Derivative Product for Binary Outcomes

• US 20080270288A1
• Filed: 04/25/2008
• Published: 10/30/2008
• Est. Priority Date: 04/26/2007
• Status: Active Grant

• Current Assignee: Marketmaker Software Limited
• Original Assignee: Marketmaker Software Limited
• Inventors: Edelman, David, Butterly, Marc
• Granted Patent: US 8,510,205 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06F 3/0482 Interaction with lists of selectable items, e.g. menus
• CPC Class Codes: G06Q 20/42 Confirmation, e.g. check or permission by the legal debtor of payment
• CPC Class Codes: G06Q 30/0203 Market surveys; Market polls
• 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
• CPC Class Codes: G06Q 50/34 Betting or bookmaking, e.g. Internet betting
• CPC Class Codes: G07F 17/3209 Input means, e.g. buttons, touch screen
• CPC Class Codes: G07F 17/3211 Display means
• CPC Class Codes: G07F 17/3225 Data transfer within a gaming system, e.g. data sent between gaming machines and users
• CPC Class Codes: G07F 17/3244 Payment aspects of a gaming system, e.g. payment schemes, setting payout ratio, bonus or consolation prizes
• CPC Class Codes: G07F 17/3288 Betting, e.g. on live events, bookmaking

Abstract

A method and system are described for creating an exchange for futures products for odds markets based on binary outcomes. The futures product is based on the value of a particular fixed index or an exchange delivery settlement price in odds form, as recorded or computed at the end of a pre-assigned event or time-horizon. A particular use of this product would be on an exchange for sporting events, where for a given event, an identical interface to that which would currently be available for odds markets is made available, but which would be settled differently from the former, in such a manner as to allow investors to take positions on the movement of the odds without exposure to the final outcome of the event.

Claims

1. A system for processing trades contingent on odds-based markets comprising,

means for receiving odds S_T for at least one exogenous reference market, wherein odds S_T correspond to a specified reference outcome to be decided at a time later than a specified time T;

means for receiving, from trade parties, forecasts F_t and investment amounts at time t, for settlement of odds S_T for the exogenous reference market as of the specified time T, wherein the trade parties comprise at least one trade party for a positive investment amount a_t and at least one trade counter-party for a negative investment amount a_t;

means for registering at least one trade (F_t, a_t) between the trade parties prior to time T, the registered trade having a conditional value equal to zero at any time prior to time T; and

means for confirming, in response to the odds S_T, payoff to or liability of the at least one trade party as equal to a_t(F_t/S_T−

1), and respectively, liability of or payoff to the at least one trade counter-party as equal to −

a_t(F_t/S_T−

1).

2. The system of claim 1, further comprising means for settling a trade value.

3. The system of claim 1, comprising a plurality of data processing terminals connected to a network and in communication with one another, wherein a first data processing terminal of the said plurality receives odds from at least a second data processing terminal of the said plurality, the first data processing terminal receives forecasts and investment amounts from at least a third data processing terminal of the said plurality, the first data processing terminal registers at least one trade between the at least third data processing terminal and at least a fourth data processing terminal of the said plurality, and the first data processing terminal confirms the respective payoff and liability.

4. The system of claim 1, comprising at least one data processing terminal, wherein the means for receiving odds, the means for receiving forecasts and investment amounts, the means for registering at least one trade and the means for confirming the respective payoff and liability respectively comprise data processing terminal components suitably configured by data processing terminal instructions.

5. The system of claim 1, further comprising means for generating the exogenous reference market as exogenous index odds, the means being configured to receive a data feed of odds offered for all possible outcomes of at least one event and to adjust the odds offered, so that the sum of the inverse exogenous index odds for all possible outcomes in the event is as close as possible to 1.

6. The system of claim 5, comprising at least one data processing terminal, wherein the means for receiving odds, the means for receiving forecasts and investment amounts, the means for registering at least one trade and the means for confirming the respective payoff and liability respectively comprise data processing terminal components suitably configured by data processing terminal instructions.

7. The system of claim 5, comprising a plurality of data processing terminals connected to a network and in communication with one another, wherein a first data processing terminal of the said plurality receives odds from at least a second data processing terminal of the said plurality, the first data processing terminal receives forecasts and investment amounts from at least a third data processing terminal of the said plurality, the first data processing terminal registers at least one trade between the at least third data processing terminal and at least a fourth data processing terminal of the said plurality, and the first data processing terminal confirms the respective payoff and liability.

8. The system of claim 5, further comprising means for settling a trade value.

9. The system of claim 8, comprising at least one data processing terminal, wherein the means for receiving odds, the means for receiving forecasts and investment amounts, the means for registering at least one trade and the means for confirming the respective payoff and liability respectively comprise data processing terminal components suitably configured by data processing terminal instructions.

10. The system of claim 8, comprising a plurality of data processing terminals connected to a network and in communication with one another, wherein a first data processing terminal of the said plurality receives odds from at least a second data processing terminal of the said plurality, the first data processing terminal receives forecasts and investment amounts from at least a third data processing terminal of the said plurality, the first data processing terminal registers at least one trade between the at least third data processing terminal and at least a fourth data processing terminal of the said plurality, and the first data processing terminal confirms the respective payoff and liability.

11. A method of settling trades contingent on odds-based markets, the method comprising the steps of:

receiving odds S_T for at least one exogenous reference market, wherein the odds S_T correspond to a specified reference outcome to be decided at a time later than a specified time T;

receiving, from trade parties, forecasts F_t and investment amounts at time t, for the settlement of odds S_T for the exogenous reference market as of the specified time T, wherein the trade parties comprise at least one trade party for a positive investment amount a_t and at least one trade counter-party for a negative investment amount a_t;

registering at least one trade (F_t, a_t) between the trade parties prior to time T, the registered trade having a conditional value equal to zero at any time prior to time T;

confirming, in response to the odds S_T, payoff to or liability of the at least one trade party as equal to a_t(F_t/S_T−

1), and respectively, liability of or payoff to the at least one trade counter-party as equal to −

a_t(F_t/S_T−

1); and

settling the trade value.

12. A method of determining settlement value S_T for trades contingent on odds-based markets, the method comprising the steps of

receiving a complete set of pairs (V_t, S_t) representing executed trades in at least one exogenous reference market, wherein odds S_t and volume V_t correspond to a specified reference outcome to be decided at a time later than a specified time T;

and

determining settlement value S_T for trades (F_t, a_t), wherein the settlement value comprises the median of the latest percentage of volume by the volume V_t on the reference market prior to T, such that at least 50% of the latest percentage of volume is greater than or at least equal to S_T, and at least 50% of latest percentage of volume is less than or at least equal to S_T.

13. The method of claim 12, wherein the latest percentage of volume by traded amounts is comprised between 0.1% and 25%.

14. The method of claim 12 wherein the latest percentage of volume by traded amounts is comprised between 9% and 11%.

15. A method of determining the settlement value S_T for trades contingent on odds-based markets, the method comprising the steps of

receiving a complete set of pairs (V_t, S_t) representing executed trades in at least one exogenous reference market,

wherein odds S_t and volume V_t correspond to a specified reference outcome to be decided at a time later than a specified time T;

and

determining settlement value S_T for trades (F_t, a_t), wherein the settlement value comprises a trimmed mean of the latest percentage of volume by the volume V_t on the reference market prior to T.