Methods and apparatus for formulation, initial public or private offering, and secondary market trading of risk management contracts

• US 20020069155A1
• Filed: 08/06/2001
• Published: 06/06/2002
• Est. Priority Date: 10/17/2000
• Status: Active Grant

• Current Assignee: North American Derivatives Exchange, Inc. (IG Group Holdings PLC)
• Original Assignee: North American Derivatives Exchange, Inc. (IG Group Holdings PLC)
• Inventors: Yee, Kenton K., Nafeh, John
• Granted Patent: US 7,983,976 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

Key features of these methods, apparatus, and designs include (but are not limited to) innovations and implementations of futures securities; the notion of Type I, Type II, and Type III futures contracts custom tailored to specific clienteles; the notion of tickets and coupons as tradable futures contracts; the notion of bifurcation; the notion of redeemable bundles; and notion of realization of the futures market on the Internet; the apparatus of an Internet-based trading interface and engine; the notion of cookie-cutter futures electronic Internet-based futures markets for each security; the feature of maximal reliance on the Internet; and the business concept of “profitability without the need for high trading volume.”

Claims

1. A method of conducting business comprising the steps of:

establishing a computer-network based futures trading system electronically accessible by prospective traders;

selling, over said trading system, futures contract bundles, each contract bundle comprising at least two futures contracts;

subsequent to a sale of said futures contract bundles, accepting for resale over said trading system, any of said futures contract bundles;

reselling, over said trading system, accepted futures contract bundles;

settling said futures contract bundles; and

assessing, for at least one of said futures contract bundle sale and said futures contract resale, a transaction fee therefor.

2. The method of claim 1, wherein the step of establishing a computer-network based futures trading system electronically accessible by prospective traders includes establishing a computer-network based futures trading system electronically accessible by prospective traders via at least the internet.

3. The method of claim 2, wherein the step of selling, over said trading system, futures contract bundles includes the step of providing a user interface that allows prospective traders to access said futures trading system.

4. The method of claim 3, wherein the step providing a user interface that allows prospective traders to access said futures trading system includes providing a world-wide-web user interface.

5. The method of claim 3, wherein said user interface allows any computer-network user to view information about futures contracts for sale on said trading system.

6. The method of claim 3, wherein said user interface allows only predetermined computer-network users to view information about futures contracts for sale on said trading system.

7. The method of claim 1, wherein the step of selling futures contract bundles, includes selling a futures contract bundle comprising at least two futures contracts, each of said at least two futures contracts corresponding to one of at least two future possible outcomes of a phenomenon at a time of maturity thereof, said futures contract bundle being defined to pay an aggregate fixed sum at maturity, each of said at least two futures contracts paying said fixed sum at maturity upon the happening of the future possible outcome of said phenomenon associated with that risk management contract, each of said at least two risk management contracts paying a zero sum at maturity upon the non-happening of the future possible outcome of said phenomenon associated with that risk management contract.

8. The method of claim 7, further comprising the step of:

receiving data from a prospective customer identifying a predetermined phenomenon for which a futures contract is desired, the phenomenon having at least two future possible outcomes at a time of maturity.

9. The method of claim 8, wherein the step of selling futures contract bundles, includes selling a futures contract bundle comprising at least two futures contracts, each of said at least two futures contracts corresponding to one of said at least two future possible outcomes of said predetermined phenomenon at a time of maturity thereof.

10. The method of claim 8, further comprising the step of:

determining, prior to a sale of a futures contract bundle thereon, whether said predetermined phenomenon for which a futures contract is desired is suitable for the issuance of futures contracts thereon.

11. The method of claim 7, wherein said phenomenon has a recurring regular occurrence and wherein said method further comprises the steps of:

selling over said trading system, a plurality of futures contract bundles, each contract bundle comprising at least two futures contracts, at least one of said plurality of futures contract bundles having a time period from a sale thereof to an expiration thereof which partially overlaps the time period from a sale of another of said plurality of futures contract bundles until an expiration of said another of said plurality of futures contract bundles, said at least one of said plurality of futures contract bundles corresponding to a first periodic occurrence of said phenomenon and said another of said plurality of futures contract bundles corresponding to a second periodic occurrence of said phenomenon.

12. The method of claim 11, wherein each one of said plurality of futures contract bundles are sold at staggered time periods having a predetermined relationship to the timing of a specific periodic occurrence of said phenomenon associated therewith.

