U.S. patent application number 12/209222 was filed with the patent office on 2009-03-19 for systems and methods for an online credit derivative trading system.
Invention is credited to Mazyar Dar, Sunil G. Hirani.
Application Number | 20090076943 12/209222 |
Document ID | / |
Family ID | 46321633 |
Filed Date | 2009-03-19 |
United States Patent
Application |
20090076943 |
Kind Code |
A1 |
Hirani; Sunil G. ; et
al. |
March 19, 2009 |
Systems and Methods for an Online Credit Derivative Trading
System
Abstract
A credit derivative trading system comprises a credit derivative
authority configured to receive defined positions for credit
derivatives and update a plurality of trade clients in real-time
whenever there is movement in the market for a particular credit
derivative.
Inventors: |
Hirani; Sunil G.; (Bedford,
NY) ; Dar; Mazyar; (New York, NY) |
Correspondence
Address: |
IP GROUP OF DLA PIPER US LLP
ONE LIBERTY PLACE, 1650 MARKET ST, SUITE 4900
PHILADELPHIA
PA
19103
US
|
Family ID: |
46321633 |
Appl. No.: |
12/209222 |
Filed: |
September 12, 2008 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
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10954629 |
Sep 29, 2004 |
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12209222 |
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10316167 |
Dec 9, 2002 |
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10954629 |
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Current U.S.
Class: |
705/37 |
Current CPC
Class: |
G06Q 40/04 20130101;
G06Q 40/06 20130101; G06Q 40/025 20130101; G06Q 40/00 20130101 |
Class at
Publication: |
705/37 |
International
Class: |
G06Q 40/00 20060101
G06Q040/00 |
Claims
1. A credit derivative authority, comprising: a database configured
to store credit derivative information for certain reference
entities; memory configured to store execution instructions; and a
processor coupled with the database and the memory, the processor
configured to execute the instructions, the instructions configured
to cause the processor to receive a position having a volume from a
trader client, receive an acceptance of the position from one of a
plurality of other trader clients, send an option to a trading
party to increase the volume associated with the position, wherein
the trading party is either the trader client or the other trader
client that accepted the position, receive a first increased volume
selection, offer the increase volume to a trading counterparty,
wherein the trading counterparty is either the trader client or the
other trader client that accepted the position, and when agreement
on the increased volume is made, finalize a transaction for the
increased volume.
2. The credit derivative authority of claim 1, wherein the
instructions are configured to cause the processor to repeat
sending an option to increase the volume to the trading party,
receiving an increased volume from the trading party, and offering
the increased volume to the trading counterparty until no increased
volume selection is received from the trading party.
3. The credit derivative authority of claim 1, wherein the
instructions are configured to cause the processor to repeat
sending an option to increase the volume to the trading party,
receiving an increased volume from the trading party, and offering
the increased volume to the trading counterparty until the trading
counterparty declines the offer to increase the volume.
4. The credit derivative authority of claim 1, wherein the trading
party can elect, in response to the option to increase the volume,
one of a plurality of fixed volumes or no increase.
5. The credit derivative authority of claim 1, wherein the trading
party can elect, in response to the option to increase the volume,
one of a plurality of fixed volume increases or no increase.
6. The credit derivative authority of claim 1, wherein the
instructions are further configured to cause the processor to wait
a predetermined period of time to receive an increased volume
selection from the trading party, and if the period of time expires
before receiving the increased volume selection, finalize a
transaction for the volume.
7. The credit derivative authority of claim 1, wherein the volume
associated with the position is a standard or default volume.
8. The credit derivative authority of claim 1, wherein the
instructions are further configured to cause the processor to
receive an acceptance of the increased volume from the counterparty
and to then finalize the transaction for the increased volume.
9. The credit derivative authority of claim 1, wherein the
instructions are further configured to cause the processor to
receive a rejection of the increased volume from the counterparty
and to then finalize the transaction for the Withdrawn volume.
10. A credit derivative authority, comprising: a database
configured to store credit derivative information for certain
reference entities; memory configured to store execution
instructions; and a processor coupled with the database and the
memory, the processor configured to execute the instructions, the
instructions configured to cause the processor to receive a
position having a volume from a trader client, receive an
acceptance of the position from one of a plurality of other trader
clients, send a first option to the trader client to increase the
volume, send a second option to the one of the plurality of other
trader clients to increase the volume, receive a first increased
volume selection having a first increased volume from the trader
client, receive a second increased volume selection having a second
increased volume from the one of the plurality of trader clients,
if the first increased volume and the second increased volume are
the same, finalize a transaction for the increased volume.
11. The credit derivative authority of claim 10, wherein the first
option comprises a plurality of fixed volumes and a no increase
selection.
12. The credit derivative authority of claim 10, wherein the first
option comprises a plurality of fixed volume increases and a no
increase selection.
13. The credit derivative authority of claim 10, wherein the second
option comprises a plurality of fixed volumes and a no increase
selection.
14. The credit derivative authority of claim 10, wherein the second
option comprises a plurality of fixed volume increases and a no
increase selection.
