Note: Descriptions are shown in the official language in which they were submitted.
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METHOD AND SYSTEM FOR AUTOMATIC
EXECUTION OF A SECURITIES TRANSACTION
This application claims the benefit of United States Provisional
Patent Application Serial Number 60/226,330, filed August 17, 2000, entitled
New York Stock Exchange Direct Plus, the disclosure of which is incorporated
herein by reference.
BACKGROUND
1. Field of the Invention
The invention relates to the field of financial transactions and more
particularly to the field of automated securities transactions on a securities
1 S exchange with a display book and an auction market crowd.
2. Description of the Related Art
In auction exchanges for securities transactions, such as provided
by the New York Stock Exchange, Inc. (NYSE), a round lot securities
transaction
(e.g., a limit or market order) is exposed to the auction market on the floor,
where
members of the crowd have an opportunity to compete for the transaction. This
competition in the crowd for the transaction may improve the eventual
execution
price for the transaction. On the New York Stock Exchange, this exposure of
the
round lot transaction to the crowd occurs even when the order is received
electronically on the specialist display book and there is an opportunity to
execute
the order against other electronic orders on the specialist display book. For
some
investors and institutions, there is interest in having a transaction execute
at a
known price, foregoing the opportunity for possible price improvement on the
auction floor, and if the transaction will execute in a more timely fashion
than is
available with the traditional auction transaction, that is also desirable.
What is needed are methods and systems to automatically execute
securities transactions against a quote, without the added time required for a
floor
auction, with the understanding that the transaction will not experience
possible
price improvement as it could from the auction market crowd.
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The preceding description is not to be construed as an admission
that any of the description is prior art relative to the present invention.
SUMMARY OF THE INVENTION
In one aspect, the instant invention provides a method and system
for submitting a securities order to a securities exchange for automatic
execution.
A quote for a security is determined and a securities order is priced equal to
or
better than the quote. The order is identified for automatic execution, and
transmitted to the securities exchange.
In one aspect, the instant invention provides a method and system
for automatically processing a securities order on a securities exchange. A
securities order is automatically received, with an indicator requesting
automatic
execution. At least a portion of the order is automatically executed against a
quote price, without exposing the order for possible price improvement.
In one aspect, the instant invention provides a method and system
for automatic execution of a securitieseorder on a securities exchange. A
current
bid or offer price for the security is determined and at least a portion of
the order
is automatically executed at the bid or offer price, without exposing the
order for
possible price improvement.
In one aspect, the instant invention provides a method and system
for processing a securities order on a securities exchange. A securities order
with
an indicator requesting automatic execution and a price of the order is
received
and compared to a quote. If the price of the order is not equal to or better
than the
quote, the status of the order is changed from automatic execution to regular
execution.
In one aspect, the instant invention provides a method and system
for processing a securities order on a securities exchange. A securities order
with
an indicator requesting automatic execution and a size of the order is
received, and
is compared to a respective interest in the security. If the size of the order
is
greater than the interest, the status of at least a portion of the order is
changed
from automatic execution to regular execution.
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In one aspect, the instant invention provides a method and system
for automatic execution of a securities-order on a securities exchange with an
auction market crowd. A securities order with an indicator requesting
automatic
execution and a price of the order is received, and compared to a quote. If
the
price is equal to or better than the quote, at least a portion of the order is
automatically executed without exposing the order to the auction market crowd
for possible price improvement.
In one aspect, the instant invention provides a method and system
for submitting a securities order for automatic execution on a securities
exchange
with an auction market crowd. A securities order is identified for automatic
execution, and transmitted to the securities exchange for at least partial
automatic
execution at a quote price. Automatic execution provides for execution without
exposure to the auction market crowd for possible price improvement.
In one aspect, the instant invention provides a method and system
for execution of a securities transaction on a securities exchange with an
auction
market crowd. A parity divisor is determined and the securities transaction is
executed, with a contra side for the transaction selected according to the
parity
divisor.
In one aspect, the instant invention provides a method and system
for automatic execution of a securities transaction on a securities exchange
with
an auction market crowd. A quote is automatically updated according to the
automatic execution.
In the above aspects of the instant invention, a securities order is
automatically executed against a quote, providing shorter order execution
times,
and execution at a known price. These aspects are balanced against longer
order
execution times and possible price improvement when the order is exposed to
the
floor of the securities exchange without automatic execution.
The foregoing specific aspects and advantages of the invention are
illustrative of those which can be achieved by the present invention and are
not
intended to be exhaustive or limiting of the possible advantages that can be
realized. Thus, the aspects and advantages of this invention will be apparent
from
the description herein or can be learned from practicing the invention, both
as
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embodied herein or as modified in view of any variations which may be apparent
to those skilled in the art. Accordingly the present invention resides in the
novel
parts, constructions, arrangements, combinations and improvements herein shown
and described.
BRIEF DESCRIPTION OF THE DRAWINGS
The foregoing features and other aspects of the invention are
explained in the following description taken in conjunction with the
accompanying figures wherein:
FIG. 1 illustrates an embodiment of a system according to the
instant invention;
FIG. 2 illustrates a method without the instant invention;
FIG. 3 illustrates an embodiment of a method according to the
instant invention;
FIG. 4 illustrates an embodiment of a method according to the
instant invention;
FIG. 5 illustrates an embodiment of a method according to the
instant invention;
FIG. 6 illustrates an embodiment of a display book according to the
instant invention; and
FIGS. 7 - 19 illustrate example transactions using various
embodiments according to the instant invention.
It is understood that the drawings are for illustration only and are
not limiting.
DETAILED DESCRIPTION OF THE DRAWINGS
The system and method of the invention are appropriate for use in a
Securities Exchange setting, and particularly an exchange with a floor auction
market, such as the New York Stock Exchange (NYSE); the American Stock
Exchange (AMEX); or the Philadelphia Stock Exchange (PHLX).
In the description that follows, in the interest of clarity, price
information will primarily use decimals rather than fractions. Fractions have
been
the historic measure of.securities price information. However, in the near
future,
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it is believed that most or all securities exchanges will transition to
decimal
pricing and therefore, use of decimals in this description is believed
appropriate.
Before describing the instant invention in detail, it is helpful to
understand a typical securities transaction, as it might be handled by an
exchange.
The example below will describe a transaction on the New York Stock Exchange,
Inc. (NYSE). For a more detailed understanding of all of the rules and
procedures
of the NYSE, a person or ordinary skill would know to refer to New York Stock
Exchange GUIDE, Commerce Clearing House (1984 with updates), the disclosure
of which is incorporated herein by reference. First, an investor places an
order
with a NYSE Member Broker Firm to buy or sell shares in an NYSE listed
company. The NYSE Member Brokerage Firm checks the customer's account,
provides any requested bid or offer pricing information (i.e., the quote) to
the
investor, and enters order details. The member brokerage firm stores the order
in
its order match system, and then transmits the order to the NYSE trading
floor,
either computer to computer or in some cases by telephone.
At the NYSE, the Common Message Switch/SuperDot
(CMS/SuperDot) safely stores the order and then, based upon the order details
and
programmed parameters, either routes the order to a broker's booth or directly
to
the trading post specialist for the stock.
If the order is routed to the broker's booth, then at the broker's
booth on the Exchange floor, the brokerage firm's clerk receives the order
electronically (on a display screen) or by telephone (and then enters it onto
the
screen). The firm's clerk contacts the firm's floor broker by paging, or by
wireless
telephone, to alert him/her that new orders have arrived. The order may be
wired,
phoned or physically picked up. The brokerage firm's floor broker then
physically
takes the order to the specialist trading post where the stock is traded, and
competes with other brokers in the auction market crowd for the best price for
the
customer and makes the trade.
Alternatively, if the member brokerage firm routes the order to the
trading post specialist for the stock, then at the trading post on the
Exchange floor,
the order appears on the specialist's display book screen, which is an order
management system. Although there may be other orders on the display book that
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could be matched with the new order (if the new order is a limit order), the
specialist exposes all orders received on the display book that are at, better
or
within the current quote to the auction market crowd and makes the trade,
seeking
price improvement for the customer whenever possible.
Regardless of how the order is delivered to the floor, after the
trade, a transaction report is sent to the originating brokerage frm (buying
and
selling). On the NYSE, this type of order and report through SuperDot to the
specialist takes an average 22 seconds to complete.
Once the trade is complete, reports are also sent to Consolidated
Tape Displays world-Wide, and to the clearing operations.
Also after the trade is complete, post trade processing matches
buyers and sellers. This comparison process takes place almost immediately,
and
is followed by a 3-day clearance and settlement cycle at which time transfer
of
ownership (shares for dollars or vice versa) is completed via electronic
record
1 S keeping in the depository.
At the member brokerage firm, after the trade is completed, the
transaction is processed electronically, crediting or debiting the customer's
account for the number of shares bought or sold.
Finally, shortly after the trade is complete, the investor receives a
trade confirmation from his/her member brokerage firm. If shares were
purchased,
the investor submits payment. If shares were sold, the investor's account is
credited with the proceeds. As illustrated in this example, there are a number
of
steps that occur between the time an investor submits an order and the time
the
investor receives a trade confirmation. The instant invention provides an
opportunity to reduce that time by moving some of the steps out of the order
execution cycle, or entirely eliminating certain steps, thereby reducing the
time
between order submission and trade confirmation. These aspects of the
invention
ire provided in greater detail below.
In one embodiment, the instant invention is an automatic order
execution system and method that allows order entry for immediate execution
against the published quote. A member ftrm, or individual investor seeking
speed
of execution for their order designates the order with a suitable instruction,
such as
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"NX". The order size may be limited, for example to 1,099 shares or less for
securities traded in 100 share round lots, and 109 shares or less for
securities
trading in 10 share round lots. The system and method accommodate limit and
market orders, and the order size limits can be changed.