13. The method of claim 12, further comprising the step of:

selling, over said trading system, a futures contract bundle associated with a specific periodic occurrence of said phenomenon at substantially the same time as an expiration of a futures contract bundle associated with another periodic occurrence of said phenomenon.

14. The method of claim 1, wherein the step of selling futures contract bundles and the step of settling said futures contract bundles are accomplished in a credit-risk free manner.

15. The method of claim 1, wherein:

the step of selling futures contract bundles comprises selling futures contract bundles on margin; and

the step of selling futures contract bundles and the step of settling said futures contract bundles are accomplished in a credit-risk manner.

16. The method of claim 1, further comprising the step of accepting from a prospective trader indicia of the identity of at least one prospective counterparty.

17. The method of claim 16, wherein the step of reselling, over said trading system, said any of said at least two futures contracts includes reselling, over said trading system, said any of said at least two futures contracts only to prospective traders having identities corresponding to said indicia.

18. The method of claim 1, wherein the step of establishing a computer-network based futures trading system electronically accessible by prospective traders includes establishing a computer-network based futures trading system accessible only by predetermined groups of prospective traders.

19. The method of claim 18, wherein said predetermined groups of prospective traders are selected from the group consisting of predefined and prequalified prospective traders.

20. The method of claim 1, further comprising the steps of:

introducing new futures contracts to the market as a split of an existing futures contract, an aggregate liquidation value of the new futures contracts equaling the liquidation value of the existing futures contract.

21. The method of claim 20, further comprising the steps of:

concurrent with said step of introducing new futures contracts to the market as a split of an existing futures contract, retiring said existing futures contracts.

22. The method of claim 1, further comprising the step of:

receiving at least two existing futures contracts prior to a maturity thereof, and introducing a new futures contract to the market as a combination of said existing futures contract, a liquidation value of the new futures contract equaling an aggregate of the liquidation value of said at least two existing futures contract.

23. The method of claim 22, further comprising the step of:

soliciting, over said trading system, prospective traders for delivery of said at least two existing futures contracts, which together represent a futures contract bundle, prior to a maturity thereof.

24. The method of claim 1, wherein said step of accepting said futures contracts for settlement thereof includes accepting said futures contract bundles for settlement at an expiration thereof.

25. The method of claim 1, wherein said step of accepting said futures contracts for settlement thereof includes accepting said futures contract bundles for settlement prior to an expiration thereof.

26. The method of claim 1, further comprising the step of:

providing a market authority for mediating any dispute related to said futures contracts.

27. The method of claim 1, wherein the step of establishing a computer-network based futures trading system electronically accessible by prospective traders includes establishing a computer-network based futures trading system electronically additionally accessible by non-trading observers.

28. In a computer network-based futures trading system, including a communications interface, a plurality of processing modules for formation, sale, resale and settlement of futures contract bundles, each of said futures contract bundles comprising at least two futures contracts, the improvement comprising:

means for enabling market participants to trade directly with other market participants, and not through third parties, wherein said traders are anonymous to each other.

29. In a computer network-based futures trading system, including a communications interface, a plurality of processing modules for formation, sale, resale and settlement of futures contract bundles, each of said futures contract bundles comprising at least two futures contracts, the improvement comprising:

means for receiving input from a prospective trader defining a hedge instrument directed to a phenomena having at least two future possible outcomes at a time of maturity of said instrument.

30. A computer-based futures trading system to enable the formation, sale, resale and settlement, and optionally split, of risk management contracts, the system comprising:

a communications interface for sending and receiving data;

a first processing module for receiving data to define a desired contract for a predetermined phenomenon, the phenomenon having at least two future possible outcomes at a time of maturity;

a second processing module, responsive to said first processing module, for generating a specific futures contract bundle based on said received data, said contract bundle comprising at least two risk management contracts, each of said at least two risk management contracts corresponding to one of said at least two future possible outcomes of said phenomenon at the time of maturity, said futures contract bundle being defined to pay an aggregate fixed sum at maturity, each of said at least two risk management contracts paying said fixed sum at maturity upon the happening of the future possible outcome of said phenomenon associated with that risk management contract, each of said at least two risk management contracts paying a zero sum at maturity upon the non-happening of the future possible outcome of said phenomenon associated with that risk management contract;

a third processing module for selling said specific futures contract bundle;

a fourth processing module for accepting for resale and for reselling risk management contracts

a fifth processing module for accepting said futures contract bundles for settlement thereof; and

a sixth processing module for assessing, for at least one of said futures contract bundle sale and said futures contract resale, a transaction fee therefor.

