Process and apparatus for conducting auctions over electronic networks

Claims

What is claimed is:

1. In an electronic auction system including an issuer's computer having a display and at least one bidder's computer having an input device and a display, said bidder's computer being located remotely from said issuer's computer, said computers being coupled to at least one electronic network for communicating data messages between said computers, an electronic auctioning process for auctioning fixed income financial instruments comprising:

inputting data associated with at least one bid for at least one fixed income financial instrument into said bidder's computer via said input device;

automatically computing at least one interest cost value based at least in part on said inputted data, said automatically computed interest cost value specifying a rate representing borrowing cost associated with said at least one fixed income financial instrument;

submitting said bid by transmitting at least some of said inputted data from said bidder's computer over said at least one electronic network; and

communicating at least one message associated with said submitted bid to said issuer's computer over said at least one electronic network and displaying, on said issuer's computer display, information associated with said bid including said computed interest cost value,

wherein at least one of the inputting step, the automatically computing step, the submitting step, the communicating step and the displaying step is performed using a web browser.

2. The process of claim 1 additionally comprising the step of verifying that each bid is in conformance with predetermined bid parameters before accepting said bid.

3. The process of claim 2 additionally comprising the step of providing information to said bidder's computer display in the event said bid is non-conforming.

4. The process of claim 1 additionally comprising the step of screening said bidder.

5. The process of claim 1 additionally comprising the steps of setting a predetermined closing time for an auction, and providing information after the close of the auction about the bids accepted during the auction.

6. The process of claim 1 wherein said step of submitting a bid includes the step of providing said bidder's computer with an electronic bid calculation sheet, and wherein said sheet allows said bidder to prepare and automatically calculate at least one value associated with proposed bids prior to said step of submitting said bid.

7. The process of claim 6 additionally comprising the step of simultaneously displaying on said bidder's computer display, said electronic bid calculation sheet representing the bidder's last submitted bid together with proposed bid information.

8. The process of claim 1 wherein said bid submitting step includes submitting a bid on at least one of an entire financial instrument and on individual portions of the instrument.

9. The process of claim 1 additionally comprising the step of requesting, from the bidder, a confirmation before submission of said bid.

10. The process of claim 1 additionally comprising the step of requiring an electronic acknowledgment from said bidder over said at least one electronic network that said bidder has reviewed at least one of a notice of sale document and a prospectus document before permitting the bidder to perform the submitting step.

11. The process of claim 1 additionally comprising the step of indicating which maturities have not been bid upon.

12. The process of claim 1 wherein said system further includes an auctioneer's computer coupled to said at least one electronic network, and said submitting step comprises transmitting said data from said bidder's computer to said auctioneer's computer over said at least one electronic network.

13. The process of claim 12 further including accepting bid submissions with said auctioneer's computer only during a predetermined time period.

14. The process of claim 1 wherein said process further includes accepting bid submissions only during a predetermined time period.

15. The process of claim 1 wherein said inputting step includes inputting an interest rate or coupon for at least one maturity associated with at least one financial instrument including one or more series of maturities.

16. The process of claim 1 wherein said inputting step includes inputting an aggregate purchase price for one or more or all of a collection of financial instruments.

17. The process of claim 1 wherein said inputting step includes inputting at least one of a price and a yield for each maturity associated with a collection of financial instruments.

18. The process of claim 1 wherein said process further includes providing a centralized time indication and transmitting said time indication to said bidder's computer over said electronic network, and said displaying step includes the step of displaying said transmitted time indication on said bidder's computer display.

19. The process of claim 18 wherein said displaying step includes displaying an item, and said transmitting step and said time indication displaying step are performed in response to selection by said bidder of said displayed item through manipulation of said input device.

20. The process of claim 1 wherein said system further includes at least one observer's computer coupled to said electronic network, said observer's computer including a display, and said process further includes communicating at least some of said data inputted by said inputting step to said observer's computer over said at least one electronic network for display on said observer's computer display.

21. The process of claim 20 wherein communication of at least textual data to said observer's computer is performed in real time response to said submitting step.

22. The process of claim 20 wherein said communicating step is performed in real time response to said submitting step.

23. The process of claim 1 further including storing, in a computer memory, predetermined terms for submitting a bid; and

said method further includes automatically testing whether said inputted data complies with said stored predetermined terms for submitting a bid, and displaying an error message on said bidder's computer display if said testing step reveals said inputted data does not comply with said stored predetermined terms.

24. The process of claim 1 wherein said computing step comprises computing the true interest cost.

25. The process of claim 1 wherein said inputting step includes designating each maturity of a collection of financial instruments as serial, sinker or term structures.

