| Trading and settling enhancements to the standard electronic futures exchange market model that allow bespoke notional sizes and better global service of end users and make available a new class of negotiable security including equivalents to products nor -> Monitor Keywords |
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  Trading and settling enhancements to the standard electronic futures exchange market model that allow bespoke notional sizes and better global service of end users and make available a new class of negotiable security including equivalents to products norUSPTO Application #: 20060224494Title: Trading and settling enhancements to the standard electronic futures exchange market model that allow bespoke notional sizes and better global service of end users and make available a new class of negotiable security including equivalents to products nor Abstract: A pair of clearing house enhancements comprising a method that allows bespoke notional sizes to be handled rigorously plus a method that allows a plurality of daily settlement times to be introduced over the product set within an adapted electronic futures exchange type market model, rules and legal environment. In addition a method allows traditional fully funded negotiable securities such as bonds and equities to be listed on the adapted exchange. Another embodiment allows both funded and leveraged structured products equivalent to those normally issued by special purpose vehicles such as synthetic CDOs to be listed. (end of abstract)
Agent: Leydig Voit & Mayer, Ltd - Chicago, IL, US Inventor: Pavel Pinkava USPTO Applicaton #: 20060224494 - Class: 705037000 (USPTO) Related Patent Categories: Data Processing: Financial, Business Practice, Management, Or Cost/price Determination, Automated Electrical Financial Or Business Practice Or Management Arrangement, Finance (e.g., Banking, Investment Or Credit), Trading, Matching, Or Bidding The Patent Description & Claims data below is from USPTO Patent Application 20060224494. Brief Patent Description - Full Patent Description - Patent Application Claims
CROSS-REFERENCE TO RELATED APPLICATION [0001] This patent application is related to and claims benefit of U.S. Provisional Patent Application No. 60/667,878 filed Apr. 1, 2005, entitled "Trading and Settling System" which is incorporated herein in its entirety by reference for all that it teaches without any exclusion. FIELD OF THE INVENTIONS [0002] This invention relates to a set of linked methods, system upgrades, computer program products and financial product designs for enabling trading and settling of new product types on what where hitherto only futures exchanges and their clearing houses. [0003] More particularly, the present invention relates to a method, a system, and a computer program product for trading and settling: exchange traded credit derivatives, exchange traded interest rate swaps, exchange traded money market derivatives plus other exchange traded structured derivative contracts and also equivalents of more traditional non-derivative debt products e.g. deposits etc BACKGROUND TO THE INVENTION Broad Context of the Invention The Evolving Landscape for Financial Risk [0004] This section comments on the advantages of financial futures exchanges put inside the context of the evolving landscape for financial risk. The financial risk content relies heavily on extracts from a speech by Malcolm Knight, the General Manager of the Bank for International Settlements (BIS). The BIS is an international organisation which fosters international monetary and financial cooperation and serves as a bank for central banks: [0005] The financial system has undergone a profound transformation over the past three decades, driven by the combined impact of liberalisation and technological innovation. This in turn has driven a significant transformation in the nature of financial risk. The industry has gained enormously in richness, depth and variety. The large number of new derivative financial instruments that have developed, partly in the wake of breakthroughs in pricing theory and advances in computing technologies, attest to this transformation. [0006] The size of the financial sphere of developed economies has increased tremendously along different dimensions but above all in terms of turnover. It is well known that monthly global turnover in the main asset classes far exceeds yearly global GDP. Within financial services, traded instruments have greatly outgrown traditional non-traded ones, such as loans or deposits. On the one hand, we have witnessed a broadening of the range of players engaged in the same type of financial activity. And on the other hand, the surge in cross-border activity has heightened the role of non-residents in domestic markets in many countries. [0007] In line with growth in turnover, the management of financial risk has become a more important aspect of economic activity. This also means that problems in the financial system, if and when they emerge, can have larger consequences for the real economy than they did in the past. The message has been hammered home by the costs of the financial crises that have occurred in both industrial and emerging market countries over the past two decades. Not surprisingly, addressing financial instability has become a major policy concern, both nationally and internationally. [0008] By contrast over the same period the appearance of financial futures and options exchanges have been welcomed by policy makers and regulators. These trading venues have the virtue of transparency and relative simplicity. They have also shown extreme robustness to stress for example during the Barings bank collapse. Unfortunately the growth of new derivative financial instruments both in terms of variety and turnover has mostly happened away from exchanges in the so called Over The Counter (OTC) market. [0009] Unfortunately in this modern environment, financial risk has become more complex. In the OTC market derivative instruments that originally targeted market risk resulted, as a by-product, in a pyramiding of counterparty risk that required separate management. This opaque layering of direct and indirect links through the markets also profoundly complicates the assessment of the true underlying risks. By contrast counterparty risk issues do not arise on financial futures and options exchanges. [0010] The old analysis of risk that was structured around traditional business lines has become increasingly irrelevant. In other words, the similarities in underlying risks are becoming more apparent, regardless of the type of financial firm incurring them. The ongoing consolidation in the financial sector is partly driven by the realisation that these similarities can lead to cost saving synergies. In the resulting large financial firms, a common capital base underpins on-balance sheet intermediation, capital market services and market-making