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Claims  |
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What is claimed is:
1. A device for communicating security settlement information between an
investor, a broker and a custodian, comprising:
first and second databases having software and hardware for storing and
retrieving data according to unique identifiers;
a plurality of broker delivery instructions stored on said first database
according to broker identifiers;
information about a plurality of investor accounts stored on said second
database according to account identifiers;
a broker transmitter for transmitting a broker identifier to a first
database receiver;
a first database transmitter for transmitting a broker delivery instruction
retrieved from said first database with the received broker identifier to
an investor receiver;
an investor transmitter for transmitting the broker delivery instruction
received from the first database transmitter, said investor transmitter
also for transmitting an account identifier to a second database receiver;
a second database transmitter for transmitting account information
retrieved from said second database with the received account identifier;
a broker receiver for allocating traded security shares according to the
account information received from said second database transmitter; and
a custodian receiver for initiating an exchange of funds and securities
according to the broker delivery instruction received from said first
database transmitter to settle the trade.
2. The device of claim 1 wherein the information about a plurality of
investor accounts includes a custodian delivery instruction corresponding
to the account for use by the broker to initiate an exchange of funds and
securities to settle the trade.
3. The device of claim 1 including a plurality of custodian delivery
instructions stored on said first database according to a unique custodian
identifier, and wherein said first database includes means for generating
a list of custodian identifiers from the stored custodian delivery
instructions for use by the investor to specify a custodian for the
investor account.
4. The device of claim 3 wherein said first database transmitter also
transmits the list of custodian identifiers to the investor receiver.
5. The device of claim 4 wherein said investor transmitter also transmits a
custodian identifier corresponding to an investor account to the first
database receiver, and wherein said first database transmitter also
transmits a custodian delivery instruction retrieved from said first
database with the received custodian identifier to the second database
receiver for storage on said second database.
6. The device of claim 3 including a custodian input device at a custodian
location for generating a custodian delivery instruction to be stored on
said first database.
7. The device of claim 6 including means for detecting storage of a
custodian delivery instruction on the first database and for generating a
message alerting the investor to storage of the custodian delivery
instruction, and wherein said first database transmitter also transmits
the message to the investor receiver.
8. The device of claim 1 including an investor input unit at an investor
location for generating account information to be stored on said second
database.
9. The device of claim 8 including means for detecting storage of
information about an investor account on the second database and for
generating a message alerting the broker to storage of the investor
account information, and wherein said second database transmitter also
transmits the message to the broker receiver.
10. The device of claim 1 including a broker input unit at a broker
location for generating a broker delivery instruction to be stored on said
first database.
11. The device of claim 10 including means for detecting storage of a
broker delivery instruction on the first database and for generating a
message alerting the custodian to storage of the broker delivery
instruction, and wherein said first database transmitter also transmits
the message to the custodian receiver.
12. A device for facilitating settlement of an investor's security trades,
comprising:
first and second databases having hardware and software for storing and
retrieving data according to unique identifiers;
a plurality of custodian delivery instructions stored on said first
database according to custodian identifiers;
an investor transmitter for transmitting information about an investor
account to a second database receiver, and for transmitting a custodian
identifier corresponding to the account information to a first database
receiver;
a first database transmitter including means for retrieving and
transmitting the custodian delivery instruction corresponding to the
received custodian identifier to the second database receiver;
the second database receiver for receiving the investor account information
from the investor transmitter and for receiving the custodian delivery
instruction from the first database transmitter, the second database
including means for combining the account information and the custodian
delivery instruction for storage on said second database according to an
account identifier;
the investor transmitter also for transmitting the account identifier;
a second database transmitter for retrieving and transmitting the account
information and custodian delivery instruction corresponding to the
received account identifier; and
a broker receiver for generating a confirmation message according to the
received account information and for initiating an exchange of funds and
securities according to the received custodian delivery instruction to
settle the trade.
13. The device of claim 12 including a custodian input unit at a custodian
location for generating a custodian delivery instruction to be stored on
said first database.
