WO2001016815A2

WO2001016815A2 - A computer based fractional auctioning system

Info

Publication number: WO2001016815A2
Application number: PCT/CA2000/000993
Authority: WO
Inventors: Daniel Han; Hye-Shik Benji Han
Original assignee: Collectivebid.Com Inc.
Priority date: 1999-08-31
Filing date: 2000-08-30
Publication date: 2001-03-08
Also published as: WO2001016815A8; AU6813100A

Abstract

A method for effecting auctioning of products using the Internet, the method allowing a seller to post to a web site a product for sale and information on the product. The product being sold in fractional quantities as determined by the seller. The fractional quantities being sold at a fixed price or a flexible price at the determination of the seller. Buyers have the option to bid on one or more fractions of the product until the auction is closed. The auction is closed based upon criteria selected by the seller, which may include a fixed time or minimal fulfillment criteria. Once the auction is complete the sale is conducted between the buyer and the seller without an intervening broker, thus reducing expense for both buyer and seller. Another form of auction provides for a reverse auction, whereupon the buyer posts information on the product wished to be purchased and sellers attempt to fill the potential order.

Description

Title: A COMPUTER BASED FRACTIONAL AUCTIONING SYSTEM

FIELD OF THE INVENTION

This invention relates to an automated computer system for effecting the purchase and sale of bulk products by fractional amounts. In particular, the invention relates to the sale of financial instruments.

BACKGROUND OF THE INVENTION

For many years, the trading of shares listed on a stock exchange was effected by the activities of people known as traders on the trading floor of the stock exchange. The trades were confirmed by some form of notation or writing on paper. For some time, however, these transactions have become increasingly automated so that a trader today can make trades via a computerized system.

Unlike the stock markets, the fixed income or bond markets are traded over the counter (OTC). This means that the fixed income or bonds provided by a supplier are traded from dealer to dealer, inter-dealer broker to dealer, and broker to client. The trades do not go through an exchange. The buyer and seller determine prices. Thus, the market prices are indicative of fair value but ultimately it is up to the buyer and seller to consummate the transaction.

It may be seen then, that in the traditional fixed income or bond markets, there are three layers of entities between the supplier and the customer. The large number of entities results in delays and inefficiencies in the transaction process.

If a customer has a desire to achieve higher returns through fixed income investments, the customer's stockbroker would call up a dealer and request a quote on a high yield bond. The dealer would either source the bond from its inventory or determine the current inter-dealer price, add a spread based upon the current inter-dealer market rates and sell it to the broker. The broker in turn would take that price and place another spread on it so that a commission can be earned. The broker would then sell the bond to the customer.

Generally, purchases are made in predetermined lot sizes.

Typically however, for purchases under one million dollars, a dealer will put a bigger spread on the price since dealing in smaller values is a nuisance for the dealer. As is generally the case, the larger the quantity bought, the better the price.

There are many other situations where large numbers of products, services or different financial instruments are available for a better price than smaller units of those products, services or financial instruments.

Accordingly, there is a need for an auctioning system that allows individual customers to purchase smaller than usual numbers while achieving a better purchase price. Furthermore, there is a need for such a system that is easily accessible to a number of customers as well as providing efficient real-time access to transactions.

BRIEF SUMMARY OF THE INVENTION

In accordance with the present invention there is provided a method for selling a product by fractions on the Internet, the method comprising the steps of:

a) a seller posting to a web site a product to be sold, with associated product information, said associated product information including an auction size and a bid fraction size; b) recording at least one bid from at least one bidder, each bid in the amount of said bid fraction size for a corresponding fractional portion of said product; c) closing the recording of bids upon request by the seller; d) receiving payment from each successful bidder; and e) delivering said fractional portions to said each successful bidder.

In accordance with another aspect of the present invention there is provided a method for purchasing a product by fractions on the Internet, the method comprising the steps of:

a) a buyer posting to a web site a product the buyer wishes to purchase with associated product information, said associated product information including an auction size and a bid fraction size; b) recording at least one bid from at least one bidder, each bid in the amount of said bid fraction size for a corresponding fractional portion of said product; c) closing the recording of bids upon request of the buyer; d) transferring payment from the buyer to successful bidders; e) delivering said fractional portions from said successful bidders to said buyer.

In accordance with another aspect of the present invention there is provided a method of buying or selling products in fractional amounts on the Internet, said method comprising the steps of:

a) posting to a web site a product for purchase or sale, said posting including providing of associated information on said product, said information including a auction size and a bid fraction size; b) accepting bids in the amount of said bid fraction size for a corresponding fractional portion of said product; c) terminating the purchase or sale of said product at a time chosen by the party posting said product; d) exchanging payment between a buyer and a seller for each fractional portion of said product for which a bid was accepted; and e) transferring each of said fractional portions for which a bid was accepted between said buyer and said seller.

