SYSTEMS AND METHODS FOR PROVIDING A LIQUIDITY-BASED COMMODITIES INDEX

• US 20080059358A1
• Filed: 08/30/2007
• Published: 03/06/2008
• Est. Priority Date: 09/01/2006
• Status: Active Grant

• Current Assignee: Bloomberg Finance LP (Bloomberg LP)
• Original Assignee: Lehman Brothers Incorporated (Barclays PLC)
• Inventors: Upbin, Brian Scott, Wardley, Neil William
• Granted Patent: US 7,958,033 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

Abstract

Systems and methods are provided for a liquidity-based commodity index in which historical liquidity-related data for a commodity is used to determine whether to include a commodity in an index and also used to weight commodities in the index. Liquidity of a commodity is calculated based on an average daily dollar value of contracts traded for the commodity. The commodity liquidity is compared to a liquidity threshold to determine that the commodity should be included in the index. A liquidity factor is calculated for each commodity included in the index and is also used to weight the commodity in the index.

Claims

1. A method comprising:

receiving liquidity related data for a commodity, said liquidity related data including a historical daily dollar value of contracts traded for said commodity;

calculating a liquidity for said commodity based on an average daily dollar value of contracts traded for said commodity;

setting a liquidity threshold for including said commodity in an index;

selecting said commodity for inclusion in said index based on a comparison of said calculated liquidity to said liquidity threshold;

calculating a liquidity factor for said selected commodity; and

weighting said selected commodity based on said liquidity factor of said commodity.

2. The method of claim 1 wherein said average daily dollar value of contracts traded for said commodity equals an average of a sum of:

(a closing price of a contract) multiplied by (a daily reported trading volume of said contract) multiplied by (a fixed number of units in said contract).

3. The method of claim 1 further comprising evaluating said liquidity across a plurality of contracts for said commodity and a plurality of settlement dates for said commodity on more than one commodity futures exchange.

4. The method of claim 1 wherein said liquidity factor is calculated using a formula:

5. The method of claim 1 wherein weighting said selected commodity is performed on a periodic basis.

6. The method of claim 1 wherein weighting said selected commodity based on said liquidity factor of said commodity is performed using a formula:

7. The method of claim 1 wherein said liquidity threshold is defined by a user.

8. The method of claim 1 further comprising:

identifying an expiring contract for said commodity;

incrementally rolling said expiring contract for a later dated contract;

calculating a second liquidity for a rolling contract based on a price of said expiring contract and a price of said later dated contract;

calculating a second liquidity factor of said rolling contract; and

reweighting said commodity based on said second liquidity factor of said commodity.

9. The method of claim 8 wherein incrementally rolling said expiring contract is performed over a period, said period defined by a user.

10. The method of claim 8 wherein incrementally rolling said expiring contract comprises:

selling on a first day a first portion of an expiring contract and purchasing a corresponding first portion of said later dated contract; and

selling on a second day a second portion of said expiring contract and purchasing a corresponding second portion of said later dated contract;

wherein reweighting said commodity based on said second liquidity factor of said commodity is based on a price of said expiring contract on said second day and a price of said later dated contract on said second day.

11. The method of claim 8 wherein said expiring contract is defined by a user.

12. An index comprising:

a plurality of commodities each having a calculated liquidity, said calculated liquidity based on an average daily dollar value of contracts traded for each of said plurality of commodities, and said calculated liquidity satisfying a threshold liquidity for inclusion in an index;

wherein each of said plurality of commodities is weighted according to a liquidity factor of each of said plurality of commodities proportionate to said liquidity factor of another of said plurality of commodities.

13. The index of claim 12 wherein said average daily dollar value of contracts traded for each of said plurality of commodities equals an average of a sum of:

(a closing price of a contract) multiplied by (a daily reported trading volume of said contract) multiplied by (a fixed number of units in said contract).

14. The index of claim 12 wherein said threshold liquidity is defined by a user.

15. The index of claim 12 wherein said calculated liquidity of each of said plurality of commodities is based on a trading volume of a contract for each of said plurality of commodities over a trailing period.

16. The index of claim 12 wherein said liquidity factor for each of said plurality of commodities is calculated using a formula:

17. The index of claim 12 wherein said calculated liquidity is evaluated across a plurality of contracts for each of said plurality of commodities and a plurality of settlement dates for each of said plurality of commodities on more than one commodity futures exchange.

18. The index of claim 12 wherein each of said plurality of commodities is weighted on a periodic basis.

19. The index of claim 12 wherein each of said plurality of commodities is weighted according to a formula:

20. The index of claim 12 further comprising a contract for each of said plurality of commodities.

21. The index of claim 20 wherein said contract for each of said plurality of commodities is incrementally rolled for a later dated contract.

22. The index of claim 20 wherein said contract is defined by a user for incrementally rolling for a later dated contract.

23. The index of claim 22 wherein a period for incremental rolling is defined by a user.

24. The index of claim 22 wherein said contract for each of said plurality of commodities is incrementally rolled for a later dated contract by:

selling on a first day a first portion of an expiring contract and purchasing a corresponding first portion of said later dated contract; and

selling on a second day a second portion of said expiring contract and purchasing a corresponding second portion of said later dated contract;

calculating on said first day, a first liquidity factor for a rolling contract based on a price of said expiring contract on said first day and a price of said later dated contract on said first day;

weighting said rolling contract in an index based on said first liquidity factor; and

reweighting said commodity in said index on said second day based on a second liquidity factor for said rolling contract based on a price of said expiring contract on said second day and a price of said later dated contract on said second day.