26. The process of claim 1 further including electronically communicating at least one of a notice of sale document and a prospectus document over said at least one electronic network to said bidder's computer.

27. The process of claim 1 further including displaying, on said bidder's computer display, whether or not said submitted bid is the leading bid.

28. The process of claim 27 wherein said process accepts bids from at least one further bidder computer, and said first-mentioned bidder's computer display displays details about bids submitted via said first-mentioned bidder's computer but not details about bids submitted by said further bidder computer.

29. The process of claim 1 wherein said process further includes automatically verifying said inputted data.

30. The process of claim 1 wherein said process accepts bids from at least one further bidder computer, and said first-mentioned bidder's computer display displays details about bids submitted via said first-mentioned bidder's computer but not details about bids submitted by said further bidder computer.

31. In an electronic auction system including plural bidders' computers and an issuer's computer located remotely from said plural bidders' computers, each of said plural bidders' computer including an associated input device and a display, said issuer's computer including a display, at least one electronic network communicating data messages to and from said plural bidders' computers and to and from said issuer's computer, an electronic auctioning process for auctioning fixed income financial instruments comprising:

at at least one of said plural bidders' computers, inputting data associated with at least one bid for fixed income financial instruments via said associated input device;

automatically computing at least one interest cost value based at least in part on said inputted data, said automatically computed interest cost value specifying a rate representing borrowing cost associated with said fixed income financial instruments;

ordering the interest cost values associated with said inputted data;

transmitting said interest cost values over said at least one electronic network to said issuer's computer; and

displaying said interest cost values on said issuer's computer's display,

wherein at least one of the inputting step, the automatically computing step, the ordering step, the transmitting step and the displaying step is performed using a web browser.

32. The process of claim 31 wherein said ordering step includes ranking said interest cost values, and said displaying step comprises displaying said interest cost values in an order determined by said ranking.

33. The process of claim 31 further including awarding the fixed income securities to the one of said plural bidders first submitting a bid with the most favorable interest cost value.

34. The process of claim 31 wherein said system further includes an auctioneer's computer coupled to said at least one electronic network, and said process further includes transmitting said inputted data from at least one of said plural bidders' computers to said auctioneer's computer over said at least one electronic network.

35. The process of claim 34 further including accepting bid submissions with said auctioneer's computer only during a predetermined auction time period.

36. The process of claim 31 wherein said process further includes accepting bid submissions only during a predetermined auction time period.

37. The process of claim 31 wherein said inputting step includes inputting an interest rate or coupon for at least one maturity associated with at least one fixed income financial instrument including one or more series of maturities.

38. The process of claim 31 wherein said inputting step includes inputting an aggregate purchase price for one or more or all of a collection of fixed income financial instruments.

39. The process of claim 31 wherein said inputting step includes inputting at least one of a price and a yield for each maturity associated with a collection of fixed income financial instruments.

40. The process of claim 31 wherein said process further includes providing a centralized time indication and transmitting said time indication to each of said plural bidders' computers over said electronic network, and said process further includes displaying said transmitted time indication on each of said plural bidders' computer displays.

41. The process of claim 40 further including displaying items on said plural bidders' computers, and said time indication displaying step is performed in response to selection of said displayed items through manipulation of said input devices.

42. The process of claim 31 wherein said system further includes at least one observer's computer coupled to said electronic network, said observer's computer including a display, and said process further includes communicating at least some of said data inputted by said inputting step to said observer's computer over said at least one electronic network for display on said observer's computer display.

43. The process of claim 42 further including submitting at least one bid based on the inputting step, and communication of at least textual data to said observer's computer is performed in real time response to said submitting step.

44. The process of claim 31 further including submitting at least one bid based on the inputting step, and wherein said communicating step is performed in real time response to said submitting step.

45. The process of claim 31 further including storing, in a computer memory, predetermined terms for submitting a bid; and

said method further includes automatically testing whether said inputted data complies with said stored predetermined terms for submitting a bid, and displaying an error message on at least one of said plural bidders' computer displays if said testing step reveals said inputted data does not comply with said stored predetermined terms.

46. The process of claim 31 wherein said computing step comprises computing the true interest cost.

47. The process of claim 31 wherein said inputting step includes designating each maturity of a collection of fixed income financial instruments as serial, sinker or term structures.

48. The process of claim 31 further including electronically communicating at least one of a notice of sale document and a prospectus document over said at least one electronic network to each of said plural bidders' computers.

