Payer Contracts for Clearing Related Cash Flows
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Solution Overview
Problem
Current futures contract clearing systems cannot handle related cash flows such as coupons, interest on variation margin, or periodic payments between traders, requiring separate and external accounting mechanisms, which complicates the acceptance of novel contracts and impedes the coordination with non-exchange bookkeeping services.
Innovation Solution
The introduction of 'payer contracts' that facilitate a 1-to-many relationship between contracts and prices, allowing for the creation of defined and riskless positions to manage money movements between related positions, and enabling anonymous payments between traders without requiring them to know each other, leveraging the clearing system's mechanisms to accommodate periodic payments.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If traditional clearing systems are used, then existing futures contracts can be cleared, but they cannot handle related cash flows such as coupons, interest on variation margin, or periodic payments between traders
Solution Approach 1:
The clearing system is enhanced to perform multiple functions: it now handles not only traditional futures contract clearing but also related cash flows including coupons, interest on variation margin, and periodic payments between traders. The system accommodates both 1-to-1 contract relationships and 1-to-many cash flow relationships through a unified clearing mechanism.
2Ease of operation
If separate external accounting mechanisms are used for related cash flows, then payments can be processed, but coordination with non-exchange bookkeeping services becomes complex
Solution Approach 1:
The patent merges the clearing function and the accounting function into a single integrated system. The clearing house now directly handles periodic payments and cash flow settlements through its existing clearing infrastructure, eliminating the need for separate external accounting mechanisms and reducing coordination complexity with non-exchange bookkeeping services.
3Reliability
If traders directly handle payments between each other, then payment flexibility is maintained, but anonymity and risk management are reduced
Solution Approach 1:
The clearing house serves as an intermediary between traders for periodic payments and cash flows. It receives payment instructions from traders, processes settlements through its clearing system, and ensures delivery of funds while maintaining trader anonymity. This intermediary role preserves risk management benefits while maintaining operational flexibility.
Data Source
AI summary
A system for moving money between accounts of traders by a central counterparty to facilitate payments, i.e. the movement of funds, there between is disclosed which provides a flexible mechanism which supports simpler accounting, new types of derivatives contracts as well new types fees. The disclosed futures contract, referred to as a “payer” contract, comprises a “no-uncertainty” futures contract, i.e. the initial value and settlement value parameters are defined, that leverages the mechanisms of the clearing system to, for example, accommodate related payments. Accordingly, a 1-to-many relationship between contracts and prices is provided whereby each price component may be assigned its own payer contract. The function of the payer contract may be to guarantee the movement of money from related positions. In one embodiment, payer contracts are dynamically created whenever a payment is needed.