14. The device of claim 13 including means for detecting storage of a
custodian delivery instruction on the first database and for generating a
message alerting the investor to the custodian delivery instruction, and
wherein said first database transmitter also transmits the message to the
investor receiver.
15. The device of claim 12 including means for detecting storage of
information about an investor account on the second database and for
generating a message alerting the broker to the investor account
information, and wherein said second database transmitter also transmits
the message to a broker receiver.
16. The device of claim 12 including a plurality of broker delivery
instructions stored on said first database according to a unique broker
identifier, and including means for detecting storage. Of a broker
delivery instruction on said first database and for generating a message
alerting the custodian to the broker delivery instruction, and wherein
said first database transmitter also transmits the message to a custodian
receiver.
17. A device for communicating security settlement information between a
custodian and a broker, comprising:
a database having hardware and software for storing and retrieving data
according to unique identifiers;
a plurality of custodian delivery instructions stored on said database
according to identifiers;
an investor transmitter for transmitting an identifier;
a database receiver for receiving an identifier transmitted by said
investor transmitter, and for retrieving the custodian delivery
instruction corresponding to the received identifier;
a database transmitter for transmitting the custodian delivery instruction
retrieved from said database; and
a broker receiver for receiving the custodian delivery instruction
transmitted from the database transmitter and initiating an exchange of
funds and securities in accordance with the custodian delivery instruction
to settle the trade.
18. The device of claim 17 including a broker output unit at a broker
location for displaying the received custodian delivery instruction.
19. The device of claim 17 wherein the custodian delivery instructions are
stored and retrieved on said database together with information about
investor accounts, and wherein the identifier comprises an account
identifier.
20. The device of claim 19 (including) wherein said database includes a
cross reference table of account identifiers and broker account numbers
stored thereon, and wherein said database transmitter also transmits the
broker account number retrieved from the cross reference table on said
database with the received account identifier, and wherein said broker
receiver also receives the broker account number to enable identification
of the received account information.
21. The device of claim 20 including an investor input unit at an investor
location for generating account information and corresponding custodian
delivery instructions to be stored on said database.
22. The device of claim 21 including means for detecting storage of
information about an investor account on the second database and for
generating a message alerting the broker to the investor account
information, and wherein said database transmitter also transmits the
message to a particular broker, determined from the cross reference table.
23. A device for communicating security settlement information between a
broker and a custodian, comprising:
a database having hardware and software for storing and retrieving data
according to unique identifiers;
a plurality of broker delivery instructions stored on said database
according to broker identifiers;
a broker transmitter for transmitting a broker identifier;.
a database receiver for receiving a broker identifier transmitted by said
broker transmitter, and for retrieving the broker delivery instruction
corresponding to the received identifier;
a database transmitter for transmitting a broker delivery instruction
retrieved from said database with the received broker identifier to an
investor receiver;
an investor transmitter for transmitting the broker delivery instruction
received from the database transmitter; and
a custodian receiver for receiving the broker delivery instruction
transmitted from the investor transmitter and initiating an exchange of
funds and securities in accordance with the broker delivery instruction to
settle the trade.
24. The device of claim 23 including a custodian output unit at a custodian
location for displaying the received broker delivery instructions.
25. The device of claim 23 wherein said database generates a list of broker
names from the stored broker delivery instructions, and wherein said
database transmitter also transmits the list of broker names, and wherein
the investor receiver uses the received broker list for directing
information about trades.
26. A method for communicating security settlement information between an
investor, a broker and a custodian, comprising the steps of:
storing a plurality of broker delivery instructions on a first database
according to broker identifiers;
storing information about a plurality of investor accounts on a second
database according to account identifiers;
transmitting a broker identifier from a broker transmitter to a first
database receiver;
retrieving a broker delivery instruction from the first database with the
received broker identifier;
transmitting the retrieved broker delivery instruction with a first
database transmitter to an investor receiver;
transmitting the broker delivery instruction received by the investor with
an investor transmitter to a custodian receiver;
transmitting an account identifier with the investor transmitter to a
second database receiver;
retrieving account information from the second database with the received
account identifier;
transmitting the retrieved account information with a second database
transmitter to a broker receiver;
generating a confirmation message according to the account information; and
initiating exchange of the funds and securities in accordance with the
broker delivery instruction.