31. The computer-based futures trading system of claim 30, wherein said communications interface includes at least the Internet.

32. The computer-based futures trading system of claim 30, wherein said phenomenon is a change of interest rate event by the FOMC.

33. The computer-based futures trading system of claim 30, wherein said phenomenon is a value of an economic indicator published by a government agency.

34. The computer-based futures trading system of claim 30, wherein said phenomenon is an outcome of one of a court decision and an administrative agency decision.

37. A computer-based futures trading system in accordance with claim 36, wherein said administrative application includes:

means for undertaking limited inquiry into all market transactions;

means for suspending and resume trading in particular contracts or the market as a whole;

means for suspending, resuming or terminating account privileges;

means for suspending contract payouts;

means for amending and overriding calculated settlement prices and redistributing funds; and

means for distributing announcements to market participants.

38. A computer-based futures trading system in accordance with claim 37, wherein said surveillance system includes:

means for viewing pending bid and offer orders;

means for viewing the details of all transactions;

means for viewing all electronic bulletin board postings;

means for defining and tracking alerts for specific events including transaction patterns; and

means for investigating alerts.

39. A computer-based futures trading system in accordance with claim 36, further comprising:

means for interfacing with a point of sale terminal that is adapted to receive an indicator of trader identity and a contract to be settled.

40. A computer-based futures trading system of claim 39, further comprising:

at least one point of sale terminal communicatingly connected to said means for interfacing with a point of sale terminal.

35. A method of providing risk hedging capability to prospective traders comprising the steps of:

receiving data from a prospective trader identifying a predetermined phenomenon for which a futures contract is desired, the phenomenon having at least two future possible outcomes at a time of maturity;

selling futures contract bundles, each contract bundle comprising at least two futures contracts, each of said at least two futures contracts corresponding to one of said at least two future possible outcomes of said phenomenon at a time of maturity thereof;

subsequent to a sale of said futures contract bundles, accepting for resale over said trading system, any of said futures contract bundles;

reselling, over said trading system, accepted futures contract bundles at a then prevailing market price;

subsequent to a resale of said accepted futures contract bundles, publishing said then prevailing market price;

settling said futures contract bundles; and

assessing, for at least one of said futures contract bundle sale and said futures contract resale, a transaction fee therefor.

36. A computer-based futures trading system comprising:

a user interface front end, said front end providing interface to at least a new instrument application, an order placement application, a bundle sale redemption and expiration application, a clearing application, an administrative application, and a surveillance application;

an order management and processing system, said order management and processing system including a validation subsystem, an order routing subsystem, and an order matching subsystem;

a contract expiration management system for recording ownership traded contracts, for notifying contract owners of the expiration thereof, and for communicating with a settlement bank directing the bank to transfer funds in accordance with the settlement value of said contracts;

a surveillance system.

41. A method of conducting business comprising the steps of:

establishing a computer-network based coupons trading system electronically accessible by prospective traders;

selling, over said trading system, coupons;

reselling, over said trading system, at least a portion of said coupons;

settling said coupons; and

assessing, for at least one of said coupon sale and said coupon resale, a transaction fee therefor.

42. The method of claim 41, wherein the step of establishing a computer-network based coupons trading system electronically accessible by prospective traders includes establishing a computer-network based coupons trading system electronically accessible by prospective traders via at least the internet;

43. The method of claim 42, wherein the step of selling, over said trading system, coupons includes the step of providing an interface that allows prospective traders to access said coupons trading system.

44. The method of claim 43, wherein the step providing a user interface that allows prospective traders to access said coupons trading system includes providing a world-wide-web user interface

45. The method of claim 43, wherein said user interface allows any computer-network user to view information about coupons for sale on said trading system.

46. The method of claim 43, wherein said user interface allows only predetermined computer-network users to view information about coupons for sale on said trading system.

47. The method of claim 41, further comprising the step of accepting said coupons for settlement thereof includes accepting said coupons for settlement at an expiration thereof.

