Method and system for consolidating commodity futures contracts having guaranteed physical delivery

• US 7,676,406 B2
• Filed: 06/13/2003
• Issued: 03/09/2010
• Est. Priority Date: 01/24/2003
• Status: Active Grant

• Current Assignee: GPD Systems LLC
• Original Assignee: Hartree Partners LP
• Inventors: Kinnear, Kirk P.
• Primary Examiner(s): Trammell; James P
• Assistant Examiner(s): MILEF, ELDA G
• Application Number:
  US10/461,835
• Publication Number:
  US 20040148249A1
• Time in Patent Office: 2,461 Days
• Field of Search: 705/37, 705/35, 705/36.R, 705/36
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 99/00 Subject matter not provided for in other groups of this subclass

Abstract

A guaranteed physical delivery futures contract and method and system for consolidating same are disclosed. The method includes guaranteeing physical delivery for future positions of market participants having open first-nearby time positions of a particular size, making additions to or subtractions from open first-nearby time positions of market participants that are less than the particular size and offsetting the additions to and subtractions from market participants'"'"' open first-nearby time positions with opposite positions in a second-nearby time. The system includes one or more servers and communications links, the communications links for receiving position data, including open positions, and the servers are configured to make additions to or subtractions from open first-nearby time positions less than a certain size and adjust market participant second-nearby time positions based on the additions to or subtractions from open first-nearby time positions. In certain embodiments, the underlying commodity is crude oil and the particular size is the size of a cargo shipment, about 600,000 barrels.

Claims

1. A computer-implemented method for an exchange to adjust positions of market participants in a futures contract based on an underlying commodity, the exchange having a computer operable in accordance with computer programming stored in a computer readable medium to perform the method comprising:

identifying, for physical delivery of the commodity, open first-nearby time positions of a particular size which were held through contract expiry, market participants having the open first-nearby time positions of the particular size being obligated to make or take physical delivery of the commodity pursuant to terms of the contract;

matching the identified open first-nearby time positions of a particular size with other open first-nearby time positions, the other open first-nearby time positions including positions of the particular size or positions of less than the particular size;

making additions to or subtractions from open first-nearby time positions of market participants that are less than the particular size, including making additions to the positions of less than the particular size; and

updating an electronic database stored in electronic memory to reflect the additions or subtractions to positions of market participants.

2. The method of claim 1, wherein the making additions to or subtractions from open first-nearby time positions comprises bringing positions to zero or to the particular size, the method further comprising:

offsetting additions to and subtractions from market participants'"'"' open first-nearby time positions with opposite positions in a second-nearby time.

3. The method of claim 2 wherein the offsetting comprises determining a final settlement price and a spread index, and offsetting the additions to and subtractions from the first-nearby time positions at a price equal to the difference between the final settlement price and spread index.

4. The method of claim 3 wherein the final settlement price is a weighted average of all first-nearby time trades executed during a first predetermined period prior to market closing on contract expiration day.

5. The method of claim 4 wherein the spread index is a weighted-average of all bona fide first-nearby/second-nearby spread transactions executed during a second predetermined period of trading on contract expiration day, wherein a bona fide first-nearby/second-nearby spread transaction is a purchase in one of the first-nearby time or second-nearby time executed simultaneously with a sale of equal volume in another of the first-nearby time or second-nearby time.

6. The method of claim 1 further comprising establishing a matching day and time on which the additions and subtractions are made.

7. The method of claim 1 wherein the matching of the identified open positions of a particular size includes matching futures longs having the particular size with futures shorts.

8. The method of claim 7 wherein future longs having the particular size are first matched with future shorts having the particular size.

9. The method of claim 7 wherein:

matching comprises matching a first participant'"'"'s future long position in the first-nearby time equal to the particular size with a second participant'"'"'s future short position in the first-nearby time in an amount equal to or less than the particular size, and

wherein making additions to and subtractions from comprises subtracting from the second participant'"'"'s first-nearby time position a difference between the particular size and the amount, the method further comprising offsetting the subtracting by adding to the second participant'"'"'s second-nearby time position the difference.