In one embodiment, an "NX" order is entered into CMS by a
member arm for normal order validation before routing the order to SuperDot,
which determines whether the order is eligible for automatic execution (e.g.,
size,
type and terms). If the order is eligible for automatic execution, it is
routed by
SuperDot to the specialist display book, for additional checks and immediate
execution if eligible. If the order is not eligible for automatic execution,
it is
generally changed to a regular order and is treated as any other order on the
display book, if it meets book eligibility requirements. If the order does not
meet
eligibility requirements, it is printed at the specialist post.
In one embodiment, the instant invention runs from the first quote
of the day until one minute before the exchange closes. Automatic execution is
suspended for a number of reasons, including when there is: 1) no quote; 2) a
trading halt; 3) better away market; 4) quote is non-firm; 5) wide spread
between
bid and offer; 6) one minute before closing; and 7) the bid and/or offer is
for 1
round lot (the automatic execution is suspended on the side of the 1 round lot
bid
and/or offer).
In one embodiment, when system 100 receives an eligible order,
and automatic execution is not suspended, the order price is compared to the
published bid or offer. If the order is a limit order and the limit price is
equal to or
better than the corresponding bid or offer (e.g., bid is $10.00, and NX sell
order is
$9.95), then the entire order is automatically executed against the published
bid or
offer if the order size is less than the size of the respective bid or offer
on the
display book. Any unexecuted order quantity is placed on the display book as a
regular limit order.
The entering firm immediately receives an execution confirmation
which will have the system contra of LOC.
In one embodiment, selection of the comparison contra side to the
automatic execution depends on a number of conditions. For example, parity
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divisors set in the display book allow specialist 107 to predetermine the
allocation
of an NX order. While NX orders can be immediately reported against orders in
the book at the bid or offer, specialist 107 must still enter real names after
the NX
order executes when: 1) crowd participation is indicated by the parity
divisor; 2)
there is no stock on the book and the parity divisor calls for book
participation; or
3) the book is not available due to a frozen condition. In each of these
circumstances, specialist 107 must enter real names, such as crowd or system
names. Specialist 107 may be forced to take the other side of an automatic
execution whenever the crowd/book interest is not available.
In one embodiment, system 100 reports NX order executions to
SuperDot, for delivery to the entering firm by CMS.
In one embodiment, an NX execution automatically generates a
new quote. This results in automatic decrementing of the bid or offer quantity
by
the size of the execution. Also, to reduce specialist 107 exposure to stale
quotes,
the quote is automatically updated when book orders that are part of the quote
are
canceled, deleted or dropped. System 100 sends these quotes for publication on
the consolidated tape. NX orders executed according to the invention are
automatically reported to the consolidated tape with a sale condition "E",
which
notes that the transaction was an automatic execution.
In one embodiment, if the display book is frozen, an NX order will
still execute against the published quote. However, such an execution ignores
the
parity divisor and assumes the trade requires real names to be entered later.
In one embodiment, an NX execution automatically generates a
new quote size and reports the trade to the tape, with a notation that the
execution
was automatic.
These various embodiments are explained in greater detail below.
A system of the invention
There are many different possible embodiments for systems of the
present invention, and description of all the different possible embodiments
would
be difficult. Accordingly, an example embodiment, comprising various elements,
is described with the understanding that there are numerous equivalent
elements
and systems. FIG. 1 illustrates an embodiment of a system of the present
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invention. In system 100, buy and sell orders or securities transactions from
customers, individual investors or non-member institutions 109 are sent
through
members of the exchange 101 and are transmitted through the Common Message
Switch (CMS) 103 to the Designated Order Turnaround System (DOT) 105,
which is known on the NYSE as SuperDot, and are thereby routed to the proper
trading floor specialist workstations 107. In system 100, a customer,
individual
investor or non-member institution 109 who wishes to send a buy or sell order
or
securities transaction to the trading floor of the exchange 107 for execution
must
first send their order to an exchange member 101, who in turn submits the
order to
the floor of the exchange 107 using Common Message Switch 103 and SuperDot
105. Though not illustrated in FIG. 1, the exchange and members of the
exchange
have developed a number of procedures with supporting systems to enhance
security, rapid processing of orders, audit trails and accountability.
To accomplish the above-described securities transaction, an
operator at a terminal 120 of a customer, individual investor or non-member
institution 109 enters details of the desired transaction. These details
include the
particular security, whether the transaction is a sell or buy order or
transaction,
and any limits on the order or transaction. The operator or terminal 120
attaches
the identity of customer, individual investor or non-member institution 109,
so
that exchange member 101 will know the origin of the order or transaction.
Once
the order or transaction is complete, the operator forwards the order or
transaction
to exchange member 101, where the order or transaction is processed, stored,
and
forwarded to Common Message Switch 103 for handling by one of the traders or
specialists 107 on the floor of the exchange.
Using the information connections illustrated in FIG. 1, or other
information sources, an individual or non-member institution 109 is also able
to
track the current quote, including the published best bid and offer prices of
securities and interest or size at the respective bid or offer prices. The
quote is the
best bid and offer for the security, and is published on the consolidated
tape. As
an example, if specialist 107 has buy orders for 1,500 shares of a particular
security on the display book at $120.00, with other buy orders at prices less
than
$120.00, the best bid is $120.00. If the specialist also has sell orders for
2,000
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shares of the same security on the display book at $120.15, with other sell
orders
at prices greater than $120.15, the best offer is $120.15. Together, the buy
orders
at $120.00 and sell orders at $120.15 constitute the quote, which is displayed
as:
120.00 120.15
15 20
Here, the bid is in the upper left, the offer is in the upper right and
the respective interest or size, expressed in hundreds of shares, is below
each.
If there are no other orders, none of the buy and sell orders on the
specialist display book will execute because there is no price overlap.
The steps for automated execution or handing of an order or
transaction when it is received by specialist 107 is one aspect of the instant
invention, and will be explained in greater detail elsewhere.
After the order or transaction is executed, the order confirmation
information is forwarded from the floor 107 to the exchange member 101 via
SuperDot 105 and Common Message Switch 103. Exchange member 101 records
the order confirmation information and matches the order with the proper
customer, individual investor or non-member institution 109 and then forwards
the order conftrmation to the customer, individual investor or non-member
institution 109.
In one embodiment, terminals 120, which run computer software
code, are traditional computer workstations, which include a central processor
unit
(CPU) 122, memory 124 (RAM, RQM or both), data storage 126, removable data
storage media 128 and input/output ports 130. These components are
interconnected in terminal 120 by a system/data bus 132. Terminals 120 are
interconnected at non-member institution by a local area network (LAIC, wide
area network (Wale, or other equivalent network 134. The various terminals 120
of non-member institution 109 are electronically linked to members) of the
exchange 101 by appropriate data transmission and reception equipment 136. In
the illustrated embodiment, this includes a transmitter 138 and a receiver
140,
which are configured to exchange data or information between the non-member
institution 109 and the member of the exchange 101.
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Exchange member 101, also has terminals 150, which run
computer software code and which are similar to terminals 120 at the non-
member
institution. Terminals 150 are used by operators at exchange member 101 in
processing orders or securities transactions from customer, individual
investor or
non-member institution 109. Terminals 150 include a central processor unit
(CPU) 152, memory 154 (RAM, ROM or both), data storage 156, removable data
storage media 158 and input/output ports 160. These components are
interconnected in terminal 150 by a system/data bus 162. Terminals 150 are
interconnected at exchange member by a local area network (LAl~, wide area
network (WAIF or other equivalent network 164.
The various terminals 150 of exchange member 101 are
electronically linked to customer, individual investor or non-member
institution
109 by appropriate data transmission and reception equipment 166. In the
illustrated embodiment, this includes a transmitter 170 and a receiver 168,
which
are configured to exchange data or information between the exchange member
101 and the non-member institution 109.
Exchange member 101 also includes electronic links to the
Common Message Switch 103 of the exchange by appropriate data transmission
and reception equipment 180. This includes a transmitter 182 and a receiver
184,
which are configured to exchange data or information between exchange member
101 and similar data transmission and reception equipment 186 of Common
Message Switch 103. In one exchange, the data transmission and reception
equipment 186 are termed a Common Access Point (CAP), providing a
standardized set of access protocols for the electronic connection of
different
entities to the exchange.
In FIG. l, transmitters 138, 170, 182 and receivers 140, 168, 184
are illustrated as separate pieces of equipment. However, the state of data
transmission equipment is such that a single piece of equipment may typically
perform both transmission and reception functions using a common media, such
as coaxial cable, fiber optic cable or twisted pair wiring. In this
configuration, it
may be difficult to separate a transmitter from a receiver. The equipment or
device may be a single piece of equipment performing both functions. However,
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depending on the data exchange format and media it is also possible that there
are
separate transmitters and receivers, such as for satellite, microwave or
infrared.
In FIG. 1, it is also understood that there are non-illustrated
elements of exchange member 101, customer, individual investor or non-member
institution 109, Common Message Switch 103, SuperDot 105 and floor
workstation 107. It is further understood that multiple customers, individual
investors or non-member institutions may be connected to a single exchange
member, and the multiple exchange members are connected to Common Message
Switch 103. It is also possible a customer, individual investor or non-member
1.0 institution has connections to more than one exchange member. It is also
possible
that an exchange member has connections to more than one exchange. It is
further possible that different exchanges have connections with each other.
As indicated above, Common Access Point 186 is a state of the art
communications infrastructure that serves as a universal bridge between the
I 5 NYSE's business services and the networks of NYSE members, sponsored non-
members (e.g., institutions, brokersldealers, and individual investors), and
vendors. Common Access Point is designed to simplify member firm access to a
variety of NYSE systems and services using industry-standard protocols and
structured data formats. Also, the design of Common Access Point enables
20 member firms to access NYSE business services while maintaining the
security
and operational integrity of NYSE systems and networks. Common Access Point
supports (a) multiple types of connections through multiple providers, (b)
multiple
types of sessions, and (c) multiple messaging standards over a common
Transmission Control Protocol/Internet Protocol (TCP/IP) network.