In accordance with another aspect of the present invention there is provided a computer system for auctioning a product by fractions on the Internet, said computer system comprising:

a) a web site server; b) creating means, said creating means permitting a client to create on said web site server an auction for said product, said creating means including posting to said web site server information on said product, said information including an auction size and a bid fraction size; c) means for accepting or rejecting bids on each of said bid fraction sizes; d) means for terminating said auction at a time chosen by said client; e) means for exchanging payment between said client and a successful bidder; f) means for transferring portions of said product for which there where successful bids between said client and said successful bidder

In accordance with another aspect of the present invention there is provided a system for selling a product by fractions on a computer network the system comprising;

a) a plurality of computers connected by communication means; b) means for posting to a web site on one or more of said computers, information on a product to be sold, said information including an auction size and a bid fraction size; c) recording means for recording at least one bid from at least one bidder, each bid in the amount of said bid fraction size for a corresponding fractional portion of said product; and d) means for closing the recording of bids upon request by the seller.

In accordance with another aspect of the present invention there is provided a system for purchasing a product by fractions on a computer network, the system comprising:

a) a plurality of computers connected by communication means; b) means for posting to a web site on one or more of said computers, information on a product to be purchased, said information including an auction size and a bid fraction size; c) recording means for recording at least one bid from at least one bidder, each bid in the amount of said bid fraction size for a corresponding fractional portion of said product; and d) means for closing the recording of bids upon request of the buyer.

BRIEF DESCRIPTION OF THE DRAWINGS

For a better understanding of the present invention, and to show more clearly how it may be carried into effect, reference will now be made, by way of example, to the accompanying drawings. The drawings show preferred embodiments of the present invention, in which:

Figure 1 is a schematic diagram of a system according to an embodiment of the present invention;

Figure 2 is hierarchical diagram of the objects the present invention;

Figure 3 is a diagram illustrating the hierarchy of options presented to a user according to an embodiment of the present invention;

Figure 4 is an seller's auction screen display for a fixed price auction;

Figure 5 is a seller's screen display for a flexible price auction;

Figure 6 is a buyer's screen display for a reverse auction; and

Figure 7 is a flow diagram illustrating an auction control process according to an embodiment of the present invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

In the following description like numerals refer to like structures in the drawings and, bond instruments will be used as an exemplification of a financial product to be auctioned.

As may be appreciated from the following description, the system and method of the subject invention may be applied to any item being sold provided that the item may be sold in a fractional amount of a total bulk quantity. For example if the purchase involves a fixed income security or bond at wholesale (dealer) prices, as opposed to retail (stockbroker) prices, one must purchase $1,000,000 worth of volume per transaction. As the dollar volume rises, it is easier to negotiate a better price. For the retail sector and small firms, a million dollars may not be suitable. Instead, one hundred thousand dollars or three hundred thousand dollars may be a more manageable amount. By combining the demand of several of the smaller lot sizes, the same effect of a multimillion-dollar single transaction may be achieved.

Accordingly the method and system of the present invention is the recognition that an automated Internet based system may be implemented to auction fractional amounts of a total lot size in order to obtain better prices for a buyer.

Referring to figure 1, a schematic diagram of a system according to an embodiment of the present invention; the system is shown generally by numeral 10. System 10 comprises a web server 14 for interacting with users 12. Users 12 connect to the Internet 16 via their own computers and use their web browsers to connect to server 14. Server 14 consists of at least one computer capable of supporting auction web site 18, products information database 20, client database 22, auction database 24 and administrator control 26. Auction web site 18 provides an interface to permit users 12 to view lots for sale as well as to submit bids and offers for sale. Products information database 20 comprises information on each product for sale on web site 18. In the case of a bond, this information may include: a description, the name of the issuer, the maturity date, coupon information, rating information, the CUSIP (Committee on Uniform Security Identification Procedures) number, and the maturity date. Client database 22 comprises information on each user 12, who has been accepted by the auction web site 18 as a registered client. A client may be a buyer or a seller. Client database 22 may include traditional contact information such as name and address as well as more specific financial information such as: net worth, investment objectives, risk orientation, a designated financial institution for transaction processing, and credit information (including assets and liabilities). Auction database 24 comprises information on each auction. Auction database 24 may contain information on both past and current auctions including: the CUSIP number of the item being auctioned, the selling client, a description of the item, auction status and specific data on each bid, such as: bidder identification, bid quantity, and price. Administrator control 26 provides access to all components of web server 14 to allow system administrator 32 (Figure 2) to modify the functionality and data on web server 14 either directly or remotely through the Internet.

