U.S. patent application number 10/417729 was filed with the patent office on 2003-10-16 for methods and systems for purchase of commodities.
Invention is credited to Fritsch, Daniel Scott, Tatge, Jason G..
Application Number | 20030195822 10/417729 |
Document ID | / |
Family ID | 31187191 |
Filed Date | 2003-10-16 |
United States Patent
Application |
20030195822 |
Kind Code |
A1 |
Tatge, Jason G. ; et
al. |
October 16, 2003 |
Methods and systems for purchase of commodities
Abstract
The invention is directed to methods and systems for commodities
procurement with concomitant hedging. The invention enables
automatic commodity purchase at a desired basis level when a
seller's price matches a buyer's basis bid and concomitantly
automatically placing an electronic commodities order to hedge the
buyer's purchase.
Inventors: |
Tatge, Jason G.; (Lenexa,
KS) ; Fritsch, Daniel Scott; (Chapel Hill,
NC) |
Correspondence
Address: |
LOWENSTEIN SANDLER PC
65 LIVINGSTON AVENUE
ROSELAND
NJ
07068
US
|
Family ID: |
31187191 |
Appl. No.: |
10/417729 |
Filed: |
April 17, 2003 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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10417729 |
Apr 17, 2003 |
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10209994 |
Aug 1, 2002 |
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10417729 |
Apr 17, 2003 |
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09835088 |
Apr 13, 2001 |
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Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 30/0601 20130101;
G06Q 30/0641 20130101; G06Q 30/0226 20130101; G06Q 30/08 20130101;
G06Q 40/04 20130101; G06Q 30/0635 20130101 |
Class at
Publication: |
705/26 |
International
Class: |
G06F 017/60 |
Claims
What is claimed is:
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) a first computing sub-system configured
to receive electronic communications from an intermediary; (b) 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, (i)
wherein the communications received from the intermediary will
selectively affect the information relating to the intermediary;
(c) 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;
(d) 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, (i) 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 (ii) 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; (e) 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 (i) 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) a first computing sub-system configured to receive
communications from a logically external intermediary; (b) a memory
associated with the first computing sub-system wherein the memory
includes information relating to the intermediary, (i) wherein the
communications received from the intermediary will selectively
affect the information relating to the intermediary; (c) 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 (i)
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 (ii) the second computing subsystem can transmit
the exchange structure to a third party; (d) 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 (i) 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: (a) obtaining pricing data from a centralized source;
(b) receiving bids from the second class of participants, wherein
(i) a posted offer is generated by the system based in part on the
information provided and in part based upon the data obtained; (c)
displaying the generated offer on the centralized electronic
information exchange; (d) 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; (e) 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 (f) 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) a first computing
subsystem configured to receive information from one first party,
sufficient to generate an offer for specified quantities of an
item, (i) to display the offer upon request, and to interact with
one second party on behalf of the one first party (ii) to generate
a contract for an amount of the item without requiring further
interaction from the one first party; (b) 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) 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, (b) to communicate with a commodities exchange
to obtain pricing information relating to the commodity, (c) 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, (d) to periodically communicate with the
commodities exchange to update the pricing information, (e) to
receive responses from a given seller indicating an acceptance of a
given offer from a given buyer, (f) 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 (g) 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: (a) 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, (b) determine a flat price based on the basis price and
the trading price, (c) deliver the determined price and the
quantity to the seller, receive an offer from the seller, (d)
initiate communication with the futures commission merchant and
negotiate a futures contract, (e) and generate a contract between
the purchaser and the seller.
Description
[0001] This application is a continuation of application Ser. No.
10/209,994, filed on Aug. 1, 2002, entitled Methods And Systems For
Purchasing Commodities With Concomitant Hedging, which application
is hereby incorporated herein by reference.
1. FIELD OF THE INVENTION
[0002] The invention is directed to methods and systems for
purchasing commodities with concomitant hedging.
2. BACKGROUND OF THE INVENTION
[0003] Today, the Internet hosts a multitude of sites and protocols
whereby the sale of goods and commodities can be consummated. The
majority of such sites and protocols are seller oriented where a
seller advertises goods or commodities to a multitude of buyers to
achieve an optimized selling price. The seller's goal is
straightforward, i.e., once the goods are sold, the seller has
achieved his objective.
[0004] Commodity buyers often hedge their purchases against the
listed exchange rate for the same or a different commodity. For
example, buyers of agricultural products often sell futures
contracts at the exchange rate listed by the Chicago Board of Trade
to hedge their purchases (i.e., take a short futures position).
These "hedge purchasers" face a more complicated series of
transactions than do sellers. Thus, it is not surprising that the
seller-oriented platforms currently available on the Internet do
not fully satisfy the hedge buyer's needs. First, the buyer must
advertise a bid price to a plurality of sellers. Since the buyer
will hedge his purchase, his bid price is based on the exchange
rate listed for a particular hedge commodity (which may be the same
commodity he is seeking to purchase). Since the hedge commodity's
exchange rate is constantly fluctuating, the buyer must constantly
adjust and post his current bid price. Furthermore, once the buyer
buys, he should immediately complete the hedge transaction to avoid
adverse price shifts of the hedge commodity.
[0005] A futures contract is a standardized contract to make or
take delivery of a commodity or financial instrument at a
predetermined time and place. Thus, a futures contract locks in a
price for a future date. Some of the most popular futures contracts
traded in the United States today are equity-based contracts such
as the Dow Jones Industrial Average; interest rate contracts such
as Treasury bonds and Treasury notes; agricultural contracts, such
as corn, soybeans, and wheat; and precious metals, such as silver
and gold.
[0006] Hedging is the practice of offsetting the price risk
inherent in any cash market position by taking an equal but
opposite position in the futures market. Hedgers use the futures
markets to protect their business from adverse price changes. Thus,
Hedgers try to protect themselves from an inherent price risk
associated with a future purchase or sale of an asset. A wide
variety of institutions and individuals hedge, such as mortgage
bankers, stock portfolio holders, food processors, and farmers. The
classic example of a hedger using the futures market as a risk
management tool is a farmer. Buyers of commodities often take a
short futures position, which is a position in the market where one
has sold futures contracts to offset risk. Because of the
complexity of completing a transaction, hedge buyers generally
spend long hours on the phone to transmit bids, consummate sales,
and place their hedge.
