U.S. patent application number 09/835088 was filed with the patent office on 2002-04-18 for system and method for automated commodities transactions including an automatic hedging function.
Invention is credited to Beadle, Kent, Cerreta, Scott, Clark, David, Humphries, Walker, Nikkel, Chris, Ozkaynak, Carl, Reding, Gary, Rodriguez, Julia A. Granada, Schulze, Mark, Womeldorf, Dave.
Application Number | 20020046127 09/835088 |
Document ID | / |
Family ID | 26934379 |
Filed Date | 2002-04-18 |
United States Patent
Application |
20020046127 |
Kind Code |
A1 |
Reding, Gary ; et
al. |
April 18, 2002 |
System and method for automated commodities transactions including
an automatic hedging function
Abstract
An integrated virtual market is provided that facilitates
communication between the producers of a given commodity and the
parties wishing to purchase such commodities. This system provides
real-time updated information about local pricing being offered by
those purchasers. In addition, those producers can post offers that
can automatically be accepted by purchasers and have contracts
automatically generated. An important consideration from a
purchaser's prospective is minimizing the risk associated with
making such transactions. Due to this, futures contracts are often
obtained. The virtual market system of the present inventions
automatically requests and obtains futures contracts to hedge the
contracts being generated.
Inventors: |
Reding, Gary; (Minnetonka,
MN) ; Beadle, Kent; (Hudson, WI) ; Nikkel,
Chris; (South Minneapolis, MN) ; Schulze, Mark;
(Edina, MN) ; Humphries, Walker; (Edina, MN)
; Womeldorf, Dave; (Lakeville, MN) ; Clark,
David; (Cambridge, MA) ; Cerreta, Scott;
(Framingham, MA) ; Ozkaynak, Carl; (Quincy,
MA) ; Rodriguez, Julia A. Granada; (Waltham,
MA) |
Correspondence
Address: |
OPPENHEIMER WOLFF & DONNELLY LLP
Attn: Marc E. Brown, Esq.
Suite 3800
2029 Century Park East
Los Angeles
CA
90067
US
|
Family ID: |
26934379 |
Appl. No.: |
09/835088 |
Filed: |
April 13, 2001 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
|
|
60241543 |
Oct 18, 2000 |
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Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 40/04 20130101;
G06Q 30/0601 20130101; G06Q 40/06 20130101 |
Class at
Publication: |
705/26 |
International
Class: |
G06F 017/60 |
Claims
We claim:
1. An Internet based system for facilitating commercial
transactions between producers of agricultural commodities and
intermediaries who purchase agricultural commodities from the
producers, comprising: a first computing sub-system configured to
receive electronic communications from an intermediary; a memory
associated with the first computing sub-system wherein the memory
includes information relating to the intermediary including an
agricultural commodity desired to be purchased, a quantity of the
agricultural commodity desired to be purchased, and a basis price
for the agricultural commodity desired to be purchased, wherein the
communications received from the intermediary will selectively
affect the information relating to the intermediary; a second
computing sub-system operatively coupled to the first computing
subsystem and the memory, the second computing sub-system
configured to selectively request data from a commodities exchange,
wherein the data includes a current trading price of the commodity;
a third computing subsystem configured to generate at least a
portion of a web page specific to the intermediary based upon the
information stored in the memory and the data obtained from the
commodities exchange, wherein the second computing subsystem can
transmit the web page to a producer of an agricultural commodity,
wherein the web page includes the quantity of the agricultural
commodity desired to be purchased by the intermediary, and a flat
price for the commodity wherein the third computing subsystem
calculates the flat price by adding the basis provided by the
intermediary from the current trading price obtained from the
commodities exchange; and a fourth computing sub-system operatively
coupled to the first, second and third computing sub-systems, the
fourth computing subsystem configured to receive responses from
producers indicating an ability to deliver an available quantity of
the commodity to the intermediary and to communicate with the
commodities exchange on behalf of the intermediary in order to
attempt to obtain a futures contract for the commodity in an amount
as close as possible to (within pre-set parameters), but not
exceeding the available quantity and to generate a contract between
the producer and the intermediary.
2. The system of claim 1 wherein the second computing subsystem
periodically requests updated information about the current trading
price of the commodity.
3. The system of claim 2 wherein the periodic requests occur at a
rate to generate a near real-time correlation to the trading price
as posted by the commodities exchange.
4. The system of claim 3 wherein the web page made available to the
producer is updated so as to provide a near real time correlation
between fluctuations occurring on the commodities exchange and a
resulting change in the flat price.
5. A system for facilitating commercial transactions, comprising: a
first computing sub-system configured to receive communications
from a logically external intermediary; a memory associated with
the first computing sub-system wherein the memory includes
information relating to the intermediary, wherein the
communications received from the intermediary will selectively
affect the information relating to the intermediary; a second
computing sub-system operatively coupled to the first computing
subsystem and the memory, the second computing sub-system
configured to selectively request data from an external source and
further configured to generate an exchange structure specific to
the intermediary based upon the information stored in the memory
for the intermediary and the data obtained from the external
source, wherein the second computing subsystem can transmit the
exchange structure to a third party; a third computing sub-system
operatively coupled to the first and second computing sub-systems,
the third computing subsystem configured to facilitate commercial
transactions between the third party and the intermediary and to
automatically engage in a commercial transaction with a centralized
exchange on behalf of the intermediary.
