US 8,554,658 B2 · Method and system of trading a standardized contract

Abstract

A system, method, and corresponding computer program product facilitates trading of a standardized contract. The terms of the contract may be such that it provides a payout from one party to the other based on the price, yield, level or other measure of an asset, basket, index, financial contract, other financial instrument or some economically significant variable observed at or around two specified times, both such times being after the time that the standardized contract is first available for trading. Alternatively, the terms of the contract may be such that it provides that one party has the right but not the obligation either to purchase or to sell some asset at a price which is determined at a first specified time, such right to be exercised at some time not later than the second specified time, both such times being after the time that the standardized contract is first available for trading. These and other related contracts are described.

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Claims16

Dependent claims

A computer-implemented method for trading, between a buyer and a seller at an exchange, a futures exchange, an options exchange, or a futures and options exchange, the method being performed on a computer system, the method comprising:

receiving, by the computer system, first inputs from the buyer and seller corresponding to a standardized form of contract for trading at a price on which the buyer and the seller agree, the standardized form of contract having contract terms requiring the buyer and seller to settle based on a final settlement price;
receiving, by the computer system, second inputs from the buyer and the seller at or prior to a first reference time wherein the second inputs include bid prices and offer prices for the standardized form of contract;
and
matching, in the computer system, the first inputs and the bid prices and the offer prices and forming a contract based, at least in part, on the matching;
wherein said final settlement price is being determined, in accordance with the contract terms, by reference to both a first level of an underlying and a second level of an underlying, the first level of the underlying being substantially a value of the underlying at said first reference time prior to settlement of the contract, the first reference time determined in accordance with the contract terms, the underlying being a specified observable quantity selected from a group consisting of a stock price, a commodity price, a financial asset price, a basket of financial assets price, a financial index value and a financial contract price, the second level of the underlying being substantially the value of the underlying at a second reference time prior to settlement of the contract, the second reference time determined in accordance with the contract terms and being later than said first reference time;
and
wherein the contract is available to trade before said first reference time.

4 more elements

A computer-implemented method for submitting trade order information to an exchange, a futures exchange, an options exchange, or a futures and options exchange, the method being performed on a computer system, the method comprising:

transmitting, by the computer system, first outputs corresponding to a standardized form of contract for trading at a price on which a buyer and a seller agree, the standardized form of contract having contract terms requiring the buyer and seller to settle based on a final settlement price;
and
transmitting, by the computer system, second outputs at or prior to a first reference time wherein the second outputs include at least one bid price or offer price for the standardized form of contract;
wherein said final settlement price is being determined, in accordance with the contract terms, by reference to both a first level of an underlying and a second level of an underlying, the first level of the underlying being substantially a value of the underlying at said first reference time prior to settlement of the contract, the first reference time determined in accordance with the contract terms, the underlying being a specified observable quantity selected from a group consisting of a stock price, a commodity price, a financial asset price, a basket of financial assets price, a financial index value and a financial contract price, the second level of the underlying being substantially the value of the underlying at a second reference time prior to settlement of the contract, the second reference time determined in accordance with the contract terms and being later than said first reference time;
and
wherein the contract is available to trade before said first reference time.

3 more elements

A computer-implemented method for clearing contracts thorough a clearinghouse, the method being performed on a computer system, the method comprising:

receiving, by the computer system, first inputs corresponding to a standardized form of contract for trading at a price on which a buyer and a seller agree, the standardized form of contract having contract terms requiring the buyer and seller to settle based on a final settlement price;
receiving, by the computer system, second inputs at or prior to a first reference time corresponding to the identity of a buyer (or their agent) or a seller (or their agent);
and
receiving, by the computer system, third inputs at or prior to a first reference time wherein the second inputs include a price for the standardized form of contract;
wherein said final settlement price is being determined, in accordance with the contract terms, by reference to both a first level of an underlying and a second level of an underlying, the first level of the underlying being substantially a value of the underlying at said first reference time prior to settlement of the contract, the first reference time determined in accordance with the contract terms, the underlying being a specified observable quantity selected from a group consisting of a stock price, a commodity price, a financial asset price, a basket of financial assets price, a financial index value and a financial contract price, the second level of the underlying being substantially the value of the underlying at a second reference time prior to settlement of the contract, the second reference time determined in accordance with the contract terms and being later than said first reference time, and
wherein the contract is available to trade before said first reference time.