25 Order information flowing to and from the NYSE is supported in
the Floor Communication Standard (FCS) message format traditionally used by
the NYSE or in the industry-standard Financial Information eXchange (FIX)
message format. Other formats are supported as they become widely accepted
and utilized in the securities industry.
30 Common Access Point authenticates incoming connections from
hosts, secure sessions and individual users. It also provides appropriate data
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confidentiality, and ensures the integrity of NYSE systems against external
threats.
Member firms can choose to connect to Common Access Point
either directly, through a financial service bureau, through a public extranet
provider, or through an Internet service provider (ISP), depending upon their
needs. Depending on the access method, a variety of physical connection types
are supported, ranging from dial-up (via third parties) to 155 Mbps circuits.
When
the member firm's business requirements warrant it, a member firm can run
multiple NYSE business services over a single physical connection. Common
Access Point is reachable at two sites, and redundant paths from multiple
member
firm lines or sites are available in order to maintain the high standards of
availability member firms have come to expect from the NYSE.
The information carried in a messaging format such as FIX is
conveyed to the NYSE via a "session-layer" protocol that then uses TCP and IP
to
1 S deliver the data. Common Access Point supports a number of session
protocols to
meet a range of potential needs. These session protocols are used to provide
security services and a measure of standardization between the network and the
application.
The role of the Comriion Message Switch (CMS) 103 is to receive,
validate and pass orders and administrative messages received from member
firms
to other NYSE systems. In addition, CMS sends Execution Reports, responses to
administrative messages, and Status messages back to the member firms.
The Common Message Switch (CMS) connects to each member
firm via Common Access Point (CAP) and lines that handle all of the traffic to
and from the NYSE. This ensures that the traffic to and from the member firms
is
kept private and isolated from any interference. The line can be defined for
use by
a single mnemonic, or for additional mnemonics where order flow needs to be
segregated.
Without the instant invention, for all round lot trades on a securities
exchange with both auction market crowd and electronic order handling (e.g.,
the
NYSE, the AMEX or the PHLX), even if the trade is received electronically on
the specialist display book, the transaction or trade is always completed
after
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exposing the transaction to the auction crowd on the trading floor, where the
trade
may experience price improvement. This applies to limit buy and sell orders,
as
well as market buy and sell orders.
One difference between market and limit orders without the instant
invention is that with a limit order exposed to the auction crowd on the
trading
floor, the transaction will not execute at a price that is "worse" than the
limit price,
but with price improvement, it can execute at a "better" price than the limit
price.
For a market order, the order executes ~at the market price, which is
established by
the floor auction.
To assist traders in the floor auction, a market specialist keeps track
of and publishes a current best bid and offer (the quote) for the security.
The bid
reflects the best price that a party will pay to purchase the security, while
the offer
reflects the best price that a party will accept in a sale of the security.
The
difference between the bid and offer is called the spread, and under this
arrangement, the offer is always greater than the bid. The specialist, in her
role as
market maker, keeps the spread small by supplying interest (both price and
size)
on the opposite side of the quote where there is not sufficient interest. This
helps
to maintain the market. As the bid and offer change, the specialist constantly
updates the quote and publishes the update on the consolidated tape, so that a
current quote is available to investors during the time that the market is
open.
Associated with the best bid and offer is a respective interest in the
security or size. Although the interest~may exist in incremental units of
stock (i.e.,
odd lots or mixed lots), the interest is typically expressed in round lots of
100
shares, or blocks of 10,000 shares. In the same way that the specialist
updates the
bid and offer, she also constantly updates and publishes the respective
interest on
the consolidated tape.
FIG. 2 illustrates an embodiment of a method for executing
securities transactions without the instant invention. At step 201, customer,
individual investor, or non-member institution 109, selects the security for
the
transaction and generates a limit order for the securities transaction. The
limit
order includes information such as the particular security, the number of
shares,
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the limit price, whether the transaction-is a buy or sell order and any time
limits
for the order.
At step 203, customer, individual investor or non-member
institution 109 sends the limit order to their broker/dealer for execution.
The
broker/dealer, who is a member of the securities exchange and therefore has
exchange privileges, receives the order and ensures that it is satisfactory.
This
check includes verification that the customer has an account, that any credit
requirements are satisfied and that the security is actually trading.
At step 205, broker/dealer 101 forwards the limit order to market
specialist 107 on the exchange .floor, via CMS/SuperDot.
At step 207, the limit order is automatically entered on the
specialist display book. If the limit price of the buy order for that
particular
security is priced equal to or greater than the offer, or the transaction is a
sell
order, which is priced equal to or less than the bid, the market specialist
exposes
the order to the floor for possible price improvement. Otherwise, if the limit
price
is outside the quote for that particular security, the order remains on the
book until
it is at or better than the quote, or otherwise expires.
At step 209, once the order is exposed to the auction market for
price improvement, it will execute according to the floor auction. As a
result, if
price improvement is available, the limit order will execute at a price that
is
"better" than the limit price. Otherwise, if price improvement is not
available and
assuming that the limit price is still available on the floor or in the book,
the
transaction will execute at the limit price.
Though not illustrated in FIG. 2, there are additional steps involved
in reconciling the securities transaction, such as identifying the contra side
for the
transaction, and reporting the order execution price and contra side of the
transaction. It should be noted, that for every order or securities
transaction that is
executed on the floor, there is a corresponding contra side.
It should be noted, that for some odd lot trades, there is an aspect of
automatic execution on the NYSE. For these trades, market orders are executed
off the National Best Bid or Offer (NBBO), while limit orders are executed off
the
NYSE last sale. However, for odd lot trades, the opposite side is the
specialist.
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A method of the invention
FIG. 3 illustrates an embodiment of the method of the invention.
In this embodiment, at step 301, customer, individual investor or non-member
institution 109 creates a limit order. This limit order is similar to the
limit order
S described with reference to step 201 of FIG. 2, but in addition, the
customer also
reviews the current quote (the bid and the offer) for that particular security
and
uses that quote information to set the limit price of the transaction. For
example,
if the best bid is $120.00 for 1,500 shares, and the best offer is 2,000
shares at
$120.15. °The quote is: ~ '
120.00 ~ 120.15
15 20
If the customer wants to sell the particular security, they must set
the limit price for their sell order at or better than the bid, which is
therefore
$120.00 or Iess. In this way, the customer's sell order can take advantage of
a
trade at the current quote, assuming that the customer is willing to forego
the
opportunity for price improvement. Likewise, i~ the customer wants to buy the
particular security, they must set the limit price for their buy order at or
better than
the current offer, which is therefore $120.15 or more. Also different from
step
201 of FIG. 2, the customer indicates their desire for automatic execution
(without
the opportunity for price improvement) by designating the transaction "NX",
for
automatic execution. This signals to the broker/dealer and the exchange that
the
customer wants the order automatically executed without exposure to the
auction
market for possible price improvement.
In many embodiments, the customer or broker/dealer will have a
real-time quote stream and will use that quote stream in setting the limit
price for
the transaction at step 301 at or better than the quote for the particular
security.
However, it is also possible that the customer will set the limit price
without
knowledge of or access to a real-time quote stream. In this situation, if the
limit
price for the transaction is at or better than the quote, the transaction can
automatically execute at the quote, and if not, it will not automatically
execute, as
discussed in greater detail below.
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Once customer, individual investor or non-member institution 109
has created the limit order and designated the order as NX, for automatic
execute,
then at step 303, the limit order is forwarded to the broker/dealer 101. The
method used to forward the order may include electronic, voice or in person.
At step 305, broker/dealer 101 reviews the limit order, checking for
errors and verifying any customer credit requirements. The broker/dealer also
notes that the limit order is marked NX and may therefore handle it in a more
expeditious manner to enhance the timeliness of the transaction. Once any
required checks are completed, the broker/dealer forwards the transaction to
the
market specialist 107 via CMS/SuperDot, with the destination being the market
specialist display book.
Although FIG. 3 illustrates customer 109 designating the order as
NX at step 301, it is also possible that broker/dealer 101 designates the
order as
NX at step 305. This may be to expedite the order, or because it is easier for
broker/dealer 101 to make the designation than customer 109.
At step 307, system 100 of the invention receives the transaction
and the indication for automatic execution (NX) is noted.
At step 309, system 100 of the invention performs a number of
checks to see if automatic execution is available. These checks are discussed
elsewhere with reference to FIGS. 4 and 5. System 100 also checks to ensure
that
the limit price of the transaction is at or better than the quote for that
particular
security to ensure that the order can be automatically executed. For example,
as
discussed above, if the transaction is a limit sell order with a price of
$119.95, and
the current bid is $120.00, system 100 can automatically process the
transaction at
the bid of $120.00. However, it is possible that the quote has changed in the
time
interval between the customer creating the limit order and receipt of the
limit
order on the display book. So, if the bid is no longer $120.00, because there
are
no longer any buy orders on the book at prices of $120.00 or less, and the
best bid
is now $119.80, system 100 is unable to automatically execute the customer's
limit
sell order against the quote ($119.80) at the price of $119.95. In this case,
at step
311, system 100 changes the limit order from automatic execute to a regular
limit
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order and the order is handled as it would be handled without the instant
invention.
If, however, the price of the order is at or better than the quote,
then at step 313, system 100 automatically executes the order against the
current
quote. The automatic execution, and price of execution, is reported to
customer,
individual investor or non-member institution 109, via SuperDot/CMS 105, 103
and broker/dealer 101. In this way, the customer knows very quickly that the
transaction was executed and the execution price of the transaction.