6. The system of claim 5, wherein the information includes a basis
price and the data includes a trading price, wherein the second
computing sub-system calculates a fixed price based upon the basis
price and the trading price, and the fixed price is presented in
the exchange structure.
7. The system of claim 6 wherein the trading price is repeatedly
obtained from the external source over a time period and the fixed
price is recalculated each time the trading price is obtained.
8. The system of claim 7 wherein the fixed price is determined and
updated at a near real time rate as compared to a posting of the
trading price by the centralized exchange.
9. The system of claim 5 wherein the commercial transaction that is
automatically engaged in on behalf of the intermediary is the
selling of a futures contract on the centralized exchange.
10. The system of claim 6 wherein the commercial transaction that
is automatically engaged in on behalf of the intermediary is the
selling of a futures contract on the centralized exchange.
11. The system of claim 10 wherein terms of the futures contract
are based upon a trading price on the commodities exchanges that
was utilized to calculate the fixed price.
12. The system of claim 6 wherein the intermediary is a purchaser
of commodities and the third party is a producer of
commodities.
13. The system of claim 12 wherein the commercial transaction
between the producer of commodities and the purchaser of
commodities is an agreement that the producer will sell a quantity
of a commodity to the purchaser.
14. The system of claim 13 wherein a maximum amount of the
commodity desired by the purchaser is included in the information
in the memory and after an agreement is made between a purchaser
and a producer, the second computing sub-system updates the
information to reduce the maximum amount of the commodity
desired.
15. A method of facilitating commercial transactions between a
first class of participants and a second class of participants,
utilizing a system having a centralized electronic information
exchange, accessible to the first class of participants wherein
information specifically pertaining to each of the second class of
participants is available, and members of the second class of
participants have limited access to the system to provide and
update the information that specifically pertains to the members,
comprising: obtaining pricing data from a centralized source;
receiving bids from the second class of participants, wherein a
posted offer is generated by the system based in part on the
information provided and in part based upon the data obtained;
displaying the generated offer on the centralized electronic
information exchange; receiving a response from a given member of
the first class of participants to the generated offer for a given
member of the second class of participants; communicating with the
centralized source to attempt to generate a hedging transaction on
behalf of the given member of the second class of participants; and
generating a contract between the given member of the first class
of participants and the given member of the second class of
participants
16. The method of claim 15 wherein the contract is generated
without requiring further input from the given member of the first
class of participants or the given member of the second class of
participants.
17. The method of claim 15 wherein the centralized source is a
commodities exchange and the hedging transaction is an attempt to
sell a futures contract on the commodities exchange.
18. The method of claim 15 wherein the first class of participants
are producers of a commodity and the first party patrons are
purchasers of the commodity.
19. The method of claim 15, further comprising: resubmitting a
request for the pricing data from the centralized source at a
periodic interval; and recalculating the generated offer based upon
the most recent pricing data.
20. The method of claim 19 where the request is continuously
resubmitted so as to receive at least near real time pricing data
from the centralized source.
21. A system for facilitating commercial transactions between first
parties and second parties, comprising: a first computing subsystem
configured to receive information from one first party, sufficient
to generate an offer for specified quantities of an item, to
display the offer upon request, and to interact with one second
party on behalf of the one first party to generate a contract for
an amount of the item without requiring further interaction from
the one first party; a second computing sub-system operatively
coupled to the first computing subsystem and configured to
automatically communicate with a centralized exchange to initiate
the placement of a hedging order on behalf of the one first
party.
22. The system of claim 21 wherein the hedging order is a futures
contract to sell a quantity of the item as close to, without
exceeding the amount of the item.
23. A server based system for facilitating transactions between
buyers of a commodity and sellers of a commodity, comprising: a
server system configured to receive input from one or more buyers
including information relating to a quantity of a commodity desired
and a basis price, to communicate with a commodities exchange to
obtain pricing information relating to the commodity, to calculate
a flat price for each buyer based on the provided basis price and
the obtained pricing information, to provide the calculated flat
price and an offer associated with it to a seller when requested,
to periodically communicate with the commodities exchange to update
the pricing information, to receive responses from a given seller
indicating an acceptance of a given offer from a given buyer, to
communicate with the commodities exchange on behalf of the given
buyer to attempt to sell a futures contract based on the given
offer, and to generate a contract between the given seller and the
given buyer.
24. A method for allowing a purchaser of a commodity to post
information relating to bids to purchase commodities on a system
and to have the system act on behalf of the purchaser in
contracting with a seller of the commodity and in contracting with
a futures commission merchant to obtain a futures contract,
comprising: determining a quantity of a commodity to purchase;
determining a basis price for the commodity; and posting the
quantity and the basis price on a system configured to obtain a
current trading price for the commodity from a commodities
exchange, determine a flat price based on the basis price and the
trading price, deliver the determined price and the quantity to the
seller, receive an offer from the seller, initiate communication
with the futures commission merchant and negotiate a futures
contract, and generate a contract between the purchaser and the
seller.
Description
BACKGROUND OF THE INVENTION
[0001] 1. Field of the Invention
[0002] The present invention relates generally to commodities
transactions. More particularly, the present invention relates to a
system for allowing automated commodities transactions to occur
within limits defined by the relevant participants.
