Patent Application
20160071214
Aspects of the invention relate to the delivery of items in deliverable futures contracts. More particularly, aspects of the invention relate to systems and methods for compelling delivery of items within a quality range.
Futures contracts generally obligate buyers and sellers to purchase and sell an asset at a predetermined time and at a predetermined price. Assets may include physical commodities and financial instruments. Certificates of deposit are exemplary financial instruments. An exemplary futures contract is a short-term interest rate futures contract that requires delivery of a certificate of deposit.
Futures contracts can specify settlement by physical delivery or by cash. Settling a futures contract with physical delivery involves delivering the asset. For example, a quantity of corn or a certificate of deposit may be delivered to a specific location or a currency payment may be made to settle the futures contract. Alternatively, some futures contracts specify that they will be cash settled. Cash settlement may include a cash payment that is the difference between a spot price and the price specified by the futures contract.
For each multi-laterally traded futures contract, there is a long counterparty and a short counterparty. Generally, however, either the long or the short of each such contract is an exchange or clearinghouse. For example, a first counterparty may offer to sell a particular type of futures contract through an exchange. After the exchange publishes that offer, a second counterparty may purchase a futures contract of that type through the exchange at the offered price. The exchange then establishes a first contract in which the first counterparty is the short and the exchange clearinghouse is the long, and an offsetting second contract in which the second counterparty is the long and the exchange is the short, with the contract price of the first and second contracts (the accepted offer price of the first counterparty) being the same. The first and second counterparties do not know each other's identities.
As also indicated above, some types of futures contracts are “physically” settled, i.e., the short counterparty agrees to deliver the actual commodity at final settlement. In some cases, the short may do so by literally providing the contract amount of the quantity to a location specified by the contract (e.g., delivery of crude oil to an oil terminal, delivery of grain to a grain elevator). In other cases, the short may deliver the contracted-for commodity by providing documents (e.g., warehouse receipts representing commodities in storage) or other evidence establishing that the contracted-for amount of the quantity has been provided (e.g., data confirming transfer of a note, bond, stock or other financial instrument to a specified account). Some physical settlements can involve transfer of money. For example, a foreign currency futures contract could require transfer of a contract amount of a foreign currency (e.g., Euros, Yen, etc.) at final settlement in return for payment of the contract price in a different currency (e.g., U.S. Dollars).
Existing futures contracts that call for the physical delivery of underlying assets provide the parties responsible for delivering the underlying assets with incentives to find the cheapest to deliver assets. The cheapest to deliver assets are often the lowest quality assets. For example, a futures contract may call for the delivery of a certificate of deposit issued from a group of banks. At the time of delivery a certificate of deposit issued by a bank with the lowest credit rating may be the cheapest to deliver. Some prior art approaches have tried to address this problem by providing for financial adjustments based on quality at the time of deliver. Other prior art approaches have used conversion factors to account for varying coupons and maturities of Treasury financial instruments.
Accordingly, there is a need in the art for futures contracts systems and methods for compelling delivery of items within a quality range.
Aspects of the invention overcome at least some of the problems and limitations of the prior art by providing systems and methods for ranking and selecting underlying items that may be delivered in accordance with terms of futures contracts. First, a group of potential underling items identified in a futures contract may be identified. Next, the quality of the potential underlying items are ranked to generate quality rankings for each of the potential underlying items. After the potential underlying items are ranked, a subset of the potential underlying items are determined that satisfy a minimum quality ranking to identify deliverable underlying items. Futures contracts may be settled with the deliverable underlying items.
In other embodiments, 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 of the above-referenced embodiments may also include other additional elements, steps, computer-executable instructions, or computer-readable data structures. In this regard, other embodiments are disclosed and claimed herein as well.
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
Various embodiments of the invention process or utilize futures contracts that have quality standards that are applied at the time of delivery of underlying assets. Criteria for ranking the quality of available underlying assets may be included in the futures contracts. The futures contracts may also include a minimum or a range of quality levels required at the time of delivery.
Next, in step 204, the quality of potential underlying items are ranked to generate quality rankings for each of the potential underlying items. Step 204 may be performed by one or more computer processors and may consider characteristics of sources of the potential underlying items. Factors that may be considered when ranking potential underlying items include credit worthiness of sources, revenue of sources, profitability of sources, transaction volume and other factors relating to the quality of the potential underlying items. In some embodiments surveys are distributed and results are analyzed as part of the ranking process. One or more computer processors may be programmed to analyze the survey results. Or course, some embodiments may use a combination of factors when ranking potential underlying items. Step 204 may include assigning quality percentile rankings to each of the potential underlying items.
The ranking process may be performed at the time of settlement to ensure that current information is being used when selecting potential underlying items.
After the rankings are determined, in step 206 a subset of the potential underlying items that satisfy a minimum quality ranking are determined to identify deliverable underlying items. Step 206 may include selecting potential underlying items with a minimum percentile ranking, such as the 25th percentile. Other embodiments may include selecting potential underlying items with a percentile ranking within a range, such as the 25th to the 75th percentile.
In step 210 the futures contract is settled. Step 210 may include using a processor computer-executable instructions to select one of the deliverable underlying items based on the rankings and possible other factors like preferences of one or both of the parties to the futures contract. One or more additional steps may also be performed by an exchange, clearinghouse or other entity. For example, in step 212 a margin requirement may be determined.
A receiver/transmitter 310 may be configured to receive data that may be used in a ranking process. Exemplary data includes survey data 312 and financial data 314. Receiver/transmitter 310 may also communicate with remote computers, such as remote computer 316 and remote computer 318 via a wide area network, such as the Internet. In some embodiments remote computers 316 and 318 provide data to quality ranking computer 302 and/or receive ranking data from quality ranking computer 302. Receiver/transmitter 310 may be implemented with a network interface controller, integrated circuit or other components configured to receive and/or transmit data.
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.