48. The method of claim 47, further comprising the step of:

redeeming the coupons through a web-based electronic interface.

49. The method of claim 41, wherein said step of accepting said coupons for settlement thereof includes accepting said coupons for settlement prior to an expiration thereof.

50. The method of claim 49, further comprising the step of:

redeeming the coupons through a web-based electronic interface.

51. The method of claim 41, further comprising the step of accepting said coupons for settlement thereof includes accepting said coupons for settlement on demand in a predesignated maturity period.

52. The method of claim 51, further comprising the step of:

redeeming the coupons through a web-based electronic interface.

53. The method of claim 41, further comprising the step of:

determining, prior to a sale of a coupon thereon, whether said predetermined phenomenon for which a coupon is desired is suitable for the issuance of coupons thereon.

54. The method of claim 41, wherein said phenomenon has a regular recurring occurrence and wherein said method further comprises the steps of:

selling over said trading system, a coupon associated with said phenomenon having a time period from a sale thereof to an expiration thereof which partially overlaps a time period from a sale of another coupon associated with said phenomenon until the expiration of said another coupon.

55. The method of claim 41, wherein coupons are sold at staggered time periods having a predetermined relationship to the timing of a specific periodic occurrence of said phenomenon associated therewith.

56. The method of claim 55, further comprising the step of:

selling, over said trading system, coupons associated with a specific periodic occurrence of said phenomenon at substantially the same time as an expiration of coupons associated with another periodic occurrence of said phenomenon.

57. The method of claim 41, wherein the step of selling coupons and the step of settling said coupons are accomplished in a credit-risk free manner.

58. The method of claim 41, wherein:

the step of selling coupons comprises selling coupons on margin; and

the step of selling coupons and the step of settling said coupons are accomplished in a credit-risk manner.

59. The method of claim 41, further comprising the step of accepting from a prospective trader indicia of the identity of at least one prospective counterparty.

60. The method of claim 59, wherein the step of reselling, over said trading system, said any of said at least two coupons includes reselling, over said trading system, said any of said at least two coupons only to prospective traders having identities corresponding to said indicia.

61. The method of claim 41, wherein the step of establishing a computer-network based coupons trading system electronically accessible by prospective traders includes establishing a computer-network based coupons trading system accessible only by predetermined groups of prospective traders.

62. The method of claim 41, wherein said predetermined groups of prospective traders are selected from the group consisting of predefined and prequalified prospective traders.

63. The method of claim 41, further comprising the step of:

providing a promoter for mediating any dispute related to said coupons.

64. The method of claim 41, further comprising the step of:

interfacing with a point of sale terminal to receive an indicator of trader identity and a coupon to be settled.

65. A computer-network based coupons trading system, comprising:

computer means;

means for selling, over said trading system, coupons;

means for reselling, over said trading system, said coupons;

means for settling said coupons; and

means for assessing, for at least one of said coupon sale and said coupon resale, a transaction fee therefor.

66. A computer-based coupons trading system in accordance with claim 65, further comprising:

means for interfacing with a point of sale terminal that is adapted to receive an indicator of trader identity and a coupon to be settled;

wherein said means for settling said coupons is responsive to a communication from a point of sale terminal received via said means for interfacing.

67. A computer-based futures trading system of claim 66, further comprising:

at least one point of sale terminal communicatingly connected to means for interfacing with a point of sale terminal.

68. A computer-based futures trading system of claim 65, further comprising:

means for allowing a computer-network user to view information about coupons for sale on said trading system.

69. A computer-based futures trading system of claim 68, further comprising:

means for allowing only predetermined computer-network users to view information about coupons for sale on said trading system.

70. A method of conducting business comprising the steps of:

establishing a computer-network based restricted clientele contracts trading system electronically accessible by prospective qualified traders;

selling, over said trading system, at least one restricted clientele contract;

reselling, over said trading system, at least one restricted clientele contract;

settling, over said trading system, at least one restricted clientele contract; and

assessing, for at least one of said restricted clientele contract sale and said restricted clientele contract resale, a transaction fee therefor.

71. The method of claim 70, wherein the step of establishing a computer-network based restricted clientele contract trading system electronically accessible by prospective qualified traders includes establishing a computer-network based restricted clientele contract trading system electronically accessible by prospective qualified traders via at least the internet;

72. The method of claim 71, wherein the step of selling, over said trading system, at least one restricted clientele contract includes the step of providing an interface that allows prospective qualified traders to access said restricted clientele contract trading system.