15. The credit derivative authority of claim 10, wherein the
instructions are further configured to cause the processor to wait
a predetermined period of time to receive a first increased volume
selection, and if the period of time expires before receiving a
first increased volume selection, finalize a transaction for the
volume.
16. The credit derivative authority of claim 10, wherein the
instructions are further configured to cause the processor to wait
a predetermined period of time to receive a second increased volume
selection, and if the period of time expires before receiving a
second increased volume selection, finalize a transaction for the
volume.
17. The credit derivative authority of claim 10, wherein the
instructions are further configured to cause the processor to
finalize a transaction for a volume which is the lesser of the
first increased volume and the second increased volume if the first
increased volume and second increased volume are unequal.
18. A method for online trading of credit derivatives, comprising:
receiving a position having a volume from a trader client;
receiving an acceptance of the position from one of a plurality of
other trader clients; sending a first option to a trading party,
wherein the trading party is either the trader client or the one of
the plurality or other trader clients; receiving a first increased
volume selection having a first increased volume; offering the
first increase volume to a trading counterparty, wherein the
trading counterparty is either the trader client or the one of the
plurality of other clients which was not sent the option; and when
agreement on the increased volume is made, finalizing a transaction
for the increased volume.
19. The method claim of 18, further comprising repeating the
sending a first option, the receiving a first increased volume, the
offering the first increased volume to a trading counterparty until
no increased volume selection is received from the trading party
and while agreement between the trading party and the trading
counterparty is maintained.
20. The method claim of 18, wherein the first option comprises a
plurality of fixed volumes and a no increase selection.
21. The method claim of 18, wherein the first option comprises a
plurality of fixed volume increases and a no increase
selection.
22. The method claim of 18, further comprising sending a second
option to the trading counterparty; receiving a second increased
volume selection having a second increased volume, and offering the
second increased volume to the trading party.
23. The method claim of 22, further comprising repeat the sending a
second option, the receiving a second increased volume, the
offering the second increased volume to a trading counterparty
until no increased volume selection is received from the trading
counterparty and while agreement between the trading party and the
trading counterparty is maintained.
24. The method claim of 22, wherein the second option comprises a
plurality of fixed volumes and a no increase selection.
25. The method claim of 22, wherein the second option comprises a
plurality of fixed volume increases and a no increase
selection.
26. A method for online trading of credit derivatives, comprising:
receiving a position having a volume from a trader client;
receiving an acceptance of the position from one of a plurality of
other trader clients; receiving an acceptance of the position from
one of a plurality of other trader clients, sending a first option
to the trader client to increase the volume, sending a second
option to the one of the plurality of other trader clients to
increase the volume, receiving a first increased volume selection
having a first increased volume from the trader client, receiving a
second increased volume selection having a second increased volume
from the one of the plurality of trader clients, if the first
increased volume and the second increased volume are the same,
finalizing a transaction for the increased volume.
27. The method of claim 26, wherein the first option comprises a
plurality of fixed volumes and a no increase selection.
28. The method of claim 26, wherein the first option comprises a
plurality of fixed volume increases and a no increase
selection.
29. The method of claim 26, wherein the second option comprises a
plurality of fixed volumes and a no increase selection.
30. The method of claim 26, wherein the second option comprises a
plurality of fixed volume increases and a no increase
selection.
31. The method of claim 26, further comprising waiting a
predetermined period of time to receive a first increased volume
selection, and if the period of time expires before receiving a
first increased volume selection, finalize a transaction for the
volume.
32. The method of claim 26, further comprising waiting a
predetermined period of time to receive a second increased volume
selection, and if the period of time expires before receiving a
second increased volume selection, finalize a transaction for the
volume.
33. The method of claim 26, further comprising finalizing a
transaction for a volume which is the lesser of the first increased
volume and the second increased volume if the first increased
volume and second increased volume are unequal.
34-45. (canceled)
Description
RELATED APPLICATIONS INFORMATION
[0001] This application claims priority under 35 U.S.C. .sctn.120
as a continuation-in-part to U.S. patent application Ser. No.
10/316,167, entitled, "SYSTEMS AND METHODS FOR AN ONLINE CREDIT
DERIVATIVE TRADING SYSTEM," filed Dec. 9, 2002, which is
incorporated herein by reference in its entirety.
BACKGROUND OF INVENTION
[0002] 1. Field of the Invention
[0003] The field of the invention relates generally to credit
derivatives and more particularly to the transacting in credit
derivatives in an online environment.
[0004] 2. Background
[0005] Currently, conventional credit derivative markets comprise a
user base of larger institutions. These large institutions use the
credit derivative markets for a variety of reasons. For example,
commercial banks, both domestic and foreign, can obtain significant
economic, regulatory, and capital relief from selling credit risk
in a credit derivative market. Commercial banks can also use the
credit derivative markets to add credit risk to their portfolios as
an alternative to the lending market. Insurers, which typically
posses excellent credit evaluation skills, primarily use the credit
derivative markets to take on credit risk for a premium. Investment
management companies and Hedge Funds, or other investors, use the
credit derivative markets to both take on and shed risk.
