Electronic Proxy for Trade Settlement Across Exchanges
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Solution Overview
Problem
Current systems for trading and delivery of futures contracts face challenges in verifying and transferring ownership of physical delivery instruments across different exchanges, leading to risks of loss, damage, and additional verification costs, which increase operational expenses.
Innovation Solution
A method and system that enables the use of an electronic proxy for authenticated delivery instruments, allowing for electronic transfer of ownership between traders and exchanges, facilitating seamless settlement of trades across different platforms while maintaining the authenticity of the underlying product.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If physical delivery instruments are used for trade settlement across different exchanges, then the authenticity and legal validity of delivery are ensured, but the risks of loss and damage increase and verification costs rise
Solution Approach 1:
The patent creates an electronic copy (image) of the physical delivery instrument that can be transmitted and verified electronically. The system captures an image of the original delivery instrument, stores it in a database, and transmits this electronic copy to the receiving exchange. This electronic copy serves as a reliable representation of the original instrument without exposing the physical instrument to risks of loss or damage during transmission.
Solution Approach 2:
The patent introduces an intermediary verification system that acts as a mediator between exchanges. The system includes a database that stores images of delivery instruments and a verification mechanism that checks the authenticity of these instruments electronically. This intermediary layer eliminates the need for direct physical handling and verification between exchanges, reducing risks while maintaining reliability.
2Reliability
If physical delivery instruments are manually verified and transferred between exchanges, then the authenticity can be confirmed, but operational complexity and verification costs increase
Solution Approach 1:
The patent replaces the manual mechanical verification process with an electronic system. Instead of physically handling and manually inspecting delivery instruments between exchanges, the system uses electronic image transmission and automated database verification. The verification is performed by comparing the transmitted image against the stored image in the database, eliminating complex manual verification procedures.
Solution Approach 2:
The system creates and transmits electronic copies (images) of delivery instruments instead of handling physical originals. This copying mechanism simplifies the verification process by allowing electronic comparison and validation without requiring physical inspection, thereby reducing operational complexity while maintaining verification reliability.
3Productivity
If electronic transfer of delivery instruments is implemented, then operational efficiency and cost are improved, but the risk of unauthorized transfer and loss of authenticity increases
Solution Approach 1:
The system transmits electronic images of delivery instruments rather than the physical instruments themselves. This copying approach enables efficient electronic transfer and processing while maintaining authenticity through verification mechanisms that compare the transmitted image against the original stored in the database, preventing unauthorized alterations.
Solution Approach 2:
The verification system provides feedback by comparing the transmitted electronic image with the stored original image in the database. This feedback mechanism confirms whether the electronic transfer maintains authenticity, allowing the system to validate transfers electronically and reject unauthorized or altered instruments, thus ensuring reliability while enabling efficient electronic processing.
Data Source
AI summary
A method of settling trades includes the steps of obtaining an authenticated delivery instrument, wherein the authenticated delivery instrument is authenticated by a first exchange and may be used to settle a trade undertaken on the first exchange. An electronic proxy is issued for the delivery instrument, wherein the electronic proxy may be exchanged for the authenticated delivery instrument and where the electronic proxy is used to settle a trade undertaken on a second exchange.