49. The process of claim 31 further including displaying, on at least one of said plural bidders' computer displays, whether or not said bid submitted via the at least one bidders' computer is the leading bid.

50. The process of claim 31 wherein said process further includes automatically verifying said inputted data.

51. The process of claim 31 additionally comprising the step of verifying that each bid is in conformance with predetermined bid parameters before accepting said bid.

52. The process of claim 51 wherein the verifying step is performed upon submission of the bid.

53. The process of claim 31 additionally comprising the step of screening each of said plural bidders.

54. The process of claim 31 additionally comprising the steps of setting a predetermined closing time for an auction, and providing information after the close of the auction about the bids accepted during the auction.

55. The process of claim 31 wherein said step of submitting a bid includes the step of providing each of said plural bidders' computers with an electronic bid calculation sheet, and wherein said sheet allows each of said plural bidders to prepare and automatically calculate at least one value associated with proposed bids prior to submitting said bid.

56. The process of claim 31 additionally comprising the step of requesting, from at least one bidder, a confirmation before submission of a bid by said at least one bidder.

57. The process of claim 31 additionally comprising the step of indicating which maturities have not been bid upon.

58. The process of claim 31 additionally comprising the step of providing information to at least one of said plural bidders' computer displays in the event said bid is non-conforming.

59. The process of claim 31 additionally comprising simultaneously displaying on at least one of said plural bidders' computer displays, an electronic bid calculation sheet representing the bidder's last submitted bid together with proposed bid information.

60. The process of claim 31 wherein said inputting step includes submitting a bid on at least one of an entire fixed income financial instrument and on individual portions of the instrument.

61. The process of claim 31 additionally comprising the step of requiring an electronic acknowledgement from at least one of said plural bidders over said at least one electronic network that said bidder has reviewed at least one of a notice of sale document and a prospectus document before permitting said bidder to submit the bid.

62. The process of claim 31 further including automatically testing whether said inputted data complies with stored predetermined terms for submitting a bid.

63. The process of claim 31 wherein an observer uses a web browser coupled to the network to view the auction in process.

64. The process of claim 63 wherein the observer's web browser displays selected bid information of bids submitted.

65. The process of claim 63 wherein the observer's web browser displays a winning list of best bids.

66. The process of claim 63 wherein the observer's web browser updates a display of the auction in progress in response to clicking a refresh button.

67. The process of claim 63 wherein the observer comprises the issuer.

BACKGROUND OF THE INVENTION

1. Field of the Invention

The present invention relates to a method of conducting auctions, particularly original issuer municipal bond auctions, over electronic networks, particularly the Internet.

2. Description of the Prior Art

A conventional auction is a prior art process in which bids from bidders are received by an auctioneer for an item to be sold. The bidder whose bid is the highest at the termination of the auction (the "successful bidder") becomes the purchaser of the item.

Auctions may be conducted in a variety of ways. In the "silent real-time" auctions bidders are made aware at all times of the magnitude of the current highest bid but do not know the identity of the highest bidder. So long as the auction is still in progress, the bidders may increase their bids. Silent real-time auctions generally end at a specific announced time and any bid submitted by that time is considered in determining the successful bidder.

Another style is the "public real-time" auction, in which bidders are made aware both of the current highest bid and the identity of the bidder. Public real-time auctions are conventionally held by open verbal outcry and are terminated by the fall of the auctioneer's hammer after warning is given to the bidders of the imminent close of the auction.

Other types of auctions are known. In a sealed-bid auction, bidders are given the chance to make only one secret bid. They do not know either the current highest bid or the identity of the current highest bidder. In a "silent and blind auction" the specific bids and identity of the bidders is maintained in secret until close of the auction. Yet other types of auctions differ from the foregoing in that offers to sell may be made by the auctioneer in decreasing price increments, the first buyer to accept a bid being the winner. This type of auction is also known as a "Dutch flower auction." In another type, the winner is the party who makes the highest bid, but he pays the amount bid by the second-highest bidder. Many variations on these auctions are also known.

It is a drawback of the above types of auctions that the bidders must either gather together in the same physical location with the auctioneer or remain in contact with the auctioneer by telephone or video conference facility. Bidders who are in the physical presence of the auctioneer may have an advantage because they are able to respond to the auctioneer's reaction to a bid more rapidly than those at remote locations are.