[0006] The dealer community represents some of the largest
financial intermediaries in the world. The dealers tend to be
large, multi-national institutions that make markets in credit
derivatives. The scale and scope of each dealer's credit derivative
business varies widely, with some dealers having extensive credit
derivative operations, and other being occasional market
participants. Thus, in conventional credit derivative markets,
information flow is concentrated in a few dealers. Generally, the
end users, such as those described above, transact through the
dealers and not directly with each other. Often, information is
scarce and incomplete as it relates to the buyers and dealers
participating in the market, as is information concerning price and
the risk associated with particular derivatives.
[0007] Dealers transact with other dealers via a broker market. A
broker is an intermediary that transacts business between dealers.
The brokers do not principal risk. Generally, information
dissemination from the brokers is very inefficient. Further, the
brokers business is limited to the dealers, because there is no
meaningful contact between the brokers and end users.
[0008] There are other drawbacks to conventional credit derivative
markets. One such draw back is that conventional credit derivative
markets tend to be regionalized, e.g., with individual markets
being localized by continent and/or time zones. For example, the
U.S. credit derivative market tends to trade strictly in U.S.
credit risk, while the European credit derivative market usually
trades in European credit risk. Due to the manual and labor
intensive nature of conventional credit derivative markets, it is
very difficult for dealers to break down the localized nature of
conventional credit derivative markets.
[0009] Another drawback is the high cost to transact in a
conventional credit derivative market. Each dealer in a
conventional credit derivative market tends to employ large
intermediary infrastructure to facilitate the transactions. The
size of the infrastructure leads to large transaction costs, which
will remain as long as conventional credit derivative markets
remain regionalized and controlled by just a few dealers. Further,
because information is concentrated in the hands of a few large
participants, conventional credit derivative markets are
inefficient and illiquid. The illiquidity persists because for many
of the largest participants, their only transactional outlet is
through the dealers. Traditionally, another drawback is operational
inefficiency that results from a lack of standardized
documentation. The operational inefficiency is made worse by the
fact that the documentation processes involved tend to be manual
processes, which is also in part due top the lack of
standardization.
[0010] Another drawback that will be mentioned here is the
inefficient, fragmented, and disjointed distribution mechanisms of
conventional credit derivative markets. When a market participant
wants to transact, they will call one of a few dealers to ask for a
price. Dealers usually will go through a broker at this point.
Alternatively, the dealer will often call a limited number of other
possible participants to determine if they are willing to transact.
If the dealer determines that they are likely to find a willing
participant at an acceptable spread, then the dealer will likely
try to consummate the transaction, e.g., using a broker.
Frequently, however, multiple dealers are calling the same
potential participants trying to determine a willingness to
transact. As a result, potential transactions are often selected
out of the market because participants have few outlets, the dealer
feels that the fee to consummate the transaction is too low, and/or
the dealer will not principal the risk because they fear they will
not be able to find a willing participant on the other side of the
transaction. Consequently, while a few participants benefit from
the economic inefficiencies of conventional credit derivative
markets, many do not.
[0011] Another difficulty in trading credit derivatives occurs when
a dealer or buyer desires to trade significant notional of credit
derivatives. A desire for a large transaction can influence the
market in a manner adverse to the trader.
SUMMARY OF THE INVENTION
[0012] A credit derivative trading system comprises a credit
derivative authority configured to receive defined positions for
credit derivatives and update a plurality of trade clients in
real-time whenever there is movement in the market for a particular
credit derivative.
[0013] In another aspect of the invention, the credit derivative
trading system comprises a standardized interface that allows trade
clients to view information on credit derivatives in a compact and
uniform format. The standardized interface also allows the trader
clients to interface with the credit derivative authority in quick
and efficient manner.
[0014] In another aspect of the invention, the credit derivative
trading system is configured to allow trade clients who have
already agreed on a trade to increase the notional amount of the
trade anonymously.
[0015] In another aspect of the invention, the credit derivative
trading system is configured to allow invited participants to trade
a credit derivative at a fixed price once that credit derivative
has been traded in a related transaction.
[0016] These and other features, aspects, and embodiments of the
invention are described below in the section entitled "Detailed
Description of the Preferred Embodiments."