27. A method for facilitating settlement of an investor's security trades,
comprising the steps of:
storing a plurality of custodian delivery instructions on a first database
according to custodian identifiers;
transmitting information about an investor account from an investor
transmitter to a second database receiver;
transmitting a custodian identifier corresponding to the account
information from an investor transmitter to a first database receiver;
retrieving the custodian delivery instruction corresponding to the received
custodian identifier;
transmitting the received custodian delivery instruction from a first
database transmitter to the second database receiver;
receiving the investor account information and the custodian delivery
instruction at a second database receiver;
storing the received account information and the received custodian
delivery instruction together on a second database according to an account
identifier;
transmitting the account identification from the investor transmitter to
the second database receiver;
retrieving the account information and custodian delivery instruction
corresponding to the received account identifier;
transmitting the retrieved account information and custodian delivery
instruction from a second database transmitter to a broker receiver;
allocating securities in accordance with the received account information;
and
initiating exchange of securities and funds in accordance with the received
custodian delivery instruction.
28. The method of claim 27 including the steps of detecting storage of
account information on the second database, generating a message alerting
the broker to the account information, and transmitting the message from a
second database transmitter to a broker receiver.
29. A method for communicating security settlement information between a
custodian and a broker, comprising the steps of:
storing a plurality of custodian delivery instructions on a database
according to identifiers;
transmitting an identifier from an investor transmitter to a database
receiver;
retrieving the custodian delivery instruction from the database with the
received identifier;
transmitting the retrieved custodian delivery instruction from a database
transmitter to a broker;
receiving at the broker the custodian delivery instruction transmitted from
the database transmitter; and
initiating an exchange of funds and securities according to the custodian
delivery instruction.
30. The method of claim 29 including the steps of detecting storage of a
custodian delivery instruction on the database, generating a message
alerting the investor to the custodian delivery instruction, and
transmitting the message from the database transmitter to an investor
receiver.
31. A method of communicating security settlement information between a
broker and a custodian, comprising the steps of:
storing a plurality of broker delivery instructions on a database according
to broker identifiers;
transmitting a broker identifier from a broker transmitter to a database
receiver;
retrieving a broker delivery instruction from the database with the
received broker identifier;
transmitting the retrieved broker identifier with a database transmitter to
an investor receiver;
transmitting the broker delivery instruction with an investor transmitter
to a custodian;
receiving at the custodian the broker delivery instruction transmitted from
the investor transmitter; and
initiating an exchange of funds and securities according to the broker
delivery instruction.
32. The method of claim 31 including the steps of detecting storage of a
broker delivery instruction on the database, generating a message alerting
the custodian to the broker delivery instruction, and transmitting the
message from the database transmitter to the custodian receiver. |
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Claims |
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Description |
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FIELD OF THE INVENTION
The invention relates to a system for settling securities trades, and more
particularly, to a device and method for communicating settlement
information among security trading participants.
BACKGROUND OF THE INVENTION
A variety of systems have been developed for automating portions of the
securities trading business from customer accounts through order execution
and block allocation.
U.S. Pat. Nos. 4,346,442 4,376,978 and 4,774,663, owned by Merrill Lynch,
are directed to systems for operating and maintaining securities
brokerage-cash management accounts.
Systems for monitoring market performance and aiding investors in the trade
decision-making process have also been developed. British patent
publications GB 2 161 003 A and 2 210 714 A are directed to systems for
distributing, processing and displaying financial information. U.S. Pat.
No. 4,949,248 discloses a local area network for shared access of
information services or shared control of application programs, having
particular utility for trading rooms of securities firms.
U.S. Pat. Nos. 4,674,044, 4,823,265 and 5,101,353 are directed to
electronic trade execution systems.
