Trading and settling enhancements to the standard electronic futures exchange market model that allow bespoke notional sizes and better global service of end users and make available a new class of negotiable security including equivalents to products normally issued by special purpose vehicles

• US 20060224494A1
• Filed: 07/12/2005
• Published: 10/05/2006
• Est. Priority Date: 04/01/2005
• Status: Abandoned Application

• Current Assignee: LIFFE Administration and Management company
• Original Assignee: De Novo Markets Limited
• Inventors: Pinkava, Pavel
• Application Number:
  US11/179,942
• Publication Number:
  US 20060224494A1
• 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 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A pair of clearing house enhancements comprising a method that allows bespoke notional sizes to be handled rigorously plus a method that allows a plurality of daily settlement times to be introduced over the product set within an adapted electronic futures exchange type market model, rules and legal environment. In addition a method allows traditional fully funded negotiable securities such as bonds and equities to be listed on the adapted exchange. Another embodiment allows both funded and leveraged structured products equivalent to those normally issued by special purpose vehicles such as synthetic CDOs to be listed.

Claims

1. A method of daily marking to market of derivative exposures within an adapted electronic futures exchange type market model, rules and legal environment comprising:

providing listed for trading derivative products in an electronic futures exchange type environment;

executing a trade relative to the listed for trading derivative product pursuant to a user command;

creating at least one post trade contract for clearing based on the executed trade whose prices are related to the executed trade quotation either directly or indirectly via a mapping formula;

discarding the constraints of notional trading unit size and price tick sizes such that;

a) the volumes within the electronic clearing house system represented the face value in units of the relevant currency but can be registered with high granularity in the post trade contract for clearing; and

b) the prices within the electronic clearing house system represented the fractions of face value and can also be registered with high granularity in the post trade contract for clearing;

calculating the economic value of each post trade contract for clearing position simply as price times volume to high accuracy; and

aggregating value at the appropriate level then rounding in the clearing house'"'"'s favor for margin call and final cash settlement purposes, such that all net payments into the clearing house are rounded up to the nearest minimum whole unit of the appropriate currency, whilst all net payments out are rounded down.

2. The method according to claim 1, wherein the aggregation of value occurs at the individual contract expiry level.

3. The method according to claim 1, wherein the aggregation of value occurs at the contract expiry series level.

4. The method according to claim 1, wherein for swap products the aggregation of value occurs at the paired individual contract expiry level.

5. The method according to claim 1, wherein for swap products the aggregation of value occurs at the relted contract expiry series level.

6. A method of convenient global daily settlement of positions within an adapted electronic futures exchange type market model, rules and legal environment comprising:

providing more than the traditional single daily settlement time within the same clearing house for each near 24-hour a day market;

providing a choice of variation margin collection cycles, via a clearing membership qualification by regional close;

designating each customer clearing account reference to a time zone with the proviso that a clearing member cannot supply clearing accounts for time zones in which it is not qualified;

monitoring variation margin mismatches over the trading day caused by the splitting of settlement times and open positions across time zones; and

establishing sufficient own capital resources or credit lines for the clearing house so that these will not be exhausted by variation margin mismatches over the trading day caused by the splitting of settlement times in order to provide convenient global daily settlement of positions.

7. The method according to claim 6, wherein the account reference time zone designation is further used to establish which international regulatory institution or institutions have regulatory oversight over the activities in the account.

8. The method according to claim 6, wherein for a subset of products the default pool underlying the clearing house performance is segregated into subsets thereby creating domestic markets within the greater global market.

9. The method according to claim 8, wherein matched trades must have both sides referencing the same default pool, such that both traders will need clearing account of the relevant type for trading to take place.

10. A method of providing highly integrated and operationally robust primary and secondary markets in Clearing House Securities that are fully paid or leveraged;

collateralized;

asset backed, debt, equity and hybrid securities, based on an adapted electronic futures exchange type market model, rules and legal environment comprising;

providing a restricted access primary issuance market in which a cross transaction at zero price is performed creating short positions in one or more obligations and corresponding long positions in those obligations known as float;

providing a broad access secondary market for trading the float based around an adapted give up process involving both a payment versus delivery system and normal competitive auction process;

at least once daily marking to market of the float based on its price in the secondary market in collaboration with the issuing member;

at least once daily marking to market of the obligation based on its underlying theoretical value, liquidation value where available;

transferring funds from the short obligation holder to the float holders at time periods and in amounts set out in the security specification document;

such transfers being made efficiently via the clearing houses payment systems.

11. The method according to claim 10, wherein float and obligation positions held in the same account are not fully offset and cancelled by the clearing house.

12. The method according to claim 11, wherein any profit shown between the float and obligation positions held in the same account of the primary issuer are not disbursed by the clearing house.

13. The method according to claim 10, wherein the secondary market adapted give up process lists float the float for front office trading in indirect quotations which is linked to the actually transferred float contracts for clearing via a set of algorithmic mapping formula.

14. The method according to claim 10, wherein float contracts created together can be traded separately or stripped.

15. The method according to claim 10, wherein cash transfers are made via direct cash currency payments at expiry from the short obligation holder to the long float holder in a contract or stripped leg of a contract.

16. The method according to claim 10, wherein cash transfers are made via Cashflow Clearing House Securities which comprising new float and obligation pairs created at zero which are delivered respectively to the existing float and obligation holders and then marked to the required value in order to effect the cash currency payments via the clearing house'"'"'s variation margining system.

17. The method according to claim 10, wherein initial margin is calculated on each portfolio in the normal way such as to create a guide to regulators, risk managers and individual traders of the value at risk in their portfolio.

18. The method according to claim 17, wherein the initial margin calculation is performed across all asset classes including derivatives held at the exchange.

19. The method according to claim 10, wherein at the time of primary issuance assets are lodged in trust with the clearing house in order to guarantee the performance of the obligations, thereby allowing the clearing house and the trustees specially appointed by it to take on the role normally performed by special purpose vehicles.

20. The method according to claim 19, wherein at the time of primary issuance assets are managed by a fund manager thereby creating the equivalent of exchange traded finds within the adapted electronic futures exchange type market model, rules and legal environment.