WO2001057769A1

WO2001057769A1 - Bank account stock trading

Info

Publication number: WO2001057769A1
Application number: PCT/US2001/003551
Authority: WO
Inventors: Robert L. Earthman, Jr.; James Frank Howell; Manmeet Singh
Original assignee: Bankstream Ltd
Priority date: 2000-02-04
Filing date: 2001-02-02
Publication date: 2001-08-09
Also published as: AU2001234790A1

Abstract

A method of trading stock or other securities using an Internet (20) link to an online broker (21) allows a user/trader (10) to access funds in a bank account (20) via an Electronic fund network (27) remote from the broker rather than requiring funds to be on deposit at the broker itself. When the user/trader sends a trade order to the online broker, the broker queries the user/trader's bank account via an electronic funds transfer network and if the funds are available, the broker sends a message to a stock exchange to execute the trade and debits the bank account for the cost of the stock trade.

Description

BANK ACCOUNT STOCK TRADING

Cross-Reference for Related Application This application is a continuation-in-part of application Serial Number 09/497,960 filed February 4, 2000.

Technical Field: This invention relates to stock trading, and more particularly to a method of internet trading using access to a bank account rather than relying on funds in a brokerage account.

Description of the Related Art: The internet has allowed large numbers of people to trade stocks and other securities on a real-time basis. Heretofore, only persons having immediate access to traders on the floor of an exchange could follow the moment-to-moment trading of securities so that they could execute trades based on absolutely up-to-the-moment information. The only persons having such immediate access were members of the exchange, i.e. , persons having seats on the exchange, and those having expensive local connections with members. Real-time quotes that show bid and asked prices and volume of shares for these bid and asked prices, as well as reflecting each trade within moments of its execution, are now available at low cost to an individual at home, whereas previously only brokers near the exchange in New York, for example, could have access to this type of information. Trading by the internet, as well as various changes in regulations, have resulted in a great reduction in the cost of making transactions on the exchanges. Trading can now be accomplished virtually without human intervention, and this has allowed the transaction cost to drop by as much as an order of magnitude. Stock trades which may have cost an individual as much as $200 or $300 for a block of several thousand shares may be performed reliably for as little as $10 or even $5, and it is possible that this cost will go even lower as technology and regulations change. The result of these factors, i.e. , availability of low-cost, immediate information, and reduction in transaction cost, has resulted in a marked increase of trading volume as more people get involved. However, there is still a large percentage of the population who have assets that could be invested more profitably in securities , but who do not have trading accounts at brokerage houses, and so do not engage in buying and selling of securities. One of the factors that keep these people from investing in the market is the reluctance to commit funds to a brokerage account. They may envision that transfer of funds into and out of such an account may be complicated and create delays in having access to their funds. Or, they may be distrustful of how available their funds would be in the event of events such as markets downturns, mergers, bankruptcies, etc. For whatever reason, their are large numbers of people who have available assets and who would profit by more ready access to stock trading. With the trend toward online trading of securities, where opportunities for profitable investments are found to be available with short notice, it is increasingly important that delays in setting the stage for making trades can be a barrier to the individual at-home trader. The time needed to set up an account at an online brokerage house, and to transfer funds into a trading account at the broker, becomes a deterrent to taking advantage of investment opportunities. Also, for a trader to gain actual experience in the quality of service of various online brokers concerning reliability and speed of executing transactions, cost, accuracy of reporting, etc. , it is preferable to try services offered by several different brokers. Setting up accounts at each of these brokers on a trial basis can be burdensome, introduce time delays, and can be costly to have balances in several accounts. SUMMARY OF THE INVENTION It is therefore one object of the present invention to provide an improved method of making stock trades electronically, using a network such as the internet. It is another object of the present invention to provide an improved method of using a broker for stock trades without having funds on deposit at the broker. It is yet another object of the present invention to provide an improved internet brokerage transaction processing procedure. The above as well as additional objects, features, and advantages of the present invention will become apparent in the following detailed written description. According to one embodiment of the invention, a method of trading stock or other securities using an internet link to an online broker allows a user/trader to access funds in a bank account remote from the broker, rather than requiring funds to be on deposit at the broker itself. When the user/trader sends a trade order to the online broker, the broker queries the user/trader's bank account via an electronic funds transfer network, and if funds are available, the broker sends a message to a stock exchange to execute the trade and debits the bank account for the cost of the stock trade. The trade occurs almost immediately, and the user/trader receives a confirmation. This is a single transaction mode. In addition, a batch transaction mode may be used, wherein the user/trader allocates a fixed amount for use by the broker in making trades that day. The broker verifies that the fixed amount is available, and transfers the funds to the user/trader's buying-power account, and trades are debited or credited as the user/traders sends trade orders. When the user/trader logs off, the amount in the buying power account is transferred from the broker back to the bank ccount via the electronic funds transfer network. BRIEF DESCRIPTION OF THE DRAWINGS The novel features believed characteristic of the invention are set forth in the appended claims. The invention itself, however, as well as a preferred mode of use, and further objects and advantages thereof, will best be understood by reference to the following detailed description of an illustrative embodiment, when read in conjunction with the accompanying drawings, wherein: Figure 1 is an electrical diagram in block form of a computer network which may use the features of the present invention; Figure 2 is a view of the video display at the user station as in the system of Figure 1, showing a Figure 3 is a diagram showing the flow of steps in a stock trading transaction using the system of Figures 1 and 2; and Figure 4 is a diagram like Figure 3 showing the flow of steps in a batch transaction using the system of Figures 1 and 2.

