1. Technical Field
The present invention relates generally to systems and methods for facilitating trading in financial markets, and in particular, to a system and method for providing dealers, salespersons, and traders of securities to anonymously share their own or their client's interest to trade securities, to identify and match potential trading opportunities between clients, and to automatically notify dealers, salespersons and traders about such potential trading opportunities.
2. Background
Fixed income security refers to a type of investment that provides for certain agreed payments between one party and another. For example, when a company issues debt to raise funds backed by the company's assets, it is called a Corporate bond and when a mortgage company sells bonds to raise money to provide mortgages and the debt is secured by the mortgages the company issues, it is called a Mortgage bond.
Interest rates change over time, based on a variety of factors, particularly rates set by the Federal Reserve. For example, if a company wants to raise money for expanding or improving its business and not a lot of people in the market have free cash to lend, the company will have to offer a high rate of interest (coupon) to get people to buy their bond. In contrast, if there are a lot of people in the market trying to get a return on their money, the company can offer a lower coupon. Fixed income securities are normally traded on the open market, unlike stocks which are traded on exchanges. All fixed income securities from any entity have risks including but not limited to interest rate risk, currency risk, default risk, reinvestment risk, liquidity risk, credit quality risk, political risk, and tax adjustment risk amongst other risks.
Although investors may trade marketable bonds among themselves, trading of bonds is typically done through a bond dealer, or more specifically, through the bond trading desk of broker-dealers. Broker-dealers orchestrate the buying and selling of bonds by connecting all of the interested players (brokers), as well as, by making a market for bonds (dealer). That is, a dealer has traders who are responsible for knowing all about different groups of bonds and are able to quote a price to buy or sell bonds in those groups. Therefore, the dealer provides liquidity for such buying and selling of bonds. Dealers also buy and sell bonds amongst themselves for further trading with its clients or other dealers' traders and clients.
In the fixed income markets, trading of fixed income securities has traditionally been accomplished via an over-the-counter market, with bond dealers and traders negotiating and completing trades either over the phone or via electronic platforms that facilitate communication between the trading parties. In a typical transaction, a bond salesperson learns that their desk is trying to trade a specific fixed income security, or bond, and determines whether it may be of interest to one of his/her customers. The salesperson calls the customer and offers the trade (either sale or purchase) of the security.
More recently, the emergence of electronic request for quote (RFQ) systems and pure electronic matching systems have threatened the role of the traditional fixed income salesperson. However, there is a problem with RFQ and matching systems in that for a trade to be consummated, these traditional systems rely on specific interest in a particular security on the part of the buyer and the seller at the same time. While this is appropriate for highly liquid markets, it is not a particularly appropriate paradigm for markets that are not particularly liquid, such as secondary trading of corporate bonds or mortgages. In these secondary markets, there is usually not someone waiting to take the other side of the trade for a specific security that is easily identifiable (unlike the situation with highly liquid instruments where it is typically much easier to identify the trading counterparty). In less liquid markets, it often becomes a challenge to identify parties that want to take counter positions in a particular trade and therefore it is often the case that interest to buy is expressed in terms of a range of attributes which apply to a number of securities so that the likelihood of identifying a potential selling counterparty increases. That is, the seller's general or specific interest in trading fixed income securities having certain attributes must match the buyer's general interest in trading securities with overlapping attributes. Traditionally, the salesperson and trader perform this pairing of interests of a buyer and seller. The salesperson learns the relevant trade criteria of his customer and then proposes trades of particular securities that meet his customer's objectives. Being good at making these pairings (consummating a trade) is how good traders and salespeople differentiate themselves and where significant revenues are derived.
However, a disadvantage with relying on a trader or salesperson is that it is difficult for a trader and salesperson to process all of the available market and financial data to identify the numerous trading opportunities available at any one moment. Another disadvantage for a trader and salesperson is that he/she must be capable of absorbing and analyzing a lot of information quickly—and doing so with nothing but their memories, notebooks, and computers to support them. The salesperson also must be capable of matching the current trading opportunities with his/her many clients, wherein each client may have a slightly different trading goal.
Accordingly, a system and method is needed for quickly and efficiently processing all of the current and historical market and financial data relevant to the trading of fixed income securities with a salesperson's customers in order to identify logical trading opportunities with those customers. A system and method is needed that is readily available and easy to use, displays all of the available market data and research data, and exposes trading opportunities where there may be potential interest in doing a trade for a particular market participant (client). A system and method also is needed that is easily adaptable for operating on both a salesperson's and trader's trading desk. A system and method is further needed that quickly notifies the availability of a trading opportunity to both salespersons and traders.
USPTO Backgrounds
USPTO Backgrounds