functions. Globally, the smaller number of very large internationally active financial institutions has created potential concentration risks for the financial system. This is because losses in one activity can put pressure on the entire firm, affecting its activities in other areas. More fundamentally, what is sometimes referred to as the "endogenous" component of risk could be triggered by a large bank failure. This is the component that reflects the impact of the collective actions of market participants on the ultimate drivers of risk themselves i.e. the herd effect. The layering and pyramiding of counterparty risk in the OTC derivative market adds to these concerns. Value Add of the Invention and Basle II [0011] Financial futures and options exchanges contain a small but significant fraction of the liquidity of modern financial markets. These derivatives are superbly designed to manage their users' market risks efficiently and indeed to largely eliminate systematic operational and counterparty credit risks. However the exchanges' product ranges have historically been highly constrained to only futures and options. They have therefore remained at the periphery of the profound transformation of the financial system described in the previous section. [0012] The purpose of the invention is to facilitate the overthrow of the traditional model and move derivatives exchanges firmly into the mainstream. Such a move away from the conventional OTC market, would rapidly achieve the goals of policy makers such as Malcolm Knight. This in turn should be good for economic growth and prosperity as generally speaking more efficient financial markets lead to a more efficient real economy. The invention should be particularly applicable to emerging market economies where both counterparty credit risk and operational issues have held back the development of efficient financial markets. [0013] Several objectives that at present appear remote dreams of policy makers can come closer to reality by harnessing the infrastructure of a futures and options exchange for broader purposes. For example: [0014] The general principle that similar risks should be measured and managed in a similar way across a firm, irrespective of their location, would largely and automatically be met. This is because an increasing number of positions would be held at the same exchange venue and therefore risk margined consistently; and also [0015] The long-term ideal of a fully integrated treatment of risk, based on a common metric, would inevitably be met for the same reasons; and also [0016] The condition of a financial firm with regard to its risk profile, would become easier to identify. This is because with all positions held and risk margined at the same exchange venue the leveraged value at risk (i.e. initial margin) would become objectively measurable for each firm; and indeed [0017] The treatment of the endogenous component of risk could be revolutionalised, with improvements in both systematic risk measurement and systematic risk management made possible for policy makers. [0018] On the last point it is conceivable that if a dominant central advanced derivatives exchange emerged in each developed economy, then policy makers could gain control of some drivers of the endogenous component of risk. With sufficient academic research some equivalents of reserve requirements and reserve policy could be created but applied to the initial margin held at the exchange's central counterparty rather than to bank lending. These hypothetical reserve requirements (or "hair cut" rates) would be the equivalent of creating an intelligent dynamic element in the capital adequacy framework. Policy makers could for the first time manipulate the markets' risk appetites directly by raising or lowering the official hair cut rate(s) counter-cyclically. Such an advanced policy would empower the natural incentive of market participants to instil self discipline indirectly and efficiently, especially when dealer performance is evaluated and rewarded using risk-adjusted returns. [0019] Whilst the invention has potential to go a very long way towards meeting the needs of policy makers and regulators in the longer term, they have until now adopted their own approach. [0020] On 26th Jun. 2004 central bank governors and the heads of bank supervisory authorities in the Group of Ten (G10) countries met and endorsed the publication of the "International Convergence of Capital Measurement and Capital Standards: a Revised Framework", the new capital adequacy framework commonly known as Basel II. The meeting took place at the Bank for International Settlements in Basel, Switzerland, one day after the Basel Committee on Banking Supervision, the author of the text, approved its submission to the governors and supervisors for review. [0021] Nearly all jurisdictions with active banking markets require banking organisations to maintain at least a minimum level of capital. Capital serves as a foundation for a bank's future growth and as a cushion against its unexpected losses. Excessively low levels of capital increase the risk of bank failures which, in turn, may put depositors' funds at risk. If on the other hand capital levels are too high, banks may not be able to make the most efficient use of their resources, which may constrain their ability to make credit available and hence hurt the economy. [0022] The Basel II Framework builds on the first Basel Accord which in 1988 created the basic structure for setting capital requirements. It is more reflective of the underlying risks in banking hence improving the capital framework's sensitivity to the risks that banks actually face and providing stronger incentives for improved risk management. These improvements will be achieved in part by aligning capital requirements more closely to the risk of credit loss and by introducing a new capital charge for exposures to the risk of loss caused by operational failures. Continue reading... Full patent description for Trading and settling enhancements to the standard electronic futures exchange market model that allow bespoke notional sizes and better global service of end users and make available a new class of negotiable security including equivalents to products nor Brief Patent Description - Full Patent Description - Patent Application Claims Click on the above for other options relating to this Trading and settling enhancements to the standard electronic futures exchange market model that allow bespoke notional sizes and better global service of end users and make available a new class of negotiable security including equivalents to products nor patent application. ###  How KEYWORD MONITOR works... a FREE service from FreshPatents1. Sign up (takes 30 seconds). 2. Fill in the keywords to be monitored. 3. Each week you receive an email with patent applications related to your keywords. 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