Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Finance
Reexamination Certificate
1999-08-23
2002-12-10
Kemper, M. (Department: 3622)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Finance
C705S039000
Reexamination Certificate
active
06493683
ABSTRACT:
BACKGROUND OF THE INVENTION
A. Field of Invention
This invention pertains to a flexible electronic trading system which enables buyers and sellers to trade commodities whereby the commodities traded are authenticated and securitized by a third party. The invention further pertains to a method of trading in which entities, including individual as well as institutional, corporate and fiduciary investors and traders can purchase and sell commodities without resorting to a traditional exchange environment where third parties in addition to the buyer and seller must participate.
B. Description of the Prior Art
Any item that can be traded is a commodity. Thus, commodities include intangibles such as stocks, bonds and options, as well as tangibles such as gold, real estate and works of art.
There have always been means to trade commodities. In earlier times, when commerce was less complex, it was a simple matter for buyer and seller to meet face to face and consummate a sale with physical assurance that what was being traded had been verified. As commerce became more complex, it became necessary for institutions such as stock exchanges and third parties such as brokers, agents and market makers to facilitate the buying and selling and to assure the validity of that which was sold.
Most recently the trading of intangibles have been facilitated by the increase in the number and variety of form of exchange systems, most notably the electronic communication networks (“ECN”s). Their existence has greatly enhanced the economic efficiency of these markets by providing faster trading and more open access to specific items being traded.
The individual investor, however, remains removed from the direct trading environment. The individual investor must deal with a variety and number of people when negotiating and consummating a transaction with another individual. Thus, when an individual decides to buy or sell a commodity, he still must place this order with another party who will decide how to process this order. This results in costs of handling each transaction by a number of people and a time delay in execution of the transaction. The delay alone can be costly in a dynamic market. Also, if the individual wants to buy or sell a commodity, such as a stock or bond, which is seldom or infrequently traded, he has no means to directly communicate with a potential buyer or seller except through a third party. This third party often makes a market in the commodity, allowing for arbitrary economic large spreads between the bid and ask and resultant purchase and sale prices.
The individual investors have been left out of this trading environment because none of the existing systems either allow them to trade with each other (or directly with other entities) or have the means necessary to validate investors' ability to consummate a transaction. It is this understanding of these problems which provided the impetus for the present invention.
Some automated systems related to commodities trading and the like are described in the following references:
U.S. Pat. No. 4,751,640 describes an automated investment system for investment banks in which idle funds of customers are invested in commodities designated by the customer.
U.S. Pat. No. 5,262,942 describes a financial transaction network in which mutual funds are maintained in different currencies and are transferred between customers at will.
U.S. Pat. No. 5,809,483 describes an online transaction processing system which provides current trading information to customers.
U.S. Pat. No. 5,845,266 describes a network utilized to match buy and sell orders for commodities.
U.S. Pat. No. 5,873,071 describes an order management system for negotiating the exchange of commodities.
U.S. Pat. No. 5,890,138 describes a computer-based auction system.
U.S. Pat. No. 5,897,621 describes a system for buying goods or services from a merchant using multiple currencies.
U.S. Pat. No. 5,903,878 describes a system for electronic commerce in which each transaction is validated by using a special transaction identifier.
U.S. Pat. No. 5,905,974 describes a system for auctioning fixed income commodities.
U.S. Pat. No. 5,915,023 describes a system for selling goods or services through a third party.
OBJECTIVES AND SUMMARY OF THE INVENTION
In view of the above, it is an object of the present invention to provide a system which provides total ability of individual investors to purchase and sell commodities directly between each other with no effective delay between the time of order and the time of execution.
A further objective is to enable the purchase and sale of commodities to take place with the elimination of the spread between the selling price and the purchase price presently common to existing transactions between individual investors.
A further objective is to provide a trading system which can be used to trade commodities between buyers and sellers without the need for a conventional commodities exchange and associated commission charges and/or transaction fees.
A further objective is to provide a trading system in which every trade or transaction is automatically secured to insure the comfort and trust of all the participants in the trade.
Yet a further objective is to provide an automated commodities trading and method in which a large number of transactions can be completed rapidly and economically.
Yet another objective is to provide a trading system in which commodities which are rarely traded are readily available to a potential buyer or seller.
A further objective is to increase liquidity of less frequently traded commodities by making known their availability for purchase and sale.
Other objectives and advantages of the invention will become apparent from the following description.
In its broadest aspect, the subject invention pertains to an automated commodities trading system including an open commodities exchange server (OCES) which can be accessed by a plurality of customers and at least one custodian in communication with said OCES. Commodities, funds and other assets used for trading are deposited by the customer with the custodian.
The customers can participate in two kinds of trades: placing orders for commodities or responding to offers by other customers. When a customer places an order on the OCES, a request is sent to the custodian to securitize the order, meaning that the custodian verifies that the customer has the proper commodities, assets or funds to meet the order, and, optionally segregates or otherwise separates the same to an escrow account. After an order has been securitized, it is posted to an appropriate data base and becomes an offer.
A response to an offer is securitized in the same manner as an order. Once a response to an offer is securitized, the offer is executed and the buyer and seller customers, as well as the custodian(s) are notified, and the order is settled.
Briefly, a system for trading commodities includes an open commodities exchange server (OCES) provided to receive a plurality of orders to buy and sell commodities from a plurality of customers. The OCES is also coupled to one or more custodians. Before being allowed to trade, each customer must deposit with a corresponding custodian the funds, commodities and other marketable assets the customer may wish to use in the purchase and sale of commodities through the OCES.
Whenever a customer initiates a trade through the OCES, OCES requests confirmation and securitization from the appropriate custodian, whereby the custodian segregates or otherwise blocks the appropriate assets of the customer and acknowledges the same to OCES. In this description, the term ‘trade’ is used to refer generically to any conventional commodities exchange, including either
(1) an order to buy or sell commodities; or
(2) a response to a posted order to buy or sell commodities. Moreover, an order to sell a commodity could be a ‘short’ order covering a commodity which is not in the possession of the customer. Short orders are securitized by other assets of the customer, or by other means as pr
David Jacques S.
Kricheff David
Gottlieb Rackman & Reisman P.C.
Kemper M.
Netrade, LLC
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