Referring now to Figure 2, a hierarchical diagram of the objects of the present invention is shown generally as 30. Administrator 32 manages a plurality of clients 34. Many functions of administrator 32 are automated by administrator control 26, for example the sending of email to clients 34 confirming actions such as: client registration, confirmation of bids, auction status (e.g. has been opened, or has been closed). Administrator control 26 is the software that manages administration functions within web server 14. Administrator 32 includes all of the automation of administrator control 26 as well as the ability for a system administrator to alter the processes and data of web server 14. A client 34 may be a buyer or a seller. A client 34 is distinguished from a user 12 in that a client 34 has passed through a registration process to be accepted to buy or sell products on auction web site 18. A client 34 that is a seller may create an auction 36 which offers for sale a product 38. Product 38 comprises one or more fractions 40. A client 34 who is a buyer may create an order 42. Order 42 is an offer to purchase one or more fractions 40 of product 38. A client 34 who is a buyer may also create an auction 36 which offers to buy a product 34. In this case (a reverse auction), a seller client 34 would submit an order 42 offering to sell product 34. Referring now to Figure 3, a diagram illustrating the hierarchy of options presented to a user in an embodiment of the present invention is shown generally as 50. A user 12 first connects through the Internet 16 to web server 14 (see Figure 1). Once connection has been established, web server 14 sends home page 52 of the auction web site 18 to the web browser of the user 12. Home page 52 provides the user with a number of options. Login option 54 permits a client 34 to access the information in auction database 24. If a client 34 chooses to logon to the system via option 54, they will be presented with option 66. If they are a not a client 34 (i.e. they do not have a record in client database 22) they will be presented with the display of option 64. Option 64 requires that user 12 provide the information necessary to become a client 34. This information provides the data to establish a client record in client database 22. There are two types of clients, buyers and sellers. Once accepted, a client 34 will be assigned a user id. As well, a client 34 will be assigned a credit limit which establishes how much they may buy or sell. A credit limit reflects a risk assessment from the information provided at option 64. A credit limit can be determined based upon the data provided by the user 12 at option 64 in conjunction with a series of automated questions, or it may be determined by contacting the user 12. Generally, this establishing of a credit limit will be subjective in nature and may be adjusted from time to time. A credit limit is most useful in situations where the items being auctioned are securities such as bonds. In the case of high risk bonds, a low credit limit would prevent a client 34 from placing bids. A client buyer's credit limit will limit the total amount of fractions on which they may place bids, or in the case of a reverse auction, the amount they may offer to buy. Similarly a client seller's credit limit will limit the total amount of products that they will be able to auction or in the case of a reverse auction, the amount they may offer to sell. Restricted users will log in via option 68. A system administrator 32 is an example of a restricted user.

Login option 54 will determine the status of the individual logging on and display option 64, 66 or 68 as appropriate.

Information option 56 provides general information about auction web site 18, general help on how to use the web site 18, and contact information for further details regarding web site 18.

Advertisement option 58 allows any user 12 accessing home pa e 52 to obtain general advertising information such as data on featured auctions or promotional information from a brokerage. Some of the information contained in advertisement option 58 may be displayed by default on home page 52. In addition, some of the information contained in advertisement option 58 may also be displayed on various other pages in web site 18 dependant upon the options selected and data entered by user 12 or client 34. For example, if a client 34 wishes to view the status of an auction, an advertisement may appear linking a supplier of products having an affinity to those being offered in the auction. Other examples of advertising may target user demographics. For example, if a special event is occurring in the area in which a client 34 lives, the client 34 may be presented with one or more advertisements for the special event as they navigate the web site 18. By tracking which types of auctions a client participates in, automated email may be sent to the client advising them of auctions that may be of interest to them. This could be particularly useful to a client that does not have the time to continually monitor for recently opened auctions.

Administration option 60 contains the tools used by system administrator 32 to manage the web site 14. These include the functionality required to interact with administrator control 26 to: modify the web pages within web site 18, modify the content of databases 20, 22, 24 and interact directly with clients when required.

Once logged on, a client 34 is present with further sub-options, namely:

a) auction review option 70 which permits client 34 to review bids placed and the status of auctions, as well as to search for auctions; b) sale order option 72 which permits a client 34 that is a seller to create a new auction 36; c) buy order option 74 which permits a client 34 that is a buyer to place a order 42; d) withdraw order option 76 which permits a client 34 that is a buyer or a seller to withdraw an order 42 or an auction 36 respectively; e) account service option 78 which allows a buyer client 34 to obtain status on the bids they have made and a seller client 34 to determine the status of auctions they have created; and f) other tasks option 80 allows a client to access a variety of tools or links to other web sites.