BRIEF DESCRIPTION OF THE DRAWINGS
[0017] Features, aspects, and embodiments of the inventions are
described in conjunction with the attached drawings, in which:
[0018] FIG. 1 is a diagram illustrating an example credit
derivative trading system in accordance with one embodiment of the
invention;
[0019] FIG. 2 is a flow chart illustrating an example method for
transacting in a credit derivative in the system of FIG. 1 in
accordance with one embodiment of the invention;
[0020] FIG. 3 is a flow chart illustrating an example method of
receiving a responsive position within the system of FIG. 1 in
accordance with one embodiment of the invention;
[0021] FIG. 4A is a flow chart illustrating an example method of
receiving an indication of a willingness to transact within the
system of FIG. 1 in accordance with one embodiment of the
invention;
[0022] FIG. 4B is a flow chart illustrating an example method of
receiving an indication of a willingness to transact within the
system of FIG. 1 with an option to upsize an accepted transaction
in accordance with one embodiment of the invention;
[0023] FIG. 5A is a screen shot illustrating a display of credit
derivative information within on a terminal included in the system
of FIG. 1 in accordance with one embodiment of the invention;
[0024] FIG. 5B is a screen shot illustrating a display of credit
derivative information within on a terminal included in the system
of FIG. 1 in accordance with another embodiment of the
invention;
[0025] FIG. 6 is a screen shot illustrating the display of
historical credit derivative information on a terminal included in
the system of FIG. 1 in accordance with one embodiment of the
invention;
[0026] FIG. 7 is a logical block diagram illustrating an exemplary
computer system that can be included in the system of FIG. 1
[0027] FIG. 8 is a screen shot illustrating an example method of
displaying a request to upsize a trade;
[0028] FIG. 9 is a screenshot illustrating an example method for
displaying trade information that includes an option for volume
upsizing in accordance with one embodiment;
[0029] FIG. 10 is an example screen shot of a display that can be
used to implement volume upsizing;
[0030] FIG. 11 is a chart that illustrates an example of volume
upsizing.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
[0031] FIG. 1 is a diagram illustrating an example credit
derivative trading system 100 in accordance with one embodiment of
the systems and methods described herein. System 100 comprises a
credit derivative authority 102 interfaced with a database 104.
Database 104 can, as illustrated, actually comprise a plurality of
databases depending on the embodiment. Credit derivative authority
102 is interfaced with a plurality of trader clients via terminals
108 through network 106.
[0032] In one embodiment, network 106 is the Internet; however,
network 106 can be any type of wired or wireless Wide Area Network,
wired or wireless Local Area Network, or even a wired or wireless
Personal Area Network, or some combination thereof. Further, in
certain embodiments credit derivative authority 102 and/or
terminals 108 can be interfaced with network 106 via wired and/or
wireless communication links, while in another embodiment, credit
derivative authority 102 and/or terminals 108 are interfaced with
network 106 via wired communication links.
[0033] In one embodiment, terminals 108 are computer terminals,
such as desktop or laptop computers. In other embodiments,
terminals 108 are handheld devices, such as handheld computers or
personal digital assistants. It will be apparent, however, that
terminals 108 can be any type of terminal configured to include the
functionality required by the systems and methods described
herein.
[0034] The term "authority" used to identify credit derivative
authority 102 is intended to indicate that terminals 108
communicate with credit derivative authority 102 through the
computing systems, hardware and software, associated with credit
derivative authority 102. Thus, depending on the embodiment the
term authority can refer to one or more servers, such as Internet
or web servers, file servers, and/or database servers, one or more
routers, one or more databases, one or more software applications,
one or more Application Program Interfaces (APIs), or some
combination thereof. Further, the computing system associated with
credit derivative authority 102 can include one or more computers
or computer terminals. To that extent, some of the same components
that comprise the computer system associated with credit derivative
authority 102 can also comprise terminals 108. An exemplary
embodiment of a computer system that can comprise credit derivative
authority 102 is described in more detail with respect to FIG.
7.
[0035] System 100 includes a standardize interface that allows the
trader clients to define positions with credit derivative authority
102 for any of a plurality of credit derivatives regardless of the
region, industry, etc. Credit derivative authority 102 is
configured to then store the positions in database 104. Using the
standardized interface, credit derivative authority 102 displays
information related to the positions stored in database 104 to the
trader clients via terminals 108. The trader clients are then able
to define responsive positions, indicate a willingness to transact,
and/or complete a transaction using the standardized interface.
Thus, credit derivative authority 102 can replace the dealer-broker
paradigm of conventional credit derivative markets and provides the
trader clients with more outlets, greater liquidity, and more
efficiency, all of which can help to lower transactional costs.
[0036] The standardized interface can comprise software components
configured to run on credit derivative authority 102 as well as
client software components configured to run on terminals 108.
Thus, credit derivative authority 102 can work in conjunction with
the client software running on terminals 108 to format and display
information to the trader clients in a uniform manner and to
receive input from the trader clients through terminals 108 in a
manner that allows quick, easy, and efficient transactions. Certain
features and aspects of the standardized interface are discussed
more fully below.
[0037] FIG. 2 is a flow chart illustrating an example method of
transacting in credit derivatives using system 100 in accordance
with the systems and methods described herein. First, in step 202,
credit derivative authority 102 receives information related to a
reference entity's credit risk that is available for transaction.
In other words, when a trader client wants to move credit risk in a
certain reference entity, the trader client can access credit
derivative authority 102 and make the information available along
with an ask price.
[0038] In step 204, credit derivative authority saves the
information in database 104 and in step 206, credit derivative
authority 102 causes the information to be displayed to the rest of
the plurality of trader clients via their terminals 108. Because
the trader clients can access credit derivative authority 102 from
anywhere in the world, the credit derivatives made available by
credit derivative authority 102 are not limited by region or
industry. Thus, the previously fragmented nature of credit
derivative markets can be addressed. Moreover, credit derivative
authority 102 is preferably configured to cause the information to
be displayed in a compact and uniform manner to all of the trader
clients regardless of the type of credit derivative. Moreover,
credit derivative authority is preferably configured to update
trader clients in real-time as new credit derivatives are defined
within system 100.