Because the transaction is executed against the quote, and not
against a particular contra side, a particular contra side is not necessarily
identified
at step 313 when the transaction is automatically executed. Therefore, system
100
may still need to perform this step. Thus, at step 315, system 100 completes
the
steps required to fill the order and identify the contra side.
In one embodiment, the steps for identifying the contra side include
use of a parity divisor.
The parity divisor is used by system 100 to determine how to
allocate an NX order when it is automatically executed in accordance with NYSE
Rule 72, which governs priority, parity and precedence within a trade crowd.
The
divisor is a numeric code that a display book user, typically specialist 107,
enters
for both the bid and offer side. The divisor indicates how system 100 will
assign
contra sides to an automatically executed NX order. Each stock in a display
book
has its own parity divisor settings.
In one embodiment, there are six options fox the parity divisor,
ranging from zero (0) to five (5). They are: 0) crowd only, no display book;
1)
display book is allocated 100%; 2) display book is allocated 50%, the balance
requires real names; 3) display book is allocated 33%, the balance requires
real
names; 4) display book is allocated 25%, the balance requires real names; and
5)
display book is allocated 20%, the balance requires real names.
For each automatic execution, the quantity allocated to the display
book is determined by the following formula, as long as the divisor is greater
than
zero. ExecutionQuantitylnRoundLots
AllocatedBOOK = Roundup
ParityDivisor
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where, Roundup is taking any number with a fractional portion and
rounding up to the next whole number, that is round lot. For example,
2.000000001 is rounded up to 3.
Of course, when the parity divisor is zero (0), the amount allocated
to display book is zero.
At the beginning of the day, the parity divisors on both the bid and
offer side default to one (1). This includes any time a stock is down-line
loaded,
such as during a recovery or a stock move.
When the display book.is frozen (either explicitly via the freeze
key, or implicitly by displaying a template that freezes the book), the parity
divisors for both the bid and offer side are implicitly set to zero for the
duration of
the freeze. However, this does not change the actual status of the parity
divisor as
set by the specialist. When the freeze is removed, the parity divisors set by
the
specialist are used for subsequent transactions.
If, as a result of an NX execution, tick-sensitive orders are filed at a
price that is better than the quote, the parity divisor is set to zero
temporarily.
This state is removed by a specialist execution, refiling or quote. In this
state, if
there is another execution at the published (old) quote, the display book will
refile
tick-sensitive orders as of the previous filing date and time.
In one embodiment, the contra side is selected entirely from the
orders that are in the specialists display book, which corresponds to a parity
divisor of one (1). This contra side selection is automatic using software
that
supports the specialist book. The execution report is always immediately sent
back to the entering firm. The trade comparison information will be delayed if
the
contra is NX (real names required).
In another embodiment the contra side is selected entirely from the
floor or by the specialist, filling the order in their role as a market maker,
with the
order filled according to the quote and the existing interest from the floor.
In this
manner, traders on the floor also have an opportunity to fill the order at the
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execution price. This corresponds to a parity divisor of zero (0). For an NX
order, this is done without price improvement.
In another embodiment, the contra side is selected from a
combination of the display book, floor or specialist. This corresponds to
parity
divisors of 2, 3, 4, or 5. This may involve dividing the order into multiple
groups
with some groups filled from the book, some groups filled from the floor and
some groups filled by the specialist. Of course there are multiple other
variations
available. The variation used to satisfy the contra side rnay be according to
the
auction market principles of priority and parity, as codified in NYSE Rule 72,
the
disclosure of which is incorporated herein by reference.
Once the contra side or sides are identified, then at step 317,
system 100 updates the "names later" for any required securities transaction
to
include the actual real name information on the contra side or sides. In this
way,
system 100 is able to finish the transaction by having an identity of a
particular
contra side for the transaction, to complete the order and transaction
reconciliation
that is required at the end of the trading day.
Not illustrated in FIG. 3 are the steps for transaction or order
confirmation, audit and order reconciliation. In the order or transaction
confirmation process the executed transaction information is sent from the
exchange floor 107 to customer, individual investor or non-member institution
109. The confirmation steps are somewhat a reverse of the order steps and
involve sending the confirmation from the exchange floor 107 through SuperDot
105 and CMS 103 to the exchange member 101, where the order is forwarded to
customer, individual investor or non-member institution 109.
Also not illustrated in FIG. 3 are steps whereby the automatic
execution is not available, such as lack of a Finn published price or quote
for the
security, an automatic execution order received before a published price or
quote
is available, a gap in the published quotation because of an influx of orders
on one
side of the market, the published price or quote is 100 share size, a trading
halt for
the security, the order size is outside 100 to 1,099 shares, or the order is
received
after an end of trading day cut-off (e.g:, after 3:59:00 p.m.). According to
NYSE
rules, automatic execution may not be available if the individual submitting
the
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transaction has too many orders within a certain time (e.g., two orders for
the
same security received from the same party within a 30 second interval). It is
also
possible that part of the order can be executed according to the automatic
execution described above and that part can not be executed according to the
automatic execution.
In one embodiment, the size of an order identified for automatic
execution must be 1,099 shares or less.
In one embodiment, the size (or interest) of the quote, either bid or
offer, must be greater than 100 shares (one round lot).
In other embodiments, automatic execution is not available if: 1)
the published quotation is a non-firm quotation (e.g., the NYSE published
quotation is a non-firm quotation); 2) the published quotation has been gapped
for
a brief period because of an influx of orders on one side of the market, and
the
size of the published quotation is 100 shares at the bid and/or offer; 3) a
better
price exists in another participating market center for a single-sided order
identified for automatic execution; 4) the published bid or offer is 100
shares; 5) a
transaction outside the published quotation is being completed; or 6) trading
in the
security has been halted.
Some of these other aspects and embodiments of the instant
invention are illustrated with reference to FIG. 4. At step 402, SuperDot 105
receives an order from CMS 103.
At step 404, system 100 determines whether the order is designated
as an NX order, thereby requesting automatic execution against the quote. If
the
order is not designated as an NX order, at step 406, system 100 performs other
normal validation procedures on the order, and the order is passed to the
display
book.
If the order is designated NX, then at step 40~, system 100
determines whether the order is a market order. If the order is a market
order,
then at step 410, system 100 determines whether NX market orders are being
accepted. This is because in one embodiment, system 100 accepts limit NX
orders, but does not accept market NX orders. In another embodiment, system
100 accepts both limit NX orders and market NX orders. If system 100 is not
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accepting market NX orders, then at step 412, system 100 marks the order as
NXX in the Try To Stop (TTS) field on line 3A, and then at step 406, system
100
performs other normal validation steps and passes the order to the display
book.
If the order is a market NX order and system I00 is accepting
market NX orders, then at step 414, system 100 determines whether the order
size
is greater than 1,099 shares. If the order size is greater than 1,099, then at
step
416, system 100 determines whether the order originated at a booth routing
firm.
If the order originated at a booth routing firm, then at step 412, system 100
marks
the order as NXX in the TTS field on line 3A, and then at step 406, system 100
performs other normal validation steps and passes the order to the display
book.
If the order did not originate at a booth routing firm, then at step
418, the order is rejected outright. This is one of the few circumstances
under the
instant invention where an order is rejected, and not handled in some other
manner.
If the order size is 1,099 shares or less, then at step 420, system
100 determines whether the global NX flag is on. If the global flag is not on,
then
at step 412, system 100 marks the order as N~~X in the TTS field on line 3A,
and
then at step 406, system I00 performs other normal validation steps and passes
the
order to the display book.
If the global NX flag is on, then at step 422, system 100 determines
whether the NX flag for the particular stock is on. If the stock NX flag is
not on,
then at step 424, system 100 marks the order in the TTS field on line 3A as
NXX,
and then at step 406, system 100 performs other normal validation steps and
passes the order to the display book.
SuperDot checks if it is a market order with the market order flag
set to On. If no, system 100 appends NXX, if yes, system 100 appends NX.
If the NX flag for the particular stock is on, then at step 426,
system 100 determines whether the display book version flag is ok for IVX
orders.
If the display book version flag is not ok, then at step 424, system 100 marks
the
order in the TTS field on line 3A as NXX, and then at step 406, system 100
performs other normal validation steps and passes the order to the display
book.
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In one embodiment, the test steps described with reference to FIG.
4, are performed by SuperDot. Once SuperDot has completed those tests, the
order is passed to the display book, where additional test steps are performed
before the order is automatically executed.
Refernng to FIG. 5, the test steps performed by the display book in
one embodiment are illustrated. At step 502, the display book of system 100
receives the order from SuperDot.
At step 504, system 100 determines whether the market is open and
the time is before 3:59:00 p.m. If the market is not open, or the time is
after
3:59:00 p.m., then at step 506, system 100 changes the order to a non-NX
order,
and at step 508 enters the order on the display book for normal execution.
If the market is open and the time is before 3:59:00, then at step
510, system 100 determines whether there is a quote for the security. If there
is no
quote, then at step 506, system 100 changes the order to a non-NX order, and
at
step 508 enters the order on the display book for normal execution.
If there is a quote, then at step 512, system 100 determines whether
the current quote is a "firm" quote. A ftrm quote is a quote by the securities
exchange where the order is being presented for execution. This avoids auto
execution against a quote from another exchange. If the current quote is not
"firm", then at step 506, system 100 enters the order on the display book for
normal execution.
If the quote is "firm", then at step 514, system 100 determines
whether the published quote is for more than one round lot. If the quote is
not for
more than one round lot, then at step 506, system 100 enters the order on the
display book for normal execution.
If the quote is for more than one round lot, then at step 516, system
100 determines whether there is a better Intermarket Trading System (ITS) bid
or
offer. If there is a better ITS bid or offer, then at step 506, system 100
enters the
order on the display book for normal execution.