DETAILED DESCRIPTION OF PREFERRED EMBODIMENT Referring to Figure 1, a computer network system is shown which may use concepts of the invention. A computer station 10 is employed by the user/trader to obtain information from a network such as the internet. The computer station 10 includes a monitor 11, a system unit 12, keyboard 13, and a mouse 14, in the usual manner. The system unit 12 contains a CPU and system memory, and an adapter card or modem for connection to a network. For example, the station 10 may be connected by a modem and a phone line 15 or cable to an internet server 16 or service provider. The system memory 17 contains an operating system, e.g. , Windows™, and an applications program for accessing the network, such as an HTTP-compliant web browser 18 such as Netscape Navigator^* or Windows Explorer™, as well as an email client 19 which supports simple mail-transfer protocol (SMTP) used for e-mail. A special program for retrieving real-time stock quotes, and sending buy/sell orders to a broker, is installed in memory 17, as will be explained. The server 16 or service provider is connected to the internet 20, or communications network of this type. Thus, the computer station 10 is able to send and receive messages to other stations on the network 20, and to retrieve information from the network or internet 20, using standard internet connections and applications software. The internet 20 allows the user at station 10 to link with other servers and networks such as a broker station 21 to transfer various types of information. The term internet refers to the collection of networks and gateways 23 and 24 that utilize the TCP/IP suite of protocols. TCP/IP is an acronym for "Transport Control Protocol/Interface Program, " a software protocol for communication between computers. The internet 20 is a system of geographically distributed computer networks interconnected by computers executing networking protocols allowing users to interact and share information over the networks. The internet has evolved as an "open" system for which developers can design software applications for performing specialized operations or services, such as the stock trading services herein described. The broker is a station 21 on the network 20, and, like the user station 10, this is a computer having send and receive access to the network and thus to all stations on the network. The broker station 21 also has a link 25 to a stock exchange station 26 (or several exchanges) or other facility for making trades of securities of the like. The trades may be executed electronically as is done in NASDAQ, or may be linked by communication via voice or display/keyboard with a specialist on the floor, as is true for the NYSE. The broker station 21 is capable of sending data to the user station 10 about real-time bid/ask prices and the like for securities traded on the exchange 26, as well as to receive buy and sell orders as messages from the user station 10, and to send confirmation messages to the user. Ordinarily, the user would have to have an account with the broker with funds available before any trades would be executed; to avoid this , according to the invention, funds to cover a trade are obtained on a real-time basis from a source other than an account at the broker. Referring to Figure 2, an example of the information on the screen of monitor 11 is shown. A window 22 is created by the stock-trading applications program active in memory 17. The user/trader has selected the stock or stocks he wants to watch, e.g. , Dell, and the bid and ask prices for the selected stock or stocks. The broker station 21 is sending these prices in real time as trades are made on the exchange 26. Various other information may be displayed, such as daily high/low, shares traded today, etc. When the user/trader decides to make a trade, he highlights the stock, e.g. , Dell, and clicks on "Buy" or "Sell" buttons so that another window comes up asking for the number of shares and for the price to buy/sell or for an "at the market" order. The trade information is immediately transmitted by the user station 10 to the broker station 21. The broker station 21 also has a communication path to a bank or electronic funds transfer network 27 associated with a bank 28. This communication path can be either a direct line 29, or a private network, or the internet 20. By this path, the broker station can request and receive a transfer of funds from an account in bank 28 owned by the user /trader at station 10. According to the invention, a user/trader at station 10 can make trades on exchange 26 with funds in an account set up at a bank 28, using a broker station 21 which is able to both verify funds through the EFT network 27 and execute trades through an exchange 26. The phrase "EFT network" is used herein broadly to refer to any type of system for accessing accounts and transferring fund electronically. This could include ATM networks (automatic teller machine networks), independent processors/router networks , which are entities that perform data processing of accounts for banks, or in/house processors operated by banks themselves. Examples of ATM networks include Pulse, Star, Honor, NYCE, and Magic Line. Examples of electronic fund processor/routers that perform processing for other entities include Affiliated Computer Services (ACS) , Amarillo National Bank, Commlink Corporation, Core Data Resources, Dash Network, Deluxe Electronic Payment Services, EDS, Electronic Payment Services, First Security bank, Fiserv, Intercept, M&I Data Services, Mellon Network Services, Midwest Payment Systems, Moneybelt (First Tennessee Bank), Texas State Bank and U.S. Processing Inc. There are any number of fairly large banks that perform their own in/house processing and need not be mentioned here. These various EFT networks service ATMs and debit card POS machines around the country. The trades are made on the exchange 26 as any other typical trade is normally made; the broker station 21 simply reroutes the trade information to the appropriate exchange 26. The broker station 21 also relays the information to the EFT