A variety of electronic-auctioning and trading systems have been developed, including electronic auction systems relating to financial instruments. Examples of these can be seen in U.S. Pat. No. 5,640,569 to Miller et al, U.S. Pat. No. 5,375,055 to Togher et al, U.S. Pat. No. 5,243,515 to Lee, U.S. Pat. Nos. 5,136,501 and 5,077,665 to Silverman, et al, U.S. Pat. Nos. 4,980,826 and 4,903,201 to Wagner, U.S. Pat. No. 4,789,928 to Fujisaki and U.S. Pat. No. 3,581,072 to Nymeyer.

The Miller patent is directed to an electronic "auctioning" system specifically directed to allocating computer resources such as transmission bandwidth of a multiplicity of network links interconnecting the users. The system uses a type of second price sealed bid method. The system allocates resources to maximum declared values based upon the second highest bid such that successful bidders are charged what is referred to as an opportunity costs for the goods.

The Togher et al patent discloses a credit management system for an electronic brokerage system. The brokerage system disclosed involves a communications network for facilitating the buying and selling of large blocks of foreign currency. In particular the system provides that each bid or offer for bid for a particular type of financial instrument is prescreened by the system for compatibility with limited credit information. The system identifies that, at least in currency, the resulting price may be based upon a composite of bids for small sizes or lots of the currency in question.

The Lee patent discloses a secure teleprocessing bidding system relating to a secret bidding process. The system maintains the bids secret from other bidders until after the period for bidding is closed. The system is intended to eliminate bid procedure violations and provides an electronic record of the bids received.

The Silverman et al patents disclose an electronic trade matching system for trading instruments in which bids are automatically matched against offers for the given trading instruments. The system uses a network to connect the host computer with bidding and offering clients of the system.

The Wagner patents disclose a voice actuated futures trading exchange. The system is described as a computerized public outcry exchange system for transacting sales of a particular futures commodity contract by members of a futures trading exchange wherein bids to purchase or offers to sell the particular commodity are made by members through remote terminals and the exchange computer automatically matches offers and bids to complete the transaction. The system provides that the offers may be orally entered into the system.

The Fujisaki patent discloses an auction information transmission processing system that sets up a hierarchical system of host and server computers, which are configured to minimize the data transmitted between computers during an auction. The system is designed to allow auction participants to be spread out over a wide area. The system was directed to auctioning of specific items such as used cars.

None of the above described patents are directed to original issuer auctions of financial instruments. With auctions of various financial instruments there is a significant difference between the original issuer and subsequent resale of portions of this instrument in the secondary market. Once in the secondary market the financial instrument or portions thereof become fungible commodities appropriate for trading in various trading forums including some of the electronic trading systems described above. The present invention is directed to original issuer auctions, which involve distinctly different issues than those associated with the secondary market.

None of the existing electronic trading or auctioning systems addresses the needs of original issuer auctions of financial instruments, such as municipal bonds. In the domain of original issuer municipal bond auctions, conventionally competitive bids for new municipal bond offerings are submitted to the issuer via fax machine or US mail or in person and qualified bids must be for all of the bonds in the issue ("all-or-none"). In addition to fax submissions, 21.sup.st Century Municipals, Inc. has developed a modem based electronic bid submission system using a computer network and sold under the trademark PARITY. The PARITY bid submission system allows bidders who have previously obtained and installed appropriate software to electronically submit bids in an auction over a computer network. The PARITY system is designed to be used together with fax and other bid submission methods during an auction. The PARITY system is designed as a sealed bid system such that the bids received are not reviewed until after the auction closes, and there is no feedback to the bidders during the auction.

In a conventional original issuer municipal bond auction, there is a fixed time (e.g. 10:30 a.m., EST) on a predetermined date ("sale date") that bids must be delivered to the issuer. Because bidders are sensitive to on-going interest rate movements in the capital markets while preparing their bid, they prefer to wait until the last minute before submitting the bid to be as competitive as possible and avoid the risk that other bidders will learn the details of their bid before the deadline. This system essentially mimics a sealed bid arrangement in this respect.

It is a drawback of bids submitted by mail that the bids must be submitted too far in advance to competitively reflect the market conditions when the bid is due.

It is a drawback of fax auction methods that faxed bids are transmitted after the deadline, fax clocks are not set properly and record the incorrect time in fax headers, fax transmission interruptions outside the control of the sender and receiver and machine malfunctions such as paper misfeeds occur.

It is a drawback of in-person bidding methods that bidders have difficulty locating the place where bids are to be delivered or may experience traffic or other delays in submitting bids. Also, because the most frequent participants in competitive bids for new issues are located in New York City and the issuers are in other parts of the country, it is extremely difficult for many bidders to deliver their bids in person.