[0007] Grain elevators provide facilities for elevating, storing,
discharging, and sometimes processing grain. Country elevator
operators, who generate a majority of their revenue through
put-through and storage charges, have little desire to take on risk
and thus hedge grain purchases against the futures price listed at
the Chicago Board of Trade. Currently, grain elevators and grain
producers conduct a majority of their business buy phone. Elevator
operators are constantly on the phone trying to find grain. Once
the buyer locates a seller for the desired grain, he then needs to
negotiate the price. After the grain is purchased, the buyer then
needs to call a futures broker to place a futures hedge on the
grain just purchased. Then the buyer starts the process all over
again. An elevator operator may have anywhere from 100 to 2,000
different producers calling to check prices daily. It is very
difficult for a buyer to remember who is offering what amount and
at what price. With the futures price constantly changing, local
basis levels constantly changing, and the phone-ringing non-stop it
is difficult to execute transactions in an orderly fashion.
[0008] There are several factors that can simultaneously affect the
price a grain elevator operator is willing to pay at a given time.
In general, an elevator operator calculates his bid price based on
a basis, which is the difference between the grain's current local
cash price for a specific delivery period and the futures option
price the commodity is being put against. The elevator buys the
product this way because it makes it easier for them to hedge their
purchases. When a grain producer calls to get a bid for his
product, the elevator operator adds or subtracts his local cash
basis from the Chicago Board of Trade futures price to come up with
a flat price to quote to the grain producer.
[0009] Because hedge buyers (e.g., grain elevator operators) face a
complicated series of transactions that require numerous hours on
the telephone, there is a need for improved methods and systems for
purchasing commodities with concomitant hedging.
3. SUMMARY OF THE INVENTION
[0010] The invention is directed to methods and systems for
purchase of commodities with concomitant hedging. Multiple buyers
and sellers can participate in the platform for any number of
different commodities. The invention enables a prospective buyers
of commodities the opportunity to automatically procure the
commodity at a desired basis level when a seller's price matches a
buyer's basis bid, and automatically place an electronic order for
a listed commodity to hedge the purchase ("hedge commodity"). The
methods and systems of the invention further enable the sellers to:
(1) place on offer to sell to a buyer or place the same offer to
sell to multiple buyers; (2) view buyer information and select the
particular buyers with which to transmit sell data, e.g., based on
buyer's requested delivery point; (3) continually monitor the
buyers' basis bids, for example, from a Web site; (3) be notified
when the sell data conforms to the buy data of a buyer. In one
embodiment, sellers will manipulate their sell data to conform to
the buyer's bid data, thus, the cheapest buyer will typically
prevail and win the seller's offer. A buyer can specify multiple
delivery options; his basis will typically reflect, among other
variables, his costs corresponding to the particular point of
delivery.
4. BRIEF DESCRIPTION OF THE FIGURES
[0011] These and other features, aspects, and advantages of the
invention are better understood with regard to the following
description, appended claims, and accompanying drawings where:
[0012] FIG. 1 is a flow chart of a preferred embodiment of the
invention for purchase of a commodity with a concomitant hedge
transaction;
[0013] FIG. 2a illustrates a preferred network for use in the
invention;
[0014] FIG. 2b illustrates a typical server for use in the
invention;
[0015] FIG. 3 is an outline of the preferred system architecture
and operation of the methods and systems of the invention;
[0016] FIG. 4 is an illustration of a central station of the
invention; and
[0017] FIG. 5 is a diagram summarizing the software of the
invention.
5. DETAILED DESCRIPTION OF THE INVENTION
[0018] FIG. 1 is a flow chart of a preferred embodiment of the
invention. First, as indicated in Box 1, a buyer (or multiple
buyers) provides bid data on the invention's network platform for a
commodity desired to be purchased ("purchase commodity") using the
methods and systems of the invention. According to the invention,
the commodity the buyer whishes to purchase can be any item or
service (see definition section 5.2). It is not required for the
purchase commodity to be listed on an exchange. Each buyer
participating in the platform may desire to purchase the same or a
different commodity. Bid data typically includes the bid price,
quantity desired, and point of delivery and, optionally, other
relevant data. Of course, relevant data will vary depending on the
commodity. Examples of relevant data include, but are not limited
to, quantity sought, quality, delivery date, and delivery place
etc.
[0019] Typically, a buyer selects the listed commodity with which
he will hedge his purchase (i.e., the hedge commodity) to calculate
the bid price. The methods and systems of the invention can receive
and process real-time exchange rate quotes for listed commodities.
Using these real-time quotes, the methods and systems of the
invention can automatically and continually calculates and update
the bid price based on the hedge commodity's real time quote. For
example, the invention can automatically and continually calculate
and update the buyers' bid prices by subtracting the buyer's basis
from the real-time exchange-rate quote for the hedge commodity.
Alternatively, the buyers can calculate a bid separately from the
software and enter it manually.
[0020] As illustrated in Box 2, the buyers enter information
respecting a hedge transaction. Typically this includes the hedge
commodity to be purchased or sold, the amount, the introducing
broker or futures clearing merchant from which it can be purchased,
and ID or account numbers required by the introducing broker or
futures clearing merchant. Typically, the hedge transaction will be
executed at the time that a seller agrees to sell a commodity on
the terms specified by the buyers.
[0021] Next, as indicated in Box 3, one or more sellers will review
the bid data and submit sell data for the purchase commodity to the
network platform. Sell data includes sell price and other relevant
data, herein termed "sell data parcels". As with the bid data,
relevant sell data will vary depending on the commodity, for
example, quantity for sale, quality, and proposed delivery date and
place etc.
[0022] Next, as indicated in Box 4, the methods and systems of the
invention monitor the bid and sell data to identify conformance
between the bid data and a particular seller's sell data. Depending
on the commodity, conformance might require only a match in sell
and buy price or may require the seller's commodity to conform with
other specifications, such as quality, age, color, or type etc.
[0023] Preferably, as indicated in Box 5, when a conformance
occurs, the program automatically alerts the conforming buyer and
conforming seller (preferably by e-mail) and automatically
discontinues that buyer's bid.
[0024] As indicated in Box 6, the methods and systems of the
invention automatically transmit the hedge transaction programmed
by conforming buyer to an introducing broker or futures clearing
merchant. For example, a futures clearing merchant, such as
Advanced Trading, will electronically send a futures order to a
trade executor, such as EDFMAN, which has trading terminals or the
floor of the Chicago Board of Trade.
[0025] Preferably, the methods and systems of the invention are Web
based and located on a Web server. In a preferred embodiment, the
Web site will further comprise information relevant to the
commodities purchased and sold. For example, a Web site of the
invention directed to agricultural commodities might display
relevant current news, weather, and market information as well as a
"Local Trends" section that allows the buyer to provide their own
daily commentary of local information.