[0003] 2. General Background and State of the Art
[0004] Agricultural commodities are a basic element of our economy
and their exchange through transactional markets has been well
established. In short, the process is extremely simple at a high
level. Producers grow the various agricultural products and sell
them to consumers at the best price they are able to obtain. Thus,
the success of the producer depends on the price offered by the
consumer and the quantities produced and ultimately sold. In
practice, however, there is an extremely complex set of
transactions that can actually occur in order to achieve this
rather simple result.
[0005] Generally, the producers will sell and deliver their
products to local intermediaries, such as elevator operators. The
elevator operators then sell and deliver those products to end
users/consumers (or to yet another middleman) who may be located
anywhere. The elevator operator must generate a profit by selling
the products at a higher price than paid to the producer, while
taking into account the costs for storage and transportation. The
producer realizes a profit when the products are sold to the
intermediary at a price that is higher than the cost of production
and transportation. One of the major considerations in these
commodities transactions is that the margins are very low.
[0006] The prices for the commodities are not static and in fact
can fluctuate dramatically based on any number of factors and
issues. Centralized commodities exchanges have been established
that allow for regulated transactions under these fluctuating
conditions to occur. Through this system, the price of commodities
is determinable, both at the present time and at least
speculatively into the future. For example, the Chicago Board of
Trade (CBOT) is such a commodities exchange and the prices
indicated by that board become the de facto price of a given
commodity world-wide. More accurately, the price indicated by CBOT
serves as a base by which prices in given localities are
determined. As an example, assume that a bushel of yellow corn is
trading on CBOT for $2.00. That means, that a bushel of yellow corn
delivered to Chicago, Ill. (during the specified time period that
the price is good for) is worth $2.00.
[0007] Thus, if a producer can deliver his product to the Chicago
area, that producer should receive the price for the commodity
indicated by CBOT. In practice, this usually is not feasible. A
farmer in Kansas who raises corn is usually not in a position to
economically transport that corn to Chicago in quantities to make
it worthwhile. Thus, the farmer delivers his corn to a local
elevator operator and sells it there. The elevator operator is
usually going to pay the farmer an amount that is based on the CBOT
price. The price paid will depend on geographical location,
transportation availability and cost, storage costs, etc.
[0008] To determine the amount paid to the local farmer, the
elevator operator adds a basis price to the CBOT trading price. The
basis includes the elevator's costs, such as transportation to
market and costs associated with running the facilities, as well as
the margin. For example, assuming transportation charges of
$0.40/bushel and a margin of $0.04, the local farmer will be paid
$1.56/bushel for yellow corn, when the CBOT trading price is
$2.00/bushel ($2.00-$0.40-$0.04=$1.56). In this example, the
elevator operator will realize a profit of $0.04/bushel when the
corn is resold at the anticipated price.
[0009] This is obviously a very narrow margin for the elevator
operator and this translates into a high degree of risk. Risk is
incurred because delivery of the material is usually scheduled for
some time after the agreement is completed. If at the time of
delivery, the CBOT price has dropped the elevator operator is still
obligated to pay the producer the amount agreed on. However, it
will be difficult if not impossible for the elevator operator to
resell the product at a price high enough to obtain his desired
margin. In the above example, the margin was only $0.04. A minor
shift in the commodities market can financially devastate the
elevator operator.
[0010] To manage that risk, the elevator operator takes advantage
of another element of the commodities exchange. For every contract
that is generated with a producer, the elevator operator will place
a hedge order. In the case of a cash purchase with a producer, a
sell order would go into the commodities futures market. Continuing
with the above example, assume that a producer wishes to sell to
the elevator operator 500 bushels of yellow corn for delivery 3
month from today. Yellow corn is at $2.00/bushel at CBOT and the
elevator operator agrees to pay the producer $1.56/bushel for
delivery in three months. To cover his risk the elevator operator
also works through a broker to sell 500 bushels of yellow corn in
the futures market. The futures contract is for 500 bushels of
yellow corn, deliverable in three months at a price of
$2.00/bushel. If in three months when the elevator operator takes
delivery from the producer, the trading price of yellow corn is
down, the futures contract will prevent the elevator operator from
realizing a loss. One way of looking at this is to assume that the
elevator operator were to try and sell that corn on the market. Any
potential buyer would look at the CBOT trading price, which is now
below the $2.00 level and only be willing to pay a reduced amount.
However, the elevator operator has the futures contract for a sale
at the price of $2.00/bushel. Thus, the margin of $0.04 is
maintained. Conversely, if the trading price goes up, purchasers
will be willing to give the elevator operator an amount exceeding
$2.00 a bushel, but the elevator operator still must fulfill his
future contract to sell at $2.00.
[0011] Thus, the futures markets serves as a hedging tool to
minimize risk for the various intermediaries, such as the elevator
operators. As a practical matter, these various futures contracts
are usually unwound in various ways without requiring actual
delivery of the commodity. Therefore, it provides a truly
advantageous function to the intermediary.
[0012] All of this simply lays a groundwork for commodities
exchanges on the local level. The elevator operator negotiates with
a local producer on price. When a tentative agreement is reached,
the elevator operator tries to sell a futures contract to minimize
risk. If an acceptable futures contract is obtained, the elevator
operator then formally agrees to accept the contract with the
producer. In effect, two contracts are negotiated and ratified for
the sale of a commodity from a producer to an elevator
operator.
