Computer System and Method for Trading Clipper Financial Instruments

• US 20080059382A1
• Filed: 09/01/2007
• Published: 03/06/2008
• Est. Priority Date: 09/01/2006
• Status: Abandoned Application

• Current Assignee: Adam Burczyk
• Original Assignee: Adam Burczyk
• Inventors: Burczyk, Adam
• Application Number:
  US11/849,266
• Publication Number:
  US 20080059382A1
• Time in Patent Office: Days
• US Class Current: 705/36R
• CPC Class Codes: G06Q 20/10 specially adapted for electronic funds transfer [EFT] systems; specially adapted for home banking systems
• 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 40/06 Asset management; Financial planning or analysis

Abstract

A computer and data-processing system and method for specifying, trading, and clearing Clipper financial instruments. A Clipper is a new, “all-in” margined derivative that can be applied to almost any referenced Underlying financial instrument. A Clipper'"'"'s value at expiration is calculated by first subtracting the negotiated face-value price for an Underlying as of the time of inception of the trade, from the observed face-value price of that same Underlying at the time of expiration, and then capping that difference to a maximum specified amount of gain or loss, called a “clip limit.” A “clip limit” is specified by the two counterparties at the time of inception of the trade. Such a “clip limit” dually serves as the “all-in” margin that could be required from the two counterparties from a clearinghouse to guarantee any profit or loss outcome of the trade. The maximum positive or negative value of the Clipper can be settled by such a clearinghouse on a cash or cash equivalent payment basis, fully funded from the “all-in” margin of the losing counterparty.

Claims

1. A computerized method and system of specifying a Clipper financial instrument to be traded between a Buyer and Seller, comprising the steps of:

a) identifying a first trader acting as a Buyer of the Clipper as a counterparty to a potential Seller, the identification being made by any trader or third party,

b) identifying a second trader acting as a Seller of the Clipper as a counterparty to a potential Buyer, the identification being made by any trader or third party,

c) co-selecting a referenced underlying for the Clipper, by the Buyer and Seller,

d) co-selecting a starting time and date for the Life of the Clipper, by the Buyer and Seller,

e) co-selecting an expiration time and date for the Life of the Clipper, by the Buyer and Seller,

f) co-selecting a clip limit amount for the Clipper, by the Buyer and Seller,

g) co-selecting a starting price for the Clipper, by the Buyer and Seller, and

h) co-selecting a matched number of units of the Clipper that can be exchanged, by the Buyer and Seller.

2. The method of claim 1, further comprising the step of the Buyer and the Seller co-selecting a notional amount of underlying value for each unit of the Clipper that can be exchanged.

3. The method of claim 1, further comprising the step of both the Buyer and the Seller furnishing margins that are equal to the amount of the clip limit for each unit of the Clipper that can be exchanged to a third party financial institution.

4. The method of claim 1, further comprising the step of both the Buyer and the Seller furnishing margins that are equal to the amount of the clip limit for each unit of the Clipper that can be exchanged to a clearinghouse.

5. A computerized method and system of trading a Clipper financial instrument between a Buyer and Seller, on an electronic trading facility, comprising the steps of:

a) listing, by a buying counterparty, a resident order of a Clipper for a referenced Underlying, a starting time and date, an expiration time and date, a clip limit amount, and a starting price, for a specified number of units or lots,

b) indicating, by a selling counterparty, an intention as an aggressor to match at least one unit or lot of the specified number of units or lots of the listed resident order of the buying counterparty, and

c) matching, by an electronic trading facility, the minimum number of units shared among the maximum of those listed by the Buyer and the maximum of those indicated by the Seller.

6. The method of claim 5, further comprising the step of the Buyer and the Seller co-selecting a notional amount of underlying value for each unit of the Clipper that can be traded.

7. The method of claim 5, further comprising the step of both the Buyer and the Seller furnishing margins that are equal to the amount of the clip limit for each unit of the Clipper that can be traded to a third party financial institution.