In selecting option 70 the client is presented with a screen that permits them to search for auctions by a variety of parameters such as: expiry date, product identification number, and auctions in which they are a bidder or seller. In the case of auctions for bonds, the product identification number would be the CUSIP number. Wildcard searches are also available to permit a search on a product name, for example "*Apple*" will search for all products for auction that contain the string "Apple" anywhere in the product description. As one skilled in the art will recognize, many other search parameters may be provided, restricted only by their usefulness to the client 34.

In selecting option 72 a client 34 who has been registered as a seller can create a new auction 36 for a product 38 that they wish to sell. They will be asked to enter product information. In the case of a bond this information may include: a description, the name of the issue, the maturity date, coupon information, rating information, the CUSIP number, and the maturity date. Each different type of product will require different product information. For example, a sale of 1000 identical "Buzz Lightyear" dolls, will require different product information than a sale of ten million dollars worth of Apple Computer bonds. The seller will select the fractional sizes in which they wish to sell the product. For example, the seller may have $10,000,000 worth of bonds to sell. These bonds are the product for sale. The seller may specify that they wish to sell these bonds in blocks of $20,000, $50,000, $100,000 or any other fractional amount of the total. In the preferred embodiment each fractional amount is equal in size, however, non-equal sizes may also be used. Administrator control 26 may specify a default fractional ratio (e.g 10 blocks per lot) should the seller fail to specify the fraction. By dividing the product for sale into fractional amounts, the seller is able to access a larger market of buyers who are able to afford the fractional amounts. Their are two basic types of auctions that a seller may create, a "fixed price" auction in which each fraction is to be sold at a fixed price, and a "flexible price" auction in which the bidders may bid at a price different from the one posted by the seller. The ability of the present invention to provide for flexible bids provides for price elasticity instead of maintaining a static fixed price. In a fixed price auction, all bids meeting the fixed price are accepted. In a flexible price auction, the seller determines which bids will be accepted. In either type of auction, the seller may also specify a "countdown" period. A countdown period indicates to a buyer precisely when bids will no longer be accepted. There are two types of countdowns. The first type is simply a "good until date", the seller specifies the date the auction will close and the system keeps track of the time remaining and displays it with other details of the auction. The second type of countdown is a "timer" countdown and is triggered when all fractions available have been bid for. When either countdown has been reached, email is sent by administrator control 24 to all participants including the information provided by the seller client 34 in establishing the auction is stored in auction database 24. Web server 14 will confirm that client 34 has not exceeded his credit limit by creating a new auction. If the credit limit is exceeded, administrator control 26 will send a message to client 34 that the auction will not proceed due to a violation of the credit limit. After the information is posted, administrator control 26 or administrator 32 will review the information and contact the seller to request confirmation to confirm the posting. Alternatively, administrator control 26 may simply allow the posting based on the client's previous auction history or reputation. In an alternative embodiment, administrator 32 may contact the client directly. The status of an auction may be: open; closed; or inactive and is part of the information stored on each auction in auction database 24. This status may be changed by the administrator 32 or potentially by the client 34 who created the auction, should either chose to prematurely close the auction. When client 34 enters the product information, the status of the auction is inactive until administrator control 26 or administrator 32 approves the auction. Upon approval, the auction status changes to open. In the preferred embodiment, the process of posting an auction does not require the intervention of system administrator 32 and is handled entirely by administrator control 26.

In selecting option 74 a buyer client 34 may bid on a fraction or fractions 40 of a product 38. The client may search for specific options via auction review option 70 and select an auction to bid on, thus arriving at buy order option 74 or client 34 may enter an auction identification code directly. Each auction when created is assigned a unique identification code. Client 34 may place a bid for one or more fractions by providing the appropriate data. This data includes: client identification code and bid price. For some auctions each bid will be for a price fixed by the seller (a "fixed price auction"), in others the buyer may have the option to bid less than the fixed price per fraction (a "flexible price" auction). In the case of a flexible price auction the seller will have the opportunity to accept or reject any bids that do not match the fixed amount per fraction. Before a bid is accepted, it must be verified by the administrator control 26. Administrator control 26 will examine the bid and determine if the bidder has exceeded their credit limit on open bids and bids in closed auctions which have not yet been paid. The bid will be accepted if the bidder's credit limit has not been exceeded. Otherwise, administrator control 26 will inform the bidder that the bid has been cancelled.