[0013] As discussed above, the producerwill have various subjective
and objective incentives to deal with certain elevator operators.
One obvious consideration is the proximity of the elevator to the
producer. Past dealings with a given elevator operator would be
another consideration. Whatever the reasons may be, a given
producer will have several elevator operators that they might
choose to deal with. At a given time, the producer will decide to
sell a quantity of a product. The producer must call these various
operators to determine what they will be paying. When an elevator
operator receives such a call, he must then call a broker on the
CBOT to determine what the current trading price of the commodity
is. Then the elevator operator subtracts his basis to determine a
flat price. Assuming that elevator is capable of handling it, the
elevator operator makes an offer to buy a specified quantity of the
commodity and a contract is ratified. The operator then secures a
futures contract for the appropriate amount with another phone call
to a broker. Of course, after hearing the flat price offered, the
producer may refuse to proceed or attempt to renegotiate. In the
later case, more calls to the broker may be necessary to determine
if the required futures contracts can be obtained.
[0014] This process is slow and tedious when it works, but at times
it is completely incapable of functioning. The elevator operators
may be unavailable when the producers call or unable to immediately
track down the required information. The commodities exchanges are
only available during certain hours, thus further limiting the
process. Even when the exchanges are open, securing quotes and
placing orders by telephone is often a delayed process. In short,
this can be drawn out process and fails to realize a high degree of
efficiency.
[0015] Therefore, there exists a need to provide an automated
service that allows for interaction between producers and
intermediaries that can obtain and display real-time relevant data
and allow for the required hedging activities to occur at any time,
while facilitating the completion of commodities transactions.
INVENTION SUMMARY
[0016] The present invention provides a platform by which producers
and intermediaries can provide and obtain information related to
the selling of commodities on a local level, as well as
coordinating and facilitating the closing of the desired
contracts.
[0017] The present invention establishes an electronic marketplace
that interconnects the producers with the elevator operator, and
the elevator operators with the commodities exchanges. This global
marketplace allows for individual elevator operators to provide
customized local information so that the relevant producers can
conveniently determine pricing and availability in their areas.
Producers can then negotiate with those selected elevator
operators. The system provides for an automatic hedging function,
wherein it is assumed that any given elevator operator will require
an appropriate futures contract before agreeing to a contract with
a producer. Thus, the system initiates contact with the commodities
exchange, determines the availability of the desired futures
contract, and if available, secures the contract for the elevator
operator. Thus, one significant leg of the negotiation process is
reduced in complexity.
[0018] The system can also represent the elevator operator in
transactions with the producers without requiring oversight by the
elevator operator. Each elevator operator that participates is
given control over a portion of the system representing them. The
elevator operator is then able to post predefined bids for
specified products, regardless of the fluctuations of the
commodities prices that will inevitably occur. Over a reasonable
period of time, the elevator operator's basis will remain constant
or at the very least it will be a known factor. In addition, the
elevator operator will certainly know what volume of trading he
would like to engage in. These factors are entered by the elevator
operator into his portion of the system. The system will then
repeatedly obtain the prices posted on the relevant commodities
exchange and determine for each elevator operator on the system
their own unique flat price. This flat price, which changes in real
time in accordance with the commodities exchange is then made
available to the local producers. In addition, the amount the
elevator operators need during any given time period are also
posted.
[0019] Once the elevator operator posts his information to his
portion of the system, transactions can occur without further input
from the elevator operator. For example, assume the same values
discussed in the above example. The elevator operator's basis is
-$0.44 for a given period of time. A producer accesses the system
and views this operator's data. The current CBOT price is
$2.00/bushel so the displayed flat price is $1.56/bushel. More
specifically, this elevator operator is essentially posting a bid
to buy yellow corn in his locality (i.e., delivered to him) for
$1.56 bushel. There may be some limit imposed for both time and
quantity. For example, this elevator operator may want to receive
1500 bushels, for delivery in three months time. A further limit
would be that each producer can only deliver a given minimum or
maximum.
[0020] Assuming this price is satisfactory to the producer, he can
post a response to the bid. He may indicate that he will deliver
500 bushels of yellow corn in three months time. At this point, the
system connects with the commodities exchange and attempts to
obtain a futures contract to sell 500 bushels of yellow corn at
$2.00/bushel. The producer is then informed that a successful
contract has been generated. The elevator operator's posted
information is then modified. That is, the amount still desired is
appropriately reduced.
[0021] The above transaction can occur without any human
intervention on the part of the elevator operator or the
commodities exchange. Once the elevator operator has give the
relevant information, the system can perform the necessary
functions without subsequent intervention. In addition, there are
automated portions of the commodities exchange that allow for
after-hours trading. Of course, the system can allow human
interaction at any point.
BRIEF DESCRIPTION OF THE DRAWINGS
[0022] FIG. 1 is a schematic diagram illustrating a transaction
protocol for local commodities exchanges.
[0023] FIG. 2 is a schematic diagram illustrating the transaction
protocol for local commodities exchanges utilizing the teachings of
the present invention.
[0024] FIG. 3 is a flowchart of the illustrating the sequence of
events involved in a local commodities transaction according to the
teachings of the present invention.
