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

a technology of electronic futures exchange and enhancements, which is applied in the direction of instruments, finance, data processing applications, etc., can solve the problems of unfavorable market development, complex and vast web of bilateral counterparty credit exposures, and inability to rule out a domino

Inactive Publication Date: 2006-10-05
LIFFE ADMINISTRATION & MANAGEMENT
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  • Summary
  • Abstract
  • Description
  • Claims
  • Application Information

AI Technical Summary

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 decreas

Method used

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

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Embodiment Construction

Definition of Derivatives

[0072] A derivatives contract can be defined as an agreement between two counterparties in which rights and obligations are set up whose economic value, either by direct reference to a benchmark price quote or by operation of the contract in its delivery phase, can be derived from one or more underlying (often called ‘cash’) products. Typically the exposure obtained by entering into a derivatives contract creates the equivalent of a highly leveraged position in the cash underlying so that traders can gain or lose large amounts of money without putting up large amounts of actual capital i.e. without being fully funded.

[0073] Derivatives on other derivatives can also exist in which case the underlying is often still called the cash in the appropriate context. Despite the high leverage typical of derivatives there exist certain low risk trading strategies which involve taking derivative positions and their underlying cash positions together. The strategies ca...

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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...

Claims

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Application Information

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IPC IPC(8): G06Q40/00G06Q40/04
CPCG06Q40/00G06Q40/06G06Q40/04G06Q40/02
Inventor PINKAVA, PAVEL
Owner LIFFE ADMINISTRATION & MANAGEMENT
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