The prior art system of FIG. 5 transmits messages to brokers alerting them
to changes in institutional investors' accounts. Following trade
execution, the prior art system of FIG. 6 permits institutional investors
to transmit information to the broker concerning allocation of the shares
of an executed block trade among various ones of an institution's
accounts. When used in conjunction with the system of FIG. 5, the FIG. 6
system transmits account information to brokers for each block trade
allocation.
The Depository Trust Company's (DTC) Institutional Delivery (ID) System is
designed to partially automate the book entry settlement of DTC-listed
U.S. equities. At the end of each U.S. trading day, brokers report trade
information on a batch basis to DTC. The day after the trade, so-called
"T+1", DTC issues a confirmation message to the pertinent broker,
institution and custodian bank, and the institution returns an affirmation
prior to book entry settlement. This system is only useable for DTC-listed
U.S. equities, requires brokers to collect and input information relative
to each trade, provides no mechanism for insuring the accuracy of the
trade information, and does not operate on a real time basis.
At least the last of these limitations will allegedly be addressed by DTC's
forthcoming interactive ID system. Specifications disclosing the type of
information this new system would be capable of handling as compared with
batch ID were printed on Sep. 29, 1993.
None of the prior art systems are directed to improving the accuracy of,
and speed of communication of, instructions for exchanging the purchase
money and the security to settle an executed trade. Thus, none of the
prior systems adequately speeds trade settlement which is accomplished, if
at all, by a patchwork of faxes, telexes and telephone calls among
institutional investors, brokers, and custodians.
The speed with which trade decisions can now be made and executed has put
increasing pressure on security trading participants, including
institutional investors, brokers, and custodians to speed up the trade
settlement process during which the purchase money is transferred to the
broker or seller's agent, and title to the securities is transferred to
the buyer's agent or broker.
The Securities and Exchange Commission has recently mandated that as of
Jun. 1, 1995, U.S. securities must be settled within three days of the
trade date, so-called "T+3". Currently, U.S. securities must be settled
within five days of the trade date or "T+5". Thus, settlement systems
which do not operate on a real time basis may suffer increasing numbers of
settlement failures due to elapsed time.
Settling global securities trades ks particularly difficult due to
regulatory overlap, regulatory voids, language barriers, fluctuating
exchange rates, multiple taxing authorities, the physical distance between
the parties, and other factors. On cross border trades, settlement
failures may be as high as 30%. With institutional investors routinely
making cross border trades for blocks of over 100,000 shares, settlement
failures are very expensive for all parties. Settlement delays are also
costly since the uncertainty of outcome limits investors' abilities to
place subsequent trade orders.
Recognizing the need to reduce settlement time for cross border securities
trades, two organizations have worked on parallel paths to standardize the
type and format of data transmitted between security trading participants.
In Europe, the Industry User Group (IUG) published a "Business
Requirements Specification", ver. 1, on Feb. 3, 1992, setting standard
formats of electronic messages between institutional investors and
brokers. In the United States, the Industry Standardization for
Institutional Trade Communication (ISITC) committee has published its own
standard format for moving trade details between institutional investors
and custodians. These formats standardize the type of information
exchanged between security trading participants but do not disclose or
suggest specific systems or methods for achieving the exchange, speeding
the exchange, or improving accuracy of the information exchanged.
What is desired, therefore, is a system for improving the accuracy of trade
settlement information and the speed with which trade settlement
information is communicated to trade settlement participants to reduce the
time required to settle securities trades and to improve the settlement
rate for securities trades. Providing a system in which the settlement
information complies with both the IUG and ISITC standard formats is also
desired.
SUMMARY OF THE INVENTION
Accordingly, it is an object of the invention to provide a communication
device and method for use by security trading participants which improves
the speed and accuracy of trade settlement.
Another object of the invention is to provide a communication device and
method of the above character which is compatible with one or both of the
IUG and ISITC standards.