[0025] FIG. 4 is a schematic diagram illustrating the system of the
present invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
[0026] FIG. 1 illustrates a local commodities transaction system
and is generally referred to as 10. A first commodities producer 15
has a predetermined quantity of the particular commodity that is or
will be available for delivery at some known date. First producer
15 may either have a volume of commodity in his possession or may
be anticipating the fruition of a current or future crop. It is
goal of first producer 15 to sell that commodity at the highest
price obtainable within his local market structure, taking into
account the cost for storing the commodity if he is unable to sell
or deliver that product for some period of time, and also taking
into account the cost of transportation to get the product to
whomever ultimately buys it from first producer 15.
[0027] First elevator operator 20 is in a position to buy
commodities from local producers. First elevator operator 20 will
usually have the ability to store large volumes of any given
commodity for predetermined periods of time and is also in a
position to coordinate the delivery of those commodities from his
own site to that of other parties. It is usually the goal of first
elevator operator 20 to obtain as much of the commodity as can be
resold so long as that resale price generates a sufficient profit.
As previously explained, the pricing of the commodity will
ultimately be determined by some central commodity exchange 25. For
example, commodity exchange 25 may be the Chicago Board of Trade.
By knowing what the localized cost for storage and transportation
are and knowing what margin or profit is required, first elevator
operator 20 can generate a local price that he is willing to pay
for commodities delivered to him based upon a current price
indicated by the commodities exchange 25. The price first elevator
operator 20 is willing to pay is that operator's flat price, and in
most cases will be somewhat less than that proffered by the
commodities exchange 25. Before first elevator operator 25 will
engage in any transaction with a local producer, he most likely
will attempt to secure a futures contract which will serve a
hedging function that will minimize the risk for first elevator
operator 20.
[0028] FIG. 1 illustrates a typical scenario that could be found in
any given locality. There could be any number of local producers
15, 30, 31 and 32 as well as any number of elevator operators 20,
35, 36 and 37. It is assumed that in this locality any one of these
producers 15, 30, 31 and 32 would be willing to do business with
any one of these elevator operators 20, 35, 36 and 37. The factors
that a given producer will consider when deciding on which elevator
operator to deal with can vary greatly, but usually will include
past business dealings, capacity and proximity. Ultimately, any
given producer will have a number of elevators that they are
willing to deal with, thus the determining factor becomes what
price each of those individual operators will be willing to offer.
It is important to realize that each individual elevator operator
will determine the price that they are willing to pay independently
of any other given elevator operator.
[0029] Thus, what is represented in FIG. 1 are the actions required
for first producer 15 to negotiate and secure a contract with first
elevator operator 20. Initially, first producer 15 initiates
contact with first elevator operator 20; usually via telephone.
First producer 15 indicates that he has a certain quantity of a
commodity that will be available for delivery. First elevator
operator 20 determines whether or not he needs that quantity or a
lessor quantity of that commodity delivered along the specified
time line. Assuming that he does, first producer 15 and first
elevator operator 20 will negotiate a tentative price. This price
will often be based on recent historical pricing obtained from
commodities exchange 25 at some previous point in time.
Alternatively, no tentative price is discussed at all and first
producer 15 and first elevator operator 20 proceed simply on the
basis that first elevator operator 20 will have the capacity and
the desire to obtain the commodity if acceptable pricing can be
determined. At that point, first elevator operator 20 initiates
contact with a futures commission merchant (FCM) associated with
the commodities exchange 25. The futures commission merchant will
then inform first elevator operator 20 of the current price for the
commodity in question.
[0030] First elevator operator 20 will then re-contact first
producer 15 and offer a flat price based on the price obtained from
the commodities exchange 25. There may be some negotiation that
occurs, but first producer 15 will either accept or reject the flat
price that is being offered by first elevator operator 20. One
reason to reject the price offered is that first producer 15 may
wish to contact the remainder of the local elevators 35, 36 and 37
that he is willing to do business with in order to determine which
price they will be offering. Assuming, however, that first producer
15 is going to accept the flat price offered by first elevator
operator 20, he will indicate this to first elevator operator 20.
At that point, first elevator operator 20 will re-contact the
futures commission merchant associated with commodities exchange 25
and attempt to sell a futures contract for the same amount of the
same commodity that he is planning on buying from first producer 15
at the same commodities exchange price that his flat price was
determined from for the same date that delivery will be expected
from first producer 15.
[0031] It may, in fact, not be possible to obtain such a futures
contract. If that is the case, first elevator operator 20 may
indicate to first producer 15 that they do not have a deal. At that
point, they can either terminate the negotiation or continue to
renegotiate the terms. Conversely, first elevator operator 20 may
be able to secure such a futures contract and will subsequently
contact first producer 15 to finalize the agreement.
[0032] At some time in the future, first producer 15 will deliver
the pre-determined amount of the commodity to first elevator
operator 20. At that point in time, the price indicated by the
commodity exchange 25 for that commodity may have increased,
decreased or remained the same. Assuming it has remained the same,
elevator operator 20 generates a profit by realizing a gain of the
margin that went into the determination of the flat price when
first elevator operator 20 resells the commodity to another party.
If the price indicated by commodities exchange 25 has decreased,
elevator operator 20 will not realize his margin on a subsequent
resell, but will realize that margin when his futures contract is
unwound.