[0026] A preferred network for use in the invention is illustrated
in FIG. 2a. A plurality of personal computers 20, are connected to
an Internet service provider (ISP) 25 via a network connections 30,
such as a model and dialup telephone line, a digital subscriber
line ("DSL"), or a cable modem connection. Internet service
provider 25 interfaces with network 35, which comprises a plurality
of Web content servers 40, including servers for control of
domain-name resolution, routing, and other control functions.
[0027] The personal computers typically are configured with common
Internet tools, including a Web browser to access servers 40 and
specialized programs to connect with certain services. These
services include electronic mail, one-to-many messaging (bulletin
board), on-line chat, file transfer, and browsing. Browsing is
effected using the Hypertext Transfer Protocol (HTTP), which
provides users access to multimedia files using Hypertext Markup
Language (HTML). The entire system of personal computers, internet
service providers, and servers is called the Internet. The
collection of servers 40 that use HTTP comprise the World Wide Web,
which is the Internet's multimedia information delivery system.
[0028] FIG. 2b provides the details of a typical server 40 for use
in the invention. Server engine 45 receives HTTP requests to access
the Web pages 50 identified by Uniform Resource Locator ("URL") and
provides the Web pages as an interface to the requesting personal
computer 20. The databases 55 contain various tables storing
information such as buyer and seller information.
5.1 System Architecture and Operation
[0029] Referring to FIG. 3, a preferred embodiment of the invention
comprises central station 100, buyer interface 200 (e.g., a Web
page), buyer interface provider 250 (e.g., a computer used to
access and display a buyer interface Web page), one or more seller
interfaces 300, and their corresponding seller interface providers
350. In operation, a buyer enters hedge transaction data and bid
data, including a bid price through interface 200 for transmittal
to central station 100. The buyer can continually update the bid
price and other bid data as appropriate. Alternatively, since the
software of the invention can receive real-time exchange-rate
quotes for listed commodities; the buyer can rely on software of
the invention to automatically and continually calculate a bid
price based on the real-time quote. For example, the software of
the invention can automatically and continually calculate a bid
price by subtracting the buyer's basis from a real-time
exchange-rate quote for a particular commodity. Typically, the
buyer selects the commodity with which he will hedge his purchase
(i.e., the hedge commodity) to calculate the bid price.
[0030] Sellers review the bid data through seller interfaces 300
and transmit sell data, including a sell price to central station
100. The software of the invention monitors the bid and sell data
and identifies when the sell data conforms to the bid data (e.g., a
match of sell price with buy price). When conformance occurs, the
software of the invention automatically alerts the buyer and seller
(preferably by e-mail), automatically discontinues the bid, and
automatically transmits the hedge transaction to introducing broker
or futures clearing merchant 400 respecting a listed commodity
(selected by the buyer) by way of trading interface 450 to hedge
the buyer's purchase. Each of buyer interface 200, seller interface
300, and trading interface 400 communicate with central station 100
via network connections 500.
[0031] Any conventional personal computer, computer workstation, or
server with sufficient memory and processing capability may be used
as central station 100. In one embodiment, central station 100 is a
buyer's personal computer. In another embodiment, central station
100 is an application service provider or a Web server providing a
Web page. As is understood by those of skill in the art, an
application service provider is an entity that offers individuals
and enterprises access to applications and related services through
the Internet (or other network) that would otherwise have to be
located in local computers and/or devices.
[0032] As shown in FIG. 4, central station 100 comprises central
processor unit ("CPU") 110, data-storage device 120, software of
the invention 140, random access memory ("RAM") 145, and operating
system 165.
[0033] Examples of processors suitable for use in the invention
include, but are not limited to, those sold by Sun Microsystems,
Motorola, and Intel.
[0034] The RAM should preferably be of the error-correcting code
(ECC) memory type and should be from 512 MB to 1 GB in total
capacity.
[0035] The operating system should be robust and provide for
security of the data in storage. Exemplary operating system include
LINUX.RTM., UNIX, Windows 2000.RTM., or Windows NT.RTM..
[0036] Data-storage device 120 stores information necessary to
process transactions. The data-storage device should provide for
re-writable data and should provide redundancy via mirroring or
error correction (RAID), and it should have a fast interface to the
operating system so that data can be made readily available to the
network. Suitable data-storage devices include hard disks.
Data-storage device 120 comprises: (1) buyer table 122; (2) seller
table 124; (3) bid and sell price table 126; and (4) commodities
table 128.
[0037] Buyer table 122 stores buyer information, such as name,
buyer identification number, contact information, email address,
etc.
[0038] Seller table 124 stores seller information, such as a unique
seller identification number, contact information, email address,
payment preferences, credit, delivery record, type of business, and
commodities sold, etc. The seller table contains a mapping from
each seller identification number to the seller interface that is
provided by a collection of dynamic web pages.
[0039] Bid and sell-price table 126 stores bid prices and sell
prices corresponding to the commodity bid on and the buyer's and
seller's identity as well as other information about the pending
transaction (e.g., quantity sought, quality, delivery date, and
other relevant information).
[0040] Commodities table 128 stores a list of commodities that can
be traded on the platform as well as information about each
commodity. Relevant information will vary depending on the
commodity. For example, a grain elevator bidding for grain might
maintain a list of past bids, grain futures prices, basis
information, supply issues, etc.
[0041] In a preferred embodiment, database software, such as SQL
Server, manufactured by the Microsoft Corporation, is used to
create and manage the database and tables. Other relational
database products (e.g., those manufactured by Oracle Corp.) can be
used for data storage management.
[0042] Referring to FIG. 3, buyer and seller interfaces 200 and 300
display or transmit, a user friendly set of pictures, text, or
voice statements that provide instructions and protocols indicating
how a user is to communicate with and use the platform of the
invention and direct the computer software of the invention located
on the user's computer 250 or 350 or on central station 100. For
example, the interfaces will prompt for and accept passwords,
provide prompts for data entry, and display information stored in
the data tables, etc. Interface 200 and 300 are accessed and
displayed by an interface providers 250 and 350, preferably,
personal computers having an input device, such as a keyboard,
mouse, or conventional voice-recognition software package; a
display device, such as a video monitor; and a network connection
such as a modem.
