ELECTRONIC CREDIT DEFAULT FUTURES MARKET

• US 20100036757A1
• Filed: 08/05/2008
• Published: 02/11/2010
• Est. Priority Date: 08/05/2008
• Status: Active Grant

• Current Assignee: Northwater Capital
• Original Assignee: Exchange Holdings Inc. (VTX Holdings Companyöperatief UA)
• Inventors: Patterson, David G., Rickard, John T., Theriault, Annie
• Granted Patent: US 7,970,670 B2
• Time in Patent Office: Days
• US Class Current: 705/30
• CPC Class Codes: G06Q 30/04 Billing or invoicing
• 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 40/12 Accounting

Abstract

Systems and methods are provided for providing a credit default futures market. A system providing the credit default futures market includes a processor, memory and an interface. The interface is configured to display credit default futures contracts that subscribe to a set of standard terms and conditions. The processor is configured to settle certain credit futures contracts in kind and other in cash, depending on, at least in part, the maturity date of the futures contract. A method is presented for electronically clearing and settling probability of default futures contracts.

Claims

1. A method for exchanging credit futures contracts comprising:

receiving a first trade order requesting a long position on a probability of default futures contract (POD), the POD having a reference entity, a maturity date and a settlement value at the maturity date based at least in part on solvency of the reference entity;

receiving a second trade order requesting a short position on the POD;

matching the first trade order with the second trade order; and

recording, on a computer readable storage medium, a completed transaction, the completed transaction indicating the first trade order and the second trade order.

2. The method according to claim 1, wherein receiving the first trade order includes receiving the first trade order from a first party, and the method further comprises determining whether the first party has sufficient resources to meet a margin requirement for the position requested in the first trade order.

3. The method according to claim 1, wherein receiving the first trade order includes receiving the first trade order from a first party and wherein receiving the second trade order includes receiving the second trade order from a second party, and the method further comprises recording a clearing house as a counterparty to both the first party and the second party.

4. The method according to claim 1, further comprising settling the POD to 0 when the reference entity is insolvent at the maturity date.

5. The method according to claim 1, further comprising settling the POD to face value when the reference entity is solvent at the maturity date.

6. The method according to claim 1, further comprising settling the POD in kind at a time prior to the maturity date.

7. The method according to claim 6, wherein settling the POD in kind comprises settling the POD in kind based at least in part on a comparison between the maturity date and an identified date.

8. The method according to claim 7, wherein settling the POD in kind comprises settling the POD in kind when a difference between the maturity date and the identified date is 3 years.

9. The method according to claim 6, wherein settling the POD in kind comprises settling the POD into a series of PODs, each of the series of PODs having a reference entity, a maturity date and a settlement value at the maturity date based at least in part on solvency of the reference entity, none of the series of PODs sharing a common maturity date.

10. The method according to claim 9, wherein settling the POD into the series of PODs comprises settling the POD into a series of PODs, each of the series of PODs having a quarterly maturity date.

11. The method according to claim 9, further comprising settling each of the series of PODs subsequent to one of the series of PODs when the one of the series of PODs settles to 0.

12. A method for exchanging futures contracts comprising:

recording, on a computer readable storage medium, a completed transaction including;

at least one first trade order requesting a long position on a series of futures contracts, each of the series of futures contact having at least one of reference entity and a settlement value at a maturity date, the settlement value at the maturity date being based at least in part on solvency of the at least one reference entity, none of the series of futures contracts sharing a common maturity date; and

at least one second trade order requesting a short position on the series of futures contracts; and

clearing the completed transaction using a clearing house.

13. The method according to claim 12, wherein recording, on a computer readable storage medium, a completed transaction comprises recording at least one first trade order requesting a long position on a series of PODs.

14. The method according to claim 12, wherein recording, on a computer readable storage medium, a completed transaction comprises recording a long position on a series of probability of default index futures contracts.

15. The method according to claim 12, wherein recording, on a computer readable storage medium, a completed transaction comprises recording a long position on a series of probability of default index tranche futures contracts.

16. A computer implemented method for exchanging futures contracts comprising:

receiving at least one first trade order requesting a long position on a futures contract, the futures contract having a binary reference event, a maturity date and a settlement value at the maturity date, the binary reference event having two possible outcomes and the settlement value at the maturity date being based at least in part on which of the two possible outcomes occurs within a time period ending at the maturity date;

receiving at least one second trade order requesting a short position on the series of futures contracts;

matching the at least one first trade order with the at least one second trade order; and

recording, on a computer readable storage medium, a completed transaction indicating the at least one first trade order and indicating the at least one second trade order.