If there is no better ITS bid or offer, then at step 518, system 100
determines whether there is a trading halt for the security. If there is a
trading
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halt, then at step 506, system 100 enters the order on the display book for
normal
execution.
If there is no trading halt, then at step 520 system 100 determines
whether the quote is more than $2.00 above or below the display book last sale
for
non-high-priced stocks, or more than $10.00 above or below the display book
last
sale for high-priced stocks. If there is a quote that is more than $2.00 above
or
below the display book last sale for non-high-priced stocks, or more than
$10.00
above or below the display book last sale for high-priced stocks, then at step
506,
system 100 enters the order on the display book for normal execution.
If the quote is less than $2.00 above or below the display book last
sale for non-high-priced stocks, or less than $10.00 above or below the
display
book last sale for high-priced stocks, then at step 522, system 100 determines
whether the TTS field on line 3A is marked NX, (not NXX). If the TTS field on
line 3A is not IVX, then at step 506, system 100 enters the order on the
display
book for normal execution.
If the TTS field on line 3A is NX, then at step 528, system 100
determines whether the order is a buy order. If it is a buy order, then at
step 530,
system 100 determines whether the order price is equal to or better than the
offer.
If the order price is equal to or better than the offer, then at step 532,
system 100
automatically executes the order at the respective quote.
If the order is a sell order, then at step 534, system 100 determines
whether the order price is equal to or better than the bid. If the order is
equal to or
better than the bid, then at step 532, system 100 automatically executes the
order
at the respective quote.
If system 100 determines at steps 530 or 534 that the order is not
equal to or better than either the offer or bid, then at step 536, system 100
changes
the NX order to a regular limit order, and at step 508 enters the order on the
display book for normal execution.
The steps illustrated in FIG. 4 and most of FIG. 5 up to automatic
execution are performed for each NX order before the order is considered
qualified and eligible for automatic execution.
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It is helpful to understand what the display book looks like to the
specialist. Accordingly, FIG. 6 provides an example of a display book screen
600
. The specialist handles a number of different securities on the same display
book
screen. In FIG. 6, these different securities are represented by the symbols
BAA
(602), BAB (604), BAC (606), BAD (60~) & BAE (610). As illustrated, the
specialist may configure the display with different size windows for
individual
securities. In the illustration, the security BAB (604) is illustrated in a
larger
active window, which helps to illustrate some of the different aspects of the
invention. For example, the identity of the security is provided, in addition
to the
current quote (612). The quote is 39.14 bid for 7,500 shares (here the display
book is using fractions rather than decimals), and 1,500 shares offered at
40.02.
Below the security identity and quote, the current orders on the
book are displayed in a sorted order (614) from highest price at the top to
lowest
price. In the illustration, the bid for 7,500 shares at 39.14 is all from
limit
orders) (LMT), and the offer of 1,500 shares at 40.02 is also from limit
orders)
(LMT) of 1,400 shares at 40.02 and 100 shares from crowd interest or possibly
the
specialist at 40.02. If there were any market orders, they would appear at
(616).
To help illustrate how different circumstances are handled by the
instant invention, the following examples are provided. All of the examples
use
the security BAG, and although aspects of the instant invention are described
with
decimal pricing in other sections, the examples below use fractional pricing.
I. E~~AMPLE 1
Refernng to FIG. 7, a normal execution against the display book is
illustrated. In this example, the stock is BAG (702), and the published quote
is the
same as the display book quote (704) (no crowd). As illustrated in FIG. 7A,
the
quoted market is 32.00 bid for 2,000 shares and 5,000 shares offered at 32.01,
which is displayed as:
32.00 32.01
20 50
As illustrated in FIG. 7A, the parity divisors on the bid (710) and
offer (712) side are both 1 (meaning all book), and the book is not frozen.
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In FIG. 7B, the display book consists of the following orders, in
effective sequence (and expressed in round lots):
2 DOT (for Designated Order Turnaround, representing an
electronically submitted market order)
8 LMT (at 32.00) (representing an electronically submitted regular
limit order)
6 DOT
12 LMT (at 32.00)
On the display book, the two market orders (2 DOT and 6 DOT)
are identified at 706 & 708, while the 8 LMT and 12 LMT at 32.00 are
identifted
at 714.
With the display book and market in the condition illustrated in
FIG. 7B, an investor submits an NX limit order to sell 1,000 shares at 32.00.
This
order is submitted through CMS and SuperDot with an indicator requesting
automatic execution (N~. Before the NX order arrives at the display book it is
processed according to FIG. 4, and after it arrives at the display book it is
processed according to FIG. 5.
Because the order is at or better than the quote, and the bid quote
size is sufficient to cover the NX sell order of 1,000 shares, for NX
execution
report processing, system 100 reports 1,000 shares of NX order sold to
SuperDot
for delivery to the entering firm via CMS. NX is appended to the execution
report, and the give up is 2 DOT, 8 LMT.
The contra side allocation proceeds according to their priority in
time and price, so the first allocation is to the 2 DOT (200 shares at the
market),
and the balance (800 shares) of the 1,000 share order is to the 8 LMT (800
shares).
Since the NX limit order was for 1,000 shares, that is aII that needs to be
allocated. Thus, for contra execution report processing, system 100 reports
200
shares of DOT and 800 shares of LMT bought to SuperDot for delivery to the
entering ftrm via CMS. The give up is 2 DOT and 8 LMT.
For Market Data System (MDS) trade reporting, system 100
reports the trade with "E" indicator appended, and the report is sent to MDS
(1,000 traded at 32.00).
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For MDS quote reporting, the quote is automatically updated and
published (market 32.00 bid for 1,000 shares and 5,000 shares offered at
32.01)
with NX autoquote indicator for surveillance use only, which is displayed as:
32.00 32.01
50
5 The display book window is updated as illustrated in FIG. 7C, with
the limit side 716 of the book reduced by 800 shares from 2,000 shares to
1,200
shares. The last sale and tick are updated, and the bid quote size is reduced
by
1,000 shares to 1,000 by autoquote. Because the order was all against the book
there is no requirement to provide real names. The specialist must manually
10 update the quote to reflect book interest.
II. EXAMPLE 2
Referring to FIG. 8, an NX execution against the crowd, with no
orders on the display book is illustrated. In this example, there are no
eligible bid
orders at 32.00 on the book, and the published,bid is all crowd. The market is
32.00 bid for 20,000 shares and 5,000 shares offered at 32.01, which is
displayed
as:
32.00 32.01
200 50
The parity divisors on the bid (802) and offer (804) sides are both 1
(meaning all book), and the book is not frozen.
With the display book and market in the condition illustrated in
FIG. 8B, the investor submits an NX limit sell order for 1,000 shares at
32.00.
This order is submitted through CMS and SuperDot with an indicator requesting
automatic execution (NX). The NX order is processed as described above with
reference to FIGS. 4 and 5.
Because the order is at or better than the quote, and the bid quote
size is sufficient to cover the NX sell order of 1,000 shares, for NX
execution
report processing, system 100 reports 1,000 shares of NX order sold to
SuperDot
for delivery to the entering firm via CMS. NX is appended to the execution
report, and the give up is 10 NX.
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There is no contra execution report processing because the trade is
against NX.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (1,000 traded at 32.00).
For MDS quote reporting, the quote is automatically updated and
published (market 32.00 bid for 19,000 shares and 5,000 shares offered at
32.01)
with NX autoquote indicator for surveillance use only, which is displayed as:
32.00 32.01
190 50
The display book window is updated as illustrated in FIG. 8C.
Because the order was not against the book, the limit side of the book is
unchanged. The last sale and tick are updated, and the bid quote size (806) is
reduced by 1,000 shares by autoquote. Because the order was all against the
crowd and the give up was NX, specialist 107 must provide real names.
Referring to FIG. 8D, the left side of the real names template
shows NX Sold, the right side is blank, and the price (808) defaults to 32.00,
with
NX defaults to 1,000 shares (810). Specialist 107 enters contra side
quantities
(812), names (814), and (optional) badge numbers (816). When all 1,000 shares
are allocated, the template shows 0 shares (818) remaining to be assigned and
specialist 107 presses either the smart report key, or done key.
The display book sends a real names administrative message to
SuperDot, modifying the original trade with the needed names.
III. EXAMPLE 3
Refernng to FIG. 9, an NX execution with distribution between the
book and crowd is illustrated. In this example, the stock is BAG (902), the
published quote (904) is both book and crowd on the bid side. The market is
32.00 bid for 221,000 shares and 5,000 shares offered at 32.01, which is
displayed
as:
32.00 ~ 32.01
221 50
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The parity divisor on the bid side (906) is 4 (meaning 25% to the
book and 75% to the crowd) , and on the offer side (908) is 1 (meaning all
book).
The book is not frozen.
With the display book and market in the condition illustrated in
FIG. 9B, the investor submits an NX limit sell order for 800 shares at 32.00.
This
order is submitted through CMS and SuperDot with an indicator requesting
automatic execution (NX). The NX order is processed as described above with
reference to FIGS. 4 and 5.
Because the order is at or better than the quote, and the bid quote
size is sufficient to cover the NX sell order of 800 shares, for NX execution
report
processing, system 100 reports 800 shares of NX order sold to SuperDot for
delivery to the entering firm via CMS.. NX is appended to the execution
report,
and the give up is 2 LMT, 6 NX (25% of 800 shares = 200 shares to the book,
75% of 800 shares = 600 shares to the crowd).
For contra execution report processing, system 100 reports 200
shares bought to SuperDot via CMS, with the give up 2 LMT.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (800 traded at 32.00).
For MDS quote reporting, the quote is automatically updated and
published (market 32.00 bid for 21,300 shares and 5,000 shares offered at
32.01)
with NX autoquote indicator for surveillance use only, which is displayed as:
32.00 ~ 32.01
213 50
The display book window is updated as illustrated in FIG. 9C. The
limit side of the book (910) is reduced by 200 shares (from 4,000 to 3,800).