[0039] As an example of the compact and uniform display of
information, credit derivative authority 102 is configured in
certain embodiments, to display the following for each credit
derivative defined in system 100: a reference entity name,
scheduled termination of the credit derivative, a debt level, a bid
price, an ask price, a reference obligation, and a restructuring
level. In other embodiments, credit derivative authority can also
be configured to display the associated currency, a debt rating,
and a debt type for each of the positions defined in system 100.
Credit derivative authority 102 is configured, for example, to
display the information using the standardized interface described
above. Thus, credit derivative authority 102 retrieves the relevant
information from database 104 and transmits it to a client
application, or applications, running on terminals 108. The client
applications then display the information in accordance with the
systems and methods described herein.
[0040] FIG. 5A is a screen shot illustrating one example method of
displaying the information on terminals 108 using a compact and
uniform format. Thus, the display screen 500 includes a plurality
of columns 502-518. As can be seen, column 502 comprises the names
of various reference entities for which credit derivatives have
been made available in system 100. Column 504 comprises the debt
type associated with each reference entity in column 502. Column
506 comprises a debt rating associated with each reference entity
in column 502. Although, as mentioned above, this column may or may
not be included depending on the embodiment. Column 508 comprises
the scheduled termination associated with the credit derivative for
the reference entity in column 502. Column 512 includes the
associated ask prices, while column 510 includes responsive bids.
Thus, once bids are received, the information can be displayed in
column 510. Columns 514 and 516, included in certain embodiments,
comprise the bid and or ask prices associated with the particular
trader client on whose terminal 108 display 500 is being displayed.
Finally, column 518 comprises the associated currency.
[0041] FIG. 5B is a diagram illustrating another example method of
displaying the information on terminals 108 using a compact and
uniform format. As can be seen, the screen shot of FIG. 5B includes
several columns 504 that include information about credit
derivatives that can be traded. In addition to the names and other
information related to the credit derivatives, each column 504
include a column 508 that includes market information. In this
example, the market information simply includes a bid column 510
and an offer column 512. The display can also include a window 514
that includes information related to recent trades.
[0042] Once the information for a new credit derivative displayed
in step 206, then bids can start to be received by credit
derivative authority 102. This process is described below in
relation to FIG. 3. Since the credit derivative market is a
bilateral market, however, certain trader clients may not wish to
deal with certain other trader clients in all, or certain,
situations. Thus, in certain embodiments, credit derivative
authority 102 is configured to receive information identifying
trader clients with whom the trader client defining the new
position is willing to transact, i.e., the trader client uses the
standardized interface to provide identifying information to credit
derivative authority 102 that identifies other trader clients with
whom the trader client is willing to transact. Depending on the
embodiment, the information includes the names of certain trader
clients or defining characteristics of acceptable trader clients.
Credit derivative authority 102 stores the identifying information
in database 104 in step 210. The information is then used, as
described below, in certain embodiments, by credit derivative
authority 102 to help facilitate transaction between trader
clients.
[0043] It should be noted that in certain embodiments, trader
clients do not need to provide, or review, credit risk information
related to the various trader clients. For example, in some
embodiments, use of system 100 can be restricted to larger clients,
or clients that are prescreened for credit risk.
[0044] In certain embodiments, the trader clients can customize
their view of the information displayed. Thus, for example, in step
212 credit derivative authority 102 receives, from a trader client,
information defining the customized view requirements of a trader
client, i.e., using the standardized interface, a trader client
inputs information defining a customized view. For example, in one
embodiment, a trader client specifies certain regions of interest
in step 212. Then, in step 214, credit derivative authority 102
retrieves from database 104 credit derivatives only for the
indicated regions. These credit derivatives are then displayed, in
step 216, on the trader client's terminal 108. Alternatively, a
trader client can customize the trader client's view by specifying,
in step 212, certain industries, certain reference entity names,
certain credit duration, certain debt levels, certain spreads,
i.e., the difference between the ask and bid prices, certain
restructuring levels, etc., that the trader client is interested
in. In an alternative embodiments, the credit derivatives can be
sorted by geographic areas and/or sectors. Thus, a trader client
can, in such embodiments, specify the area and/or sector of
interest in step 212. In step 214 credit derivative authority 102
retrieves information for credit derivatives that meet the criteria
input by the trader client.
[0045] In a process similar to view customization, trader clients
can also preferably indicate certain alternative views that they
are interested in. For example, in one embodiment, instead of
indicating factors that define credit derivatives of interest, the
trader client indicates, in step 212, an interest in certain
historical information. Examples of historical information
indicated in step 212 include, the historical spread information
for a certain credit derivative, historical trades for the trader
client, and historical transactions for a certain credit
derivative. In certain embodiments, a relevant time period of
interest is also indicated in step 212. Historical information
conforming to the input criteria is then retrieved in step 214 and
displayed in step 216.