If an auction's fractional slots have already been filled, a buyer may still place a bid on that auction. The buyer's bid is simply placed on a waiting list for the selected auction. Should another buyer withdraw their bid, the waiting list will be reviewed to determine which potential buyer should occupy the now empty slot. As described in more detail below, any number of algorithms may be used to determine which bidder obtains an empty slot, the most simple being; first come, first served.

The status of a bid that has been placed may be "open", "closed", "cancelled", or "inactive". The status of all bids is stored in auction database 24. When a bid is placed its status is open while the auction's status is open. The buyer may also specify that a bid is a floating bid. This would allow the buyer's bid to move to a different auction where the products are identical but a better price is available in the different auction. Only bids with an open status can float. Closed bids are bids that have been accepted in auctions that are closed. Cancelled bids are bids that have been cancelled by the buyer or rejected by a seller. Inactive bids are bids that are on a waiting list or bids for less than the fraction price that have not yet been accepted or rejected by a seller.

In selecting option 76, a client may withdraw an auction or a bid. Withdrawal of an auction nor a bid is permitted once the countdown or the closing date of the auction has passed. When an auction is withdrawn all bids are rejected, unless all fractional slots have been filled, i.e. the auction size has been met by fractional bids. In this case, all bids are honoured.

In selecting option 78 a buyer client 34 may obtain status on the bids they have made over a predetermined period including closed and active bids. A seller client 34 is able to determine which closed bids are outstanding and details on current active bids.

In selecting option 80 a client may: change their password, view business or market news, review market data or invoke a calculator or other analytical software to manage portfolios or assess investments.

Referring now to Figure 4, a seller's auction screen display for a fixed price auction is shown generally as 90. Screen 90 is displayed when the client selects option 70 of Figure 3. Field 92 describes the product for sale. Field 94 indicates the price per fraction and field 96 indicates the total auction size. The auction displayed is a fixed price auction, thus each bid must be in the exact amount displayed in the price per fraction field 94. Hit all field 98, may be selected by the seller to accept all bids made to date. Accepted bid table 100 indicates that ten bidders have placed bids and thus all the fractional slots have been filled. Waitlist table 102 indicates that an additional five bidders have placed bids and have been placed on a waitlist. Bid chart 104 displays graphically the total amount of bids to date. Field 106 indicates that this auction makes use of the timer countdown feature. The countdown feature is optional at the time of creating the auction and is invoked when all fractional slots have been filled. The countdown feature will keep the auction open, even if all slots have been filled, for a time predetermined by the seller. This permits buyers to withdraw if they wish, allowing bidders on the waitlist to advance. Once the countdown expires, the auction is closed. A buyer's auction screen for a fixed price auction (not shown) is identical to screen 90, save that the content of hit all field 98 will be displayed as "bid", which by selecting, the client may submit a bid.

Referring now to Figure 5, a seller's screen display for a flexible price auction is shown generally as 110. Screen 110 is the screen displayed to a seller client when they wish to view the status of an auction they created. Screen 110 displays a flexible price auction in which the seller may accept or reject bids in any amount, as opposed to a fixed price auction where only bids for the price indicated by the seller will be accepted. Screen 110 is displayed by invoking review auction option 70 (Figure 3). Product for sale field 112 displays the details of the product being offered in the auction. Fraction size field 114 displays the amount required for each fractional bid. Auction size field 116 displays the total amount of product for sale, i.e. the number of fractional slots available multiplied by the price for each fraction. Flexible pricing field 118 displays a value of "Y" indicating that the seller has set up this auction to accept flexible pricing. As the seller has agreed to flexible pricing, bidders may submit bids at less than $105 per bond (the price shown in product for sale field 112), while still committing to a fraction of $1,000,000.00. For example, bidder #23 (shown at 120) has bid on one fraction at a price of $104 per bond. The seller may chose to accept that bid by selecting hit button 122 and the bid will become closed. Alternatively, the seller may reject the bid by pressing reject button 124 in which case the bid will be cancelled and one of the waiting bids in waitlist table 126 will take its place. If a bid is rejected by the seller the buyer will not be permitted to re-submit the same bid at the same price. A resubmitted bid must be at an incrementally higher price. At field 128 we see that bidder #673 has placed a bid with a value of market. This means that the bidder agrees to pay whatever the market price is for that bond on the date of his purchase. Thus, if the market price falls below $105 per bond he pays less, if it rises, he pays more. Chart 130 displays the total bid volume for the auction and indicates that the auction size has been met, thus the presence of waitlist table 126. Countdown field 132 indicates that at the time of creation of the auction the seller provided a "good until date", i.e. a date at which the auction would close. The auction will remain open until the date or time specified in countdown field 132. Once the auction has expired the seller may: accept all bids, reject all bids or accept selected bids.

