Methods and apparatus for formulation, initial public or private offering, and secondary market trading of risk management contracts

• US 7,983,976 B2
• Filed: 08/06/2001
• Issued: 07/19/2011
• Est. Priority Date: 10/17/2000
• Status: Active Grant

• Current Assignee: North American Derivatives Exchange, Inc. (IG Group Holdings PLC)
• Original Assignee: HedgeStreet, Inc. (IG Group Holdings PLC)
• Inventors: Nafeh, John, Yee, Kenton K
• Primary Examiner(s): MILEF, ELDA G
• Application Number:
  US09/923,035
• Publication Number:
  US 20020069155A1
• Time in Patent Office: 3,634 Days
• Field of Search: 705/38, 705/35, 705/36.R, 705/37
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

Key features of these methods, apparatus, and designs include (but are not limited to) innovations and implementations of futures securities; the notion of Type I, Type II, and Type III futures contracts custom tailored to specific clienteles; the notion of tickets and coupons as tradable futures contracts; the notion of bifurcation; the notion of redeemable bundles; and notion of realization of the futures market on the Internet; the apparatus of an Internet-based trading interface and engine; the notion of cookie-cutter futures electronic Internet-based futures markets for each security; the feature of maximal reliance on the Internet; and the business concept of “profitability without the need for high trading volume.”

Claims

1. A method of conducting business comprising the steps of:

establishing a computer-network based contract trading system electronically accessible by traders, said trading system including a plurality of trading accounts, each trader on the trading system being associated with at least one of the trading accounts;

establishing, on said trading system, a plurality of separate contracts within contract bundles, each contract bundle paying off an aggregate fixed monetary sum at maturity, the aggregate fixed monetary sum at maturity known when the contract bundles are established, and wherein each contract bundle comprises at least two separate contracts;

selling, over said trading system, at least one of the plurality of separate contracts within the contract bundles;

accepting for resale over said trading system, the at least one of the plurality of separate contracts within the contract bundles;

settling the at least one of the plurality of separate contracts against the trading account of the trader of said separate contract;

assessing a transaction fee for at least one of said steps of selling, accepting for resale, or settling of the at least one of the plurality of separate contracts;

wherein each of said separate contracts pays off a fixed sum or a zero sum depending on an outcome of a future event;

wherein said future event has a recurring regular occurrence and wherein said method further comprises the steps of;

establishing over said trading system, a plurality of contract bundles, each contract bundle comprising at least two separate contracts, at least one of said plurality of contract bundles having a time period from a sale thereof to an expiration thereof which partially overlaps the time period from a sale of another of said plurality of contract bundles until an expiration of said another of said plurality of contract bundles, said at least one of said plurality of contract bundles corresponding to a first periodic occurrence of said future event and said another of said plurality of contract bundles corresponding to a second periodic occurrence of said future event.

2. The method of claim 1, wherein the computer-network based contract trading system is electronically accessible by traders via at least the Internet.

3. The method of claim 2, further comprising the step of providing a user interface that allows traders to access said contract trading system.

4. The method of claim 3, wherein the user interface is a world-wide-web user interface.

5. The method of claim 3, wherein said user interface allows any computer-network user to view information about said trading system.

6. The method of claim 3, wherein said user interface allows only predetermined computer-network users to view information about said trading system.

7. The method of claim 1, further comprising the step of:

receiving data from a prospective trader identifying a predetermined phenomenon for which a separate contract is desired, the phenomenon having at least two future possible outcomes at a time of maturity.

8. The method of claim 7, wherein the step of selling includes selling a contract bundle comprising at least two separate contracts, each of said at least two separate contracts corresponding to one of said at least two future possible outcomes of said future event.

9. The method of claim 1, further comprising the step of:

prior to the step of establishing the plurality of separate contracts within contract bundles, determining whether a future event for which at least one contract bundle is desired is suitable for issuance of the at least one contracts bundle thereon.

10. The method of claim 1, wherein for each one of said plurality of contract bundles, a corresponding expiration thereof corresponds to a timing of a specific periodic occurrence of said future event associated therewith.

