Netted Trade Allocation System for Securities Settlement
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Solution Overview
Problem
Conventional settlement processes for securities trades result in unacceptably high fees for organizations executing large quantities of trades, as they incur individual settlement fees for each trade, leading to inefficiencies.
Innovation Solution
A system and method that combines individual securities trades into a 'netted trade', allowing for a single settlement charge, which involves identifying eligible trades, sorting them for optimal allocation, and allocating available stock and cash based on a settlement message from the clearing house.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If individual securities trades are settled separately, then each trade receives individual settlement processing, but settlement fees become unacceptably high for organizations executing large quantities of trades
Solution Approach 1:
The patent combines multiple individual securities trades into a single netted trade bundle for settlement processing. By merging trades that share common characteristics (same settlement date, same clearing house, same currency) into one netted trade, the system reduces the number of settlement transactions from N individual trades to 1 netted trade, thereby eliminating redundant settlement fees while maintaining accurate allocation of securities and cash to each underlying trade.
2Loss of energy
If multiple trades are combined into a netted trade for bulk settlement, then settlement fees are reduced, but the complexity of allocating stock and cash amounts to individual trades increases
Solution Approach 1:
The patent segments the netted trade allocation process into distinct sequential phases: (1) identifying eligible trades for netting based on matching criteria, (2) netting offsetting positions to determine net securities and cash amounts, (3) receiving the consolidated settlement message from the clearing house, and (4) allocating the netted settlement amounts back to individual underlying trades. This segmentation transforms a complex monolithic allocation problem into manageable discrete steps that can be processed systematically.
Solution Approach 2:
The patent performs preliminary netting and consolidation of trades into a single netted trade before submission to the clearing house for settlement. By pre-processing the trades to net off opposing positions and determine the net securities and cash requirements in advance, the system simplifies the subsequent allocation process, as the settlement message will contain already-consolidated amounts that need to be distributed to individual trades rather than processing each trade separately through the entire settlement workflow.
3Ease of operation
If trades are processed in conventional sequence, then individual trade processing is straightforward, but efficiency is reduced due to high settlement fees and repeated processing overhead
Solution Approach 1:
The patent merges multiple individual trade processing operations into a single netted trade processing operation. By combining trades that can be netted together into one consolidated settlement transaction, the system reduces the total number of processing cycles, eliminates repeated authentication and messaging overhead, and achieves bulk settlement efficiency while maintaining the ability to trace and allocate results to individual underlying trades.
Data Source
AI summary
A system and method for allocating stock and cash amounts to individual trades in a netted trade. The system and method include bundling individual securities trades into a netted trade, transmitting the netted trade to a clearing house, receiving a settlement message from the clearing house, and allocating stock and cash amounts to individual trades in the netted trade in a manner consistent with the settlement message.