network 27 to verify banking funds, doing this by sending out pertinent information that the EFT network 27 uses to access the customer's account at bank 28. The broker station also has the function of relaying messages back to the user station 10 from the exchange 26 and the EFT network 27, acting as the middleman in this chain. There are two methods or modes by which funds are transferred for trading , one being the single transaction method and the second being the batch transaction method. The single transaction method is based on the concept that each trade made by a customer at user station 10 is individually verified through the EFT network 27. That is, as a person is executing trades at user station 10, the funds for each trade are individually verified and processed as they are made. The batch transaction method entails the customer at user station 10 initially selecting a certain amount of money from their actual account at bank 28, temporarily transferring the funds to a brokerage account at broker station 21, and using these funds to execute trades. This transfer is done with the EFT network 27 and only needs to be done initially. This setup might be useful for someone who is concerned about the time the overall transaction might take since funds do not need to be verified individually. In Figure 1, the network 20 is referred to as the internet, but can be any communication network or path. A customer can use the internet to gain access to the broker station 21 , logging onto the internet through any internet service provider (ISP) 16, whereby a bank customer is able to access the broker as described above. A second way to connect is by using a Virtual Private Network (VPN), which includes any subset of the internet including local networks; once the connection is established, the customer is able to log into the broker station 21. A third method of accessing the broker station 21 is by connecting directly, using a line directly connected to the servers at the broker. In this case the user station 10 may function as a remote terminal rather than a stand-alone node, using software running on the servers at the broker station 21. Once a connection from user station 10 to the broker station 21 is established through any of the connection means just described, the user (a customer of bank 28) is prompted to enter his user identification and password. At this point, the user will decide which method of trading he would prefer. He can choose the single transaction method, which verifies each trade individually, or the batch transaction method, which temporarily allocates a portion of the funds in the customer's bank account at bank 28 into a trading account at broker station 21; trades are made using those funds, and verification of the funds through the EFT network 27 only occurs when initializing the trade account. The single transaction method will be described in more detail with reference to Figure 3. This method is based on the concept that the funds for each trade made by a user at station 10 will be individually verified through an EFT network 27. By verifying funds individually, customers can keep an up-to-date record of their transactions as well as only have to deal with one single account. This method behaves as a debit purchase; the funds are verified electronically and then used to execute trades. Once logged into the broker station 21, step (1), and a successful response from the broker station 21, step (2), the user can execute trades. When a trade is made, an order is sent to the broker station 21, step (3). The funds from the customer's bank account at bank 28 for this transaction are subsequently verified and processed from the broker station 21 through the EFT network 27, steps (4) and (5); the order is then routed to the appropriate exchange 26 where it is executed assuming it is under compliance . The information from both the bank account at bank 28 and the exchange 26 is relayed back to the customer at station 10, step (6), who is now ready to make another trade or log out. In the example of placing a buy order, step (3), the user would execute it by first logging into the broker station 21 with his user identification and password, step (1). The broker station 21 would verify this information and send a response to the customer, step (2). The user would place his buy order next (step 3), which would be relayed to the EFT network 27 where it is checked against the account for available funds. If funds are present, the account in bank 28 is debited by the dollar amount of the trade, step (5), and the buy order is then sent to the appropriate exchange 26; otherwise, the order is rejected. Whether the debit is accepted or rejected, the EFT network 27 provides a debit response to the broker station, step (5) , and then the broker relays the message about the debit results, and information from the exchange 26, is rerouted back to the user, step (6). The only difference between a buy and a sell order lies in how the EFT network and bank account are dealt with for the trade. When a sell order is executed, step (3), the account in bank 28 is simply credited the value of the trade. The same log-in procedures apply for sell orders as they do for buy orders, and the credit response is also similar. An example of a single-transaction session will be given. A user/trader begins a session by logging into the internet 20 at station 10. After typing in a user name and password, the user is ready to begin. After watching the market in his selected stocks for a time, he decides to purchase 100 shares of Dell for $40 each. He knows he has $10,000 in his account at bank 28, so this transaction should go through. His order is sent to the broker station 21, step (3) above, and the broker station sends the buy order to the an exchange 26, NASDAQ in this case, to execute the order as well as to the EFT network 27. The EFT network 27 verifies the funds and debits his account in bank 28 for $4,000, the cost of this trade. A debit response and trade confirmation is then sent back to the user/trader at station 10 who is reassured that his order