Premature Futures Settlement to Reduce Exchange Computing Load
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Solution Overview
Problem
The computational resources required to maintain and process the large number of futures contracts with varying expiration dates and durations in an exchange computing system are excessive, leading to inefficiencies in resource utilization.
Innovation Solution
The system selectively prematurely expires financial instruments, particularly interest rate futures contracts, by determining a final settlement price in advance using overlapping shorter duration contracts, thereby reducing the number of contracts maintained and processed.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If the exchange computing system maintains and processes a large number of futures contracts with varying expiration dates and durations, then the system can offer comprehensive trading options and meet diverse market needs, but the computational resources required become excessive
Solution Approach 1:
The system determines a final settlement price for an extended duration contract in advance by using a synthesis function that combines prices of multiple shorter duration contracts. This preliminary determination of settlement prices allows the system to prematurely expire the extended duration contract before its actual expiration date, thereby reducing computational resource requirements while maintaining comprehensive trading options.
2Reliability
If the exchange computing system maintains extended duration contracts until their expiration dates, then complete contract lifecycle management is achieved, but data storage and processing load increase significantly
Solution Approach 1:
The system performs preliminary settlement by determining final settlement prices in advance using shorter duration contracts. This allows extended duration contracts to be expired prematurely, reducing the quantity of data that needs to be stored and processed while maintaining reliable contract lifecycle management through proper settlement procedures.
3Productivity
If the system processes all futures contracts until their natural expiration, then complete market coverage is maintained, but processing time and computational overhead increase
Solution Approach 1:
The system determines final settlement prices in advance for extended duration contracts by synthesizing prices from shorter duration contracts. This preliminary action allows the contracts to be expired before their natural expiration dates, reducing processing time and computational overhead while maintaining complete market coverage through proper settlement.
Data Source
AI summary
The disclosed embodiments relate to an exchange computing system which selectively prematurely expires financial instruments in order to finally settle them and remove them from the computing system. In particular, the disclosed embodiments recognize that during the pendency of a futures contract between first available trade date and the expiration, the exchange computing system must facilitate trading thereof by tracking traders positions, providing regular pricing data as well as transacting trades therefore. This consumes exchange resource especially given the number of products offered and the extended length of term for some. Accordingly where contracts can be settled early and thereby removed from being transacted, exchange resources may be conserved.