[0043] 5.1.1 Software of the Invention
[0044] FIG. 5 is a diagram summarizing the software of the
invention, which comprises:
[0045] (1) a program to receive real-time commodity exchange-rate
quotes from an exchange, and introducing broker, or futures
clearing merchant;
[0046] (2) a program to automatically calculate a buyer's bid based
on the exchange-rate quote for a commodity;
[0047] (2) a database for receiving dynamic data;
[0048] (3) a program for displaying, entering, and transmitting bid
and sell price data to the buyer and seller interfaces;
[0049] (4) a program to identify when sell data conforms to bid
data, withdraw buyer bid, and alert the buyer and seller of the
match; and
[0050] (5) a program to automatically transmits a hedge transaction
to an introducing broker or futures clearing merchant.
[0051] The software of the invention comprises a program to receive
and process real-time exchange rate quotes for listed commodities
(505). This functions in conjunction with a program that can
automatically and continually calculate and update the bid price
based on the real time quote (510).
[0052] Software of the invention comprises dynamic database (515)
for receiving dynamic data, such as the real-time exchange-rate
quotes.
[0053] The software of the invention further comprises a program
(520) for displaying, entering, and transmitting bid and sell-price
data from and to the buyer and seller interfaces. Thus, sellers can
review the bid through the seller interface and transmit sell
prices to the central station for matching with the bid price.
[0054] The software of the invention further comprises a program
(525) to monitor the bid and sell prices, to identify conformance
between a bid data and a particular seller's sell data, and to
identify the corresponding seller. When a conformance occurs, the
program automatically alerts the buyer and seller (preferably by
e-mail) and automatically discontinues the buyer's bid. Depending
on the commodity, conformance might require only a match in sell
and buy price or may require the seller's commodity to conform with
other specifications, such as quality, age, color, or type etc.
[0055] The software further comprises a program (530) to
automatically transmit a hedge transaction to introducing broker or
futures clearing merchant 400 respecting the hedge commodity
(selected by the buyer).
[0056] There are many commercial software applications that can
enable the communications required by seller interface 200, buyer
interface 300, and commodity trading interface 400. Eudora Pro
manufactured by Qualcomm Inc., for example, provides editing tools
for the creation of messages as well as the communications tools to
send the message to the appropriate electronic address. When
central station 100 is configured as a Web server, conventional
communications software such as Internet Information Server, for
delivering web pages, and Internet Explorer, for viewing web pages,
by Microsoft Corp. can be used.
[0057] Preferably, the software of the invention is Web based and
located on a Web server. Software of the invention is readily
designed by one of skill in the art or available commercially.
[0058] 5.1.2 Calculation of the Bid Price by the Buyer
[0059] A buyer calculates a bid price based on many different
factors and variables including the nature of the commodity sought
and the listed hedge commodity, their current exchange rate, market
trends, etc. For example, a buyer may calculate his bid price by
subtracting a basis from the current exchange rate of a particular
listed hedge commodity.
[0060] Typically, a grain elevator will calculate a bid price for a
desired quantity of grain by subtracting a basis. The basis is the
arithmetical difference between the local cash price for the grain
and its corresponding futures price listed by the Chicago Board of
Trade at a point in time. This allows the elevator to effectively
hedge his purchase of grain. Although cash and futures prices do
not always parallel one another, often a cash-price shift results
in a similar futures shift, particularly if some unexpected event
causes a violent price change. The basis may, among other things,
reflect the elevator's expenses and allow for a profit. Basis
considerations for an elevator purchasing grain might include local
supply issues, such as the predicted quality of the coming year's
crop and local demand issues, as well as national and world grain
indicators. For discussions, see TEWELES ET AL., THE FUTURES GAME;
WHO WINS WHO LOSES AND WHY 33 (1987); HENRY B. AUTHUR, COMMODITY
FUTURES AS A BUSINESS MANAGEMENT TOOL 64-69 (1971), both of which
are hereby incorporated herein by reference.
[0061] 5.1.3 The Seller's Interface and Posting the Sell Data
[0062] Initially, the seller must establish an account with the
buyer. Typically this requires the seller to provide name, address,
contact information, credit information, etc. The seller will
calculate his sell price bases on a number of different factors
specific for the commodity he wishes to sell. Cost of delivering
the commodity to the buyer upon sale "freight" costs is typically
included, particularly in selling agricultural products, such as
grain. Thus, a farmer will first calculate a "net" sell price and
add a different freight cost depending on the buyer's location.
[0063] The seller logs onto central station 100 through the seller
interface 300, establishing a communication link by entering a
password or seller ID. The seller may be an individual, a
corporation, a partnership, a government, or any other entity. In
one embodiment, central station 100 has a page on the World Wide
Web, allowing the seller to provide information through the
interface of conventional Web browser.
[0064] The software of the invention allows the seller to access,
through seller interface 300, the buyer's platform at central
station 100 and to view the buyer's bid price and specifications
for the desired commodity. More or less information will be
available to the seller depending on the commodity's nature and the
buyer's platform policy.
[0065] The seller can then enter a firm sell price as well as other
required information according to the platform policy. The offer
will remain open for a period of time depending on the platform
policy.
[0066] The seller logs onto the platform (typically hosted and
operated by the buyer) and enters information required by the
platform policy, such as seller information, quantity, delivery
date, sell price, etc. As discussed above, a multitude of sellers
can be logged on a buyer's platform and bid against one
another.
[0067] Authentication of the seller's identity involves central
station 100 extracting the seller ID from seller response and
looking up the seller's identity in seller table 124. Information
in seller table 124 provides an indication of the seller's ability
to deliver the goods. If necessary, central station 100 can verify
that the seller can provide the specific commodity. In another
embodiment, the seller adds in his response to the buyer's bid that
a contract is agreed to, for example, a digital signature.
[0068] Central station 100 then verifies the status of the bid to
determine whether it is still active. In one embodiment, if the bid
is still active a unique tracking number can added to seller
response. Central station 100 then stores the seller's response. If
the bid is not active, the seller response is refused by central
station 100 and transmitted back to the potential seller.
[0069] In another embodiment, the seller transmits the seller
response directly to the buyer. The buyer may then send the seller
a response through central station 100 for verification and
authentication, or he may choose to accept seller response without
verification and authentication.
[0070] The software and platform of the invention monitors the sell
price data and bid price data to detect conformation therebetween.
Conformance can occur if, for example, the bid price matches the
sell price: (1) seller lowers the sell price to equal the bid
price, or (2) the buyer raises the bid until it equals the sell
price. The seller can monitor the buyer's bid prices, perhaps
adjust his sell price, or simply turn off his computer and wait for
the buyer's bid to match the sell price.
