Biddable Financial Instruments Trading Platform
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Solution Overview
Problem
Current bond trading systems face complexity and inefficiency due to the involvement of intermediaries, leading to high transaction costs and limited investor interaction, particularly in secondary markets for long-term bonds with variable interest rates.
Innovation Solution
A new online competitive bidding platform and system that allows for the trading of biddable financial instruments, including B-VRDOs, B-TOBs, and B-MLVRSs, with a contractual bidder acting as a liquidity provider, enabling direct bidding, acceleration of maturity, and efficient portfolio management, thereby bypassing traditional over-the-counter processes.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of energy
If traditional over-the-counter bond trading processes are used, then bond trading can occur, but transaction costs are high and transparency is limited due to intermediary involvement
Solution Approach 1:
The patent extracts and removes traditional intermediary entities (brokers, dealers, market makers) from the bond trading process. By eliminating these intermediaries, the system reduces transaction costs and eliminates the complexity associated with multiple intermediaries, while still enabling bond trading through a direct electronic matching system between issuers and investors
Solution Approach 2:
The patent introduces a new type of intermediary - an electronic trading platform that acts as a mediator between issuers and investors. This digital intermediary matches buyers and sellers directly, providing transparency through electronic recording and automated price discovery, while reducing costs compared to traditional human intermediaries
2Loss of information
If traditional bond trading systems are used, then trading can occur, but investor interaction is limited and market transparency is reduced
Solution Approach 1:
The patent implements continuous feedback mechanisms through electronic price discovery and real-time matching of buy and sell orders. The system provides transparent feedback on pricing, trading volumes, and market conditions to all participants, enabling informed decision-making while maintaining a relatively simple electronic trading structure
Solution Approach 2:
The patent replaces the mechanical, human-centric trading system with an electronic automated system. This substitution eliminates the need for physical trading floors, manual order processing, and human negotiation, thereby enhancing transparency through digital recording and reducing the complexity of coordinating multiple human intermediaries
3Productivity
If long-term bonds with variable interest rates are traded traditionally, then investors can access these instruments, but the process is inefficient and costly
Solution Approach 1:
The patent enables preliminary action by allowing investors to place bids and issuers to set terms in advance through the electronic platform. The system pre-matches compatible parties based on stated preferences and market conditions, reducing the time and cost of negotiation while improving trading efficiency for long-term variable rate bonds
Solution Approach 2:
The patent facilitates efficient trading of variable rate bonds by enabling dynamic parameter changes in interest rates, maturities, and other bond characteristics through the electronic platform. This allows rapid adjustment and re-trading of bond parameters without the costly and time-consuming processes associated with traditional bond modifications
Data Source
AI summary
The present invention relates to a new type of biddable financial instrument that can be traded on an online competitive bidding process and system and method of trading thereof specifically designed to accommodate the specific needs of these new biddable financial instruments associated primarily with the introduction in the instruments core of a contractual bidder or new properties like acceleration of term linked with trading on the competitive bidding software. The inventor contemplates the use of a large number of new biddable financial instruments, for example B-VRDOs, B-TOBs, and B-MLVRS s. The platform, system and method of trading associated thereto allows for easy portfolio management, Dutch trading, payment of interest, entry of good to cancel trade orders, priority management tools, acceleration of maturity, and offering on a secondary offering stage non-acquired positions held by the contractual bidder.