8. The method of claim 5, further comprising the step of both the Buyer and the Seller furnishing margins that are equal to the amount of the clip limit for each unit of the Clipper that can be traded to a clearinghouse.

9. A computerized method and system of trading a Clipper financial instrument between a Buyer and Seller, on an electronic trading facility, comprising the steps of:

a) listing, by a selling counterparty, a resident order of a Clipper for a referenced

Underlying, a starting time and date, an expiration time and date, a clip limit amount, and a starting price, for a specified number of units or lots,

b) indicating, by a buying counterparty, an intention as an aggressor to match at least one unit or lot of the specified number of units or lots of the listed resident order of the buying counterparty, and

c) matching, by an electronic trading facility, the minimum number of units shared among the maximum of those listed by the Buyer and the maximum of those indicated by the Seller.

10. The method of claim 9, further comprising the step of the Buyer and the Seller co-selecting a notional amount of underlying value for each unit of the Clipper that can be traded.

11. The method of claim 9, further comprising the step of both the Buyer and the Seller furnishing margins that are equal to the amount of the clip limit for each unit of the Clipper that can be traded to a third party financial institution.

12. The method of claim 9, further comprising the step of both the Buyer and the Seller furnishing margins that are equal to the amount of the clip limit for each unit of the Clipper that can be traded to a clearinghouse.

13. A computerized method and system of settling a Clipper financial instrument already traded between a Buyer and Seller, comprising the steps of:

a) obtaining the Clipper trade information with respect to Buyer and Seller, a referenced underlying, a starting time and date, an expiration time and date, a clip limit amount, and a starting price, for the specified number of Clipper units,

b) specifying an observed price for the referenced underlying at the time of expiration,

c) subtracting the starting price for the Clipper from the observed price at expiration, to obtain an original difference,

d) determining the absolute value of the original difference,

e) saving the sign of the original difference,

f) determining whether the absolute value of the original difference exceeds the clip limit amount for the Clipper. And, if positive, establish an interim settlement value that is equal to the absolute value of the clip limit, and, if negative, establish an interim settlement value that is equal to the absolute value of the original difference,

g) establishing an interim settlement value that is equal to the absolute value of the clip limit if the result in step f is positive,

h) establishing an interim settlement value that is equal to the absolute value of the original difference, if the result in step f in negative

i) reattaching the saved sign of the original difference to the interim settlement value, to obtain the final settlement value,

j) requiring the Buyer to pay the Seller the final settlement value if the sign is negative, or else requiring the Seller to pay the Buyer the final settlement value if the sign is positive, for each of the Clipper units.

14. The method of claim 13, further comprising the step of a third party facilitating the payment of settlement from loser to winner and releasing any remaining margins to the respective counterparties.

15. The method of claim 13, further comprising the step of a clearinghouse facilitating the payment of settlement from loser to winner and releasing any remaining margins to the respective counterparties.

16. A computerized method and system of identifying, trading and settling a Clipper financial instrument, comprising the steps of:

a) identifying, by any trader or third party, a first trader acting as a Buyer of the Clipper as a counterparty to a potential Seller,

b) identifying, by any trader or third party, a second trader acting as a Seller of the Clipper as a counterparty to a potential Buyer,

c) co-selecting, by the Buyer and Seller, a referenced underlying for the Clipper,

d) co-selecting, by the Buyer and Seller, a starting time and date for the Life of the Clipper,

e) co-selecting, by the Buyer and Seller, an expiration time and date for the Life of the Clipper,

f) co-selecting, by the Buyer and Seller, a clip limit amount for the Clipper,

g) co-selecting, by the Buyer and Seller, a starting price for the Clipper,

h) co-selecting, by the Buyer and Seller, a matched number of units for the Clipper that can be exchanged,

i) exchanging, by the Buyer and Seller, the Clipper with the above co-selected parameters,

j) specifying, by the Buyer, Seller, or any third party, an observed price for the referenced underlying at the time of expiration, and

k) settling, by the Buyer, Seller, or any third party, at that observed price.