The present invention also provides for a reverse fractional auction process. For example, if a buyer wished to purchase $40,000,000 of a specific issue of a bond, he may have difficulty having it filled by a single dealer. A single dealer may have only $10,000,000 in inventory. To supply the buyer, the dealer would need to approach an inter-dealer broker for an additional $30,000,000 in supply of that issue. That means, the dealer would have to assume additional risk in purchasing more inventory, since a potential buyer may decide to change their mind and withdraw their order or market forces may move against the dealer during the time that elapses from purchasing inventory to reselling of that inventory. By providing a reverse fractional auctioning process where buyers post demand for a particular issue and sellers make fractional offers, risk is reduced on the part of the seller and flexibility is increased on the part of the buyer as the buyer may now chose from an number of offers.

In a reverse fractional auction, it is the buyer who posts the auction to the web site 18, not the seller. When posting the auction, the buyer provides information on the product to purchase, the total purchase size, the fraction size and the price at which they would like to purchase. Once the auction is posted, prospective sellers make fractional offers to the buyer. As with the other auctions discussed above, the buyer may chose any number of options as to when the auction will close. For example, the buyer may chose to have the auction run until a specific time, have the auction close when a previously defined minimum amount of product is purchased, or close the auction whenever they wish. The buyers may also choose to have the auction have the countdown feature and /or allow for flexible bids. In the case of flexible bidding, the buyers may wish to honour bids in the amount other than their posted purchase price, in this case a buyer may "lift" (i.e. buy) or reject any offer, at any time prior to the close of the auction.

Referring now to Figure 6, a buyer's display screen for a reverse auction is shown generally as 140. Product description field 142 displays the information on the product the buyer wishes to purchase. Auction size field 144 displays the total auction size (i.e. the fraction size 146 multiplied by the number of fractions the buyer wishes to purchase). In this example the buyer wishes to purchase four lots in the amount of $10,000,000 each. Field 148 indicates that this is a flexible price auction. As can be seen in offer list 150, four offers have been made, thus meeting the auction size requirement. Additional offers are waitlisted as shown in waitlist 152. The buyer may wish to accept all offers by selecting the lift all button 154 or may lift (i.e. buy) or reject individual offers by selecting one of the individual lift/reject buttons 156. Countdown field 158 indicates that the seller has selected the "timer countdown" option, which has been invoked as all slots have been filled. Chart 154 displays the total offer volume for the auction and indicates the auction size has been met, thus the presence of waitlist 152.

Referring now to Figure 7 a flow diagram illustrating an auction control process according to an embodiment of the present invention is shown generally as 160. Beginning with step 162 the process selects the first auction to be reviewed. At step 164 process 160 determines if the selected auction has closed. This may occur by any number of means, including but not limited to: a fixed time provided by the creator of the auction, a minimum acceptable amount (e.g. how many fractional slots must be filled), or the creator of the auction may choose to close it on their own initiative. The seller may decide, despite the fact that all fractional slots of a lot have not been filled by bids, to close the auction and sell the fractions to those who have placed bids. There are a number of situations where a seller would wish to close the auction early. The seller may have alternate avenues to sell the additional product. For example, an airline may put a block of seats on a particular flight up for fractional auction. If there are not enough bids to cover all the seats, the airline can close the auction, sell the seats to the successful bidders and sell the extra seats directly or through travel agents. In another situation, the seller may not have possession of the lot that they have placed for auction. In this case, the seller may be in a position to purchase less than the lot amount to cover the bids. In other cases, the seller may have cash flow difficulties and requires immediate payments. Similarly, in the case of a reverse auction, the buyer may wish to close the auction before the total amount of product originally requested has been offered for sale.

If the auction has been closed, step 166 is invoked to close the auction. If the auction is still active, step 168 is invoked. Step 168 determines if there have been any bids withdrawn from the still active auction. If bids have been withdrawn the process moves to step 170 in which any available fractional slots are filled if any bids exist on the waitlist. If withdrawals have occurred, the newly opened slots are filled with bidders that have been placed on a waiting list. A bidder is placed on a waiting list when they choose to bid even though all fractional slots have been filled. The filling of the open slots may employ any number of algorithms including first come first served be individually selected by the client who posted the auction, or more complex weightings based upon parameters such as credit rating and the number of fractional units bid upon. If no withdrawals have occurred or upon completion of step 170 the next step invoked is step 172.

