Trading and settling enhancements to the standard electronic futures exchange market model leading to a novel pooled and potentially guaranteed risk deposit market

Abstract

A method allows an interbank deposit market to be created within an adapted electronic futures exchange type market model, rules and legal environment. The basic embodiment allows all participating individual banks to avoid the need to calculate and maintain traditional counterparty credit limits against each other. Another embodiment comprises the basic embodiment plus in addition a guarantee from a lender of last resort such as a central bank which allows a daily liquidity control mechanism similar to the monthly reserve requirement to operate that is the equivalent of futures initial margin.

Description

CROSS-REFERENCE TO RELATED APPLICATION [0001] This patent application is related to and claims benefit of U.S. Provisional Patent Application No. 60 / 667,878 filed Apr. 1, 2005, entitled “Trading and Settling System” which is incorporated herein in its entirety by reference for all that it teaches without any exclusion.FIELD OF THE INVENTION [0002] This invention relates to a set of linked methods, system upgrades, computer program products and financial product designs for enabling trading and settling of new product types on what where hitherto only futures exchanges and their clearing houses. [0003] More particularly, the present invention relates to a method, a system, and a computer program product for trading and settling: exchange traded credit derivatives, exchange traded interest rate swaps, exchange traded money market derivatives plus other exchange traded structured derivative contracts and also equivalents of more traditional non-derivative debt products e.g. deposits et...

AI Technical Summary

Benefits of technology

[0203] Accordingly, it is an object of the present invention to provide a novel and highly efficient method for accessing and managing exact OTC ISDA type credit default swap like exposures within a fully integrated broad based organized credit derivatives market that also includes novel recovery based product and novel options.

[0207] It is yet another object of the present invention to provide an upgraded clearing cycle capable of dealing with these new products and existing exchange traded products in a truly global market place.

[0208] Additionally, it is another object of the present invention to provide a novel and highly efficient interbank deposit market that removes the need for counterparty credit calculations.

Problems solved by technology

Decreased systematic risk—Regulators and central banks have often voiced concerns over the non transparent nature of the existing ISDA based derivatives markets.

The web of bilateral counterparty credit exposures is so complex and vast that it is impossible to rule out a domino effect of defaults via contagion within the financial system should a major institution get into serious difficulties.

Decreased operational risks and costs—The legal and operational structure of a genuine exchange decrease operational risks to a minimum compared to the existing cumbersome ISDA based market.

Risk management via daily settlements—A key concern of regulators is that derivatives positions may be mispriced by uninformed or indeed fraudulent dealers within less sophisticated or indeed careless financial institutions.

There is therefore a broad competitive market for both execution and clearing brokerage services which will typically result in low brokerage costs.

Of course not all products are successful.

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