confirmation was received at the price he wanted. So time later, the user/trader sees that Dell has risen two points up to $42. He decides he no longer wants to hold on to his stock, so he will sell and recover his profits. He executes a sell order for his 100 shares at $42 each, bringing the total value of this transaction to $4,200. The broker station 21 takes this sell order and routes it back to the NASDAQ exchange where it is once again sold at the price the user/trader asked. His account in bank 28 is credited with the $4,200 via EFT network 27, at the request of the broker station 21, bringing his balance up to $10,200. A confirmation message is sent to the user/trader, who just made $200. Referring to Figure 4, the other mode of use is the batch transaction method, in which the funds for trading are set up initially by establishing an account referred to here as a "buying power account" which provides the total amount of funds the user wishes to trade with. Trades are then executed using this money; funds are no longer verified for each individual trade. The advantage of this process is the ability to make multiple trades without having to wait for the verification of funds in the bank account. For someone concerned with trading delays, i.e. , the time elapsed between when he sends a buy order and when the trade is executed on the exchange, this is extremely helpful. Once the user/trader at station 10 is logged in at step (1), and a successful log-in response is received, step (2), a balance request is immediately sent to the broker station 21, step (3) and this is relayed to the EFT network 27, step (4). Once the account is verified at bank 28, the balance report is sent to the broker station, step (5), and this information is relayed to the user station 10 and the balance is displayed on the user's screen, step (6). The user then sets the amount of money he wishes to trade with (some portion of his account funds) and sends this request back to the broker station 21, step (7). The broker station 21 then sends a debit request to the EFT network 27, step (8) and once again the EFT network verifies this amount with the bank 28 and then debits the account. In step (9), if the debit response from the bank is successful, the broker station 21 updates the user's buying power, that is, the amount of dollars he has to trade with; if the debit response is not successful, the user's buying power is automatically reset to zero. This information is then relayed back to the user, step (10), who is now ready to trade. A number of buy and sell orders could now follow. If a buy order is made, step (11), it is sent to the broker station 21 and immediately routed to the appropriate exchange 26 (not shown in flow). Assuming the order was in compliance with the exchange rules and the user has enough buying power to execute the trade, the order will be processed, and the information will be relayed back to the user, step (12). When the user is finished trading, a log-off message is sent, step (13), and at this point the user's account is credited the dollar amount located in the buying power account, step (14). The final bank account information is sent from the EFT network 27 back to the broker station 21 , step (15), and this is relayed on to the user, step (16). The batch transaction process just described is the same for sell orders with only a few minor differences. Instead of a buy order being sent, a user will place a sell order, step (11). If the user/trader has the securities being sold in the broker account, or otherwise satisfies the broker and exchange rules for selling securities, this order will be processed if it is under compliance with the appropriate exchange, step (12). With this only exception, the process is exactly the same as a buy order. An example of trading using the batch transaction mode will be given. The user/trader at station 10 starts a session by logging into the internet 20 and then into the broker station 21. The broker station verifies user name and password, and balance information for this user is immediately requested by the broker station, step (4). Within a few seconds the user/trader receives a message, step (6) that he has a balance of $10,000 in his account. Anticipating that he may wish to make several investments that day, he places $8,000 into his buying power at broker station 21, step (7). His request is verified and granted, step (8). He watches trading prices for his selected stocks and notes that Dell is at a favorable price; he decides to buy 100 shares of Dell at $40 each. He places the buy order, which is sent to the broker station 21, where the funds for the purchase are deducted from the user/trader's buying power and the trade is sent to the NASDAQ exchange where the buy goes through. Deducting the cost of the Dell shares, his new buying power account total is now $4,000. Later, the user/trader notices Dell has risen one point; he is still expecting the price to go higher so he purchases another 50 shares at a price of $41 per share. This trade debits another #2,050 out of his buying power account, which leaves his balance at $1 ,950. Still later, the user/trader decides to sell his shares of Dell since the stock has risen two points since he originally bought them. He places his sell order of 150 shares at $42 each; he receives the price he asked for, and $6,300 is placed into his buying power at the broker station 21. The dollar value of his buying power account how totals $8,250. Satisfied with the results he decides to log off for the day. When he does so, the money in his buying power account is replaced into his bank account by messages between the broker station 21 and the bank 28 via the EFT network 27. A message quickly appears that his bank account balance is $10,250. While the invention has been shown and described with reference to a particular embodiment, it will be understood that various changes in form and detail of the preferred embodiment, as well as other embodiments of the invention, may be made by those skilled in the art without departing from the true spirit and scope of the invention.

