Auction-Based Security Valuation
Disclosed are computer-implemented techniques for valuing non-marketable financial instrument such as employee stock options. The techniques include determining a market price of a derivate security that represents exposure to the non-marketable financial instrument by receiving bids or offers at a pre-determined time prior to the start of an auction and determining price information in a computer prior to a scheduled auction close. The determined price information is disseminated to auction participants, and the techniques includes closing the auction and executing on a computer orders and bids for the security at the determined price.
1 . A computer-implemented method comprising:
determining a market price of a derivative security that represents exposure to an non-marketable financial instrument by
receiving bids or offers at a pre-determined time prior to the start of an auction;
determining price information in a computer prior to a scheduled auction close;
disseminating the determined price information to auction participants;
closing the auction and executing on a computer orders and bids for the security at the determined price.
2 . The method of claim 1 in which the non-marketable financial instrument is an employee stock option.
3 . The method of claim 1 wherein the market price for the security is used to determine a valuation for employee stock options.
4 . The method of claim 1 wherein the method receives multiple bids against a single offer.
5 . The method of claim 1 wherein the method receives multiple offers and a single bid.
6 . The method of claim 1 wherein the method receives multiple bids and multiple offers.
7 . The method of claim 1 wherein the method receives a single bid and a single offer.
8 . The method of claim 1 further comprising:
recording in a computer settlement of the derivative security based on the number of shares or a cash amount
9 . The method of claim 1 wherein the auction information includes a price, paired units, and unexecuted units at a determined price.
10 . The method of claim 1 wherein the auction information is disseminated through existing market or exchange systems.
11 . The method of claim 1 wherein the auction information is disseminated at a specified time prior to the executing and information is posted at a first rate during a first period.
12 . The method of claim 1 wherein an execution priority is determined based on price and timestamp of entered bids or offers.
13 . The method of claim 1 wherein an amount of time monitoring prices of the security is increased if a percentage change in the price of the security prior to the release is greater than a threshold value during a predetermined interval prior to a scheduled close of the auction.
14 . The method of claim 11 , further comprising posting information at a second rate during a second period.
15 . An apparatus comprising:
a computing device that is configured to
provide a price-discovery mechanism for securities by conducting an auction process;
receive bids and offers at a pre-determined time prior to the start of the auction;
determine and disseminate the price information, beginning prior to the scheduled auction close;
close the auction; and
execute orders or bids for the security at a determined price.
16 . A computer program product residing on a computer readable medium for conducting an auction in a security comprises instructions for causing a computer to:
provide a price discovery mechanism for securities by conducting an auction process;
receive bids and offers at a predetermined time prior to the start of the auction;
determine and disseminate price information, beginning prior to the scheduled auction close;
close the auction; and
execute orders or bids for the security at a determined price.
17 . A memory storing a data structure for use by an application program that administers an employee stock option valuation process with the data structure comprising:
a number of security shares and issuer information;
orders and bids for the security;
price volatility; and
an auction price.