Classifications

• • G—PHYSICS
  • G06—COMPUTING; CALCULATING OR COUNTING
  • G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
  • G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
  • G06Q40/04—Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Definitions

• the field of the invention relates generally to credit derivatives and more particularly to the transacting in credit derivatives in an online environment.
• 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.
• information flow is concentrated in a few dealers.
• the end users such as those described above, transact through' the dealers and not directly with each other.
• 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.
• 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.
• 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.
• 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.
• 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.
• Another difficulty in trading credit derivatives occurs when a dealer or buyer desires to trade a large number of credit derivatives. A desire for a large transaction can influence the market in a manner adverse to the trader.
• 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.
• 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.
• 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.
• 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.
• Figure 1 is a diagram illustrating an example credit derivative trading system in accordance with one embodiment of the invention
• Figure 2 is a flow chart illustrating an example method for transacting in a credit derivative in the system of figure 1 in accordance with one embodiment of the invention
• Figure 3 is a flow chart illustrating an example method of receiving a responsive position within the system of figure 1 in accordance with one embodiment of the invention
• Figure 4 is a flow chart illustrating an example method of receiving an indication of a willingness to transact within the system of figure 1 in accordance with one embodiment of the invention
• Figure 5 A is a screen shot illustrating a display of credit derivative information within on a terminal included in the system of figure 1 in accordance with one embodiment of the invention
• Figure 5B is a screen shot illustrating a display of credit derivative information within on a terminal included in the system of figure 1 in accordance with another embodiment of the invention.
• Figure 6 is a screen shot illustrating the display of historical credit derivative information on a terminal included in the system of figure 1 in accordance with one embodiment of the invention
• Figure 7 is a logical block diagram illustrating an exemplary computer system that can be included in the system of figure 1
• Figure 8 is a screen shot illustrating an example method of displaying a request to upsize a trade
• Figure 9 is a screenshot illustrating an example method for displaying trade information that includes an option for volume upsizing in accordance with one embodiment
• Figure 10 is an example screen shot of a display that can be used to implement volume upsizing
• Figure 11 is a chart that illustrates an example of volume upsizing
• Figure 12A is a screen shot of an example of how a participant can be solicited for bids and offers;
• Figure 12B is a screen shot of an example of how a participant can perform volume matching;
• Figure 12C is a screen shot illustrating the results of the volume matching session
• Figure 13 is a flow chart depicting a method of determining the fixed price based on the bids and offers by the participants;
• Figure 14 are two tables illustrating the method described above.
• Figures 15 A, 15B, 15C, and 15D are printouts of actual results of a fixed price trading session related to each of the three credits.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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 figure 7.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• credit derivative authority 102 retrieves the relevant information from database 104 and transmits it to a client application, or applications, running on te ⁇ ninals 108. The client applications then display the information in accordance with the systems and methods described herein.
• Figure 5 A is a screen shot illustrating one example method of displaying the information on terminals 108 using a compact and uniform format.
• the display screen 500 includes a plurality of columns 502-518.
• 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.
• 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.
• column 518 comprises the associated currency.
• Figure 5B is a diagram illustrating another example method of displaying the information on terminals 108 using a compact and uniform format.
• the screen shot of figure 5B includes several columns 504 that include information about credit derivatives that can be traded.
• each column 504 include a column 508 that includes market information.
• 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.
• 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.
• 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.
• trader clients do not need to provide, or review, credit risk information related to the various trader clients.
• use of system 100 can be restricted to larger clients, or clients that are prescreened for credit risk.
• the trader clients can customize their view of the information displayed.
• 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.
• a trader client specifies certain regions of interest in step 212.
• 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.
• 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.
• the credit derivatives can be sorted by geographic areas and/or sectors.
• a trader client can, in such embodiments, specify the area and/or sector of interest in step 212.
• credit derivative authority 102 retrieves information for credit derivatives that meet the criteria input by the trader client.
• 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.
• figure 6 is a screen shot illustrating a display 600 of historical transactions for a certain credit derivatives.
• 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
• column 622 comprise the status of the transaction.
• some of the columns illustrated in figure 6 are not included in display 600.
• Figure 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 figure 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, a notional of the price should be specified.
• 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.
• 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.
• 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.
• the latest ask or bid is broadcast to all trader clients regardless of whether it is the best. This allows the trader clients to see depth in the market.
• Figure 4 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).
• the trader client uses their standardized interface to indicate a desire to transact.
• credit derivative authority 102 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.
• 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.
• 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.
• 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.
• the trader upon the settlement of the transaction, can be prompted as to whether the trader desires to upsize the trade, that is increase the notional amount 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.