[0046] For example, FIG. 6 is a screen shot illustrating a display
600 of historical transactions for a certain credit derivatives. As
can be seen, display 600 includes columns 602-614. Column 602
comprises the date of the associated transaction, column 604
comprises the name of the reference entity involved, column 606
comprises the type of debt, column 608 comprises the scheduled
termination of the credit derivative, column 610 comprises the
identity of the buyer, column 612 comprises the price, column 614
comprises the name of the seller, column 616 comprises the notional
amount of the transaction, column 618 comprises the associated
currency, column 620 comprise the reference obligation, and column
622 comprise the status of the transaction. Of course, depending on
the embodiment, some of the columns illustrated in FIG. 6 are not
included in display 600.
[0047] FIG. 3 is a flow chart illustrating an example process by
which a responsive position is received and handled in real-time by
system 100. The example processes of FIG. 3 assume that the
original position defined was an ask and, therefore, the responsive
position is a bid. But the process is largely the same for the
reverse situation as well. It should be noted that in certain
embodiments, the time a bid or offer remains valid should be
specified when the bid or offer is made. Additionally, in certain
embodiments, the notional of the price should be specified.
[0048] The process begins in step 302, when a trader client inputs
a bid, e.g., through their standardized interface, in response to a
recent ask. In step 304, credit derivative authority 102 validates
the bid, e.g., checks to ensure that the bid specifies a valid
credit derivative. If the bid is not valid, then credit derivative
authority 102 causes an error message to be displayed on the trader
client's terminal 108 and allows the trader client to input another
bid (step 302). If the bid is valid, then credit derivative
authority 102 stores, in step 308, the bid information.
[0049] In one embodiment, credit creative authority 102 then checks
the bid against information stored in database 104 to determine if
the bid is the best bid. In other words, credit derivative
authority 102 checks bid information stored in database 104 to
determine if the bid is the highest bid for the associated credit
derivative. If the bid is the best bid, then in step 312, credit
derivative authority 102 updates all the trader clients with the
new bid information. The update that occurs in step 312 is
essentially in real-time. Thus, the trader clients are receiving
updated information as the credit derivative market moves.
Conversely, if the position defined in step 302 is an ask, then
credit derivative authority 102 determines, in step 310, whether
the ask is lower than the previous ask and updates the trader
clients, in step 312, when it is determined that the ask is the
lowest ask.
[0050] In certain embodiments, the latest ask or bid is broadcast
to all trader clients regardless of whether it is the best, as
indicated by the dashed line in FIG. 3. This allows the trader
clients to see depth in the market.
[0051] FIG. 4A is a flow chart illustrating an example process for
engaging in a transaction within system 100. The process begins in
step 402 with a trader client indicating a desire to transact in
response to a received updated position (step 312). For example,
the trader client uses their standardized interface to indicate a
desire to transact. In one embodiment, when credit derivative
authority 102 receives the indication, it determines the ability of
the trader client to transact on the associated credit derivative.
This is where the information provided in step 208 can come into
play if required. Thus, in step 404, credit derivative authority
102 determines, based on information stored in database 104,
whether the trader client indicating a desire to transact is
acceptable to the other party.
[0052] In one embodiment, if credit derivative authority determines
that the trader client is not acceptable, then in step 406 credit
derivative authority 102 presents the other party with the option
to proceed. If the other party declines, then the transaction is
not consummated. If, on the other hand, the other party is willing
to continue, or if it is determined in step 404 that the trader
client is able to transact, then the transaction proceeds. In other
embodiments, as mentioned above, a determination as to whether a
trader client is acceptable is not necessary.
[0053] The trader client can indicate a willingness to transact in
step 402, by indicating a willingness to accept the terms
associated with the new position or by indicating a willingness to
negotiate with the other party. If the indication in step 402 is an
acceptance, then the other party is notified of the acceptance in
step 408 by credit derivative authority 102. If the indication of
step 402 is of a willingness to negotiate, then the parties
negotiate with each other in step 410. As will be described in more
detail below, the parties can negotiate aided by the standardized
interface and credit derivative authority 102. In an alternative
embodiment, once the trader client indicates a willingness to
transact in step 402, they call, or are contacted by, a broker
associated with credit derivative authority 102 to negotiate and
settle the transaction. In certain embodiments, direct negotiation
as just described is not supported.
[0054] Once the transaction settles, all of the information
associated with the transaction is stored by credit derivative
authority 102 into database 104 in real-time, i.e., the information
is stored as it passes back and forth between the parties and
between the parties and credit derivative authority 102. Credit
derivative authority 102 then updates the information displayed to
the trader clients, again in real-time, in step 414, based on the
transaction information.
[0055] In another embodiment, upon the settlement of the
transaction, the trader can be prompted as to whether the trader
desires to upsize the trade, that is increase the notional amount
of the trade, that is the volume of the trade. At this point both
parties are given a chance to request a trade of a larger notional
amount, before knowing who their trading partner is. Upon
determination of the largest notional amount agreed upon by both
parties, the trade is completed at this notional amount.