A further object of the invention is to provide a communication device and
method of the above character including a database which is automatically
accessed by the communication device.
Yet another object of the invention is to provide a communication device
and method of the above character for automatically transmitting
custodians' delivery instructions to brokers.
Still a further object of the invention is to provide a communication
device and method of the above character for automatically transmitting
brokers' delivery instructions to custodians and/or to institutions.
Still another object of the invention is to provide a communication device
and method of the above character for automatically transmitting
institutional investors' account information to brokers.
These and other objects of the invention are achieved by provision of a
security trade settlement communication device comprising a database for
storing a plurality of delivery instruction sets, a database receiver for
receiving an identifier, a database searcher for searching the database,
and a database transmitter for transmitting the retrieved instruction set
corresponding to the identifier. The database preferably also includes a
message generator for informing participants of changes to the database.
The communication device also includes a participant transmitter for
transmitting the identifier and a participant receiver for receiving and
outputting the retrieved, transmitted delivery instruction set. Most
preferably, the communication device transmitters and receivers are both
receiver-transmitters for performing each other's functions and comprise
input units for adding or changing delivery instruction sets on the
database. The receiver-transceivers may also be used for non-settlement
communications among the participants, e.g., by electronic mail, through a
message router at the database.
The database preferably also includes a plurality of account information
sets which include a custodian delivery instruction set specified by the
institution. In this regard, the institutions' receiver-transmitters also
comprise input units for adding or changing account information sets on
the database.
The database preferably also includes cross-reference tables between
custodians and account identifiers and between account identifiers and
broker internal account numbers for correlating alert and trade settlement
messages among the participants.
In other aspects, the invention comprises methods of operating the database
and the security trade settlement communication device.
The invention and its particular features and advantages will become more
apparent from the following detailed description considered with reference
to the accompanying drawings.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 is a block diagram of a communication device and method in
accordance with the invention.
FIG. 2 is a block diagram of the database of the communication device and
method of FIG. 1.
FIG. 3 is a block diagram of a portion of the communication device and
method of FIG. 1 for transmitting settlement information between brokers
and institutional investors.
FIG. 4 is a block diagram of a portion of the communication device and
method of FIG. 1 for transmitting settlement information between
institutional investors and custodians.
FIG. 5 is a block diagram of a prior art system for transmitting messages
to brokers alerting them to changes in institutional investors' accounts.
FIG. 6 is a block diagram of a prior art system for transmitting block
trade allocations to brokers, or for use with the system of FIG. 5 for
transmitting account information for each block trade allocation to
brokers.
DETAILED DESCRIPTION OF THE INVENTION
FIG. 1 is a block diagram of a device and method 10, in accordance with the
invention, for communicating security trade settlement information between
security trading participants such as myriad institutional investors 12,
myriad brokers 14, and myriad custodians 16. By "institutional investors"
is meant retirement and pension funds, mutual fund companies, investment
advisors, insurance companies and other investors which manage and trade
for two or more accounts. By "custodians" is meant banks, security
depositories, and other settlement agents.
Each line on FIG. 1 schematically depicts a communication link in method
and device 10. The diagonal lines 20, 21, 22 represent communication links
between security trading participants and a central database 24, and
between the participants themselves for exchanging messages, e.g.
electronic mail, not relating to settlement of a particular trade. These
diagonal links 20, 21, 22 are discussed in more detail with reference to
FIG. 2. The horizontal and vertical lines 18 between institutions and
brokers represent communication links utilized immediately after trade
execution to settle the trade. Similarly, the horizontal and vertical
lines 19 between institutions and custodians represent security trade
settlement communication links. Links 18, 19 are discussed in more detail
with reference to FIGS. 3 and 4.
Communication links 18-22 are telephone lines, however, it is understood
that dedicated wire or wireless links may also be used. It is understood
that by "wire" is meant any physical connection, whether by optical fiber,
coaxial cable, twisted pair or otherwise, and that by "wireless" is meant
cellular, microwave, IR, laser or any other non-physical connection. In
this regard, the security trading participants 12, 14, 16 each have
computers, terminals, input/output devices, transceivers or the like (not
shown) for transmitting and receiving messages and information, e.g. by
modem, over the communication links.