• Figure 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.
• 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.
• 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.
• 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.
• a price can be fixed by the system and invited participants are can place orders to buy or sell the credit derivative at the fixed price in a manner similar to the volume matching described above.
• the system can fix a price.
• the system can solicit and accept a number of bids and offers from its participants. These bids and offers in addition to the asking and selling price can also include a volume to be traded.
• the bids and offers can be made binding to prevent participants from entering false bids in order to influence the market.
• a participant whose bid price is met that is the bid price is at least that of the fixed price can be prohibited from selling during the volume matching.
• a participant whose offer price is met that is the offer price is at most that of the fixed price can be prohibited from buying during the volume matching. Based on these bids and offers the system can select a fixed price.
• Figure 12A is a screen shot of an example of how a participant can be solicited for bids and offers.
• a predetermined time limit is imposed after which bids and offers are no longer accepted.
• the amount of time remaining to enter a bit is shown in field 1202.
• the notional amount of the bid/offer is shown.
• the volume is fixed for all participants, in other embodiments, this amount can be entered by the participant.
• the bid prices are entered by the participant for each credit derivative and in column 1208, the offer prices are entered by the participant.
• the system can also safeguard against choice prices, that is a bid equal to an offer, and inverted prices, that is a bid greater than an offer. Once the time limit has expired, all valid submissions by the participants are collected by the system and a fixed price is determined.
• Figure 12B is a screen shot of an example of how a participant can perform volume matching.
• Column 1210 shows the fixed price for each of the credit derivatives. If the participant's bid price is greater than or equal to the fixed price the participant is required to buy at the fixed price. In this case, the participant can specify an additional amount to buy at the fixed price by entering it into the appropriate field of column 1212. If the participant's offer price is lower than the fixed price, the participant is required to sell at the fixed price. In this case, the participant can specify an additional amount to sell at the fixed price, by entering it into the appropriate field of column 1214.
• the participant can elect to either sell or buy an amount of credit derivative at the fixed price, but not both.
• the time limit has expired, all additional orders are processed by the system.
• the method of filling the orders is similar to that described in the volume matching described above, except that a priority is assigned to those participants whose bids are closes to the fixed price.
• Figure 12C is a screen shot illustrating the results of the volume matching session.
• Columns 1216 and 1218 show the notional amount actually traded as a result of the trading activity described above.
• the participant's bid exceeded the fixed price so was obligated to buy 25MM units of Europe, but also requested to buy an additional 50MM units and successfully bought 75MM units.
• the participant was not obligated to buy or sell HiVoI, but request to by 75MM units of HiVoI. However, this order was not matched.
• the participant's offer was lower than the fixed price for Crossover, so the participant was obligated to sell IOMM units of Crossover.
• the participant '''' also requested to sell another 40MM units of Crossover, however, only a partial order of 20MM units of Crossover was available leading to a total sale of 30MM units.
• Figure 13 is a flow chart depicting a method of determining the fixed price based on the bids and offers by the participants.
• the system solicits bids and offers from the participants.
• the system waits a predetermined period of time.
• the system collects all valid bids and offers from the participants.
• the bids are sorted into a sequence with the highest bids first and the offers are sorted into a sequence with the lowest offers first.
• all bids except for a predetermined number of the highest bids and all offers except for a predetermined number of the lowest offers are discarded. For example, the highest half of the bids and the lowest half of the offers are kept.
• the average is computed by averaging all the bid prices and offer prices. In other embodiments where the volume can be specified along with the bid and offer prices, the average can be computed by a simple average where each bid price and offer price is accounted for once or by a weighted average where each bid price and offer price is averaged in based on the volume specified by the participant. This average is called the mid fixing.
• a sequence of markets is created by pairing the sequence of bids with their counterparts in the sequence of offers, so that the highest bid and the lowest offer comprise the first market in the sequence, where a market comprises a bid and an offer.
• a determination is made as to whether the highest bid exceeds the lowest offer.
• the price is fixed at the average in step 1318. If so, at step 1320, the market with the lowest bid and the highest offer where the bid is at least the offer is determined. This market is referred to as the last tradeable market.
• a determination is made as to whether the average is below the bid of the last tradeable market, above the offer of the last tradeable market or between the bid and the offer. If the average is between the offer and the bid. Then the price is fixed at the average in step 1318. If the average is below the bid, then the price is fixed at the bid of the last tradeable market at step 1324. If the average is above the offer, then the price is fixed at the offer of the last tradeable market at step 1326. Steps 1324 and 1326 are used to insure that a participant is not obligated to purchase at a price above his bid or to sell at a price below his offer.
• bid fixing and offer fixing can be used in determining the fixed price.