11. The method of claim 10, further comprising the step of:

establishing over said trading system, a contract bundle associated with a specific periodic occurrence of said future event at substantially the same time as an expiration of a contract bundle associated with another periodic occurrence of said future event.

12. The method of claim 1, wherein the steps of selling and settling are accomplished in a credit-risk free manner.

13. The method of claim 1, wherein:

the step of selling is on margin; and

the step of selling and the step of settling are accomplished in a credit-risk manner.

14. The method of claim 1, further comprising the step of accepting an indicia of an identity from at least one of the traders.

15. The method of claim 14, wherein the steps of selling, accepting for resale, settling, or assessing over said trading system are only with respect to the at least one of the traders having said indicia.

16. The method of claim 1, wherein only a predetermined group of traders may access the trading system.

17. The method of claim 16, wherein said predetermined group is selected from the group consisting of predefined and prequalified traders.

18. The method of claim 1, further comprising the step of:

introducing a plurality of new contracts to the trading system as a split of an existing separate contract, an aggregate liquidation value of the plurality of new contracts equaling the liquidation value of the existing separate contract which was split.

19. The method of claim 18, further comprising the step of:

concurrent with said step of introducing said plurality of new contracts to the trading system as a split of an existing separate contract, retiring said existing separate contract which was split.

20. The method of claim 1, further comprising the step of:

receiving at least two existing separate contracts prior to a maturity thereof; and

introducing a new contract to the trading system as a combination of said at least two existing separate contracts, a liquidation value of the new contract equaling an aggregate of the liquidation value of said at least two existing contracts.

21. The method of claim 20, further comprising the step of:

soliciting, over said trading system, a trader for delivery of said at least one new contracts, which completes a contract bundle, prior to a maturity thereof.

22. The method of claim 1, wherein said step of settling said separate contract includes settling said separate contracts at an expiration thereof.

23. The method of claim 1, further comprising accepting the at least two separate contracts comprising said contract bundles for redemption prior to an expiration thereof.

24. The method of claim 1, further comprising the step of:

providing a market authority for mediating any dispute related to said trading system.

25. The method of claim 1, further comprising establishing a computer-network based contract trading system accessible by non-trading observers.

28. The method of conducting business of claim 1, wherein each said contract bundle comprises two separate contracts.

30. The method of claim 1, further comprising forming and reselling over said trading system contracts comprised of two or more of said separate contracts packaged together.

31. The method of claim 1, further comprising at least two separate contracts within a contract bundle paying off an amount contingent upon a future event such that a payout by one of the separate contracts within the contract bundle excludes payout by any other separate contract within the contract bundle.

32. The method of claim 31, further comprising all of the separate contracts combined within the contract bundle exhausting all possible contingencies of the future event, such that the contract bundle as a whole has a fixed certain value payable on the future event.

33. The method of claim 1, further comprising assessing a transaction fee for a reselling of the at least one of the plurality of separate contracts.

26. A computer network-based contract trading system, the system comprising:

a communications interface,

a plurality of processing modules for formation, sale, resale and settlement of separate contracts within contract bundles, each of said contract bundles comprising at least two separate contracts wherein each contract bundle pays off an aggregate fixed monetary sum at maturity, the aggregate fixed monetary sum at maturity known upon the formation of the contract bundles,

means for enabling market participants to trade separate contracts directly with other market participants, and not through third parties,

wherein each of said separate contracts pays off a fixed sum or a zero sum depending on an outcome of a future event;

wherein said future event has a recurring regular occurrence and wherein said method further comprises the steps of;

establishing over said trading system, a plurality of contract bundles, each contract bundle comprising at least two separate contracts, at least one of said plurality of contract bundles having a time period from a sale thereof to an expiration thereof which partially overlaps the time period from a sale of another of said plurality of contract bundles until an expiration of said another of said plurality of contract bundles, said at least one of said plurality of contract bundles corresponding to a first periodic occurrence of said future event and said another of said plurality of contract bundles corresponding to a second periodic occurrence of said future event.

27. The computer network-based contract trading system of claim 26, wherein said market participants are anonymous to each other.

29. The computer network-based contract trading system of claim 26, wherein each of said contract bundles comprises two separate contracts.