[0071] An example of what information a seller's interface (here
seller A) might display according to the invention is shown in
Tables 1.1-1.3 below. Values are included in Table 1 for exemplary
purposes. In this example, the seller entered the platform of the
invention, for example, by way of a Web page interface, viewed buy
data for a plurality of buyers, and chose to offer to sell to
buyer's 001, 002, and 003 at a specific price based on the
commodity they offered to buy, their location (e.g., to account for
delivery costs), their buy price, and other information.
1TABLE 1.1 Seller's Interface For Buyer 001 buyer: 001 quantity
requested: 100 units delivery date: immediately delivery location:
buyer 001's address Time quantity for sale sell price buyer's bid
difference 1 100 units $10.00/unit $9.95/unit $0.05 2 100 units
$10.00/unit $9.98/unit $0.02 3 100 units $10.00/unit $10.00/unit
$0.0 (sold)
[0072]
2TABLE 1.2 Seller's Interface For Buyer 002 buyer: 002 quantity
requested: 100 units delivery date: immediately delivery location:
buyer 002's address Time quantity for sale sell price buyer's bid
difference 1 100 units $10.10/unit $9.96/unit $0.14 2 100 units
$10.10/unit $9.97/unit $0.13 3 100 units $10.10/unit $8.80/unit
$0.30
[0073]
3TABLE 1.3 Seller's Interface For Buyer 003 buyer: 003 quantity
requested: 100 units delivery date: immediately delivery location:
buyer 003's address Time quantity for sale sell price buyer's bid
difference 1 100 units $10.20/unit $9.90/unit $0.30 2 100 units
$10.20/unit $9.91/unit $0.29 3 100 units $10.20/unit $9.92/unit
$0.28
[0074] Tables 1.1-1.3 illustrates the general case where a seller A
entered a sell price and waited for one of a plurality of
buyer's--seeking to purchase seller A's commodity--bid to match the
sell price. This occurred at time point 3. At this time, the
software would automatically withdraw buyer 001's bid from the
platform; notify the conforming buyer and seller of the match,
preferably by e-mail; and execute the buyer's hedge transaction. At
time point 3, the match could have occurred by either the software
and platform of the invention automatically updating the buyer's
bid price (e.g., by calculating a new bid price bases on the
current exchange rate of a listed commodity) or the buyer manually
entered a new, higher bid price that matched seller 001's sell
price
[0075] 5.1.4 The Buyer Interface and Posting the Bid Data
[0076] The software of the invention allows the buyer to access,
through buyer interface 200, the platform at central station 100
where he can: (1) Post a bid data, such as post a bid price for a
particular amount of a particular commodity of particular type or
quality and instruct the software whether the bid is to be
continually updated according to the exchange rate for a particular
listed commodity. The buyer can specify the particular quality
desired, for example, agricultural products might have to meet
certain quality specifications; (2) Program a specific hedge
transaction for a particular hedge commodity that the software will
automatically execute upon sale consummation; and (3) view
information respecting a plurality of sellers, including the sell
prices.
[0077] Table 3 below is a general example of information that might
be displayed on the buyer's interface 200 for a bid to purchase a
commodity. The buyer receives a plurality of sell prices for the
desired commodity. In this case, three sellers (ID Nos. 001, 002,
and 003) have posted offers to sell and sell prices on the buyer's
platform.
4TABLE 2 Buyer's Experience buyer: 001 quantity requested: 100
units delivery date: immediately delivery location: buyer 001's
address Time quantity for sale sell price buyer's bid difference
Seller ID No. 001 1 100 units $10.00/unit $9.95/unit $0.05 2 100
units $10.00/unit $9.98/unit $0.02 3 100 units $10.00/unit
$9.50/unit $0.50 Seller ID No. 002 1 100 units $10.50/unit
$9.95/unit $0.55 2 100 units $10.50/unit $9.98/unit $0.52 3 100
units $10.50/unit $9.50/unit $1.00 Seller ID No. 003 1 100 units
$10.00/unit $9.95/unit $0.05 2 100 units $10.00/unit $9.98/unit
$0.02 3 100 units $9.50/unit $9.50/unit $0.0 (sold)
[0078] In the above example, seller 003 sold 100 units of a
commodity to the buyer 001 for $9.50 per unit. The sale was
consummated upon the seller's lowering his sell price to match the
buyer's bid price. Simultaneously, the buyer's bid was withdrawn
from the platform and the hedge transaction programmed by the buyer
was automatically executed.
[0079] 5.1.5 Placing the Hedge Transaction
[0080] As discussed above, in a preferred embodiment, the software
of the invention automatically executes a hedge transaction for the
buyer when the sell-price and buy-price data match. The software of
the invention prompts the buyer through buyer interface 200 to
enter the hedge transaction data, such as the hedge commodity, the
amount, and manner in which the transaction is to be executed.
Referring to FIG. 3, when the buy data and sell data conform, the
software of the invention automatically transmits the hedge order
to central station 100 where it is processed as appropriate, for
example, electronically directed to introducing broker or futures
clearing merchant 400.
[0081] The execution can be any means effective to notify an
introducing broker or futures clearing merchant to place the order
to buy or sell the hedge commodity. For example, the software of
the invention can be configured to transmit an electronic mail or
voice mail order to an introducing broker or futures clearing
merchant. The broker can read the e-mail or listen to the voice
mail and then execute the transaction. Preferably, the software of
the invention is configured to directly buy or sell the hedge
commodity through a commodities-trading interface (FIG. 3 450).
Many exchanges, introducing broker or futures clearing merchants
operate trading platforms that instantaneously mediate binding,
direct purchase or sale of listed commodities through electronic
trading software.
[0082] For example, the Chicago Board of Trade's Electronic Open
Outcry Market enables futures clearing merchant member firms to
electronically manage customer business from both off-floor and
on-floor locations. The crucial component is that an electronic
customer order ticket (e-ticket) is created during the order
initiation phase and new information is added to that original
order during the trade execution and trade processing phases.
[0083] During the order initiation phase, the order is
electronically created by software of the invention through an
Internet order entry system. In the trade execution phase, the
broker receives the electronic order ticket. The broker executes
the order and adds the execution price and opposing firm/broker
information to the ticket. The broker also adds trade endorsement
data to a flashed-order ticket. Then the tickets are electronically
returned to the futures clearing merchant member firm.
