Patent Application
20140081819
Aspects of the present invention relate to the processing of orders and clearing of trades of financial instruments. More specifically, aspects of the present invention provide systems and methods for processing fixed unit futures contracts.
Futures contracts are conventionally based on specific quantities of underlying assets. For example, a futures contract may be based on 5,000 bushels of soybeans, 1,000 barrels of crude oil or $50 times the value of the Standard & Poor (S&P) 500 Index. Since these contracts are based on fixed quantities, the values of the contracts fluctuate over time.
The fluctuating values of futures contracts can make futures contracts less than ideal for hedging risks associated with the purchase of over-the-counter derivatives. Over-the-counter derivatives, such as interest rate swaps, generally have constant notional values that are round numbers. As a result, it becomes difficult to precisely hedge the purchase of an over-the counter derivative that has a constant round value with a futures contract that may have a fluctuating value that is not a round value. The difficulty associated with not being able to precisely hedge a risk can make it difficult to comply with accounting standards or regulations.
Many retail investors also generally prefer to invest specific round dollar amounts instead of quantities. For example, an investor wishing to invest $10,000 in an oil futures contract would have to find a round quantity that has a value closest to $10,000.
Therefore, there is a need in the art for improved systems and methods for processing futures contracts.
Embodiments of the invention overcome at least some of the problems and limitations of the prior art by providing systems and methods for creating and processing fixed unit futures contracts. The notional value of the fixed unit futures contract may be initially set to a round number. A computer system may be used to periodically determine gains and losses. The periods may correspond to trading sessions, fiscal periods or times agreed to by buyers and sellers. At the expiration of the time periods gains and losses may be determined and settled by a clearing firm. The value of the fixed unit futures contract may be returned to the notional value before the beginning of a trading session or other time period.
In various embodiments, aspects of the present invention can be partially or wholly implemented on a computer-readable medium, for example, by storing computer-executable instructions or modules, or by utilizing computer-readable data structures.
Of course, the methods and systems disclosed herein may also include other additional elements, steps, computer-executable instructions, or computer-readable data structures.
The details of these and other embodiments of the present invention are set forth in the accompanying drawings and the description below. Other features and advantages of the invention will be apparent from the description and drawings, and from the claims.
The present invention may take physical form in certain parts and steps, embodiments of which will be described in detail in the following description and illustrated in the accompanying drawings that form a part hereof, wherein:
Aspects of the present invention are preferably implemented with computer devices and computer networks that allow users to exchange trading information. An exemplary trading network environment for implementing trading systems and methods is shown in
The trading network environment shown in
Computer device 114 is shown directly connected to exchange computer system 100. Exchange computer system 100 and computer device 114 may be connected via a T1 line, a common local area network (LAN) or other mechanism for connecting computer devices. Computer device 114 is shown connected to a radio 132. The user of radio 132 may be a trader or exchange employee. The radio user may transmit orders or other information to a user of computer device 114. The user of computer device 114 may then transmit the trade or other information to exchange computer system 100.
Computer devices 116 and 118 are coupled to a LAN 124. LAN 124 may have one or more of the well-known LAN topologies and may use a variety of different protocols, such as Ethernet. Computers 116 and 118 may communicate with each other and other computers and devices connected to LAN 124. Computers and other devices may be connected to LAN 124 via twisted pair wires, coaxial cable, fiber optics or other media. Alternatively, a wireless personal digital assistant device (PDA) 122 may communicate with LAN 124 or the Internet 126 via radio waves. PDA 122 may also communicate with exchange computer system 100 via a conventional wireless hub 128. As used herein, a PDA includes mobile telephones and other wireless devices that communicate with a network via radio waves.
One or more market makers 130 may maintain a market by providing constant bid and offer prices for a derivative or security to exchange computer system 100. Exchange computer system 100 may also exchange information with other trade engines, such as trade engine 138. One skilled in the art will appreciate that numerous additional computers and systems may be coupled to exchange computer system 100. Such computers and systems may include clearing, regulatory and fee systems.
The operations of computer devices and systems shown in
Of course, numerous additional servers, computers, handheld devices, personal digital assistants, telephones and other devices may also be connected to exchange computer system 100. Moreover, one skilled in the art will appreciate that the topology shown in
The value of the fixed unit futures contract may similarly fluctuate during trading session 2. After the end of trading session 2, which corresponds to time T3, the value of the fixed unit futures contract is recalibrated to notional value 206.
The value of the fixed unit futures contract may fluctuate during additional trading sessions or time periods and the value may be recalibrated to the notional value prior to the beginning of another trading session or time period. A clearing system may be used to clear gains and losses. Gains and loss may also be accumulated and cleared after multiple trading sessions or time periods. For example, gains and losses may be tracked daily and clearing of accumulated gains and losses may occur once per fiscal quarter.
After the time period has expired, in step 308 a gain or loss from the notional value of the fixed unit futures contract is determined. Step 308 may be performed with a processor of a computer system. Next, any gain or loss is settled in step 310. Step 310 may be performed by a clearing firm computer system or some other computer system and may include debiting and crediting accounts of a buyer and a seller of the fixed unit futures contract. The value of the futures contract may be recalibrated to the notional value in step 312. Step 312 may be performed after the expiration of trading session and prior to the beginning of a new trading session.
The present invention has been described in terms of preferred and exemplary embodiments thereof. Numerous other embodiments, modifications and variations within the scope and spirit of the invention will occur to persons of ordinary skill in the art from a review of this disclosure.
