METHOD AND SYSTEM FOR CREATING AND TRADING SELLER-PAID MARGIN DERIVATIVE INVESTMENT INSTRUMENTS

• US 20140258071A1
• Filed: 03/05/2014
• Published: 09/11/2014
• Est. Priority Date: 03/08/2013
• Status: Abandoned Application

• Current Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: Tilly, Edward T., Speth, William M.
• Application Number:
  US14/198,256
• Publication Number:
  US 20140258071A1
• 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

Systems and methods for creating, disseminating and managing margin for a seller-advanced margin derivative investment instrument are disclosed. In one aspect, a seller-advanced margin derivative investment instrument is defined where a seller pre-pays a margin requirement that a buyer typically pays initially as required by an exchange. In another aspect, a collateral management service associated with a clearing entity for an exchange identifies, tracks and notifies seller and buyer clearing firms of margin charges and credits relating to seller-advanced margin derivative investment instruments.

Claims

1. A computer-implemented method of managing a seller-advanced margin option on an exchange, the method comprising:

in a processor of a clearing entity associated with the exchange, wherein the clearing entity is configured to monitor aggregate margin risks of clearing firms associated with buyers and sellers of seller-advance margin options, the processor;

receiving from the exchange an automated message identifying a matched trade for a seller-advanced margin option between a buyer and a seller, wherein the automated message includes information identifying that the matched trade is for the seller-advanced margin option;

transmitting a first margin position notice communication to a clearing firm of the seller of the seller-advanced margin option, wherein the margin position notice communication comprises aggregate margin position information for all customers of the clearing firm of the seller, and wherein the aggregate margin position information includes a margin obligation of the seller totaling a sum of margin requirements for both the buyer and the seller of the matched trade of the seller-advanced margin option; and

subsequent to transmitting the first margin position notice, transmitting a second margin position notice to the clearing firm of the seller, the second margin position notice comprising second aggregate margin position information including a repayment by the buyer to the seller of at least a portion of the margin obligation of the buyer of the seller-advanced margin option.

2. The computer-implemented method of claim 1, wherein transmitting the second margin position notice to the clearing firm of the seller comprises transmitting the second notice in response to an expiration of the seller-advanced margin option.

3. The computer-implemented method of claim 1, wherein transmitting the second margin position notice to the clearing firm of the seller comprises transmitting the second notice in response to receipt of a message that the buyer has closed out a position in the seller-advanced margin option.

4. The computer-implemented method of claim 1, wherein transmitting the second margin position notice to the clearing firm of the seller comprises transmitting a plurality of second margin notices at a predetermined interval after receiving the automated notice identifying the matched trade and prior to expiration of, or closing out of a position in, the seller-advanced margin option, wherein the second margin notices each reflect information relating to repayment from the buyer to the seller of only a respective portion of the margin requirement of the buyer.

5. The computer-implemented method of claim 4, wherein the respective portion in each of the second notices are equal.

6. The computer-implemented method of claim 4, wherein the respective portion in each of the second notices differ and are calculated based on a current mark-to-market value of the seller-advanced margin option.

7. A collateral management system for monitoring aggregate margin risks of clearing firms associated with buyers and sellers of seller-advanced margin options traded on an exchange, the collateral management system comprising:

a communication interface for communicating electronically with the exchange and the clearing firms associated with the exchange;

a memory comprising margin calculation data; and

a processor in communication with the memory and communication interface, the processor configured to;

receive from the exchange an automated message identifying a matched trade for a seller-advanced margin option between a buyer and a seller, wherein the automated message includes information identifying that the matched trade is for the seller-advanced margin option;

transmit a first margin position notice communication to a clearing firm of the seller of the seller-advanced margin option, wherein the margin position notice communication comprises aggregate margin position information for all customers of the clearing firm of the seller, and wherein the aggregate margin position information includes a margin obligation of the seller totaling a sum of margin requirements for both the buyer and the seller of the matched trade of the seller-advanced margin option; and

subsequent to transmitting the first margin position notice, transmit a second margin position notice to the clearing firm of the seller, the second margin position notice comprising second aggregate margin position information including a repayment by the buyer to the seller of at least a portion of the margin obligation of the buyer of the seller-advanced margin option.

8. The collateral management system of claim 7, wherein the processor is configured to transmit the second margin position notice to the clearing firm of the seller in response to an expiration of the seller-advanced margin option.

9. The collateral management system of claim 7, wherein the processor is configured to transmit the second margin position notice to the clearing firm of the seller in response to receipt of a message that the buyer has closed out a position in the seller-advanced margin option.

10. The collateral management system of claim 7, wherein the processor is configured to transmit a plurality of second margin notices at a predetermined interval after receiving the automated notice identifying the matched trade and prior to expiration of, or closing out of a position in, the seller-advanced margin option, wherein each of the plurality of second margin notices reflect information relating to repayment from the buyer to the seller of only a respective portion of the margin requirement of the buyer.

11. The collateral management system of claim 10, wherein the respective portion in each of the second notices are equal.

12. The collateral management system of claim 10, wherein the respective portion in each of the plurality of second notices differ and the processor is configured to calculate each of the plurality of second notices based on a current mark-to-market value of the seller-advanced margin option.