[0084] In the trade confirmation/processing phase, the futures
clearing merchant order entry staff (and Internet customer) receive
the electronic trade confirmation. The futures clearing merchant
back office also receives that same electronic trade ticket. There,
additional account information is automatically downloaded onto the
order ticket and the ticket is sent on to clearing for trade
matching on a real-time basis.
5.2 Definitions
[0085] As used herein, the term "network" means any system of two
or more interconnected computers. Examples of networks include, but
are not limited to, the Internet and other Wide Area Networks
(WANs), and Local Area Networks (LANs).
[0086] As used herein, the phrase "network connection" means any
channel by which a person, party, or business entity can interface
or communicate with a network. Examples of network connections
include, but are not limited to, telephone lines by way of internal
or external modems, digital subscriber lines ("DSL"), voice mail
and voice pages; dedicated data lines; cellular phone
communication; communication by way of satellite; and cable
television lines.
[0087] As used herein, the term "platform" means a system of
software and hardware located on a network that performs a
function, such as providing services or information and which is
accessible through a network interface.
[0088] As used herein, the phrase "platform policy" means a set of
rules and protocols governing access to and use of services offered
on a platform. Platform policies will govern access to and use of
services offered through a Web page, voice page, or other network
interface. Examples of platform rules include entry of passwords
and account information, payment of fees, prohibited use of profane
language, methods of payment, and dates when payments are due.
[0089] As used herein, the term "interface" means a displayed or
transmitted, user friendly set of pictures, text, or voice
statements that provide instructions and protocols indicating how a
user is to communicate and interact with a platform. For example,
an interface allows a user to direct computer software located on
the user's computer or within a network. Examples of interfaces
include, but are not limited to, Web pages, e-mail transmittals,
voice pages, voice mail instructions, and facsimile transmissions
(fax). An interface is displayed or provided by an "interface
provider", for example, a personal computer displaying a Web page
interface.
[0090] As used herein, the term "automatically" means execution by
computer software upon occurrence of an event or satisfaction of a
condition without instruction from or intervention of a user.
[0091] As used herein, the term "buyer" means any person, party, or
business entity that desires to purchase a commodity.
[0092] As used herein, the term "seller" means any person, party,
or business entity that desires to sell a commodity.
[0093] As used herein, the term "commodity" means any good or
service that can be purchased.
[0094] As used herein, the phrase "listed commodity" means any
commodity that is listed on an exchange. Exchanges include, but are
not limited to United States exchanges, for example, American Stock
Exchange, Chicago Board of Exchange, Chicago Board of Trade,
Chicago Mercantile Exchange, Coffee, Sugar & Cocoa Exchange,
Currenex (currency exchange), Futurecom: Electronic Trading
Exchange, International Securities Exchange (options), NASDAQ Stock
Market, New York Board of Trade, New York Cotton Exchange, New York
Mercantile Exchange, New York Stock Exchange, OTC Bulletin Board,
Arizona Stock Exchange, Boston Stock Exchange, Chicago Stock
Exchange, Cincinnati Stock Exchange, Iowa Electronic Markets,
Kansas City Board of Trade, Mid America Commodity Exchange,
Minneapolis Grain Exchange, Pacific Exchange, Philadelphia Stock
Exchange, San Diego Stock Exchange, Archipelago (ARCA), Attain
(ATTN), Bloomberg Tradebook (BTRD), GlobeNet, Island (ISLD),
Instinet (INCA), MarketXT, NexTrade (NTRD), onExchange, Primex,
REDIbook (REDI), and Strike (STRK); Canada exchanges, such as
Canadian Venture Exchange (merger of the Alberta and Vancouver
exchanges), Montreal Exchange (Bourse de Montral), Nasdaq-Canada,
Toronto Stock Exchange, Winnipeg Commodity Exchange, and Winnipeg
Stock Exchange; European exchanges, for example, EASDAQ (see NASDAQ
Europe), Eurex: The European Derivatives Market, Euronext (merger
of the Amsterdam, Brussels, and Paris exchanges), International
Petroleum Exchange, Jiway.com, NASDAQ Europe; Austrian Exchanges,
for example, NEWEX, and Wiener Borse (Vienna Stock Exchange and
Austrian Futures & Options Exchange); French exchanges, for
example, Bourse de Paris (see Euronext), Marche a Terme
International de France (MATIF), Marche des Options Negociables de
Paris (MONEP), and Nouveau March; German exchanges, for example,
Baden-Wurttembergische Wertpapierborse zu Stuttgart, Bayerische
Borse (Munich), Berliner Wertpapierborse (Berlin Stock Exchange),
Bremer Baumwollborse (Bremen Cotton Exchange), Deutsche Borse,
Hamburger Borse, Neuer Markt, Rheinisch-Westflische Borse zu
Dusseldorf, SMAX (small caps), Warenterminborse Hannover (Commodity
Exchange Hannover), and Xetra: an ECN; Russian exchanges, for
example, Inter-Republican Universal Commodity Exchange (Offline 2
May 2001), Moscow Interbank Currency Exchange, Moscow Central Stock
Exchange, Moscow Stock Exchange, Nijny Novgorod Stock and Currency
Exchange, Russian Exchange, Russian Trading System, St. Petersburg
Futures Exchange, St. Petersburg Monetary Exchange, St. Petersburg
Stock Exchange, Siberian Interbank Currency Exchange, Siberian
Stock Exchange (Under construction), Ural Stock Exchange, and FCSM
of Russia Information Disclosure Program (Russian EDGAR); The
Switzerland Swiss Exchange; English exchanges, for example, Baltic
Exchange, E-Crossnet: an ECN, London Clearing House: an ECN, London
International Financial Futures and Options Exchange, London Metal
Exchange, London Securities and Derivatives Exchange, London Stock
Exchange, and virt-x (formerly Tradepoint Stock Exchange);
Australian exchanges, for example, Australia Australian Stock
Exchange, Bendigo Stock Exchange, Stock Exchange of Newcastle,
Sydney Futures Exchange; Chinese exchanges, such as,
China-Commodity Futures Exchange of Hainan (Offline January 2002),
Dalian Commodity Exchange, Shanghai Futures Exchange, Shanghai
Metal Exchange, Shanghai Stock Exchange, Shenzhen Metal Exchange,
Shenzhen Stock Exchange, Tianjin United Futures Exchange, and
Zhengzhou Commodity Exchange, Chinese Gold & Silver Exchange
Society, Growth Enterprise Market, and Hong Kong Exchanges (Hong
Kong Futures Exchange, Stock Exchange of Hong Kong); Japanese
exchanges, such as, Central Japan Commodity Exchange (Chubu
Commodity Exchange, Nagoya Textile Exchange)), Hiroshima Stock
Exchange, Fukuoka Futures Exchange, JASDAQ, Kanmon Commodity
Exchange (Offline January 2002), Kansai Commodities Exchange (Osaka
Grain Exchange, Osaka Sugar Exchange, Kobe Grain Commodities
Exchange, and Kobe Raw Silk Exchange), NASDAQ-Japan, Nagoya Stock
Exchange, Osaka Mercantile Exchange (Osaka Textile Exchange, Kobe
Rubber Exchange), Osaka Securities Exchange, Tokyo Commodity
Exchange, Tokyo Grain Exchange, Tokyo International Financial
Futures Exchange, Tokyo Stock Exchange, and Yokohama Commodity
Exchange.
