Guaranteed physical delivery futures contract and method and system of consolidating same

• US 20040148249A1
• Filed: 06/13/2003
• Published: 07/29/2004
• Est. Priority Date: 01/24/2003
• Status: Active Grant

• Current Assignee: GPD Systems LLC
• Original Assignee: Hartree Partners LP
• Inventors: Kinnear, Kirk P.
• Granted Patent: US 7,676,406 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 99/00 Subject matter not provided for in other groups of this subclass

Abstract

A guaranteed physical delivery futures contract and method and system for consolidating same are disclosed. The method includes guaranteeing physical delivery for future positions of market participants having open first-nearby time positions of a particular size, making additions to or subtractions from open first-nearby time positions of market participants that are less than the particular size and offsetting the additions to and subtractions from market participants'"'"' open first-nearby time positions with opposite positions in a second-nearby time. The system includes one or more servers and communications links, the communications links for receiving position data, including open positions, and the servers are configured to make additions to or subtractions from open first-nearby time positions less than a certain size and adjust market participant second-nearby time positions based on the additions to or subtractions from open first-nearby time positions. In certain embodiments, the underlying commodity is crude oil and the particular size is the size of a cargo shipment, about 600,000 barrels.

Claims

1. A method comprising:

guaranteeing physical delivery for future positions of market participants having open first-nearby time positions of a particular size; and

making additions to or subtractions from open first-nearby time positions of market participants that are less than the particular size.

2. The method of claim 1 further comprising:

offsetting additions to and subtractions from market participants'"'"' open first-nearby time positions with opposite positions in a second-nearby time.

3. The method of claim 2 wherein the offsetting comprises determining a final settlement price and a spread index, and offsetting the additions to and subtractions from the first-nearby time positions at a price equal to the difference between the final settlement price and spread index.

4. The method of claim 3 wherein the final settlement price is a weighted average of all first-nearby time trades executed during a first predetermined period prior to market closing on contract expiration day.

5. The method of claim 4 wherein the index spread is a weighted-average of all bona fide first-nearby/second-nearby spread transactions executed during a second predetermined period of trading on contract expiration day, wherein a bona fide first-nearby/second-nearby spread transaction is a purchase in one of the first-nearby time or second-nearby time executed simultaneously with a sale of equal volume in another of the first-nearby time or second-nearby time.

6. The method of claim 1 further comprising establishing a matching day and time on which the additions and subtractions are made.

7. The method of claim 1 further comprising matching futures longs having the particular size with futures shorts.

8. The method of claim 7 wherein future longs having the particular size are first matched with future shorts having the particular size.

9. The method of claim 7 wherein:

matching comprises matching a first participant'"'"'s future long position in the first-nearby time equal to the particular size with a second participant'"'"'s future short position in the first-nearby time an amount equal to less than the particular size, and

wherein making additions to and subtraction from comprises subtracting from the second participant'"'"'s first-nearby time position a difference between the particular size and the amount, and wherein offsetting comprises adding to the second participant'"'"'s second-nearby time position the difference.

10. The method of claim 9 wherein:

adding to the second participant'"'"'s second-nearby time position is at the difference between a final settlement price and a spread index.

11. The method of claim 1 wherein the method is for creating a market in futures contracts for North Sea Light crude, and wherein the particular size is 600,000 barrels.

12. A method of guaranteeing physical delivery for market participants having cargo-size positions, the method comprising:

identifying open first-nearby time positions, the open first-nearby time positions including;

a first number of open cargo-size long positions;

a second number of open cargo-size short positions;

less than cargo-size long positions; and

less than cargo-size short positions;

matching any open cargo-size long positions with any open cargo-size short positions;

if the first number equals the second number, then bringing remaining open first-nearby time positions to zero;

if the first number is less than the second number, then matching unmatched cargo-size short positions with less than cargo-size long positions of long participants, increasing the less than cargo-size long positions to cargo-size long positions and adjusting a second-nearby time position of the long participants; and

if the first number is greater than the second number, then matching unmatched cargo-size long positions with less than cargo-size short positions of short participants, increasing the less than cargo-size short positions to cargo-size short positions and adjusting a second-nearby time position of the short participants, thereby guaranteeing physical delivery to participants having cargo-size first-nearby time positions.

13. A computer system for automatically consolidating futures contract position of to guarantee physical delivery of a commodity, the system comprising:

one or more communications links receiving market participant position information, the position information including identification of open first-nearby time long positions and open first-nearby time short positions;

one or more processors configured to;

match open first-nearby time long positions first-nearby time short positions received from the communication links;

make additions to or subtractions from open first-nearby time positions less than a certain size; and

adjust market participant second-nearby time positions based on the additions to or subtractions from open first-nearby time positions.

14. The system of claim 13 further comprising an electronic database in communication with the processors, the database storing market participant position information, wherein adjusting market participant second-nearby time positions includes updating the database.

15. A method of receiving guaranteed physical delivery of a cargo-size position in a futures contract, the method comprising:

establishing an open first-nearby time future position;

being matched to an opposite open first-nearby time future position of a market participant; and

entering into a physical market contract based on the futures contract with the market participant, the physical market contract resulting in physical delivery.

16. The method of claim 15 wherein the open first-nearby time position is a cargo-size position.

17. The method of claim 15 wherein the open first-nearby time position is less than cargo-size, the method further comprising receiving an adjustment to the open first-nearby time position, the adjustment and the open first-nearby time position equaling a cargo-size position.

18. The method of claim 17 further comprising receiving an adjustment to a second-nearby time position, the adjustment to the second-nearby time position offsetting the adjustment to the first-nearby time position.