10. The method of claim 9 wherein:

adding to the second participant'"'"'s second-nearby time position is at a price equal to the difference between a final settlement price and a spread index.

11. The method of claim 1 wherein the method is for tracking positions in futures contracts for crude oil, and wherein the particular size is 600,000 barrels.

23. The method of claim 1 wherein the market participants make or take physical delivery pursuant to a physical forward contract for the underlying commodity.

24. The method of claim 1 wherein all market participants are either identified for physical delivery or have additions to or subtractions from open first-nearby time positions made to their positions.

12. A computer-implemented method of an exchange guaranteeing physical delivery for market participants having cargo-size positions in a futures contract based on an underlying commodity, the method comprising:

identifying open first-nearby time positions in the future contract of multiple market participants, the open first-nearby time positions having been held by the market participants through expiry of the future contract and including;

a first number of open cargo-size long positions;

a second number of open cargo-size short positions;

a third number of less than cargo-size long positions; and

a fourth number of less than cargo-size short positions;

pursuant to the futures contract;

using a computer to match any open cargo-size long positions with any open cargo-size short positions;

if the first number equals the second number, then bringing remaining open first-nearby time positions to zero;

if the first number is less than the second number, then matching unmatched cargo-size short positions with less than cargo-size long positions of long participants, increasing the less than cargo-size long positions to cargo-size long positions and adjusting a second-nearby time position of the long participants; and

if the first number is greater than the second number, then matching unmatched cargo-size long positions with less than cargo-size short positions of short participants, increasing the less than cargo-size short positions to cargo-size short positions and adjusting a second-nearby time position of the short participants, thereby guaranteeing physical delivery to participants having cargo-size first-nearby time positions.

25. The method of claim 12 wherein the market participants with cargo-size positions make or take physical delivery pursuant to a physical forward contract for the underlying commodity.

26. The method of claim 25 wherein the matching is performed for all market participants and wherein the adjusting of second-nearby time period positions further comprises determining a final settlement pric&

and a spread index and offsetting changes in first-nearby time period positions with changes in second-nearby time period positions at a price equal to a difference between the final settlement price and the spread index.

27. The method of claim 26 wherein the final settlement price is a weighted average of all first-nearby time trades executed during a first predetermined period prior to market closing on contract expiration day and wherein the spread index is a weighted-average of all bona fide first-nearby/second-nearby spread transactions executed during a second predetermined period of trading on contract expiration day.

28. The method of claim 12 wherein the matching is performed for all market participants.

13. A computer system for adjusting positions of market participants in a futures contract based on an underlying commodity, the system comprising:

one or more communications links receiving market participant position information, the position information including identification of open first-nearby time long positions and open first-nearby time short positions;

one or more processors configured to;

match open first-nearby time long positions and open first-nearby time short positions received from the communication links, the open first-nearby time long positions and open first-nearby time short positions being open beyond contract expiry, wherein matched positions are settled with physical delivery of the commodity pursuant to terms of the contract;

make additions to or subtractions from open first-nearby time positions less than a certain size; and

adjust market participant second-nearby time positions based on the additions to or subtractions from open first-nearby time positions.

14. The system of claim 13 further comprising an electronic database in communication with the processors, the database storing market participant position information,

wherein adjusting market participant second-nearby time positions includes updating the database.

17. The method of claim 13 wherein the processors are configured to adjust second-nearby time positions by determining a final settlement price and a spread index and offsetting the additions to and subtractions from the first-nearby time positions at a price equal to the difference between the final settlement price and spread index.

18. The method of claim 17 wherein the final settlement price is a weighted average of all first-nearby time trades executed during a first predetermined period prior to market closing on contract expiration day.