• the basic bid fixing calculation is to take the average of all bids which remain after step 1310.
• the basic offer fixing calculation is to take the average of all offers which remain after step 1310.
• the basic method can be adjusted so that if the bid fixing calculation exceeds the mid fixing the bid fixing is set to the mid fixing. Likewise, if the offer fixing calculation is below the mid fixing, the offer fixing is set to the mid fixing.
• Other methods can be used to calculate the bid fixing.
• the trades capped method takes all bids remaining after step 1310 and sets all bids greater than the mid fixing calculated in step 1312 to the mid fixing. After this all bids are averaged to generate the bid fixing.
• all offers remaining after step 1310 are taken and all offers less than the mid fixing calculated in step 1312 are set to the mid fixing. After this, all offers are averaged to generate the offer fixing.
• the trades excluded method averages all bids remaining after step 1310 that are less than the mid fixing to generate the bid fixing. If no bids are below the mid fixing, the highest bid is taken as the bid fixing.
• all offers remaining after step 1310 that are greater than the mid fixing are averaged to generated the offer fixing. If no offers are greater than the mid fixing, the lowest offer is taken as the offer fixing.
• the mid fixing is used as the fixed price for the volume matching, however, the bid fixing iaiid ' offef'fif Mg' can be used as a reference in future contracts as well as incorporated into the calculation of the fixed price in this or future sessions.
• Figure 14 are two tables illustrating the method described above.
• table 1402 the contributed bids and offers of eight participants are shown, hi table 1404, the bids and offers are sorted with highest bids and lowest offers first.
• step 1310 only the top four pairs are kept so, only rows 1410, 1412, 1414, and 1416 are kept in the mid fixing calculation.
• rows 1410, 1412, and 1414 show bids that are greater than or equal to the offers. Row 1414 having the lowest bid and highest offer among this group making row 1414 the last tradeable market.
• Figure 15 A is a summary print out of an actual fixed price trading session.
• the table on the left shows the bid, mid and offer fixing for three credit derivatives involved.
• On the right are three tables showing the bid prices and the offer prices for the three credit derivatives sorted by highest bid and lowest offer. In this example in calculating the bid, mid, and offer fixings the first half of the offers and bids are retained.
• Figure 15B is a print out of detailed results of the Europe credit index, showing the same bids and offers as the right side of Figure 15A,but also with statistical quantities such as the mean, standard deviations, and kurtosis, and a graph of the markets, graphed in the order displayed in the table.
• Figure 15C is a print out of detailed results of the HiVoI credit derivative, showing similar categories of results as in Figure 15B.
• Figure 15D is a print out of detailed results of the Crossover credit derivative, showing similar categories of results as in Figure 15B.
• system 100 comprises a standardized interface configured to make transacting in system 100 quick and efficient.
• the standardized interface allows each of the trader clients to interface with credit derivative authority 102 and view information on a plurality of credit derivative ' s that is displayed '' in a compact and uniform format.
• Example formats were described above, e.g., in relation to figure 5.
• 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 figure 6.
• 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, and a credit rating.
• the system 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 matching of credit derivatives based on the most recently traded price.
• 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.
• 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.
• 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.
• Figure 10 is a ' screen ' sh ⁇ f ⁇ Fan " example of a method by which an interested participant can participated in volume matching.
• 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.
• 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.
• Figure 11 is a table showing an example of how the trade matching works, hi table 1102, there are four buyers and three sellers with their respective orders listed in the order of their priority.
• matching table 1104 buyer 1 is matched with seller 3 because their notional amounts match.
• 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.
• 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.
• 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.
• 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.
• the other trader clients are then automatically updated, based on the deactivation and reactivation of positions, in real-time.
• 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.
• 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.
• the messages are between terminals ' i ⁇ ' 8 " and include" negotiation information.
• the messages are between credit derivative authority 102 and a terminal 108 and include settlement information.
• 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.
• 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.
• computer system 700 of figure 7 is presented as a simple example of a processing system.
• 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.
• 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.
• 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.
• Memory 704 comprises a main memory configured to store the instructions just referred to.
• 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.
• Storage 706 includes, in certain embodiments, a plurality of drives configured to receive various electronic media.
• 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.
• 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.
• Network interface 708 is configured to allow computer system 700 to interface with, and communicate over, network 106.
• a network interface such as network interface 708
• credit derivative authority 102 is able to communicate with terminals 108.
• credit derivative authority 102 includes one or multiple network interfaces 708.
• 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.
• User interface 714 is configured to allow a user to interface with computer system 700.
• user interface 714 can include a mouse interface, a keyboard interface, an audio interface, etc.

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