[0033] What has been described thus far is a complicated series of
transactions that will usually occur between the first producer 15,
first elevator operator 20 and a representative of commodities
exchange 25 in order for a single transaction to occur. When it
works well, this is a slow and tedious process. There are, however,
a number of factors which can prevent this process from working,
even at that level. For example, first elevator operator 20 may not
be available for negotiations when first producer 15 initiates
contact. Similarly commodities exchange 25 may not be open for
business during the time period within which first producer 15 and
first elevator operator 20 are negotiating. Thus, substantial
delays can be imposed. This process is seriously hampered when one
considers the number of elevators and number of producers that must
work together at any given locality.
[0034] Referring to FIG. 2, the virtual exchange 45 of the present
invention is illustrated. Through this system, producers 15, 30, 31
and 32 are brought together with elevator operators 20, 35, 36 and
37. Likewise, those elevator operators are also able to communicate
with the commodities exchange 25. Central to all of these
transactions is the Net Market (FHNM) 45. Net Market 45 is a global
electronic marketplace within which each individual elevator
operator 20, 35, 36 and 37 is provided with their own
representative customized exchange display. For example, first
elevator operator 20 manages a small portion of Net Market 45
within which first elevator operator's 20 parameters and
requirements are displayed. This can include posts requesting
desired amounts of commodities delivered in specified periods of
time. Pricing parameters are input into the Net Market 45 by first
elevator operator 20. Net Market 45 communicates with commodities
exchange 25 on a real-time basis. From the data obtained, relevant
flat prices for each individual elevator operator are determined by
modifying the realtime data obtained from commodities exchange 25
based on the individual parameters provided by the respective
elevator operators. Thus, any given producer can access Net Market
45 and obtain information about any desired or relevant elevator
operator. Net Market 45 can also facilitate the generation and
completion of a contract between a given producer and a given
elevator operator, while also automatically hedging that contract
for the elevator operator on the commodities exchange 25.
[0035] Referring to FIGS. 3 and 4 the present invention will be
described in greater detail. In general, the present system relies
on electronic communication between the parties. Various
communicative acts and resulting actions that take place can either
be generated or initiated by the parties themselves, or in many
cases may be automated. The level of automation, if any, will be
dictated by the parties themselves. It is contemplated that the
present invention will be carried out using electronic devices
interconnected through a computer network or other communication
mediums.
[0036] In one embodiment, such communication occurs over the
Internet, represented generally as 50. In general, transactions on
the Internet will occur between a client terminal and a server and
will often utilize the hypertext transfer protocol (HTTP). This
protocol permits client systems connected to the Internet to access
independent and geographically scattered server systems also
connected to the Internet. Client side browsers, such as Netscape's
Navigator and Microsoft's Internet Explorer provide efficient
graphical user interface based client applications that implement
the client side portion of the HTTP protocol. Server side
application programs, generically referred to as HTTPd servers,
implement the server side portion of the HTTP protocol. HTTP server
applications are widely available.
[0037] The distributed system of communication and information
transfer made possible by the HTTP protocol is commonly known as
the World Wide Web (WWW) or as simply "the Web." From a client side
user interface perspective, a system of uniform resource locators
(URLs) is used to direct the operation of a web browser in
establishing transactional communication sessions with designated
web server computer systems.
[0038] In use, a client computer system will seek to access to a
particular document or web page located on the server system. A
generally closed hypertext transfer protocol transaction is
conducted between a client browser application executing on the
client system and an HTTP'd server application executing on the
server system. A web page is served by the server system to the
client. Subsequent actions can occur by the client selecting
additional URL's that may be embedded within the delivered page. In
addition, specific information can be requested by the server
system and the client system can provide that information so that
responsive communication can occur.
[0039] As one alternative, the client may be allowed to access the
server system and login as a participant in an active session. The
present invention only requires that the various parties are
capable of electronic communication.
[0040] Net Market 45 is an HTTP server system capable of storing
data and transmitting that data across the Internet once so
requested. It is to be understood that a server system can include
a single server or a plurality of server working together to
achieve the desired result. Furthermore, the server system is meant
to include both the hardware and the software necessary to make the
system function as described. Producer 15 and elevator operator 20
each use client terminals which may be embodied in personal
computers or hand held electronic devices that are capable of
communication with Net Market 45 via internet 50. Database 55 is
associated with Net Market 45. Within database 55, each individual
elevator operator 20 has a portion allocated to that elevator
operator. This apportioned data segment is an exchange structure
referred to as customer exchange 60. Elevator operator 20 is able
to access and customize customer exchange 60, so that the
individual attributes selected by elevator operator 20 are
displayable through customer exchange 60 when requested by a given
producer 15. In one context, customer exchange 60 will be a web
page or a portion of a web page obtainable through an Internet web
site managed and controlled by Net Market 45. That is, producer 15
can issue a request through Internet 50 to the server associated
with Net Market 45 requesting the relevant web site. Once obtained,
information indicative of elevator operator 20 will be presented in
an appropriate format. Producer 15 can then request the specific
page or portion of a page dedicated to customer exchange 60
associated with elevator operator 20 and this information will be
transmitted to producer 15 from Net Market 45. Of course, if the
appropriate URL or other addressing information is known, producer
15 can directly request the specific customer exchange 60. In
either event, producer 15 is able to obtain information from Net
Market 45 that is particular and specific to elevator operator 20
and is in fact, at least partially controlled by elevator operator
20.