17. The method according to claim 16, further comprising settling subsequent futures contracts of the series after one of the two possible outcomes occurs.

18. A computer readable medium comprising computer readable instructions that, as a result of being executed by a processor, instruct the processor to perform a method, the method comprising:

receiving a first trade order requesting a long position on a probability of default futures contract (POD), the POD having a reference entity, a maturity date and a settlement value at the maturity date based at least in part on solvency of the reference entity;

receiving a second trade order requesting a short position on the POD;

matching the first trade order with the second trade order; and

recording, on a computer readable storage medium, a completed transaction, the completed transaction indicating the first trade order and the second trade order.

19. A system for providing a credit futures contract exchange comprising:

an order interface configured to receive trade requests for positions on a futures contract, the futures contact having at least one reference entity, a maturity date and a settlement value at the maturity date based at least in part on solvency of the at least one reference entity, a portion of the trade requests being offsetting trade requests;

an auction engine configured to match the offsetting trade requests and store the offsetting trade requests as completed transactions; and

a settlement engine configured to settle at least a portion of the completed transactions.

20. The system according to claim 19, wherein the futures contract comprises at least one of a POD, a probability of default index futures contract and a probability of default index tranche futures contract.

21. A method for exchanging an index of credit futures contracts comprising:

receiving a first trade order requesting a long position on the index, the index having a settlement value based at least in part on a plurality of PODs;

receiving a second trade order requesting a short position on the index;

matching the first trade order with the second trade order; and

recording, on a computer readable storage medium, a completed transaction, the completed transaction indicating the first trade order and the second trade order.

22. The method according to claim 21, further comprising settling the index in kind at a time prior to a maturity date of the index.

23. The method according to claim 22, wherein settling the index in kind comprises settling the index in kind based at least in part on a comparison between the maturity date and an identified date.

24. The method according to claim 23, wherein settling the index in kind comprises settling the index in kind when a difference between the maturity date and the identified date is 3 years.

25. The method according to claim 21, wherein settling the index in kind comprises settling the index into a series of index contracts, each of the series of index contracts having a settlement value based at least in part on a plurality of PODs, none of the series of index contracts sharing a common maturity date.

26. The method according to claim 25, wherein settling the index into the series of index contracts comprises settling the index into a series of index contracts, each of the series of index contracts having a quarterly maturity date.

27. The method according to claim 25, further comprising settling each of the series of index contracts subsequent to one of the series of index contracts when the one of the series of index contracts settles to 0.

28. A method for exchanging a tranche in an index of credit futures contracts comprising:

receiving a first trade order requesting a long position on the tranche, the tranche having a settlement value based at least in part on a settlement value of the index;

receiving a second trade order requesting a short position on the tranche;

matching the first trade order with the second trade order; and

recording, on a computer readable storage medium, a completed transaction, the completed transaction indicating the first trade order and the second trade order.

29. The method according to claim 28, further comprising settling the tranche in kind at a time prior to a maturity date of the tranche.

30. The method according to claim 29, wherein settling the tranche in kind comprises settling the tranche in kind based at least in part on a comparison between the maturity date and an identified date.

31. The method according to claim 30, wherein settling the tranche in kind comprises settling the tranche in kind when a difference between the maturity date and the identified date is 3 years.

32. The method according to claim 28, wherein settling the tranche in kind comprises settling the tranche into a series of tranche contracts, each of the series of tranche contracts having a settlement value based at least in part on the settlement value of the index, none of the series of tranche contracts sharing a common maturity date.

33. The method according to claim 32, wherein settling the tranche into the series of tranche contracts comprises settling the tranche into a series of tranche contracts, each of the series of tranche contracts having a quarterly maturity date.

34. The method according to claim 32, further comprising settling each of the series of tranche contracts subsequent to one of the series of tranche contracts when the one of the series of tranche contracts settles to 0.

35. A method for exchanging a series of futures contracts comprising:

receiving a first trade order requesting a long position on at least one of the series of futures contracts, the series of futures contracts having a duration substantially equivalent to a duration of a previously traded futures contract, each of the series of futures contracts having a maturity date, none of the series of futures contracts sharing a common maturity date;

receiving a second trade order requesting a short position on the at least one of the series of futures contracts;

matching the first trade order with the second trade order; and

recording, on a computer readable storage medium, a completed transaction, the completed transaction indicating the first trade order and the second trade order.

36. The method according to claim 35, wherein receiving a first trade order comprises receiving a first trade order requesting a long position on at least one of the series of futures contracts, each of the series of futures contracts having a quarterly maturity date.