 18 is an illustration of output created following investor purchase of a CD offering on RAIT's dealer specific BOOM page and Bloomberg's co-mingled BOOM page. The output in Fig. 18. indicates investor has purchased $50mm of issuer's offering in the cash offering bucket. Offering of $ 1000mm from Fig. 16. is automatically decremented down to $50mm following investor purchase / issuer sale.

[0038] Fig. 19 is an illustration of changes to the "Trade Workspace" which occur after a buy or sell ticket of a trade which occurred. "Trade Workspace" for specific issuer creates novel offered real-time transparency to issuer. Fig. 19. allows specific a issuer an immediate view of an investor trade that occurred in Fig. 18. It shows both buy and sell side information, including a dedicated investor account number that can be periodically monitored for activity. The investor name is not disclosed.

[0039] Fig. 20 is a graphical representation of the advantages of the present invention to issuers, which include the ability to issue CP more efficiently, fingertip control, control of pricing rather than dealer control, Bloomberg interface using existing keyboard and screens, instant notification of trades, instant ticketing, instant confirmations, contingency funding tool, eliminates frustration with money market transparency, trade level disclosure unlimited, true and accurate issue level displayed, dealers can have less balance sheet with this invention, dealer inventory positions are scrutinized internally for credit and liquidity, and dealer representatives are now facilitators rather than traders for their own accounts.

[0040] The present invention is an innovative system that will provide an effective liquidity management tool for Banks, Corporate Treasury Departments, and Asset-Backed money market product issuers who either issue or purchase Commercial Paper (CP) and/or Certificate of Deposit's (CD's). The dealer in this system is a market facilitator, not a position trader.

[0041] Through the portal system of the invention, issuers of CP and CD's will control and actively manage their postings at their fingertips in real time through their Bloomberg terminal. No new systems are required. A dealer using the system of the invention in preferred embodiments will deliver a special button to contracted issuer's Bloomberg terminals. Upon clicking the button, a page will open where the issuer can enter its issue prices for its CP and/or CD's. Contrary to the prior art, the issuer controls all input aspects of its offerings including rates, settlement dates, maturities, amounts, and subject or non- subject flag. The issuer can enter multiple postings. With the click of a button, the issuer's prices are now entered and shown in the comingled offering page on Bloomberg called "BOOM". Issuers can edit their postings at any time prior to execution.

[0042] Investors can ticket and electronically buy the issuers paper directly from "BOOM". Non-subject offers are freely executable by the investors. Trade notifications can occur in two forms. The issuer can elect to receive a real-time message alert on its Bloomberg screen and/or a bell to notify the issuer of the trade. Ticketing and clearing occur automatically. Daily trades appear and can be viewed on the issuer's Bloomberg trade blotter "TBLT".

[0043] If an offer is posted subject, or the investor counters the issuer's posted offer with a different rate, maturity, or amount, a dealer representative is be notified electronically and contacts the issuer to negotiate the deal.

[0044] Through the system of the invention investors have access to real-time accurate offerings posted directly from issuer counterparties. The investors also are provided with trade blotters, tickets and electronic execution.

[0045] As a market contingency, by owning their access to the market, issuers reduce their reliance on market participants that can be affected by market disrupting events. This system offers users access from remote sites. In some embodiments dealers can provide a dynamic "Money Market Dashboard" and an "Interactive Issuer and Investor Peer Group Portal" which can be used for analysis.

[0046] The present invention, therefore, is well adapted to carry out the objects and attain the ends and advantages mentioned, as well as others inherent therein. While the invention has been depicted and described and is defined by reference to particular preferred embodiments of the invention, such references do not imply a limitation on the invention, and no such limitation is to be inferred. The invention is capable of considerable modification, alteration and equivalents in form and function, as will occur to those ordinarily skilled in the pertinent arts. The depicted and described preferred embodiments of the invention are exemplary only and are not exhaustive of the scope of the invention. Consequently, the invention is intended to be limited only by the spirit and scope of the appended claims, giving full cognizance to equivalents in all respects.