It is a drawback of the PARITY bid submission system that to use electronic bid submission the bidders must previously obtain and install the appropriate software, resulting in essentially a closed computer network. An additional drawback with the PARITY system is that no feedback is provided to the bidders. The system incorporates all of the drawbacks inherent in these other bid submission systems.

It is a drawback of prior art bidding methods for original issuer auctions of financial instruments that frequently bids are not submitted in conformity with issuers' specifications as set forth in a Notice of Sale or similar solicitation document. It is a drawback of fax bid methods that faxes may not be legible at the receiving end. These problems can create controversy between bidders and embarrass municipal officials and their financial advisors conducting original issuer municipal bond auctions. They can also cost the issuer money (e.g. if the best bid has to be disqualified as a result of one of these malfunctions or mistakes).

Further drawbacks of prior art bidding methods in original issuer municipal bond auctions are:

1. Bidders cannot see bids submitted by other bidders and are thus precluded from using this information to make their bids more competitive;

2. Once having submitted a bid, a bidder is not given an opportunity to correct or improve their bid in the event it does not conform in some way to the issuer's bids specifications;

3. Bidders cannot submit bids for selected bond maturities; bids must be "all-or-none"; meaning they must purchase every single maturity in the issue or none of them;

4. Regional and small underwriters are precluded from submitting bids because they do not have sufficient capital or desire to purchase every maturity in an issue (i.e. all-or-none);

5. Institutional investors and other bidders who are not underwriters do not submit bids because they desire only selected maturities rather than all of the bonds in an issue;

6. There is a delay after bids are submitted and before awarding a contract to the successful bidder because it is necessary for the issuer to transcribe the bids into a computer spreadsheet or other program that computes which bid is the best one; furthermore, it is usually necessary to resize the principal maturity amounts after determining the winning bid, which results in further delays before the sale is made;

7. There is no effective security mechanism to reassure issuers that bids submitted via fax or other method are bona fide offers from qualified bidders;

8. There is no built-in safeguard that alerts bidders before submitting their bid when they attempt to make a bid which does not conform to the issuer's specifications (e.g., exceeding the issuer's premium or discount limitations, interest rate coupons which are not multiples of a predetermined percentage, etc.).

The prior art does not disclose a method of conducting original issuer municipal bond auctions mediated by computer in which the bidders may be distributed in different physical locations yet by which either a silent real-time auction or a public real-time auction may be conducted.

SUMMARY OF THE INVENTION

According to one embodiment, the present invention is directed to a computer implemented process comprised of the steps of: establishing communications over a network between an auctioneer's computer and a plurality of bidders' computers; providing information regarding financial instruments to be sold to potential bidders; submitting at least one of a maturity by maturity bid or an all-or-none bid via the bidder's computer; accepting one or more of the submitted bids; and displaying the current best bid while the auction is in process. Information in addition to the current best bid which may be displayed includes the identity of the bidder, showing the status of a plurality of bidders, or showing a no-bid status on a portion of the financial instrument.

The present invention also provides for selectively displaying selected auction and bid status information during the course of the auction to non-bidding observers of the auction via the network on the observers' computers. This allows for third party observation of the auction in real time. The present invention can selectively provide information concerning the auction to participants and observers from the auctioneer's computer via the network after the closing of the auction.

The present invention also provides for verifying that each bid is in conformance with predetermined bid parameters and gives the bidder an opportunity to review and confirm bids prior to the bids being actually recorded on the auctioneer's computer. The bid verification may include automatically refusing acceptance of submitted bids that do not conform to predetermined bid parameters, and providing feedback to the bidder of a proposed bid by providing the bidder with a summary of the proposed bid prior to bid submission. The present invention also screens bidders via the network to qualify bidders to submit bids and provides documentation of the qualification of the individual bidders.

The present invention includes an electronic bid calculation sheet, which is supplied to the bidder over the network, wherein the electronic bid calculation sheet allows each bidder to prepare proposed bids including calculation of the cost of a proposed bid, and calculation of the various components of that cost including commissions, concessions, etc., prior to submission of the bid. The electronic bid calculation sheet is adapted to selectively display the bidder's last submitted bid without disturbing proposed bid information on the spreadsheet.

The operation of the present invention includes a plurality of computers that are connected to an electronic network, in particular the Internet. Each bidder may use their own personal computer. The bidders' computers are provided with commercially available browser software that communicates through the network with an auctioneer's server. Auction terms and conditions, and a description of the instruments to be auctioned, are broadcast or otherwise made available by the auctioneer's server to the bidders' computers. During the auction the auctioneer's server broadcasts or otherwise ma