Payer Contracts for Anonymous Periodic Payments in Clearing Systems
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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 with periodic payments and impedes their implementation.
Innovation Solution
The introduction of 'payer contracts' that facilitate a 1-to-many relationship between contracts and prices, allowing for the creation of riskless positions and defined settlement values, enabling seamless movement of money between related positions without requiring traders to know each other or the underlying payment mechanisms, and can be implemented by exchanges like CME without coordinating with external bookkeeping systems.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If traditional clearing systems are used, then existing contract settlement is maintained, but periodic payments and complex cash flows cannot be handled
Solution Approach 1:
The patent introduces a clearing account as an intermediary mechanism between traders. The clearing account temporarily holds funds and enables periodic payments without requiring direct coordination between traders and external bookkeeping systems. This intermediary approach allows the exchange to handle complex cash flows (coupons, interest, dividends) while maintaining system simplicity.
Solution Approach 2:
The clearing account serves multiple functions: it acts as a temporary holding account for funds, enables periodic payments, supports novel contract types with complex cash flows, and eliminates the need for external bookkeeping coordination. This multi-functional design increases system versatility without proportionally increasing complexity.
2Ease of operation
If external bookkeeping systems are coordinated, then periodic payments can be processed, but implementation complexity increases
Solution Approach 1:
The patent extracts the bookkeeping function from external systems and integrates it into the exchange's clearing house through the clearing account mechanism. By taking out the coordination requirement and embedding the settlement functionality within the exchange infrastructure, the system eliminates the need for external bookkeeping coordination while maintaining ease of operation for novel contracts.
Solution Approach 2:
The clearing account enables the exchange to self-manage periodic payments and complex cash flows without external bookkeeping system coordination. The exchange's clearing house independently handles fund movements, settlement calculations, and payment distributions, making the system self-sufficient and easier to implement for novel contract types.
3Reliability
If anonymous payments are enabled, then trader privacy is protected, but payment tracking becomes more complex
Solution Approach 1:
The clearing account serves as an intermediary that enables anonymous payments between traders while maintaining reliable tracking. The clearing house records all transactions through the clearing account, ensuring payment security and accountability, while traders remain anonymous to each other. This intermediary mechanism resolves the contradiction by providing both privacy protection and reliable tracking through centralized record-keeping.
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.