Reciprocal limited risk contracts and system for exchanging same

• US 20080071662A1
• Filed: 09/14/2006
• Published: 03/20/2008
• Est. Priority Date: 09/06/2006
• Status: Abandoned Application

• Current Assignee: IG Markets Incorporated (IG Group Holdings PLC)
• Original Assignee: IG Markets Incorporated (IG Group Holdings PLC)
• Inventors: Austin, John, Roux, Nat le
• Application Number:
  US11/521,006
• Publication Number:
  US 20080071662A1
• 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

A bracket trade is provided wherein a bracket trade is a reciprocal risk limitation futures contract with two stops placed at determined levels on either side of a present value of an underlying market, so a possible range in which the exchange'"'"'s quotation can move once the trade has been opened is ‘bracketed’ by these two levels. The brackets function as trigger stops. If the stop or limit is triggered, the position is closed at exactly that level without slippage. As a result, in respect of an underlying market that is traded 24 hours a day the bracket trade has a delta of 1 regardless of the fluctuations of the underlying market or proximity of the exchange'"'"'s quotation to the brackets; and where the underlying is not traded 24 hours a day the bracket trade will have a delta of 1 on the expiry day of the contract. Bracket trades provide a means by which exchange members can trade at a transparent market price but with the safety of a limited risk stop.

Claims

1. A system of trading futures, comprising the steps of:

selecting an underlying market having a present value, wherein the present value is a quoted point of the underlying market,

determining a cap stop value, the cap stop value a number higher than the present value,

determining a floor stop value, the floor stop value a number lower than the present value such that the cap stop value and the floor stop value form a bracket around the present value,

listing the bracket,

opening a contract based on the bracket, the contract opened at an opening value wherein the opening value is the present value at the time of opening, and

stopping the contract if a stop is triggered,

wherein the stop is triggered if the present value equals the cap stop value or the floor stop value.

2. The system of claim 1, further comprising the step of:

determining a price of the contract after stopping the contract, wherein the price of the contract is the difference between the opening value and the present value at the step of stopping the contract, multiplied by a price per point.

3. The system of claim 1, further comprising the steps of:

setting a time limit when opening the contract,

wherein the stop is triggered at an expiry of the time limit if the present value of the underlying market has not yet equaled the cap stop value or the floor stop value.

4. The system of claim 1, wherein the bracket is one of a multiplicity of brackets and wherein at least two of the multiplicity of brackets are listed.

5. The system of claim 4, wherein at least two of the multiplicity of brackets have different cap stop values, at least two of the multiplicity of brackets have different floor stop values, and at least two of the multiplicity of brackets bracket different underlying markets.

6. The system of claim 5, further comprising the step of:

suspending the bracket after stopping the contract.

7. The system of claim 6, further comprising the step of:

reinstituting the bracket after stopping the contract if the present value of the underlying market moves back between the cap stop value and the floor stop value.

8. The system of claim 1, wherein a delta of the contract is always 1 on the expiry day.

9. The system of claim 3,

wherein the time limit is seven days or less.

10. The system of claim 1, wherein the opening of a contract step occurs between two exchange members.

11. The system of claim 1, wherein the opening a contract step include the step of matching offers of exchange members to form a contract.

12. The system of claim 1, wherein the opening of a contract step occurs between an exchange member and an exchange or its associated clearing member

13. A web-based, computer implemented method of bracket trading on an exchange, comprising the steps of:

opening a contract, the contract opened at a present value of an underlying market between two bracket stop values, wherein the two bracket stop values form a bracket and correspond to potential values of the underlying market, and wherein the present value fluctuates in correlation to fluctuations in the underlying market, and

stopping the contract when the present value equals either of the two bracket stop values,

wherein that a delta of the contract is always 1 on the expiry day.

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

settling the contract after stopping the contract, wherein the price of the contract is the difference between the present value at the opening a contract step and the present value at the stopping the contract step multiplied by a price per point.

15. The method of claim 13, further comprising the steps of:

setting a time limit when opening the contract,

stopping the contract at an expiry of the time limit if the present value of the underlying market has not yet equaled either of the two bracket stop values,

settling the contract, wherein the price of the contract is the difference between the present value at the opening a contract step and the present value at the stopping the contract at the expiry of the time limit step multiplied by a price per point.

16. The method of claim 15:

wherein the time limit is seven days or less.

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

listing the bracket on the exchange prior to the opening of the contract step.

18. The method of claim 17, further comprising the step of:

suspending the bracket from the exchange after the present value equals either of the two bracket stop values.

19. The method of claim 18, further comprising the step of:

reinstituting the bracket on the exchange after the present value equals either of the two bracket stop values if the present value of the underlying market moves back between the two bracket stop values.

20. The method of claim 13, wherein a price of the contract correlates at an unchanging ratio with the present value throughout a lifespan of the contract.

21. The exchange of claim 13, wherein the contract is opened between two exchange members and novated thereafter so that each of the two exchange members is counter-party to the exchange.

22. The exchange of claim 13, wherein the contract is opened between an exchange members and the exchange or its associated clearing organization.

24. An exchange for trading a financial instrument comprising:

a web-based interface for accepting inputs from at least one exchange member,

means for listing a bracket on the interface, the bracket including two bracket stop values such that a present value of a selected underlying market is between the two bracket stop values, wherein the two bracket stop values correspond to potential values of the underlying market, and wherein the present value fluctuates in correlation to fluctuations in the underlying market,

means to open a contract with input from the at least one exchange member, the contract having risk and profit take limitations that correspond to the two bracket stop values, and

means to stop the contract at a moment where the present value equals one of the two bracket values.

25. The exchange of claim 24, further including means to list the bracket on the web-based interface.

26. The exchange of claim 24, further including a matching means to pair together matching offers.

27. The exchange of claim 24, wherein the contract is opened between two exchange members and novated thereafter so that each of the two exchange members is counter-party to the exchange.

28. A futures contract, comprising:

a first bracket stop value corresponding to a first potential value of an underlying market, the underlying market having a present value wherein the present value fluctuates in correlation to fluctuations in the underlying market,

a second bracket stop value corresponding to a second potential value of the underlying market,

an opening value, wherein the opening value is the present value of the underlying market at the time of an opening of the futures contract, the present value between the first and second potential values, and

a stop trigger, wherein the stop trigger stops the contract when the present value equals either of the two bracket stop values,

wherein a delta of the futures contract is always 1 on the expiry day.

29. The contract of claim 28, further comprising a price per point, wherein a settled price of the contract when the stop trigger stops the contract is the difference between the opening value and the present value at the moment when the stop trigger stops the contract multiplied by the price per point.

30. The contact of claim 28, further comprising a time limit, wherein the stop trigger further stops the contract at the expiry of the time limit.

31. The contract of claim 28, wherein the futures contract is entered into between two exchange members counter-party to each other.

32. The contract of claim 28, wherein the futures contract is entered into between an exchange member and an exchange counter-party to each other.

33. The system of claim 32, wherein the exchange member, the exchange, or both, is a market maker.

34. The contract of claim 32, wherein the stop trigger further comprises an election by the exchange to stop the contract.

35. The contract of claim 28, wherein the price per point is defined in terms of units, wherein the units are selected from the group consisting of:

currency per point, weight per point, volume per point or size per point.