3 more elements

Dependencies are inferred from the claim text.

Description9,018 words

Summary2,584 words

#This invention relates to a system, method, and corresponding computer program product containing code for implementing the method, for trading and settling a contract. More specifically, this invention relates to a system, method, and corresponding computer program product for trading and settling a contract which has a price based on the expectation of the rise or fall (measured in some fashion, according to the particular embodiment) of some underlying between two specified times, both such times being after the time that the contract is first available for trading. The underlying may be an asset, (financial, physical or other), basket, index, contract, other financial instrument or other economically significant variable(s) (including weather and geological data).

#There are a number of terms used herein which whose meanings will be well known to those of working skill in the field of financial markets. However, for ease of reference, the following table contains definitions of terms:

#Yield—The “yield” of an investment is a measure of its expected annualised return, (arising from income only or including capital appreciation or depreciation). In the case of most interest rate futures contracts, the “yield” which corresponds to the contract's price is 100% minus the price.

Brief description of the drawings5 figures

#The invention now will be described in detail with reference to exemplary embodiments. In the drawings:

#FIG. 1 is an exemplary flow of the overall process according to the invention;

#FIGS. 2a and 2b describe exemplary flow of transactions relative to options traded on a futures and options exchange;

Detailed description6,339 words

#In the embodiments described below, the contract ideally trades through an exchange and settles through a clearinghouse, thereby providing participants with the benefits of anonymity and much reduced likelihood of counterparty default on the contracts. Additionally, the participants' positions are margined to protect the clearinghouse members from default on the part of the participants.

#In accordance with one embodiment, the contract has a payout equal to the percentage gain, if any, of some underlying from a First Reference Time to a Second Reference Time (later than the First Reference Time) multiplied by some specified currency amount. The time interval between the First Reference Time and the Second Reference Time is the period, the “Reference Period,” in relation to which a volatility exposure may be gained through the contract and might typically be three months. Three months would generally be considered neither too long as to be too blunt a hedge for short periods of volatility, nor too short so as to require a combination of too large a number of different contracts (with contiguous Reference Periods) to hedge the volatility relating to a period of, say, a few years. The contract is first made available for trading prior to the First Reference Time.

#Effectively, this contract is a cash-settled call option contract whose strike is fixed at-the-money at the First Reference Time.

Facts

Application

13/863,372Filed 15 Apr 2013 · continuation

Priority

31 Jul 2002

Published

US 2013/0232054 A15 Sep 2013

Granted

8 Oct 2013

Term ended

31 Jul 2023

Estimated · how

20 years from earliest known nonprovisional domestic filing plus recorded patent term adjustment. Maintenance-fee lapses, terminal disclaimers and statutory extensions have not been checked. The continuity chain may be incomplete; this is not an enforceability determination.

Classification3 codes

G06Q 40/04
Finance; Insurance; Tax strategies; Processing of corporate or income taxes: trading; Exchange, e.g. stocks, commodities, derivatives or currency…
G06Q 40/00
Finance
G06Q
Information and communication technology [ict] specially adapted for administrative, commercial, financial, managerial

Family

Application60/400,358Us provisional application · filed 31 Jul 2002

Application60/429,889Us provisional application · filed 26 Nov 2002

Application10/631,107Parent of this division · filed 31 Jul 2003

Application12/697,106Parent of this continuation · filed 29 Jan 2010

US 7,668,774 B1Parent of this division · filed 23 Feb 2010

US 2013/0232054 A1Pre-grant publication · published 5 Sep 2013

US 8,423,448 B2Parent of this continuation

Application12/697,106Parent of this division

US 2010/0174635 A1Published application

US 8,554,658 B2This patent

From the US filing history. Foreign family members aren’t listed.

Method and system of trading a standardized contract

Life of this patent

Method and system of trading a standardized contract

Life of this patent

Life of this patent

Abstract

Drawings

Drawings

Claims16

Description9,018 words

Drawings

Classification3 codes

Life of this patent

Description9,018 words