Returning now to step 166, the auction has been determined by step 164 to have expired and must be closed. Closing an auction involves setting the status to closed in the auction database 24 for the auction, setting the status to closed for all accepted bids and processing the now closed bids. Upon closing of the auction, the ordered or filled bids are provided to both the buyer and the seller. The seller then either goes into the market and makes the purchase of the commodity or takes existing inventory to fulfil the buyers' purchases. The buyers make payment or money is withdrawn from their accounts and the bonds or other property are transferred or delivered into their accounts. This closing may occur in real time immediately upon termination of the auction or may occur at fixed hourly times, e.g. every 6, 12 or 24 hours.

Moving now to step 172 a test is made to determine if the auction being processed is the last active auction in auction database 24. If it is not, the process returns to step 162 and the next auction in the database 24 is reviewed. If the last auction has been reviewed, the process 160 moves to post processing step 174. Post processing step 174 reorganizes database 24 by removing closed auctions for which the buyers and sellers have been notified. The process then returns to step 162 and the first active auction is selected.

The inventors do not intend the present invention to be restricted to the fractional sale of bonds. Another product that lends itself to sale by the present invention is reinsurance. Reinsurance is defined as the transaction whereby the reinsurer, for consideration, agrees to indemnify the reinsured company against all or part of the loss that the company may sustain under the policy or policies that it has issued. The reinsured company is referred to as the ceding company. At the first level of reinsurance, the ceding company is known as the direct insurer. Effectively, the direct insurer is in a manner of speaking borrowing money from the reinsurer at a cost to ensure that the company has sufficient funds to meet its obligations.

The current business forum for direct insurers and reinsurers to transact business, is created by brokers on a transactional basis on behalf of the ceding insurer. T e ceding party will instruct a reinsurance intermediary or broker to find a reinsurer. The broker will target a select group of reinsurers to solicit participation in the ceding party's policy or policies through the assumption of risk in return for a percentage share of the premium. Reinsurers interested in providing financial support, otherwise known as capacity, will forward their quotes to the broker who then forwards the quotes to the ceding party. The ceding party will review the quotes and determine which reinsurer or reinsurers to place their risk or risks with based on the cost of reinsurance as well as the financial strength of the reinsurer or reinsurers. The broker is paid a commission from both the ceding party for placing the business and from the reinsurer for forwarding the business. This process can takes months before a deal is made.

By utilizing the present invention for reinsurance; transactions may be conducted more quickly, at less cost and with wide accessibility for both ceding parties and reinsurers. In the most simple utilization of the present invention, a ceding party would post their reinsurance request as an auction. Reinsurers wishing to bid on the ceding party's business would post their bids (i.e. quotes). The auction would be set for a fixed duration of time during which time the ceding company may view the various quotes. All of the options discussed above would be available, such as the ability to reject or accept a quote, or the ability to close or modify the auction. Further, a reverse auction may be possible where a reinsurer wishing to obtain additional business may create an auction for consideration by ceding parties.

In an auction for reinsurance, some basic product information is expected to be provided. This information would include:

a) capacity (i.e. amount) of reinsurance requested; b) expected income from the policy or policies to be reinsured; c) risk profile / brief description of the policy or policies to be reinsured; d) loss information / claims ratios over a period of time; e) retention limits; and, f) credit ratings from firms such as A.M. Best, Moody's, S&P, and

DCR.

The invention may be used to auction any number of products, and is not restricted to bonds or reinsurance as described in the above examples. Any product that may be sold in bulk but is capable of being divided into fractions is a candidate for auction utilizing the present invention. For example a seller may wish to auction by fraction, or in the case of a reverse auction, a buyer may wish to purchase by fraction, such products as:

a) real estate (i.e. fractions or lots) of a parcel of land; b) any manufactured product including toys, books, electronic devices, packaged food, automobiles, chemicals .... (the list is finite, but long), in this scenario the seller may have many units of a product that they wish to sell in fractional amounts or the buyer (in a reverse auction) may wish to purchase a large quantity of the product by fraction; c) cargo space on a carrier such as an airline, transport truck, train or ship; d) passenger space on a carrier such as an airline or vacation package; e) commercial airtime be it on television, radio or the Internet; f) advertising space in traditional print media as well as television or the Internet; and g) mortgages, i.e. a bidder may bid on a portion of a mortgage pool, or a very large mortgage for a major development.

Similarly, a buyer looking for a quantity of a any product such as certain type and grade of steel, may post a reverse auction to solicit bids to fill an order.

