ZERO-KNOWLEDGE PROOFS IN LARGE TRADES

• US 20090177591A1
• Filed: 10/30/2008
• Published: 07/09/2009
• Est. Priority Date: 10/30/2007
• Status: Abandoned Application

• Current Assignee: President and Fellows of Harvard College (Harvard Corporation)
• Original Assignee: President and Fellows of Harvard College (Harvard Corporation)
• Inventors: Thorpe, Christopher, Parkes, David C.
• Application Number:
  US12/261,249
• Publication Number:
  US 20090177591A1
• Time in Patent Office: Days
• US Class Current: 705/36.R
• 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: H04L 2209/46 Secure multiparty computation, e.g. millionaire problem
• CPC Class Codes: H04L 9/3218 using proof of knowledge, e.g. Fiat-Shamir, GQ, Schnorr, ornon-interactive zero-knowledge proofs

Abstract

According to one aspect, presented is a useful new mechanism that facilitates the atomic exchange of large baskets of securities in a combinatorial exchange. Some embodiments of the exchange offer institutions who wish to trade large positions a new alternative to existing methods of trading. In one embodiment of an exchange, institutions submit encrypted orders which are crossed (buys, sells, shorts, and longs, for example, are matched) leaving a “remainder”. The exchange proves facts about the portfolio risk of this remainder to third party liquidity providers without revealing the securities in the remainder. The third parties learn either (depending on the setting) the portfolio risk parameters of the remainder itself, or how their own portfolio risk would change if they were to incorporate the remainder into a portfolio they submit. They submit bids on the commission, and the winner supplies necessary liquidity for the entire exchange to clear. According to another aspect, an “institution” (a firm who invests in financial markets) wishes to execute a large basket of trades, and mitigate execution risk by having an intermediary—for example, an investment “bank”—take on the basket into its inventory and unwind the trades on its own. Instead of revealing specific information about the equities in the basket, which could be exploited, the institution and banks can conduct a zero-knowledge protocol in which the banks learn how much the risk profile of their inventory—more generally, their utility—would change if they accepted the basket. In this process, the institution learns nothing about the bank'"'"'s inventory or risk management beyond the price the bank is willing to pay, and the banks learn nothing about the basket beyond how the overall risk characteristics of their portfolio would change if they accepted the basket.

Claims

1. A computer implemented method for facilitating exchange of assets bundled into one or more baskets of assets that maintains secrecy of the assets, the method comprising:

providing for submission of a plurality of baskets to a clearing system, wherein at least one basket comprises at least one secret offer associated with an asset;

determining overlapping offers for an asset;

determining any remainder from the overlapping offers, wherein any remainder comprises a remaining demand including at least one secret offer associated with an asset; and

generating proof information for the overlapping offers in the plurality of baskets and the remaining demand in any remainder.

2. The method according to claim 1, further comprising an act of generating a remainder basket, wherein the remainder basket comprises at least one secret offer for an asset in any remainder.

3. The method according to claim 1, further comprising an act of providing for obfuscation of information associated with at least one offer, wherein the at least one secret offer comprises the obfuscated information.

4. The method according to claim 3, wherein the act of providing for obfuscation includes an act of providing at least one of a cryptographic commitment operation, an encryption operation, a cryptographic hash function, a secret sharing operation, and a secure multi-party computation.

5. The method according to claim 1, wherein the act of determining overlapping offers in the plurality of baskets includes an act of performing a secrecy preserving operation on the at least one secret offer for the plurality of baskets.

6. The method according to claim 5, wherein the secrecy preserving operation includes at least one of addition, subtraction, equality determination, and inequality determination on secret values.

7. The method according to claim 1, wherein the secret offer associated with the asset includes at least one of an offer to sell, a bid to buy, an offer to enter a short position (a short sale), and a bid to cover a short position.

8. The method according to claim 1, further comprising an act of preserving secrecy of the at least one secret asset while generating the proof information

9. The method according to claim 1, including an act of providing for verification of the overlapping offers.

10. The method according to claim 1, the method further comprising an act of establishing at least one rule for participating in an exchange of a basket of assets.

11. The method according to claim 1, wherein at least one asset included in the basket comprises at least one of a security, an equity, a fixed income asset, a cash equivalent, a debt security, a commodity, and a derivative asset.

12. The method according to claim 2, further comprising an act of offering any remainder basket to at least one bidder.

13. The method according to claim 12, further comprising the acts of:

determining at least one risk characteristic associated with any remainder basket;

generating proof information for the at least one risk characteristic; and

reporting the at least one risk characteristic and proof information while preserving the secrecy of the at least one secret offer included in any remainder basket.

14. The method according to claim 12, further comprising the acts of:

providing for submission of a secret inventory by at least one bidder;

determining at least one risk characteristic associated with a combined portfolio, wherein the combined portfolio comprises the remainder basket and the secret inventory;

reporting the at least one risk characteristic associated with the combined portfolio; and

generating proof information for the at least one risk characteristic associated with the combined portfolio.

15. The method according to claim 13, further comprising an act of accepting a clearing basket from at least one bidder, wherein the clearing basket includes at least one secret offer for at least a portion of any remainder.

16. The method according to claim 15, further comprising an act of determining a transaction to dispose of any part of any remainder using at least one of the submitted clearing baskets.

17. The method according to claim 9, wherein the act of providing for verification of the determined overlapping offers includes an act of providing for verification of overlapping offers in the plurality of baskets against the at least one rule for participating in an exchange of a basket of assets at least one rule governing of the exchange

18. The method according to claim 14, further comprising the acts of:

providing for verification of overlapping offers in the plurality of baskets against the at least one rule for participating in an exchange; and

providing for verification of the at least one risk characteristic.

19. A system for facilitating exchange of assets bundled into one or more baskets of assets that preserves the secrecy of the assets that make up the baskets, the system comprising:

a clearing component adapted to accept a submission of a plurality of baskets, wherein the clearing component is further adapted to accept at least one secret offer associated with an asset as part of a basket;

a trading component adapted to secretly determine overlapping offers in the plurality of baskets, wherein the trading component is further adapted to generate a remainder basket including at least one secret offer that fulfills any remaining demand from the plurality of baskets;

a proof component adapted to generate proof information for the overlapping offers in the plurality of baskets and any remainder basket.

20. A computer-readable medium having computer-readable signals stored thereon that define instructions that, as a result of being executed by a computer, instruct the computer to perform a method for facilitating exchange of assets bundled into one or more baskets of assets that maintains secrecy of the assets, the method comprising:

providing for submission of a plurality of baskets to a clearing system, wherein at least one basket comprises at least one secret offer associated with an asset;

determining overlapping offers for an asset;

determining any remainder from the overlapping offers, wherein any remainder comprises a remaining demand including at least one secret offer associated with an asset; and

generating proof information for the overlapping offers in the plurality of baskets and the remaining demand in any remainder.