Credit Data Processing System for Optimal Path Selection
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Solution Overview
Problem
Conventional electronic trading systems rely excessively on minimum cost flow algorithms for credit flow determination, neglecting important business considerations such as counterparty preferences and long-standing relationships, which limits trading entities' control over credit arrangements and asset flows.
Innovation Solution
A credit data processing system that uses a computer-readable storage medium and a credit data processor to select optimal credit paths based on counterparty preferences, allowing for the specification of preferred trading partners and avoiding certain counterparty relationships, thereby providing more control over credit arrangements and asset flows.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If minimum cost flow algorithms are used to determine credit flow, then computational efficiency is improved, but control over counterparty preferences and business relationships is lost
Solution Approach 1:
The patent segments the credit path selection process into two distinct phases: (1) an automated minimum cost flow algorithm phase that efficiently identifies candidate paths based on cost criteria, and (2) a preference-based filtering phase that applies counterparty rankings and business relationship constraints. This segmentation allows the system to benefit from both computational efficiency and strategic control.
Solution Approach 2:
The system performs preliminary actions by pre-ranking counterparties according to business preferences and pre-establishing credit limits for each counterparty pair. When a trade requires credit flow determination, these pre-established preferences and limits are immediately applied to filter the algorithm's output, eliminating the need to reconsider business rules during the computational process.
2Speed
If automated algorithms determine credit flow, then processing speed is improved, but adaptability to business considerations is reduced
Solution Approach 1:
The system dynamically adjusts the credit path selection by incorporating adaptable preference rankings that can be modified based on changing business conditions. The minimum cost flow algorithm provides a stable computational foundation, while the overlay of dynamic preference filters allows the system to adapt to evolving business considerations without sacrificing processing speed.
Solution Approach 2:
The system incorporates feedback mechanisms where trading entities can review and adjust counterparty preferences based on outcomes of credit flow determinations. This feedback loop allows the automated system to learn from and adapt to business considerations while maintaining computational efficiency through the structured algorithmic framework.
3Ease of operation
If preferred counterparty rankings are implemented, then control over credit arrangements is improved, but system complexity increases
Solution Approach 1:
The patent introduces an intermediary layer between the minimum cost flow algorithm and the final credit path selection. This intermediary component ranks counterparties according to business preferences and filters algorithm outputs accordingly. The intermediary absorbs the complexity of preference management, presenting a simplified control interface to users while handling the computational burden of integrating multiple business rules.
Data Source
AI summary
A credit data processing system for controlling trades in an electronic trading system according to credit arrangements, comprising a computer-readable storage medium, an interface to an electronic trading system and a credit data processor. The computer-readable storage medium stores information representing the credit relationship network, including a plurality of credit entities in the network and a plurality of credit relationships existing between at least some of those credit entities. The system uses preferred counterparty rankings provided by the participating credit entities to determine and select the optimal credit paths to use for booking multiple-legged trades between credit entities even though the credit entities may not have a direct credit relationship. The system then checks each leg of the selected optimal credit path to verify that, taking into account the current net open positions on that leg, executing the trade required on that leg to carry out the proposed deal will not cause a credit limit associated with that leg to be exceeded. If the credit limit of any leg in the selected optimal credit path is exceeded, then the system will repeatedly try to find viable credit path based on the preferences specified by the credit entities involved in the trade, until a viable credit path is found or it is determined that no credit path that can accommodate the proposed deal without exceeding a credit limit currently exists.