[0095] Examples of listed commodities include, but are not limited
to, stocks; bonds; futures, such as grain futures, including corn,
wheat, barley, and milo; treasury notes; treasury bills; currency;
precious metals; derivatives.
[0096] As used herein, the phrase "exchange rate" means the price
listed by an exchange for a listed commodity at a particular
time.
[0097] As used herein, the term "bid data" means the bid price a
buyer is offering to purchase a commodity and, optionally, other
relevant information, such as quantity sought, quality, delivery
date, and delivery place etc.
[0098] As used herein, the term "sell data" means the sell price a
seller is offering to sell a commodity and, optionally, other
relevant information, such as quantity for sale, quality, proposed
delivery date and place etc. A "sell data parcel" is the sell data
associated with a particular seller.
[0099] As used herein, the term "purchase commodity" means any
commodity that a buyer wishes to buy.
[0100] As used herein, the term "hedge commodity" means a listed
commodity (listed on an exchange) having a current exchange rate
with which a buyer wishes to hedge the buy of the purchase
commodity.
6. EXAMPLES
6.1 Example 1
[0101] Tables 3.1 to 3.4 illustrate an example where a seller
(farmer) seeks to sell 10,000 bushels of grain to various buyers
(grain elevators). The tables show information that might be
displayed on the farmer's interface 300 according to the invention.
The farmer calculates a net sell price based on the costs of
growing and harvesting the crop and accounting for desired profits
(in this example $1.81/bushel). The farmer logs onto the platform
(e.g., Web page) and views data for a number of buyers including
bid price, quantity, and other information. The farmer then selects
four buyers (Nos. 001-004) at four different locations (in this
case grain elevators) for which to place bid data and posts his net
sell price of $1.81/bushel and a freight cost corresponding to the
particular buyer's location. As indicated by the Tables 2.1-2.4,
the platform automatically calculates the farmers sell price by
subtracting the freight price from the net price. The platform also
continually calculates and updates the buyer's bid by subtracting a
basis from the current value of December grain futures price as
listed by the Chicago Board of Trade. Accordingly, the bid price
may be raised: (a) by reducing the basis; or (b) the futures market
for the commodity increases to a level such that the bid price
matches the selling price after subtracting the basis. The software
of the invention updates the seller's interface continually.
5TABLE 3.1 Grain Seller's Interface At Time 1 Dec. quant. to Buyer
No. and net sell Futures buyer's buyer's sell (location) price
freight price Price basis bid diff. 10,000 001 (Decatur) $1.80 0.02
$1.82 $2.20 $-0.44 $1.76 $0.06 10,000 002 (Peoria) $1.80 0.03 $1.83
$2.20 $-0.45 $1.75 $0.08 10,000 003 (Faribault) $1.80 0.04 $1.84
$2.20 $-0.46 $1.74 $0.1 10,000 004 (Boise) $1.80 0.01 $1.81 $2.20
$-0.47 $1.73 $0.8 *prices and quantities are in bushels
[0102]
6TABLE 3.2 Grain Seller's Interface At Time 2 Dec. quant. to Buyer
No. and net sell Futures buyer's buyer's sell (location) price
freight price Price basis bid diff. 10,000 001 (Decatur) $1.80 0.02
$1.82 $2.22 $-0.44 $1.78 $0.04 10,000 002 (Peoria) $1.80 0.03 $1.83
$2.22 $-0.45 $1.77 $0.06 10,000 003 (Fan bault) $1.80 0.04 $1.84
$2.22 $-0.46 $1.76 $0.08 10,000 004 (Boise) $1.80 0.01 $1.81 $2.22
$-0.47 $1.75 $0.06
[0103]
7TABLE 3.3 Grain Seller's Interface At Time 3 Dec. quant. to Buyer
No. and net sell Futures buyer's buyer's sell (location) price
freight price Price basis bid diff. 10,000 001 (Decatur) $1.80 0.02
$1.82 $2.23 $-0.44 $1.79 $0.03 10,000 002 (Peoria) $1.80 0.03 $1.83
$2.23 $-0.45 $1.78 $0.05 10,000 003 (Faribault) $1.80 0.04 $1.84
$2.23 $-0.46 $1.77 $0.07 10,000 004 (Boise) $1.80 0.01 $1.81 $2.23
$-0.47 $1.74 $0.05
[0104]
8TABLE 3.4 Grain Seller's Interface At Time 4 Dec. quant. to Buyer
No. and net sell Futures buyer's buyer's sell (location) price
freight price Price basis bid diff. 10,000 001 (Decatur) $1.80 0.02
$1.82 $2.26 $-0.44 $1.82 $0.00 10,000 002 (Peoria) $1.80 0.03 $1.83
$2.26 $-0.45 $1.81 $0.02 10,000 003 (Faribault) $1.80 0.04 $1.84
$2.26 $-0.46 $1.80 $0.04 10,000 004 (Boise) $1.80 0.01 $1.81 $2.26
$-0.47 $1.79 $0.03
[0105] In this example, the grain seller waited for the futures
price to rise to a level such that when elevator 001 subtracted his
basis at time 4 , the bid price and the sell price matched. At time
4 , the bid data conformed to the sell data and both farmer and
elevator were notified by e-mail that the farmer was willing to
sell and the elevator was willing to buy 10,000 bushels of grain
for $1.82/bushel. Simultaneously, buyer 001's bid was automatically
withdrawn from the view of other sellers and the buyer 001's hedge
transaction was automatically executed.