The
last sale and tick are updated, and the bid quote size is reduced by 800
shares by
autoquote. Because a portion of the order was against the crowd, specialist
107
must provide real names.
Referring to FIG. 9D, the real names template shows NX Sold, the
right side is blank, and the price defaults to 32.00 (912), with NX defaults
to 600
shares (914). Specialist 107 must enter contra side quantities, names, and .
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(optional) badge numbers. Although 600 shares to book are initially displayed,
as
illustrated in FIG. 9E, when all 600 shares are allocated to real names, the
600
shares book goes gray and the template shows 0 remaining to be assigned.
Specialist 107 presses either the smart~report key, or done key.
The display book sends a real names administrative message to
SuperDot, modifying the trade with the needed names.
IV. EXAMPLE 4
Refernng to FIG. 10, a partial NX execution, with remainder
placed on the book and quote reduction is illustrated. The published quote is
all
book, there is no crowd interest. The market is 31.14 bid for 200 shares and
5,000
shares offered at 32.01, which is displayed as:
31.14 32.01
2 50
The parity divisors on the bid and offer sides are both 1 (meaning
all book), and the book is not frozen.
1 S With the display book and market in the condition illustrated in
FIG. 10B, the investor submits an NX limit sell order for 1,000 shares at
31.14.
This order is submitted through CMS and SuperDot with an indicator requesting
automatic execution (NX). The NX order is processed as described above with
reference to FIGS. 4 and 5.
Although the order is at or better than the quote, the bid quote size
is only 200 shares. Therefore, the remaining 800 shares of the 1,000 share
order
are placed as regular limit orders to sell at 31.14. For NX execution report
processing, system 100 reports 200 shares of NX order sold to SuperDot for
delivery to the entering hrm via CMS. NX is appended to the execution report,
and the give up is 2 LMT.
For contra execution report processing, system 100 reports 200
shares bought to SuperDot for delivery to the entering firm via CMS, with the
give up 2 LMT.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (200 traded at 31.14).
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For MDS quote reporCing, the quote is automatically updated and
published (market 31.14 bid for 100 shares and 5,000 shares offered at 32.01)
with
NX autoquote indicator for surveillance use only, which is displayed as:
31.14 32.01
1 50
The display book window is updated as illustrated in FIG. l OC.
The book at 31.14 shows the limit side of the book (1002) is reduced by 200
shares to zero (0) and the other 800 shares of the sell order added to the
offer side
(1004) at 31.14. The last sale and tick are updated, and the bid quote size is
reduced to the minimum size of 100 shares by autoquote. This has the effect of
freezing the display book on the bid side. The specialist must requote the
stock.
V. EXAMPLE 5
Refernng to FIG. 11, an NX execution under effective sequencing
rules is illustrated. The published quote on the bid side is both book and
crowd.
The market is 31.11 bid for 1,000 shares and 800 shares offered at 31.14,
which is
I S displayed as:
31.11 ~ 31.14
IO 8
The parity divisors on the bid and offer sides are both 1 (meaning
all book), and the book is not frozen.
With the display book in the condition illustrated in FIG. I 1B, the
following limit orders are received in the time sequence shown:
(at 10:04:38) 500 shares to buy at 31.14 (1102), the quote assist
begins, with a message window saying "book paired, no quote";
(at 10:04:39) 500 shares to buy at 31.12 (1104); and
(at 10:04:40) 500 shares to buy at 31.13 (1106).
The display book is updated to the condition illustrated in FIG.
11C, and an investor submits an NX limit sell order for 1,000 shares at 31.08.
This order is submitted through CMS and SuperDot with an indicator requesting
automatic execution (NX). The NX order is processed as described above with
reference to FIGS. 4 and 5.
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Because the NX order is equal to or better than the published
quote, and the bid quote size is sufficient to cover the NX sell order for
1,000
shares, for NX execution report processing, system 100 reports 1,000 shares of
NX order sold at 31.11 to SuperDot for delivery to the entering firm via CMS.
NX is appended to the execution report, and the give up is 10 LMT.
For contra execution report processing, system 100 makes the
following reports:
200 shares (from those on the book at 31.11 (1108)) bought at
31.11 to SuperDot via CMS, with the give up 2 LMT.
500 shares (from those on the book at 31.14 (1102)) bought at
31.11 to SuperDot via CMS, with the give up 5 LMT.
300 shares (from those on the book at 31.12 (I 1.04)) bought at
31.11 to SuperDot via CMS, with the give up 3 LMT.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (1,000 traded at 31.11).
For MDS quote reporting, the quote is automatically updated and
published (market 31.11 bid for 100 shares and 800 shares offered at 31.14)
with
NX autoquote indicator for surveillance use only, which is displayed as:
31.11 311.4
1 8
The display book window is updated as illustrated in FIG. 1 ID.
The bid entry at 31.11 shows the limit side of the book is reduced by 200
shares to
zero and the entire line is removed. The bid side entry at 31.14 (1102) shows
the
limit side of the book reduced by 500 shares and the bid side entry is
eliminated,
leaving the other side. The bid side entry at 31.12 (1104) is reduced by 300
shares
from 500 shares to 200 shares. The bid entry at 31.13 (1106) is unchanged.
The last sale and tick are updated, and the bid quote size (1110) is
reduced to the minimum size of 100 shares by autoquote, suspending NX
executions on the bid side.
The specialist will need to manually requote the stock, as the quote
does not correctly reflect the best bid at 31.13.
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VI. EXAMPLE 6
Referring to FTG. 12, an NX execution with automatic re-filing of
tick sensitive orders with a partial execution is illustrated. The published
quote on
the bid side is all book. The market is 31.00 bid for 400 shares and 5,000
shares
offered at 31.03, which is displayed as:
31.00 31.03
4 50
The parity divisors on the bid and offer sides are both 1 (meaning
all book), and the book is not frozen.
All 5,000 shares offered at 31.03 (1202) are tick sensitive with
quantity shown in the tick order field ( 1204). (The following orders are
considered tick sensitive orders: short orders, buy minus orders and sell plus
orders.)
With the display book and market in the condition illustrated in
FIG. 12A, the investor submits an NX limit sell order for 500 shares at 31.00.
This order is submitted through CMS and SuperDot with an indicator requesting
automatic execuiion (NX). The NX order is processed as described above with
reference to FIGS. 4 and 5.
The order price is at or better than the quote. However, because
the bid size is only 400 shares, it is not sufficient to cover the entire 500
share NX
order. 'Therefore, system 100 sells 400 shares against the book at 31.00 (the
entire
interest on the book at 31.00), and the remaining 100 shares (1206) of the NX
order are placed on the book as a regular limit order to sell at 31.00.
For NX execution report processing, system 100 reports 400 shares
of NX order sold at 31.00 to SuperDot for delivery to the entering firm via
CMS.
NX is appended to the execution report, and the give up is 4 LMT.
For contra execution report processing, system 100 makes the
following report, 400 shares bought at 31.00 to SuperDot via CMS, with the
give
up 4 LMT.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (400 shares traded at
31.00).
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For MDS quote reporting, the bid quote is automatically updated
and published (market 31.00 bid for 100 shares and 5,000 shares offered at
31.03)
with NX autoquote indicator for surveillance use only, which is displayed as:
31.00 ~ 30.03
1 50
The display book window is updated as illustrated in FIG. 12B.
The limit portion of the book shows bids at 31.00 reduced by 400
shares, leaving the bid field blank at 31.00. 100 shares are placed on the
sell side
(1206) at 31.00.
The last sale and tick (1208) are updated to -31.00, and the bid
quote size (1210) is reduced to the minimum size of 100 shares by autoquote,
suspending NX orders on the bid side of the market.
The eligible tick sensitive sell orders (1202) are automatically re-
filed at 31.01 (the lowest plus tick).
The specialist will need to manually requote the stock, as the quote
does not correctly reflect the best book bid at 30.14 and the best book offer
at
31.00.
VII. EXAMPLE 7
Refernng to FIG. 13, an NX execution with election of CAP orders
(flash window update) is illustrated. The published quote on the bid side is
all
book. The market is 31.00 bid for 2,500 shares and 5,000 shares offered at
31.03,
which is displayed as:
31.00 31.03
50
The parity divisors on the bid and offer sides are both 1 (meaning
all book), and the book is not frozen.
25 The last sale is at -31.02, and all 5,000 shares offered at 31.03 are
tick sensitive with quantity shows in the tick order field (1301).
There are also 10,000 shares desired to buy across 2 CAP orders
(1302); 5,000 shares available to sell across 1 CAP order (1304).
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With the display book and market in the condition illustrated in
FIG. 13A, the investor submits an NX limit sell order for 1,000 shares at
31.00.
This order is submitted through CMS and SuperDot with an indicator requesting
automatic execution (NX). The NX order is processed as described above with
reference to FIGs. 4 and 5.
Because the order is at or better than the quote, and the bid quote
size is sufficient to cover the NX sell order of 1,000 shares, System 100
sells all
1,000 shares against the book at 31.00. For NX execution report processing,
system 100 reports 1,000 shares of NX order sold at 31.00 to SuperDot for
delivery to the entering firm via CMS. NX is appended to the execution report,
and the give up is 10 LMT.
For contra execution report processing, system 100 makes the
following report, 1,000 shares bought at 31.00 to SuperDot via CMS, with the
give up 10 LMT.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (1,000 traded at 31.00).
For MDS quote reporting, the bid quote is automatically updated
and published (market 31.00 bid for 1,500 shares and 5,000 shares offered at
31.03) with NX autoquote indicator for surveillance use only, which is
displayed
as:
31.00 31.03
15 50
The display book window is updated as illustrated in FIG. 13B.