[0056] FIG. 4B is a flow chart illustrating an example process for
engaging in a transaction within system 100 where the trader is
given the option to upsize the trade. The processing of the
transaction described by FIG. 4B is similar to that of FIG. 4A
except that upon notification of the acceptance in step 408 by
credit derivative authority 102, the traders are given the
opportunity to upsize the trade. If an upsize is agreed upon, the
notional amount is increased in step 416 prior to credit authority
102 storing the transaction in step 412.
[0057] This can be beneficial when a trader desires to trade a
notional amount that is greater than the standard or default
amount. Generally, traders are hesitant to make an intention to
trade more than the standard or default amount known, because this
can result in a lower price for the credit derivative. Thus, if a
default trade amount is 10 million dollars and a trader desires to
trade 30 million dollars, the trader will often simply attempt to
make three trades. With the volume upsizing process described
above, and in more detail below, a trader desiring to trade a large
notional amount of a credit derivative can trade that notional
amount without making the market aware of his intention, thereby
maintaining the value of his credit derivative.
[0058] FIG. 8 is a screen shot illustrating an example method of
displaying a request to upsize a trade. Field 802 indicates that
the original trade is completed in the notional amount shown at
field 806. In this particular embodiment, the trader is given a
predetermined interval of time to respond to the upsize prompt,
which in this case is 20 seconds as shown at field 804. The trader
can then elect to increase the trade to a higher notional amount by
activating buttons 810, 812, or 814 depending on the size of the
increase desired, or the trader can indicate no desired to increase
by activating button 808. If both parties agree, the trade is
upsized to that notional amount. In another embodiment, the
prompting to upsize can repeat until one of the two trading parties
no longer wishes to upsize at which point the largest amount agreed
upon by both parties can be traded. In another embodiment, if the
two parties both upsize but not to the same notional amount, the
smaller of the two amounts can be taken as the agreed notional
amount.
[0059] As mentioned above, system 100 comprises a standardized
interface configured to make transacting in system 100 quick and
efficient. Thus, the standardized interface allows each of the
trader clients to interface with credit derivative authority 102
and view information on a plurality of credit derivatives that is
displayed in a compact and uniform format. Example formats were
described above, e.g., in relation to FIG. 5. As was also
described, the standardized interface allows each of the trader
clients to customize the trader client's view of the information
displayed for the plurality of credit derivatives. This was
explained, e.g., in relation to FIG. 6. Thus, the display of
information can be customized using the standardized interfaced
based any of the following: region, industry, a reference entity
name, a credit duration, a debt level, a spread, a restructuring
level, an ask price, reference obligation, and a credit rating.
[0060] In another embodiment, when there is sufficient activity in
a particular credit derivative as determined either by the system
or by the participants, the system can facilitate volume clearing
of credit derivatives based on the most recently traded price. In
overview, once the credit derivative has been traded, invited
participants are invited to trade their credit derivatives during a
set time interval. Those who desire to participate indicate the
notional amount they desire to buy or sell. Once the time limit
expires, the system determines which participants can trade and
which buyers actually trade with which sellers, by matching similar
trade amounts.
[0061] More specifically, when a trade is completed the price can
be offered to invited participants by listing the trade in a
"Volume Matching" display. FIG. 9 is a screen shot of an example of
a Volume Matching display showing credit derivatives that the
participant can trade. Column 902 represents the credit derivative
to be traded and the price. Column 904 shows the time remaining to
trade that credit derivative at that price. For example, in the
first row, the credit derivative Commerzbank (CMZB) is available
for trading at a price of 19 basis points (bps) for the next 18
seconds. Participants are invited based on criteria which is
indicative of their desire to trade that credit derivative, such as
placement of a bid in the trade current session or placement of a
bid in a recent trade session involving the trade derivative.
[0062] FIG. 10 is a screen shot of an example of a method by which
an interested participant can participate in volume clearing. Field
1002 shows the credit derivative and the price it is being traded
at. The participant can select button 1004 and enter a notional
amount into field 1006 that he desires to buy the credit derivative
or alternatively the participant can select button 1008 and enter a
notional amount into field 1010 that he desires to sell. The order
is then placed by clicking on field 1012.
[0063] After the set time interval has expired, the orders can be
filled according to the priority of the participant. The
participant can be assigned a priority in the following order: the
highest priority goes to current participants in the trade, the
next highest priority goes to participants which are in the buyer
or seller priority queues at the time of the trade, and finally,
the remaining participants are prioritized on a first come first
serve basis.
[0064] The orders are then matched to optimize as much as possible
orders of the same size of the counterparties. By doing so, the
number of trade tickets generated is minimized. Once the matching
is completed a trade ticket is generated and each transaction can
be completed similar to the manner described above for a single
trade.
[0065] FIG. 11 is a table showing an example of how the trade
matching works. In table 1102, there are four buyers and three
sellers with their respective orders listed in the order of their
priority. In matching table 1104, buyer 1 is matched with seller 3
because their notional amounts match. Furthermore, buyer 2 is
matched with seller 1 because their notional amounts match. Since
the remaining orders no longer match, the orders can be split.
Buyer 3 having priority over buyer 4 is matched with seller 2.