19. The method of claim 18 wherein the spread index is a weighted-average of all bona fide first-nearby/second-nearby spread transactions executed during a second predetermined period of trading on contract expiration day, wherein a bona fide first-nearby/second-nearby spread transaction is a purchase in one of the first-nearby time or second-nearby time executed simultaneously with a sale of equal volume in another of the first-nearby time or second-nearby time.

20. The method of claim 13 wherein the processors are configured to match futures longs having a particular size with futures shorts.

21. The method of claim 20 wherein the processors are configured to first match future longs having the particular size with future shorts having the particular size.

22. The method of claim 20 wherein the processors are configured to:

match by matching a first participant'"'"'s future long position in the first-nearby time equal to the particular size with a second participant'"'"'s future short position in the first-nearby time in an amount equal to less than the particular size;

subtract from the second participant'"'"'s first-nearby time position a difference between the particular size and the amount; and

add to the second participant'"'"'s second-nearby time position the difference.

29. The system of claim 13 wherein the physical delivery is pursuant to a physical forward contract for the underlying commodity.

30. The system of claim 13 wherein the processors are configured to match or to make additions to or subtractions from all open first-nearby time positions and

wherein the processors are configured to adjust the second-nearby time positions at a price equal to a difference between a final settlement price and a spread index.

31. The system of claim 13 wherein the processors are configured to match or to make additions to or subtractions from all open first-nearby time positions.

15. A computer-implemented method of a market participant settling a futures contract based on an underlying commodity with physical delivery of the commodity, the method comprising:

trading the futures contract utilizing a computer on an exchange network, the market participant having an open first-nearby time position in the futures contract, at least a portion of the position being held through expiration of the contract;

having the open portion of the position matched by the exchange to an opposite open first-nearby time future position of a separate market participant; and

entering into a physical market contract based on the futures contract with the separate market participant, the physical market contract resulting in physical delivery as settlement of the futures contract;

wherein the open first-nearby time position is less than cargo-size, the method further comprising receiving an adjustment to the open first-nearby time position, the adjustment and the open first-nearby time position equaling a cargo-size position.

16. The method of claim 15 further comprising receiving an adjustment to a second-nearby time position, the adjustment to the second-nearby time position offsetting the adjustment to the first-nearby time position.

32. The method of claim 16 wherein the adjusting of the second-nearby time period position comprises determining a final settlement price and a spread index, and offsetting the adjustment in the first-nearby time period position at a price equal to a difference between the final settlement price and the spread index.

33. The method of claim 32 wherein the final settlement price is a weighted average of all first-nearby time trades executed during a first predetermined period prior to market closing on contract expiration day and wherein the spread index is a weighted-average of all bona fide first-nearby/second-nearby spread transactions executed during a second predetermined period of trading on contract expiration day.

34. A computer-implemented method for an exchange to adjust positions of market participants in a futures contract based on an underlying commodity, the exchange having a computer operable in accordance with computer programming stored in a computer readable medium, the method comprising:

utilizing the computer to identify, for physical delivery of the commodity, first-nearby time futures contract positions held through contract expiry of a particular size, the first-nearby time positions of the particular size being held through contract expiry by market participants being obligated to make or take physical delivery of the commodity pursuant to terms of the contract;

making additions to or subtractions from open first-nearby time positions of market participants that are less than the particular size; and

updating records in an electronic database stored in electronic memory based on market participant positions.

35. The method of claim 34, wherein the making additions to or subtractions from open first-nearby time positions comprises bringing positions to zero or to the particular size, the method further comprising:

offsetting additions to and subtractions from market participants'"'"' open first-nearby time positions with opposite positions in a second-nearby time.

36. The method of claim 35 wherein the offsetting comprises determining a final settlement price and a spread index, and offsetting the additions to and subtractions from the first-nearby time positions at a price equal to the difference between the final settlement price and spread index.

