Security Futures Contract Selectable Expiration Date
Find Innovative SolutionsGenerate Solutions
Solution Overview
Problem
The current fixed expiration cycle for security futures contracts limits the usefulness of Exchange for Physicals (EFP) trades, as investors cannot tailor the duration of their 'loans' to market conditions, exposing them to interest rate fluctuations and preventing the locking of implied interest rates.
Innovation Solution
A security futures contract with a selectable expiration date, allowing investors to choose any business day for the contract's expiration, enabling the creation, listing, trading, and execution of EFP trades with customized expiration dates through a computer-implemented method and system.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If a fixed expiration cycle is used for security futures contracts, then the contract structure is simple and standardized, but investors cannot tailor the duration of EFP trades to market conditions, exposing them to interest rate fluctuations
Solution Approach 1:
The patent applies the dynamics principle by making the expiration date flexible and adjustable rather than fixed. The system allows investors to select from multiple possible expiration dates (including any business day) when entering into EFP trades, enabling the contract duration to adapt dynamically to market conditions and investor needs while maintaining a standardized contract framework
Solution Approach 2:
The patent implements parameter changes by allowing the expiration date parameter to be varied within a range of acceptable values. Instead of a single fixed expiration date, the system permits selection among multiple expiration dates (monthly, quarterly, or any business day), changing this key parameter to achieve both adaptability and risk management objectives
2Reliability
If investors are exposed to interest rate fluctuations in EFP trades, then the contract structure remains simple, but investors cannot lock in desired interest rates, reducing return maximization potential
Solution Approach 1:
The patent applies preliminary action by allowing investors to pre-select the expiration date at the time of entering the EFP trade. This preliminary selection of the contract duration enables investors to lock in the implied interest rate upfront, eliminating future exposure to interest rate fluctuations and allowing them to plan their investment strategy in advance
3Productivity
If selectable expiration dates are allowed for security futures contracts, then investors can maximize returns by tailoring EFP trade duration, but the system complexity for creation, listing, and trading increases
Solution Approach 1:
The patent implements universality by designing a multi-functional system that handles both standardized futures contracts and customized EFP trades with selectable expiration dates through a single integrated platform. The system can accommodate multiple expiration date structures (fixed monthly/quarterly dates and any business day) and automatically manages the complexity of creation, listing, clearing, and settlement for all contract types
Data Source
AI summary
The embodiments of the invention provide a novel financial instrument and system and method for creating, listing, purchase and sale, and trading said financial instrument wherein the instrument comprises a security futures contract with a selectable expiration date. A request for quotes process is also provided, which in one embodiment permits the creation and listing of a security futures contract with a selectable expiration date. A method and system for permitting the automated entry of an exchange-for-physicals (EFP) trade including a security futures contract with a selectable expiration date is also provided.