6.2 Example 2
[0106] Tables 4.1-4.4 below illustrate a specific example of
information that might be displayed on grain elevator 001's
interface upon posting an offer to buy 10,000 bushels of grain on
the platform to be delivered in Decatur in October. The elevator
chose December grain futures to calculate his bid price. The
platform of the invention automatically and continually updates the
elevator's bid price by subtracting his basis from the current
futures price listed by the Chicago Board of Trade.
[0107] As a hedge transaction, the elevator instructed the platform
to sell a futures contract for 10,000 bushels of grain from a
current futures clearing merchant (for a transaction fee of course)
at the Chicago Board of Trade's futures price at the time a sale is
consummated with a seller. The buyer calculated the basis to
include the cost of the transaction fee, storage costs, elevation
costs, other operation costs, and his desired profit.
9TABLE 4.1 Grain Elevator 001's Interface At Time 1 Seller quantity
sell price Dec. Futures Price elevator's basis buyer's bid diff. A
10,000 $1.82 $2.20 $-0.44 $1.76 $0.06 B 10,000 $1.83 $2.20 $-0.44
$1.76 $0.07 C 10,000 $1.84 $2.20 $-0.44 $1.76 $0.08 D 10,000 $1.85
$2.20 $-0.44 $1.76 $0.09 *Prices and quantities are in bushels
[0108]
10TABLE 4.2 Grain Elevator 001's Interface At Time 2 Seller
quantity sell price Dec. Futures Price elevator's basis buyer's bid
diff. A 10,000 $1.82 $2.22 $-0.44 $1.78 $0.04 B 10,000 $1.83 $222
$-0.44 $1.78 $0.05 C 10,000 $1.84 $2.22 $-0.44 $1.78 $0.06 D 10,000
$1.85 $222 $-0.44 $1.78 $0.07
[0109]
11TABLE 4.3 Grain Elevator 001's Interface At Time 3 Seller
quantity sell price Dec. Futures Price elevator's basis buyer's bid
diff. A 10,000 $1.82 $2.23 $-0.44 $1.79 $0.03 B 10,000 $1.83 $2.23
$-0.44 $1.79 $0.04 C 10,000 $1.84 $2.23 $-0.44 $1.79 $0.05 D 10,000
$1.85 $2.23 $-0.44 $1.79 $0.06
[0110]
12TABLE 4.4 Grain Elevator 001's Interface At Time 4 Seller
quantity sell price Dec. Futures Price elevator's basis buyer's bid
diff. A 10,000 $1.82 $2.24 $-0.44 $1.82 $0.00 (sold) B 10,000 $1.83
$2.24 $-0.44 $1.82 $0.01 C 10,000 $1.84 $2.24 $-0.44 $1.82 $0.02 D
10,000 $1.85 $2.24 $-0.44 $1.82 $0.03
[0111] At time 4, the farmer A's sell data conformed to the
elevator 001's bid data. Farmer A and elevator 001 were both
notified of the conformance by e-mail that farmer A was willing to
sell 10,000 bushels of grain for $1.82/bushel to elevator 001 and
deliver the grain to elevator 001 in Decatur in October.
Simultaneously, the elevator 001's bid was automatically withdrawn
from the view of farmers C, D, and E. Also simultaneously, the
elevator 001's hedge was automatically executed to sell a futures
contract for 10,000 bushels of grain for $2.24/bushel
electronically through a current futures clearing merchant. The net
effect was that elevator 001 purchased 10,000 bushels of grain for
1.82/bushel from farmer "A" for a net cost of $18,200 and sold
10,000 bushels of grain at $2.25/bushel (i.e., the hedge futures
sell contract) for a gross of $22,500. The difference reflects the
basis of $-0.44 or $4,300, which accounts for the elevator's
profits and costs.
[0112] After purchase of the grain, the grain elevator will likely
sell the grain at the local cash price, realize the profit built
into his basis, and buy back his futures contract to sell 10,000
bushels of grain at the current futures price. Optimally, the
futures price should track the local cash price. Thus, if a sudden
fall in the local cash price for grain at the time the elevator
sought to sell the grain, he would be hedged by his futures
contract.
7. CONCLUSION
[0113] From the above description and examples, it is clear that in
one embodiment, the invention is directed to a method for
purchasing a commodity comprising:
[0114] (a) providing bid data for the commodity on a network
platform, the bid data provided by a buyer;
[0115] (b) providing one or more sell data parcels for the
commodity on the network platform, each sell data parcel
corresponding to a particular seller;
[0116] (c) providing hedge transaction information respecting a
listed hedge commodity, the hedge transaction provided by the
buyer;
[0117] (d) monitoring the bid data and the one or more sell data
parcels;
[0118] (e) automatically identifying a conforming sell data parcel,
which conforms to the bid data; and
[0119] (f) automatically executing the buyer's hedge
transaction.
[0120] In another embodiment, the invention relates to a system for
purchasing a commodity comprising:
[0121] (i) a memory storage device;
[0122] (ii) a processor connected to the storage device;
[0123] (iii) a program for controlling the processor; wherein the
memory storage device and the processor are operative with the
program to:
[0124] (a) provide bid data for the commodity on a network
platform, the bid data provided by a buyer;
[0125] (b) provide one or more sell data parcels for the commodity
on the network platform, each sell data parcel corresponding to a
particular seller;
[0126] (c) provide hedge transaction information respecting a
listed hedge commodity, the hedge transaction provided by the
buyer;
[0127] (d) monitor the bid data and the one or more sell data
parcels;
[0128] (e) automatically identify a conforming sell data parcel,
which conforms to the bid data; and
[0129] (f) automatically execute the buyer's hedge transaction.
[0130] In still another embodiment, the invention is directed to a
computer readable medium encoded with a computer program that
causes a system comprising a memory storage device and a processor
to perform the steps of:
[0131] (a) providing bid data for the commodity on a network
platform, the bid data provided by a buyer;
[0132] (b) providing one or more sell data parcels for the
commodity on the network platform, each sell data parcel
corresponding to a particular seller;
[0133] (c) providing hedge transaction information respecting a
listed hedge commodity, the hedge transaction provided by the
buyer;
[0134] (d) monitoring the bid data and the one or more sell data
parcels;
[0135] (e) automatically identifying a conforming sell data parcel,
which conforms to the bid data; and
[0136] (f) automatically executing the buyer's hedge
transaction.
[0137] Although the present invention has been described in
considerable detail with reference to certain preferred
embodiments, versions, and Examples other versions and embodiments
are possible. Therefore, the spirit and scope of the appended
claims should not be limited to the description of the versions and
embodiments expressly disclosed herein.
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