[0041] The purpose of providing such information to producer 15 is
to two fold. First, it simply provides information to producer 15
that is helpful in making business decisions. In addition, the
present system is able to facilitate orders and contracts between
producer 15 and elevator operator 20. Reference is made to the flow
chart of FIG. 3 as well as the schematic illustration of FIG. 4 to
explain the process in greater detail. At step 200, elevator
operator 20 initiates contact with and registers with Net Market
45. A certain amount of basic information is provided to Net Market
45 about elevator operator's 20 business; contact, address and
billing information would typically be requested and provided.
While not specifically required, any information that would help a
given producer 15 evaluate a given elevator operator 20, can be
selectively requested and/or provided for display through customer
exchange 60. Such registration will usually only be required upon
elevator operator's 20 initial visit. Elevator operator 20 also
provides information related to which crops or commodities that
elevator operator 20 is interested in obtaining. At step 210,
elevator operator 20 will submit a basis and a corresponding
futures month for a given commodity for a given period of time. As
previously explained, the basis is a differential between the price
the commodity is trading at on a commodities exchange, and the flat
price that will ultimately be offered to the producer 15. The basis
will consist of the margin or profit the elevator operator expects
to receive, as well as the anticipated costs associated with
marketing and transporting the product.
[0042] At step 220, elevator operator 20 will post bids on Net
Market 45 that are to be presented in customer exchange 60. Once
again, customer exchange 60 is a web page or a portion of a page
that is specific to elevator operator 20. For example, such bids
will include the quantity of a given commodity desired and any
associated limits such as delivery times and minimum and/or maximum
amounts desired. Such limits will vary and are in the given
elevator operator's 20 discretion.
[0043] At step 230, Net Market 45 interacts with the commodity
exchange 25 in one of two ways. Net Market 45 can communicate
through a futures commission merchant 65 or through an automated
commission system 70, as directed by elevator operator 20. A
futures commission merchant 65 is simply a person or party licensed
by the commodities exchange 25 to conduct transactions therein for
parties outside of commodities exchange 25. Communication through
futures commission merchant 65 can either be manual or fully
automated. That is, the human operator can receive and respond to
requests initiated by Net Market 45 or an automated system an be
set up to handle those requests for that futures commission
merchant 65. Automated communication system 70 essentially serves
the same purpose as futures commission merchant 65, however, it is
an automated system set up and controlled by commodities exchange
25.
[0044] A third option, not separately illustrated would be a data
collection service set up and maintained to obtain information from
commodities exchange 25 and to sell or otherwise provide that
information to participants in the market. In any event, at step
230 Net Market 45 generates a request to receive real-time pricing
information from the commodities exchange 25 regarding the various
commodities that elevator operator 20 is posting bids for.
[0045] At step 240, Net Market 45 determines a flat price for the
given commodity for elevator operator 20 by subtracting the basis
from the real-time pricing data obtained from commodities exchange
25. This calculated flat price is then displayed via an
appropriately formatted customer exchange 60 and displayed to a
given producer 15 upon request.
[0046] The above was described with respect to a single elevator
operator posting a bid for a single commodity. In practice, Net
Market 45 manages a number of customer exchanges 60, for a number
of elevator operators 20. Thus, as a matter of efficiency, Net
Market 45 is constantly obtaining real-time data from commodities
exchange 25 regarding the real-time pricing of any number of
commodities. As this real-time pricing data varies, Net Market 45
updates the posted flat price for the various elevator operators
20, by recalculating each elevator operator's 20 flat price based
on the real-time data. Thus for any producer accessing the system,
a given elevator operator's 20 posted flat price will vary in near
synchronicity with the real time data generated by commodities
exchange 25. In fact, the producers system can be configured to
repeatedly request this data so that real time updates occur.
Alternatively, a request can be sent to have FHNM 45 push this data
to producer 15 at a given interval to achieve the same result.
[0047] Thus, what has been achieved thus far is that elevator
operator 20 has registered with the system and authorized the
system to generate contracts and take certain actions on his
behalf. Information specific to elevator operator's 20 business has
been obtained and formatted in customer exchange 60. Thus, a given
producer can access FHNM 45 and obtain information specific to
elevator operator 20 or other registered elevator operators.
[0048] Returning to Step 200, elevator operator 20, must authorize
Net Market 45 to conduct certain transactions for elevator operator
20. When so authorizing the system to function in this regard,
elevator operator 20 can decide whether to enable an automatic
hedging function of Net Market 45. As explained above, purchasing
or selling a futures contract through the commodities exchange 25,
minimizes the risk associated with dealing in commodities. As a
practical matter, most elevator operators 20, will seek to engage
this function, however, it is an option they can selectively enable
or disable.
[0049] At step 250, producer 15 registers with Net Market 45. Such
registration need only occur the first time producer 15 uses the
system. Subsequently, producer 15 may simply log in the known way.
During registration, producer 15 will provide to Net Market 45
certain data about producer 15 sufficient to allow Net Market 45 to
conduct transactions between producer 15 and a given elevator
operator 20. Such information may not be required if producer 15
only seeks to view data rather than actually engage in
transactions.
