Auction Engine for Financially Settled Contracts
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Solution Overview
Problem
Current methods for trading financially settled contracts face challenges in improving liquidity and volume, particularly in auctions for forward commodities and electricity contracts, where existing systems struggle to efficiently match and execute complex bids and positions.
Innovation Solution
A system and method for conducting auctions of financially settled contracts using a trade platform with an auction engine that receives and matches participant bids, including outright and non-outright bids, to create awarded bids, optimizing for revenue and volume, while adhering to participant constraints and collateral requirements, and facilitating communication between participants, brokers, and clearing corporations.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Quantity of substance
If traditional trading methods are used for financially settled contracts, then trading simplicity is maintained, but liquidity and transaction volume remain insufficient
Solution Approach 1:
The patent segments complex financial contracts into standardized components that can be traded independently through auction mechanisms. This segmentation enables higher transaction volume by allowing participants to trade specific contract portions rather than requiring entire contract packages, thus resolving the contradiction between increasing quantity and managing complexity.
Solution Approach 2:
The patent introduces an auction platform as an intermediary that facilitates matching between buyers and sellers of financially settled contracts. This intermediary system handles the complexity of matching diverse contract types and specifications, enabling increased transaction volume without requiring participants to directly manage the complexity of bilateral negotiations.
2Productivity
If complex bid matching is implemented to handle diverse contract positions, then market efficiency is improved, but processing time and computational resources increase
Solution Approach 1:
The patent implements preliminary actions by pre-categorizing and structuring bid submissions before the actual matching process. Bids are pre-validated and organized according to contract types, settlement periods, and other key parameters, which streamlines the subsequent matching process and reduces processing time while maintaining high market efficiency.
Solution Approach 2:
The patent transforms complex bid matching by changing parameters from continuous negotiation variables to discrete auction-based parameters. This parameter transformation allows for more efficient computational processing while maintaining market efficiency, as standardized parameters can be processed and compared more rapidly than continuous negotiation parameters.
3Reliability
If participant constraints and collateral requirements are enforced, then trading risk is reduced, but operational complexity increases
Solution Approach 1:
The patent implements self-service mechanisms where participants automatically configure their own constraints and collateral requirements through standardized interfaces. This self-service approach allows risk control to be maintained while reducing operational complexity, as participants manage their own risk parameters rather than requiring extensive manual configuration and validation.
Solution Approach 2:
The patent creates universal constraint and collateral frameworks that can be applied across different contract types and trading scenarios. This multi-functional approach allows the same risk control mechanisms to serve multiple purposes and contract varieties, reducing operational complexity while maintaining comprehensive risk control.
Data Source
AI summary
Various embodiments show a system for conducting an auction for a plurality of financially settled contracts: The system may comprise at least one processor. The at least one processor may be programmed to receive a plurality of first participant bids from a first participant and a plurality of second participant bids from a second participant. The at least one processor may also be programmed to match a batch of bids to create a plurality of awarded bids. The contracts may include, for example, an oil contract, a coal contract, a natural gas contract, an electricity contract, a weather contract, a weather-related events contract, a commodities contract, location specific service contracts (e.g., passenger contract and/or freight contracts).