The Iimit portion of the book shows bids at 31.00 (1305) reduced
by 1,000 shares, leaving 1,500 shares at 31.00.
The last sale and tick (1310) are updated to -31.00, and the bid
quote size is reduced by 1,500 shares by autoquote.
Tick sensitive sell orders (1312) are automatically re-filed at 31.01
(the lowest plus tick).
The specialist will need to manually requote the stock, as the quote
does not correctly reflect the best offer at 31.01.
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The flash window (1306) is updated as follows: 1,000 shares for
each of the buyers; 1,000 shares for the seller.
VIII. EXAMPLE 8
Referring to FIG. 14, an NX execution with election of CAP orders
(flash window update), implicit freeze (report template) and real names
template
is illustrated. The published quote on the bid side is all book. The market is
31.00
bid for 2,500 shares and 5,000 shares offered at 31.03, which is displayed as:
31.00 31.03
25 50
The last sale is at -31.02, and all 5,000 shares offered at 31.03 are
tick sensitive with quantity showing in the tick order field (1401).
There are also 10,000 shares desired to buy across 2 CAP orders
(1402); 5,000 shares available to sell across 1 CAP order (1404).
The parity divisors on the bid and offer sides are both 1 (meaning
all book), and a smart report template is open, causing an implicit freeze of
the
book.
With the display book and market in the condition illustrated in
FIG. 14A, the investor submits an NX limit sell order for 1,000 shares at
31.00.
This order is submitted through CMS and SuperDot with an indicator requesting
automatic execution (NX). The NX order is processed as described above with
reference to FIGS. 4 and 5.
Because the order is at or better than the quote, and the bid quote
size is sufficient to cover the NX sell order of 1,000 shares, system 100
sells 1,000
shares against the book at 31.00. For NX execution report processing, system
100
reports 1,000 shares of NX order sold at 31.00 to SuperDot for delivery to the
entering firm via CMS. NX is appended to the execution report, and the give up
is
10 NX. (Although the order was filled by LMT, in this example, the give up is
NX, and not LMT because the display book is frozen.)
There is no contra execution report processing, as the trade is
against NX.
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For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (1,000 traded at 31.00).
For MDS quote reporting, the bid quote is automatically updated
and published (market 31.00 for 1,500 and 5,000 at 31.03) with NX autoquote
indicator for surveillance use only, which is displayed as:
31.00 30.03
50
The book is frozen by the smart report template, so the limit
portion is unchanged. This is illustrated in FIG. 14B, where the flash portion
(1406) is updated as follows: 1,000 shares for each of the buyers, with 1,000
10 shares for the seller.
As soon as specialist 107 hits the clear key, clearing the smart
report template, the book becomes unfrozen, and the tick sensitive orders
(1408)
are automatically re-filed at 31.01 (lowest plus tick). This is illustrated in
FIG.
14C.
15 When specialist 107 hits the smart report key, the real names
template appears, as illustrated in FIG. 14D. The left side of the template
shows
NX Sold, and the price defaults to 31.00, with 1,000 shares of book shown.
Specialist 107 initiates report processing by pressing one of the
following: smart report key or done key. The limit portion of the book is
reduced
by 1,000 shares at 31.00, leaving 1,500 shares at 31.00. The display book
sends
out a real names administrative message to SuperDot, modifying the original
trade
with needed names.
For contra execution reporting, system 100 reports 1,000 shares
bought at 31.00 to SuperDot for delivery to the entering firm via CMS, with a
give
up of 10 LMT.
IX. E~.AMPLE 9
Referring to FIG. 15, an NX execution with automatic re-filing of
tick sensitive orders, and NX order executed at offer price before quote
change is
illustrated. The published quote on the bid side is all book. The market is
31.00
bid for 2,500 shares and 5,000 shares offered at 31.03, which is displayed as:
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31.00 31.03
25 50
The last sale is at -31.02, and 3,000 of the 5,000 shares offered at
31.03 are tick sensitive with quantity shown in the tick order field (1502).
The limit sell orders at 31.03 arrived in the following sequence:
' 5 (1) 500 short, market, @ 10:01:02;
(2) 1,000 limit, GTC, @ 10:01:06;
(3) 1,500 short, market, @ 10:01:11;
(4) 1,000 short, market, @ 10:01:22; and
(5) 1,000 limit, DAY, 10:01:34.
The parity divisors on the bid and offer sides are both 1 (meaning
all book), and the book is not frozen.
With the display book and market in the condition illustrated in
FIG. 15A, the first investor submits an NX limit sell order for 1,000 shares
at
31.00. This order is submitted through CMS and SuperDot with an indicator
requesting automatic execution (NX). The NX order is processed as described
above with reference to FIGs. 4 and 5.
Because the order is at or better than the quote, and the bid quote
size is sufficient to cover the NX sell order of 1,000 shares, system 100
sells 1,000
shares against the book at 31.00.
For NX execution report processing, system 100 reports 1,000
shares of NX order sold at 31.00 to SuperDot for delivery to the entering firm
via
CMS. NX is appended to the execution report, and the give up is 10 LMT.
For contra execution report processing, system 100 reports 1,000
shares bought at 31.00 to SuperDot for delivery to the entering firms via CMS.
The give up is 10 LMT.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (1,000 traded at 31.00).
For MDS quote reporting, the bid quote is automatically updated
and published (31.00 bid for 1,500 shares and 5,000 shares offered at 31.03)
with
NX autoquote indicator for surveillance use only, which is displayed as:
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31.00 31.03
15 SO
The display book is updated, as illustrated in FIG. 15B. The last
sale and tick (1504) are updated to -31.00.
The bid quote size (1506) is reduced to 1,500 shares from 2,500
shares by autoquote.
The limit portion of the bid side of the book (1508) is reduced by
1,000 shares at 31.00, leaving 1,500 shares at 31.00.
The 3,000 shares of tick sensitive orders (1510) are automatically
re-filed at 31.01 (lowest plus tick) (short orders (1), (3) and (4) originally
Eled at
31.03 are now at 31.01, while limit orders (2) and (5) are still at 31.03).
The parity divisor on the offer side is temporarily zero because
short orders are fled at a better price than the quote offer.
There is no real names indicator for this trade.
With the book in the condition illustrated in FIG. 15B, (with the
parity divisor on the offer side temporarily zero), a second investor submits
an NX
limit buy order for 1,000 shares at 31.03. This order is submitted through CMS
and SuperDot with an indicator requesting automatic execution (NX). The NX
order is processed as described above with reference to FIGS. 4 and 5.
Because the order is at or better than the quote, and the offer quote
size is sufficient to cover the NX buy order of 1,000 shares, system 100 buys
1,000 shares against the book at 31.03. For NX execution report processing,
system 100 reports 1,000 shares of NX order bought at 31.03 to SuperDot for
delivery to the entering firm via CMS. NX is appended to the execution report,
and the give up is 10 NX. (In this example, the give up is NX, not LMT because
the parity divisor on the offer side is temporarily zero.)
There is no contra execution report, as the trade is against NX.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (1,000 traded at 31.03).
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For MDS quote reporting, the quote is automatically updated and
published (market 31.00 bid for 1,500 shares and 4,000 shares offered at
31.03)
with NX autoquote indicator for surveillance use only, which is displayed as:
31.00 31.03
15 40
The display book is updated, as illustrated in FIG. 15C. The last
sale and tick (1512) are updated to +31.03.
The 3,000 shares of tick sensitive orders (1510) are automatically
re-filed at 31.03, as of the previous filed date and time, and the quote
assist timer
stops because the ticks were unfilled at 31.01.
The offer quote size is reduced to 4,000 from 5,000 by autoquote.
The quote assist timer starts for the filed tick orders at 31.03.
The real names template is completed, giving 1,000 shares to the
book. The display book sends out a real names administrative message to
SuperDot, modifying the original trade with needed names.
A contra execution report is processed.
Since execution of the NX buy order (trade number 2) was in time
sequence against sell order 500 shares of tick sensitive order (1), and 500
shares
of sell order (2), the limit portion of the book is updated at 31.03 to show
re-filing
of the 2,500 remaining tick sensitive orders (3) (1,500 shares of tick
sensitive
orders) and (4) (1,000 shares of tick sensitive orders).
X. EXAMPLE 10
Referring to FIG. 16, an NX execution with election of stops with
real names template is illustrated. The published quote is all book. The last
sale
is at-31.02 and there are 2,000 sell stop orders (1602) at 31.00. The market
is
31.00 bid for 2,500 shares and 5,000 shares offered at 31.03, which is
displayed
as:
31.00 31.03
25 50
The parity divisors on the bid and offer sides are both 1. There is a
smart report template open, implicitly freezing the book.
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There are three trades in this example. The first trade is an NX
limit order to sell 1,000 shares, the second trade is a DOT market order to
sell 300
shares, and the third trade is a DOT market order to sell 700 shaxes.
With the display book and market in the condition illustrated in
FIG. 16A, the investor submits an NX limit sell order for 1,000 shares at
31.00
(this is trade number 1). This order is submitted through CMS and SuperDot
with
an indicator requesting automatic execution (NX). The NX order is processed as
described above with reference to FIGs. 4 and 5.
Because the order is at or better than the quote, and the bid quote
size is sufficient to cover the NX sell order of 1,000 shares, for NX
execution
report processing, system 100 reports 1,000 shares of NX order sold at 31.00
to
SuperDot for delivery to the entering firm via CMS. NX is appended to the
execution report, and the give up is 10 NX.
There is no contra execution report processing, as the trade is
against NX.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (1,000 traded at 31.00).
For MDS quote reporting, the quote is automatically updated and
published (market 31.00 bid for 1,500 shares and 5,000 shares offered at
31.03)
with NX autoquote indicator for surveillance use only, which is displayed as:
31.00 31.03
15 50
The display book window is updated as illustrated in FIG. 16B.