[0050] Once registered or logged in, producer 15 will request a
customer exchange 60 from one or more elevator operators 20 that
producer 15 is interested in conducting business with. Displayed to
the producer 15 in the returned web page or other communication
format will be a posted bid for a given quantity of a given
commodity, within a given time frame. For example, elevator
operator 20 may post through customer exchange 60 that he would
like to receive 2,000 bushels of yellow corn deliverable to his
place of business three months from today's date. Currently and
separately, yellow corn is trading at $2 a bushel on commodities
exchange 25. Because Net Market 45 is constantly or least regularly
receiving real-time data from commodities exchange 25, this value
is known to Net Market 45. Previously elevator operator 20 had
posted to the system that his basis would be $0.44/per bushel for
yellow corn. Thus, a flat price of $1.56 per bushel is displayed on
customer exchange 60. Upon viewing this information, producer 15
may decide that he would like to sell 500 bushels of yellow corn to
elevator operator 20 at $1.56 per bushel deliverable in three
months. This information is then transmitted from producer 15 to
Net Market 45 at Step 280. Since the producer's 15 offer is within
the parameters established by elevator operator 20 the system
recognizes that a transaction can be facilitated and a contract
could be generated.
[0051] Previously at Step 200, elevator operator 20 had enabled the
automatic hedging function of Net Market 45. Thus, prior to
completing the transaction, between producer 15 and elevator
operator 20, Net Market 45 again communicates with commodities
exchange 25 either via a futures commission merchant 65 or an
automated commission system 70.
[0052] At Step 300, Net Market 45 attempts to sell a futures
contract through commodities exchange 25 for 500 bushels of yellow
corn deliverable in three months time at $2.00 a bushel, because
that is the price elevator operator's 20 price was determined from.
A futures contract at that exact amount may or may not be
obtainable through commodities exchange 25 and this is determined
at step 310. Often times, the futures contract may not be
obtainable for the exact quantity or price desired, however, it may
be very close. Such parameters can be determined in advance by
elevator operator 20 so that if a futures contract within a given
range is obtainable, it will be acceptable to the elevator operator
20. For example, futures contracts may only be obtainable in
predetermined amounts. That is, each contract may require a minimum
amount such as 5,000 bushels. If the requested amount does not
match a multiple of this minimum, the system will, in most cases,
attempt to get as close to the requested amount as possible without
exceeding it. For example, if each contract is for 5,000 bushels
and the elevator operator wants to hedge 17,000 bushels, the system
will sell 3 contracts for 15,000 bushels. The system is capable of
placing the remaining 2,000 bushels into an odd lot counter. When
the elevator's other orders have accumulated to bring the odd lot
counter up to a contract level, a futures contract may be obtained
by the system on behalf of multiple elevator sites. Some elevator
operators may elect to have the system increase their hedge order
rather than short it, if the amounts do not match. Thus, when
needing 17,000 bushels with a 5,000 minimum for a contract, the
system will actually hedge 20,000 bushels. The choice is made by
the elevator operator.
[0053] If an acceptable futures contract is obtainable, it is then
obtained by Net Market 45 on elevator operator's 20 behalf. At Step
330, Net Market 45 issues a communication to producer 15 that the
order has been accepted and at Step 340 a contract is generated.
Producer 15 and elevator operator 20 both agree in advance to abide
by any contract generated at Step 340. This solidifies the process
being handled by Net Market 45 and serves to make the system that
much more reliable.
[0054] At Step 350, elevator operator's 20 posted bid on customer
exchange 60 is modified based upon the contract that was generated
at Step 340. Elevator operator 20 had initially indicated that
2,000 bushels of yellow corn deliverable in three months was what
was needed. Now that a contract has been generated for 500 bushels
of yellow corn, the elevator operator 20 need only receive an
additional 1,500 bushels. Thus, this is what is updated and
displayed on customer exchange 60. Of course, any pricing data that
needs to be updated based on changes on commodities exchange is
likewise modified. Net Market 45 can facilitate any necessary or
desired contract information for producer 15 and elevator operator
20. That is, if it is decided to have documents signed, they can be
generated and provided to the relevant parties. Of course, if
acceptable, electronic documents can also be so created and
distributed.
[0055] The present invention is a system that facilitates the
interaction between producers, intermediaries and a commodities
exchange. As described, the system functions through known
information transactions, occurring between a client terminal and a
server system appropriately coupled to the Internet or any other
communications network. It is to be understood that propagated
signals carry the information necessary to enact the system from
the perspective of a given participant. Furthermore, while the
present invention has been described with respect to commodities
transactions, it is equally applicable to any type of commercial
transaction where diverse parties are buying and/or selling
products, including but not limited to stocks, bonds or other
investment or financial products. The system can also facilitate
such transactions for any tangible or intangible product that is to
be exchanged. The system has been described as giving certain
automated functionality in the representation of the buyer of a
commodity or other product. This function can be provided for both
the buyer and the seller or either one individually. Finally, terms
such as producer and elevator operator have been used to illustrate
possible embodiments. It is to be understood that the present
invention involves parties who sell and parties who buy and the
terminology used to describe these parties in a given context is
not meant to be limited. For example, elevator operators could by
any merchant or other party that engages in the purchase of
tangible or intangible products.
[0056] From the foregoing detailed description, it will be evident
that there are a number of changes, adaptations and modifications
of the present invention which come within the province of those
skilled in the art. However, it is intended that all such
variations not departing from the spirit of the invention be
considered as within the scope of the invention.
* * * * *