A number of options for fractional auctions have been described herein, the majority dealing specifically with the auctioning of bonds. In the preferred embodiment an auction of any type of product may have the following optional features:

1) it may be a fixed price or a flexible priced auction; 2) a countdown timer may be invoked during which sellers may reject bids or buyers may withdraw bids;

3) a good until countdown feature, which at expiry allows for the acceptance of all bids, the rejection of all bids or the acceptance of some bids;

4) accept all bids or none option, it the option none is selected, the buyer/seller must provide a minimum amount to accept all, which is displayed to potential bidders; and

5) when a waitlist exists the ability for the poster of the auction to manage the waitlist as they chose, including rejecting bids and selecting which bid should move to an empty fractional slot.

Many more traditional features may be provided, for example:

1) a bid on an auction may not be withdrawn by the bidder;

2) dutch auctions, where every buyer pays the lowest price accepted but the highest bidder gets first choice; which in the case of a reverse auction means that all sellers provide product at the lowest offer accepted by the buyer, with the lowest offer being executed first; and

3) an auction may not be cancelled by a seller or in the case of a reverse auction, by the buyer.

The inventors have disclosed the invention as Internet and web page based. It is not however the intent of the inventors to exclude the implementation of the invention as disclosed and claimed to the Internet. Any computer network that is capable of supporting the software required to implement the present invention is within the scope of the present invention, be the network proprietary or public. One such example would be a WAN (Wide Area Network) linking bond dealers with selected clients, without providing Internet access, yet providing the functionality of the invention disclosed. The use of the term computer is not meant to exclude any programmed device capable of communicating with web site 18 of the present invention, for example: hand held computers, cellular phones, web TV or the like. Finally, communication with the web site of the present invention is not intended to be restricted by the existing Internet infrastructure, but may encompass wireless or infrared communication technologies.

Although the invention has been described with reference to certain specific embodiments, various modifications thereof will be apparent to those skilled in the art without departing from the spirit and scope of the invention as outlined in the claims appended hereto.

Claims

I CLAIM

1. A method for selling a product by fractions on the Internet, the method comprising the steps of:

2. A method for purchasing a product by fractions on the Internet, the method comprising the steps of:

3. The method of claims 1 or 2 wherein the bid may be in an amount other than said bid fraction size, said seller or said buyer posting said product having the option to accept or reject said bid in an amount other than said bid fraction size.

4. The method of claim 3 further comprising the condition that if the aggregate amount of said bids for said fractional portions meets the auction size, any bids after the auction size has been met are added to a waitlist.

5. The method of claim 4 further comprising the condition that if a bid not on the waitlist is rejected, a bid on the waitlist is brought forward to fill a fractional slot.

6. The method of claim 5 further comprising the step after the step of closing the recording of bids, of setting a timer countdown to permit bidders to withdraw if desired.

7. A method of buying or selling products in fractional amounts on the Internet, said method comprising the steps of:

8. The method of claim 7 wherein the bids may be in an amount other than said bid fraction size, said party posting said product having the option of accepting or rejecting each of said bids in an amount other than said bid fraction size.

9. The method of claim 8 further comprising the condition that if the aggregate amount of said bids for said fractional portions meets the auction size, any bids after the auction size has been met are added to a waitlist.

10. The method of claim 9 further comprising the condition that if a bid not on the waitlist is rejected, a bid on the waitlist is brought forward to fill a fractional slot.

11. The method of claim 10 wherein step c) further comprises the setting a timer countdown to permit bidders to withdraw if desired.

12. A computer system for auctioning a product by fractions on the

Internet, said computer system comprising:

13. The system of claim 12 wherein the bids may be in an amount other than said bid fraction size, said party posting said product having the option of accepting or rejecting each of said bids in an amount other than said bid fraction size.

14. The method of claim 13 further comprising the condition that if the aggregate amount of said bids for said fractional portions meets the auction size, any bids after the auction size has been met are added to a waitlist.

15. The method of claim 14 further comprising the condition that if a bid not on the waitlist is rejected, a bid on the waitlist is brought forward to fill a fractional slot.

16. A system for selling a product by fractions on a computer network the system comprising;

17. A system for purchasing a product by fractions on a computer network, the system comprising:

18. The system of claims 16 or 17 wherein said recording means further comprises flexible bid means for accepting bids not in the amount of said bid fraction size, said flexible bid means including the option of permitting said seller or said buyer posting said product to accept or reject said bid in an amount other than said bid fraction size.

19. The system of claim 18 further comprising waitlist means, said waitlist means adding new bids to a waitlist once the aggregate amount of said bids for said fractional portions meets the auction size.

20. The system of claim 19 further comprising waitlist management means, said waitlist management means moving a bid from the waitlist forward to fill a fractional slot if a bid not on the waitlist is rejected.

21. The system of claim 20 further comprising countdown means, said countdown means being invoked after the closing of said auction, said countdown means permitting bidders to withdraw if desired.