As illustrated in FIG. 16C, since the last sale is at 31.00, that is
noted as the NX reference price in the real names template.
Before the real names template is completed, SuperDot sends a
DOT order to the display book (which is frozen) to sell 300 shares (this is
trade
number 2), and then SuperDot sends a DOT order to the display book (which is
still frozen) to sell 700 shares (this is trade number 3).
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These DOT orders are received by the display book and held in
queue. However, the limit portion of the book is unchanged, as illustrated in
FIG.
16B.
When specialist 107 presses the clear key, as illustrated in FIG.
16D, the 2,000 sell stop orders are elected on the election reference price
and
appear in the thermometer (1604). The DOT order to sell 300 (trade number 2)
appears in the thermometer, and the DOT order to sell 700 (trade number 3)
appears in the thermometer.
As illustrated in FIG. 16C, the real names template is completed,
giving 1,000 shares to the book. Then, system 100 sends out real names
administrative message to SuperDot modifying the original trade with needed
names.
The display book is updated as illustrated in FIG. 16D, and a contra
report is processed.
XI. E~~AMPLE 11
Referring to FIG. 17, a partial NX execution under explicit freeze
with other DOT orders is illustrated. The published quote is all book. The
market
is 31.00 bid for 500 shares and 5,000 shares offered at 31.03, which is
displayed
as:
31.00 31.03
5 50
The parity divisors on the bid and offer sides are both 1 (meaning
last sale is -31.02 all book), and the freeze key is depressed, explicitly
freezing
the display book.
With the book in the condition illustrated in FIG. 17A, an investor
submits a regular limit sell order for 300 shares at 31.00. Since an explicit
freeze
is in place on the display book, this order is placed in queue.
Next, another investor submits an NX limit order to sell 1,000
shares at 31.00. This second order is submitted through CMS and SuperDot with
an indicator requesting automatic execution (NX). The NX order is processed as
described above with reference to FIGS. 4 and 5.
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Because the order is at or better than the quote, and the bid quote
size is sufficient to cover the NX sell order of 1,000 shares, and although
the
display book is frozen, for NX order processing, system 100 processes S00
shares
of the NX order, which is the size of the bid at 31.00, with the other S00
shares
from the NX order changed to a regular limit order and remaining in queue.
Next, an investor submits a regular limit order to sell 600 shares at
31.00. Since an explicit freeze is in place on the display book, this order is
placed
in queue.
For NX order execution reporting, system 100 reports S00 shares
(of the original 1,000 NX order) sold at 31.00 to SuperDot for delivery to the
entering firm via CMS. NX is appended to the execution report, and the give up
is
S NX.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (S00 traded at 31.00).
1S Because all of the S00 shares were from the book, there is no more
size on the bid side of the book at 31.00, and real names are required. For
MDS
quote reporting, the quote is automatically updated and published (market
31.00
bid for 100 shares and 5,000 shares offered at 31.03) with NX autoquote
indicator
for surveillance use only, which is displayed as:
31.00 31.03
1 SO
The display book window is updated as illustrated in FIG. 17B,
although the sell limit side (1702) is unchanged, because the book is frozen.
The last sale and tick are updated to -31.00, with the bid quote size
reduced to the minimum size of 100 shares by autoquote, which continues the
2S freeze of the book.
When the specialist presses the freeze key (toggles freeze off), the
new limit orders appear in correct time sequence, which is 300 shares to sell
at
31.00; S00 shares to sell at 31.00 (from the NX order); and 600 shares to sell
at
31.00.
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The real names template (not illustrated) is completed (e.g., report
500 shams at 31.00, give up is 5 LMT), and the display book sends out real
names
to SuperDot modifying the original trade with needed names.
A contra execution report is processed, and the book appears as
illustratc;d in FIG. 17C.
XII. EXAMPLE 12
Refernng to FIG. 18, an erroneous quote input by the clerk is
illustrated. The best bid on the book is 31.00 for 500 shares and 5,000 shares
offered at 31.03. However, the clerk has mistakenly set the quote at 21.00 bid
for
500 shires and 5,000 shares offered at 21.03, which is displayed as:
_21.00 21.03
'S 50
The parity divisors on the bid and offer sides are both 1 (meaning
all book), and the book is not frozen.
With the display book and market in the condition illustralecl in
FIG. 18A, an investor submits an NX sell order for 500 shares at 2l .00. This
order is submitted through CMS and SuperDot wish an indicator requesting
automatic execution (NY). The NX order is processed as described above with
reference to FIGs. 4 and 5.
Since this order is more than 2 points from the last sale, N~i
2,0 processing is suspended for this stock, and the order is placed on the
book.
As illustrated in FIG. 18D, a normal highlighting scheme occurs,
with the book showing cyan from the book bid at 31.00 to the new offer at
21.00.
~:TII. E~1MPI,E 13
Refernng to FIG. 19, an NX execution on two sides is illustrated.
The published quote on the bid side is book and crowd. The market is 31.0U bid
for 1,000 shares and 5,000 shares offered at 31.03, which is displayed as:
_31.00 31.03
1U 50
T'he parity divisors on the bid and offer sides are both 1 (meaning
all bookl, and the book is not frozen. The last sale is at-31.02.
44
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With the display book and market in the condition illustrated in
FIG. 19A, two NX trades are received.
The first investor submits an NX limit order to sell 1,000 shares at
31.00. This order is submitted through CMS and SuperDot with an indicator
requesting automatic execution (NX). The NX order is processed as described
above with reference to FIGS. 4 and 5.
Because the order is at or better than the quote, and the bid quote
size is sufficient to cover the NX sell order of 1,000 shares, system 100
sells 1,000
shares against the book at 31.00. For NX execution report processing, system
100 reports 1,000 shares of NX order sold at 31.00 to SuperDot for delivery to
the
entering firm via CMS. NX is appended to the execution report, and the give up
is
5 LMT, 5 NX (names pending). Whenever there is insufficient stock on the book,
the remaining balance is real names, even though the parity divisor is one.
For contra execution report processing, system 100 reports 500
shares bought at 31.00 to SuperDot for delivery to the entering firm via CMS,
with the give up 5 LMT.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (1,000 traded at 31.00).
For MDS quote reporting, the quote is automatically updated and
published (market 31.00 bid for 100 shares and 5,000 shares offered at 31.03)
with
NX autoquote indicator for surveillance use only, which is displayed as:
_ 31.00 ~ 31.03
1 50
The display book window is updated as illustrated in FIG. 19B.
The last sale and tick are updated to -31.00, and the bid quote size
is automatically reduced to the minimum size of 100 shares by autoquote, arid
therefore NX is suspended on the bid side of the market.
1,000 stop orders are elected into market orders and are received in
the thermometer (1903). Short sales of 3,000 shares at 31.03 are re-i:iled at
31.01
(1902) (lowest plus tick above last sale) and get a yellow highlight. The
limit
CA 02419821 2003-02-14
WO 02/15461 PCT/USO1/25968
portion of the book removes the line at 31.00, however the re-filed ticks at
31.01
are not reflected in the published quote as illustrated.
As illustrated in FIG. 19C, the real names template is brought up,
and the book implicitly frozen.
For trade 2, an investor submits an NX limit buy order for 1,000
shares at 31.03. This order is submitted through CMS and SuperDot with an
indicator requesting automatic execution (NX). The NX order is processed as
described above with reference to FIGS. 4 and S.
Although NX processing is suspended on the bid side because the
bid size is 100 shares and the book is frozen, because the NX order is at or
better
than the quote, and the offer quote size is sufficient to cover the NX buy
order for
1,000 shares, 1,000 shares are bought against the book at 31.03. For NX
execution report processing, system 100 reports 1,000 shares of NX order
bought
at 31.03 to SuperDot for delivery to the entering firm via CMS. NX is appended
to the execution report, and the give up is 10 NX.
There is no contra execution report, as the trade is against NX.
For MDS trade reporting, system 100 reports the trade with "E"
indicator appended, and the report is sent to MDS (1,000 traded at 3I .03).
The offer side of the quote is automatically updated to 4,000
shares, which is illustrated as:
31.00 31.03
1 40
As illustrated in FIG. 19D, the last sale and tick is updated to
+31.03. The offer quote size is automatically reduced to 4,000 (at 31.03) by
autoquote.
2,000 buy stop orders (1904) are elected into market orders, and
are placed in queue. By chance, a DOT market order to buy S00 shares (1906) is
received and placed in queue.
Another DOT market order to buy 800 shares (1908) is received
and placed in queue.
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The real names template for the first trade (see FIG. 19C) is now
completed (500 shares Merrill, badge 1234.), and the freeze on the book is
lifted.
However, real names are still required for trade number 2 (NX limit buy order
for
1,000 shares at 31.03).
3,000 shares in short sales are re-filed at 31.03 as of previous filed
date and time.
The 2,000 elected buy stop orders, the 500 DOT market order and
the X00 DOT market order all enter the thermometer.
As illustrated in FIG. 19E, the real names template comes up for
trade 2, and the book is implicitly frozen. The template is completed with
1,000
shares to Book.
A contra execution report is processed for trade 2, and the display
book sends a real names administrative message to SuperDot modifying the
original trade with needed names.
The specialist 107 manually updates to quote the book, as
illustrated in FIG. 19F.
Although illustrative embodiments have been described herein in
detail, it should be noted and will be appreciated by those skilled in the art
that
numerous variations may be made within the scope of this invention without
departing from the principle of this invention and without sacrificing its
chief
advantages.
In one such embodiment, the order or securities transaction is
submitted directly by member firm 101 trading on their own account.
Unless otherwise specifically stated, the terms and expressions
have been used herein as terms of description and not terms of limitation.
There is
no intention to use the terms or expressions to exclude any equivalents of
features
shown and described or portions thereof and this invention should be defined
in
accordance with the claims that follow.
47