Reference in this description to the trading participants, thus, includes
the participants' system terminals. Each of these terminals includes a
unique name or acronym identifying it as the transmitter or recipient of
messages over the system, and each terminal includes application software
written in C for maintaining and operating central database 24 as
described with reference to FIG. 2 and for establishing communication
links 18-22 as described with reference to FIGS. 1, 3 and 4. The terminals
themselves are typically PCs having minimum recommended system
requirements of DOS 3.3 or higher, an Intel 386 microprocessor operating
at 33 MHz, 2 Mb of random access memory, 450 kb of free memory, and a 2400
baud transceiver, e.g. modem. Although it is understood that dummy
terminals wired to host computer may also be used. These PCs may but need
not be linked to the participants' back office computer system. Further, a
particular participant may have numerous system terminals linked together
by a LAN or otherwise so that steps of method 10 may be carried out by
different persons at the particular participant.
Referring to FIGS. 1 and 2, the construction, maintenance and operation of
central database 24 is described. Central database 24 is a host computer
having minimum recommended system requirements of a SUN MICROSYSTEMS MP
670 computer having 4 RISC processors, 64 Mb of random access memory, 5 Gb
of online storage, a UNIX operating system and SYBASE database software
which may be called in C by the participants' terminals' application
software. In this particular hardware configuration, central database 24
has a system capacity of 40,000 transactions per day, 150,000 total
account records, and 2.5 million BIAs. The host operates a message router
26 for handling electronic mail between participants 12, 14, 16 over line
25; an institution account database 28; and a broker and custodian
delivery database 30.
Brokers 14 and custodians 16 input delivery instructions 32 to delivery
database 30 along respective lines 31, 33. Delivery instructions 32 are
stored on database 30 in a format compatible with, or retrievable under,
both the IUG and ISITC standards. The instructions include information
such as the country of origin of the security, the security type, and
clearing method details. In this regard, the type of information stored on
delivery database 30 is much more detailed and thorough than that
anticipated by, e.g., the IUG standard which includes a single field for
settlement information. In the event brokers and custodians do not wish to
directly input delivery instructions 32 using their local terminals, they
may contract with a data entry service 34 to do it for them.
Each set of delivery instructions 32 on database 30 is stored and
retrievable under a unique identifier. The identifiers comprise an
identification of the particular instruction set for the named broker or
custodian. For example, individual brokers are likely to have numerous
delivery instruction sets depending upon the type and nationality of the
traded security. Similarly, individual custodians are likely to have
numerous delivery instruction sets depending not only upon the type and
nationality of the traded security, but also upon which of its
institutional investor clients ordered the trade. The identifier may also
include the broker or custodian acronym.
As delivery instruction sets 32 are added to or modified on delivery
database 30, alert messages 36 are generated by central database 24 for
communication along line 35 to the other brokers 14 and custodians 16,
informing them of the delivery instruction changes. In this regard, and as
with participants 12, 14, 16, it is understood that central database 24
includes a wire or wireless transceiver for receiving information for
storage and retrieval requests, and for transmitting alerts and retrieved
information. The software in the brokers' and custodians' terminals may be
customized to eliminate all but requested ones of these alert messages 36,
or all but alert messages from particular brokers 14 and/or particular
custodians 16. This selection of alert messages 36 is readily accomplished
where the delivery instruction identifiers include acronyms naming the
originating broker or custodian, where these acronyms may be sifted and
sorted to eliminate undesired alert messages 36.
A list 38 of custodian identifiers and broker acronyms under which delivery
instruction sets 32 have been stored on database 30 is provided on line 40
to institutions 12. Institutions 12 use the broker acronyms for receiving
and transmitting trade settlement communications with brokers 14 as
described below with reference to FIG. 3. Institutions 12 use the
custodian identifiers in ge | | |