Since seller 2's order is larger than buyer 3's order, the
remaining notional amount of seller 2 is available to buyer 4.
[0066] The standardized interface is further configured to allow
each of trader clients to define credit derivative positions online
and to update them quickly and efficiently. For example, in one
embodiment, a trader client simply inputs the information that
defines the credit derivative and their position, e.g., bid or ask
price, and then updates the position with credit derivative
authority 102 with a single "click". The term "click" is intended
to indicate that the user simply needs to use an input device, such
as a mouse, to select text, a button, or an icon. Moreover, the
trader can use this simple process to update a position anytime,
and all of the other trader clients will be updated automatically
in real-time.
[0067] The standardized interface, in certain embodiments, is also
configured to allow the trader clients to, at anytime, render
inactive all or some of the trader clients defined positions with a
single click. Trader clients can also reactivate some or all of
their inactive positions using a single click, whenever they decide
to do so. Trader clients can also increase the time for which a
price remains tradable. The other trader clients are then
automatically updated, based on the deactivation and reactivation
of positions, in real-time.
[0068] In certain embodiments, credit derivative authority 102 is
configured to facilitate communication with trader clients via
their terminals 108. This communication can be between trader
clients, i.e., between terminals 108, and/or between trader clients
and credit derivative authority 102, i.e., between terminals 108
and credit derivative authority 102. Thus, the standardized
interface includes an electronic messaging tool, such as email or
instant messaging. The trade clients input and send messages using
the electronic messaging tool. The messages are received by credit
derivative authority 102 and forwarded to the correct terminal 108,
when required. The messaging capability is used for example, to
facilitate negotiations and/or settlement of transactions between
trader clients. Thus, in some instances the messages are between
terminals 108 and include negotiation information. In other
instances, the messages are between credit derivative authority 102
and a terminal 108 and include settlement information.
[0069] FIG. 7 is a logical block diagram illustrating an example
embodiment of a computer system 700 that is, for example, included
in the computer system that comprises credit derivative authority
102. As will be understood, some type of processing system is
always at the heart of any computer system, whether the processing
system includes one or several processors included in one or
several devices. Thus, computer system 700 of FIG. 7 is presented
as a simple example of a processing system. In the example of FIG.
7, computer system 700 comprises a processor 710 configured to
control the operation of computer system 700, memory 704, storage
706, a network interface 708, a display output 712, a user
interface 714, and a bus 702 configured to interface the various
components comprising computer system 700.
[0070] Processor 710, in one embodiment, comprises a plurality of
processing circuits, such as math coprocessor, network processors,
digital signal processors, audio processors, etc. These various
circuits can, depending on the embodiment, be included in a single
device or multiple devices. Processor 710 also comprise an
execution area into which instructions stored in memory 704 are
loaded and executed by processor 710 in order to control the
operation of computer system 700. Thus, for example, by executing
instructions stored in memory 704, processor 710 causes credit
derivative authority 102 to execute the steps described above.
[0071] Memory 704 comprises a main memory configured to store the
instructions just referred to. In one embodiment, memory 704 also
comprise secondary memory used to temporarily store instructions or
to store information input into computer system 700, i.e., memory
704 acts as scratch memory also. Memory 704 can comprises,
depending on the embodiment, a plurality of memory circuits, which
can be included as a single device, or as a plurality of
devices.
[0072] Storage 706 includes, in certain embodiments, a plurality of
drives configured to receive various electronic media. For example,
in one embodiment, storage 706 includes a floppy drive configured
to receive a floppy disk, a compact disk drive configured to
receive a compact disk, and/or a digital video disk drive
configured to receive a digital video disk. IN another embodiment,
storage 706 also includes disk drives, which can include removable
disk drives. The drives included in storage 706 are used to receive
electronic media that has stored thereon instructions to be loaded
into memory 704 and used by processor 710 to control the operation
of computer system 700.
[0073] Network interface 708 is configured to allow computer system
700 to interface with, and communicate over, network 106. Thus,
using a network interface, such as network interface 708, credit
derivative authority 102 is able to communicate with terminals 108.
Depending on the embodiment, credit derivative authority 102
includes one or multiple network interfaces 708.
[0074] Display interface 712 can be configured to allow computer
system 700 to interface with a display. Thus, in certain
embodiments, computer system 700 displays information to a user via
display interface 712.
[0075] User interface 714 is configured to allow a user to
interface with computer system 700. Thus, depending on the
embodiment, user interface 714 can include a mouse interface, a
keyboard interface, an audio interface, etc.
[0076] It should be clear that the general description of a
computer system provided above is by way of example only and should
not be seen to limit implementation of credit derivative authority
102 to any particular computer architecture or implementation.
Rather any architecture or implementation capable of implementing
the processes and functionality described above can be used to
implement the systems and methods described herein.
[0077] While certain embodiments of the inventions have been
described above, it will be understood that the embodiments
described are by way of example only. Accordingly, the inventions
should not be limited based on the described embodiments. Rather,
the scope of the inventions described herein should only be limited
in light of the claims that follow when taken in conjunction with
the above description and accompanying drawings.
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