73. The method of claim 72, wherein the step providing a user interface that allows prospective qualified traders to access said restricted clientele contract trading system includes providing a world-wide-web user interface

74. The method of claim 72, wherein said user interface allows any computer-network user to view information about restricted clientele contracts for sale on said trading system.

75. The method of claim 72, wherein said user interface allows only predetermined qualified computer-network users to view information about restricted clientele contracts for sale on said trading system.

76. The method of claim 70, further comprising the step of accepting said restricted clientele contract for settlement thereof includes accepting said restricted clientele contract for settlement at an expiration thereof.

77. The method of claim 76, further comprising the step of:

redeeming the restricted clientele contract through a web-based electronic interface.

78. The method of claim 70, wherein said step of accepting said restricted clientele contract for settlement thereof includes accepting said restricted clientele contract for settlement prior to an expiration thereof.

79. The method of claim 78, further comprising the step of:

redeeming the restricted clientele contract through a web-based electronic interface.

80. The method of claim 70, further comprising the step of accepting said restricted clientele contract for settlement thereof includes accepting said restricted clientele contract for settlement on demand in a predesignated maturity period.

81. The method of claim 80, further comprising the step of:

redeeming the restricted clientele contract through a web-based electronic interface.

82. The method of claim 70, further comprising the step of:

determining, prior to a sale of a restricted clientele contract thereon, whether said predetermined object for payment for which a restricted clientele contract is desired is suitable for the issuance of restricted clientele contract thereon.

83. The method of claim 70, wherein said phenomenon has a recurring regular occurrence and wherein said method further comprises the steps of:

selling over said trading system, a restricted clientele contract associated with said phenomenon having a time period from a sale thereof to an expiration thereof which partially overlaps a time period from a sale of another restricted clientele contract associated with said phenomenon until the expiration of said another contract.

84. The method of claim 70, wherein restricted clientele contracts are sold at staggered time periods having a predetermined relationship to the timing of a specific periodic occurrence of said phenomenon associated therewith.

85. The method of claim 84, further comprising the step of:

selling, over said trading system, a restricted clientele contract associated with a specific periodic occurrence of said phenomenon at substantially the same time as an expiration of a restricted clientele contract associated with another periodic occurrence of said phenomenon.

86. The method of claim 70, wherein the step of selling a restricted clientele contract and the step of settling said restricted clientele contract are accomplished in a credit-risk free manner.

87. The method of claim 70, wherein:

the step of selling a restricted clientele contract comprises selling a restricted clientele contract on margin; and

the step of selling a restricted clientele contract and the step of settling said restricted clientele contract are accomplished in a credit-risk manner.

88. The method of claim 70, further comprising the step of accepting from a prospective qualified trader indicia of the identity of at least one prospective counterparty.

89. The method of claim 88, wherein the step of reselling, over said trading system, a restricted clientele contract includes reselling, over said trading system, said restricted clientele contract only to prospective qualified traders having identities corresponding to said indicia.

90. The method of claim 70, wherein the step of establishing a computer-network based restricted clientele contract trading system electronically accessible by prospective qualified traders includes establishing a computer-network based restricted clientele contract trading system accessible only by predetermined groups of prospective qualified traders.

91. The method of claim 70, wherein said predetermined groups of prospective qualified traders are selected from the group consisting of predefined and prequalified prospective qualified traders.

92. The method of claim 70, further providing the step of:

providing a promoter for mediating any dispute related to said restricted clientele contract.

93. A computer-network based restricted clientele contracts trading system electronically accessible by prospective qualified traders, comprising:

means for selling, over said trading system, at least one restricted clientele contract;

means for reselling, over said trading system, at least one restricted clientele contract;

means for settling, over said trading system, at least one restricted clientele contract; and

means for assessing, for at least one of said restricted clientele contract sale and said restricted clientele contract resale, a transaction fee therefor.

94. A computer-network based restricted clientele contracts trading system in accordance with claim 93, further comprising means for allowing a computer-network user to view information about restricted clientele contracts for sale on said trading system.

95. A computer-network based restricted clientele contracts trading system in accordance with claim 93, further comprising means for redeeming the restricted clientele contract through a web-based electronic interface.