Claims

What is claimed is: 1. A method of executing a securities transaction using a communications network, comprising the steps of: sending a trade order from a user station via said network to a broker station; receiving said trade order at said broker station and also receiving at said broker station a verification message for transfer of funds on behalf of a user at said user station from an electronic funds transfer network; executing a trade on a securities exchange from said broker station in response to said trade order.

2. A method according to claim 1 including the step of sending a verification request from said broker station to said electronic funds transfer network.

3. A method according to claim 2 including the step of debiting a bank account maintained by a user by a message from said electronic funds transfer network.

4. A method according to claim 3, the verification message and said verification request being associated and in response to said trade order.

5. A method according to claim 3, the verification message and said verification request being prior to said trade order and being for an amount greater than said trade order, whereby a number of such trade orders may be accommodated.

6. A system for executing a securities transaction using a communications network, comprising: means for sending a trade order from a user station via said network to a broker station; means for receiving said trade order at said broker station and also receiving at said broker station a verification message for transfer of funds on behalf of a user at said user station from an electronic funds transfer network; means for executing a trade on a securities exchange from said broker station in response to said trade order.

7. A system according to claim 6 including means for sending a verification request from said broker station to said electronic funds transfer network.

8. A system according to claim 7 including means for debiting a bank account maintained by a user by a message from said electronic funds transfer network.

9. A system according to claim 8, wherein the verification message and said verification request are associated with and in response to said trade order.

10. A system according to claim 8, wherein the verification message and said verification request are sent prior to said trade order and are for an amount greater than said trade order, whereby a number of such trade orders may be accommodated.