Serialized Index Versioning for Financial Instrument Trading
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Solution Overview
Problem
Investors face challenges in adequately hedging risks related to market indices that are continually modified, as existing financial instruments can only trade the current version of the index, limiting their ability to invest in prior or future versions.
Innovation Solution
A system and method for listing and trading financial instruments that track specific versions of a serialized index, allowing multiple versions to coexist, with a system comprising a listing module, orders module, trade execution module, and settlement module to manage buy and sell indications and settle trades based on the specified index version.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If market indices are continually modified to reflect current market conditions, then the index remains relevant and accurate, but investors cannot adequately hedge risks as existing financial instruments only trade the current version
Solution Approach 1:
The patent segments the market index into multiple serialized versions (version 1, version 2, version 3, etc.), where each version represents a specific snapshot of the index at a point in time. This segmentation allows financial instruments to be created for each specific version, enabling investors to trade and hedge based on historical, current, or future index compositions without interference from subsequent modifications.
Solution Approach 2:
The patent enables preliminary action by allowing investors to create and trade financial instruments based on future versions of the index before those versions are officially released. The system accepts instructions to create financial instruments for future index versions, allowing investors to prepare hedging strategies in advance for anticipated index modifications.
2Device complexity
If only the current version of the index is traded, then the financial instrument system remains simple, but investors are limited in their ability to invest in prior or future versions
Solution Approach 1:
The patent creates a universal financial instrument system that can handle multiple index versions through a common framework. The same financial instrument structure (futures, options, swaps) can be applied to any serialized index version, and the system can process instructions for creating, trading, and settling instruments across different versions using consistent rules and procedures.
3Adaptability or versatility
If multiple versions of the index are maintained and traded, then investors gain flexibility to trade prior and future versions, but the system complexity increases
Solution Approach 1:
The patent introduces an index provider as an intermediary that maintains the serialized versions of the market index and provides them to the financial instrument system. This intermediary role simplifies the overall system by centralizing the management of multiple index versions, handling version creation, maintenance, and distribution, thereby reducing the complexity burden on the trading and settlement infrastructure.
Data Source
AI summary
A method for trading financial instruments includes listing, by an electronic financial exchange, financial instruments that specify which version of a serialized index the financial instrument tracks; receiving, by the electronic financial exchange, an electronic indication to buy or sell the financial instrument; executing, by the electronic financial exchange, a trade involving the financial instrument; and settling the financial instrument according to the version of the serialized index specified by the financial instrument.