17. The method of claim 16, wherein settling comprises the steps of:

a) subtracting, by the Buyer, Seller, or any third party, the starting price for the traded Clipper from the observed price at expiration, to obtain an original difference,

b) determining, by the Buyer, Seller, or any third party, the absolute value of the original difference,

c) saving, by the Buyer, Seller, or any third party, the sign of the original difference,

d) determining, by the Buyer, Seller, or any third party, whether the absolute value of the original difference exceeds the clip limit amount for the Clipper. If so, establish an interim settlement value that is equal to the absolute value of the clip limit. If not, establish an interim settlement value that is equal to the absolute value of the original difference,

e) reattaching, by the Buyer, Seller, or any third party, the saved sign of the original difference to the interim settlement value, to obtain the final settlement value for each unit of the exchanged Clipper,

f) requiring, by the Buyer, Seller, or any third party, the Buyer to pay the Seller the final settlement value if the sign is negative, or else requiring the Seller to pay the Buyer the final settlement value if the sign is positive, for each unit of the exchanged Clipper.

18. The method according to claim 16 wherein the Buyer is listing a resident order of a Clipper for the referenced underlying, for the starting time and date, for the expiration time and date, and for the clip limit amount, at the starting price, for a specified number of units, and the Seller is indicating an intention as an aggressor to match at least one unit of those listed by the buying counterparty, and the Buyer, Seller, or a third party is matching the minimum number of units shared between the maximum of those listed by the Buyer and the maximum of those indicated by the Seller.

19. A financial instrument comprising of a derivative referencing an underlying, whose Buyer or Seller position has a settlement value that is determined by subtracting the negotiated Start Price of the derivative from the observed value of the underlying as of the expiration time of the derivative, and further capping that difference by a constant absolute value of gain or loss, where a settlement value of gain requires payment of that capped difference from Buyer to Seller, and where a settlement value of loss requires payment of that capped difference from Seller to Buyer.

20. A method of identifying, trading, and settling a Clipper financial instrument, comprising the steps of:

a) identifying, by any trader or third party, a first trader acting as a Buyer of the Clipper as a counterparty to a potential Seller,

b) identifying, by any trader or third party, a second trader acting as a Seller of the Clipper as a counterparty to a potential Buyer,

c) co-selecting, by the Buyer and Seller, a referenced Underlying for the Clipper,

d) co-selecting, by the Buyer and Seller, a starting time and date for the Life of the Clipper,

e) co-selecting, by the Buyer and Seller, an expiration time and date for the Life of the Clipper,

f) co-selecting, by the Buyer and Seller, a clip limit amount for the Clipper,

g) co-selecting, by the Buyer and Seller, a starting price for the Clipper,

h) co-selecting, by the Buyer and Seller, a matched number of units for the Clipper that can be exchanged,

i) exchanging, by the Buyer and Seller, the Clipper with the above co-selected parameters,

j) specifying, by the Buyer, Seller, or any third party, an observed price for the referenced Underlying at the time of expiration, and settling at that observed price, and

k) settling, by the Buyer, Seller, or any third party, at that observed price.

21. The method of claim 20, wherein settling comprises the steps of:

a) subtracting, by the Buyer, Seller, or any third party, the starting price for the traded Clipper from the observed price at expiration, to obtain an original difference,

b) determining, by the Buyer, Seller, or any third party, the absolute value of the original difference,

c) saving, by the Buyer, Seller, or any third party, the sign of the original difference,

d) determining, by the Buyer, Seller, or any third party, whether the absolute value of the original difference exceeds the clip limit amount for the Clipper. If so, establish an interim settlement value that is equal to the absolute value of the clip limit. If not, establish an interim settlement value that is equal to the absolute value of the original difference,

e) reattaching, by the Buyer, Seller, or any third party, the saved sign of the original difference to the interim settlement value, to obtain the final settlement value for each unit of the exchanged Clipper,

f) requiring, by the Buyer, Seller, or any third party, the Buyer to pay the Seller the final settlement value if the sign is negative, or else requiring the Seller to pay the Buyer the final settlement value if the sign is positive, for each unit of the exchanged Clipper.