Claims

CLAIMS What is claimed is:

1. In a computer system for trading interests including a plurality of buyer terminals having an output device and an input device, and a central computer linked to the buyer terminals by a communication system, a dealer terminal having an output device and an input device, and a plurality of investor commercial terminals linked to the communication system, the central computer programmed to receive and post offerings of commercial paper, certificates of deposit, and asset-backed commercial paper (Paper) for viewing on said investor computer terminals and to receive bids on said Paper from said investor computer terminals, the improvement wherein the central computer is programmed to accept from and post offerings of said issuer directly.

2. The system of claim 1 programmed to directly, without alteration, communicate bids on said paper from said investor computer terminal to said issuer computer terminal.

3. A computer system comprising an issuer computer terminal programmed to permit automatic posting of an offer by the issuer of commercial paper and/or certificates of deposit without dealer intervention, and a host computer coupled to the issuer computer terminals and the buyer computer terminals, a data store coupled to the host computer including offerings of a plurality of trading parties, the computer including programming for selectively identifying from the data store offerings of the plurality of trading parties responsive to the investment criteria, the computer providing information related to identified offerings responsive to the investment criteria of all trading parties for presentation together on the output device, the system programmed to permit the issuer to view bids on, and acceptances of, offerings of the issuer, and the time of said bids and acceptances.

4. The computer system as set forth in claim 1 , wherein the computer provides to the issuer terminal a presentation of information related to identified offerings in a summary view, the summary view including a count of responsive offerings of each of the plurality of trading parties.

5. The computer system as set forth in claim 3, wherein responsive to a selection entered via said input device identifying an issuer presented in the summary view, the computer provides a listing of all offerings from the data store of the one selected issuer for presentation on the output device.

6. The computer system as set forth in claim 1 , wherein the investment criteria includes buyer-defined values for terms of the offerings.

7. The computer system as set forth in claim 1, wherein the investment criteria includes buyer-defined values for at least one of maturity, size, yield, credit ratings and trading party of the offerings.

8. The computer system as set forth in claim 1 , wherein the investment criteria includes parameters that specify an order for presenting offerings information retrieved from the data store.

9. The computer system as set forth in claim 1, wherein the computer system includes memory for storing the investment criteria, the computer upon command selectively identifying the offerings in the data store based on investment criteria stored in the memory.

10. The computer system as set forth in claim 1, where the computer comprises programming for selectively granting buyers authority to view offerings of the trading parties, and for selectively preventing retrieval and display of offerings to unauthorized buyers.

11. The computer system as set forth in claim 1 , wherein the computer comprises programming for selectively granting buyers authority to execute offerings of issuers.

12. The computer system as set forth in claim 1, wherein the computer comprises programming for selectively limiting access to offerings of predetermined ones of the plurality of issuers.

13. In a computer system for trading interests including a plurality of investor terminals having an output device and an input device, and a central computer linked to the investor terminals by a communication system, the improvement comprising a data store coupled to the central computer including offerings of a plurality of issuers, the central computer including programming for selectively identifying from the data store offerings of a plurality of issuers responsive to at least one investment criterion entered via an input device of a buyer terminal, the central computer transmitting to the investor terminal for presentation on the output device the information related to identified offerings of each issuer having an offering responsive to the at least one investment criterion and further permitting an investor and issuer to consummate a purchase directly without assistance or intervention by a dealer.

14. A computer assisted method for offering and purchase of certificates of deposit and/or commercial paper, and asset-backed commercial paper (Paper) comprising directly entering by an issuer at an issuer computer terminal an offer of Paper at a first interest rate level, communicating said offer of Paper to a central computer system programmed to post said offer of Paper and permit a plurality of investors to view and bid on said offer, the bid being either an acceptance of said offer at the first interest rate level, or counter-offer at a second, higher interest rate level, wherein the bids of the investors are communicated directly to the issuer which has posted the offer.