37. The method of claim 36 wherein the final settlement price is a weighted average of all first-nearby time trades executed during a first predetermined period prior to market closing on contract expiration day.

38. The method of claim 37 wherein the spread index is a weighted-average of all bona fide first-nearby/second-nearby spread transactions executed during a second predetermined period of trading on contract expiration day, wherein a bona fide first-nearby/second-nearby spread transaction is a purchase in one of the first-nearby time or second-nearby time executed simultaneously with a sale of equal volume in another of the first-nearby time or second-nearby time.

39. The method of claim 34 further comprising establishing a matching day and time on which the additions and subtractions are made.

40. The method of claim 34 further comprising matching futures longs having the particular size with futures shorts.

41. The method of claim 40 wherein future longs having the particular size are first matched with future shorts having the particular size.

42. The method of claim 40 wherein:

matching comprises matching a first participant'"'"'s future long position in the first-nearby time equal to the particular size with a second participant'"'"'s future short position in the first-nearby time in an amount equal to or less than the particular size, and

wherein making additions to and subtractions from comprises subtracting from the second participant'"'"'s first-nearby time position a difference between the particular size and the amount, the method further comprising offsetting the subtracting by adding to the second participant'"'"'s second-nearby time position the difference.

43. The method of claim 42 further comprising matching futures shorts having the particular size with futures longs.

44. The method of claim 42 wherein:

adding to the second participant'"'"'s second-nearby time position is at a price equal to the difference between a final settlement price and a spread index.

45. The method of claim 34 wherein the market participants make or take physical delivery pursuant to a physical forward contract for the underlying commodity.

46. The method of claim 45 wherein all market participants are either identified for physical delivery or have additions to or subtractions from open first-nearby time positions made to their positions.

47. A computer-implemented method of an exchange guaranteeing physical delivery for market participants having cargo-size positions in a futures contract based on an underlying commodity, the method comprising:

identifying open first-nearby time positions in the future contract of multiple market participants, the open first-nearby time positions being held through contract expiry and including;

a first number of open cargo-size long positions;

a second number of open cargo-size short positions;

a third number of less than cargo-size long positions; and

a fourth number of less than cargo-size short positions;

pursuant to the futures contract;

using a computer to match any open cargo-size long positions with any open cargo-size short positions;

if the first number equals the second number, then bringing remaining open first-nearby time positions to zero;

if the first number is less than the second number, then matching unmatched cargo-size short positions with less than cargo-size long positions of long participants, increasing the less than cargo-size long positions to cargo-size long positions and adjusting a second-nearby time position of the long participants; and

if the first number is greater than the second number, then matching unmatched cargo-size long positions with less than cargo-size short positions of short participants, increasing the less than cargo-size short positions to cargo-size short positions and adjusting a second-nearby time position of the short participants, thereby guaranteeing physical delivery to participants having cargo-size first-nearby time positions.

48. The method of claim 47 wherein the matching pursuant to the futures contract of first-nearby time positions occurs after expiry of the futures contract of the first-nearby time positions.

49. A computer-implemented method of a market participant settling a futures contract based on an underlying commodity with physical delivery of the commodity, the method comprising:

trading the futures contract utilizing a computer on an exchange network, the market participant having an open first-nearby time future position, at least a portion of the position being held through contract expiry;

having the portion of the position held through contract expiry matched by the exchange to an opposite first-nearby time future position through contract expiry by a separate market participant; and

entering into a physical market contract based on the futures contract with the separate market participant, the physical market contract resulting in physical delivery as settlement of the futures contract;

wherein the first-nearby time position held through contract expiry is less than cargo-size, the method further comprising receiving an adjustment to the first-nearby time position held through contract expiry, the adjustment and the first-nearby time position held through contract expiry equaling a cargo-size position.

50. The method of claim 49 further comprising receiving an adjustment to a second-nearby time position, the adjustment to the second-nearby time position offsetting the adjustment to the first-nearby time position.