NZ541310A - Computer system for assisting in transactions based on price of proxy physical items - Google Patents

Abstract

A computer system for assisting in transactions of a financial instrument is disclosed. The financial instrument is a contract based on the price of a proxy physical item, and is listed for sale or trading. The transaction includes receiving from a party 20 a long position payment of the full value of the financial instrument and also receiving from another party 60 a short position payment of a margin 70. The full value of both payments is invested to yield an interest income stream 50 that is paid to the short position party 60. An attached yield income 90 of the financial instrument is received from the short position party and paid to the long position party 20.

Description

541310 Title A Financial Instrument We, SFE Corporation Limited, of 30 Grosvenor Street, Sydney, New South Wales, 5 2000, Australia, hereby declare the invention, for which we pray that a patent may be granted to us, and the method by which it is to be performed, to be particularly described in and by the following statement.

Technical Field This invention concerns a financial instrument. Related financial instruments include a futures contract and an option contract. In other aspects the invention is a trading exchange for trading such a financial instrument, a financial institution for offering for sale such a financial instrument, and a financial intermediary for assisting in transactions of such a financial instrument. Further aspects include a method of 15 operating a financial intermediary to assist in the transactions of such a financial instrument and a software program for performing the method.

Background Art A futures contract is an exchange traded agreement to buy or sell a standard type 20 and grade of commodity on a specific future date at an agreed price determined at the time the contract is traded on an exchange.

An option contract is a right sold by one party to another that offers the buyer the right, but not the obligation, to purchase (call) or sell (put) a financial instrument at an agreed price during a certain period of time or on a specific date. In the case of an 25 option contract traded on an exchange, the option taker may pay a premium for the right to buy or sell a financial instrument.

Disclosure of the Invention In a first aspect the invention is a financial instrument being a contract based on the price of a proxy physical instrument and is listed for trading or offered for sale, the financial instrument is created by a party in a long position which supports the financial instrument through the payment of the full value of the financial instrument, and a party in a short position which supports the financial instrument through the payment of a margin, the full value of the financial instrument and the margin are invested to realise an interest income stream which is paid to the short position party, and intellectual property office of n.z. -6 NOV 2008 RECEIVED 2 the financial instrument has an attached yield income, which is paid by the short position party to the long position party.

In another aspect, the invention is a computer system programmed for assisting 5 in transactions of a financial instrument that is a contract based on the price of a proxy physical instrument and is listed for trading or offered for sale, the computer system programmed to perform the steps of managing: receiving from a party of a long position payment of the full value of the financial instrument; receiving from a party of a short position payment of a margin; investing the full value of the financial instrument and the margin to realise an interest income stream; paying the interest income stream to the short position party; receiving from the short position party an attached yield income of the financial 15 instrument; and paying the attached yield income to the long position party.

If the price of the financial instrument falls below the price of the proxy physical instrument, the long position party may have the right to sell the long position to the 20 short position party. In this case the long position party would receive the value of the proxy physical instrument at the time at which the long position party exercised its rights to sell.

If the price of the financial instrument rises more than a predetermined percentage above the proxy physical instrument, the short position party may have the 25 right to purchase the short position from the long position party. In this case, the short position party has the right to purchase the offsetting short position at the price of the proxy physical instrument at the time at which the short position party exercised its right to purchase. The short position party would receive any remaining margin money and any interest income payable, less any yield income payment required to be made to 30 the long position party.

The price of the proxy physical instrument may be based on any asset, such as an index, security, currency, other financial instrument or real physical asset.

A clearing house may assist in the transactions of the financial instrument. In this case the clearing house receives the payment of the full value of the financial 35 instrument from the long position party. Payment of the full value of the financial instrument is invested by the clearing house and the realised interest income stream is paid by the clearing house to the short party position. The clearing house would also intellectual property office of n.z. - 6 NOV 2006 RECEIVED 3 receive the payment of the margin from the short position party. Further, the clearing house receives the yield income from the short position party, which is then paid by the clearing house to the long position party. Also, funds payable to the long position party when selling the long position pass through the clearing house.

Clearing participant may also assist in the transactions of the financial instrument.

The financial instrument may change in value in response to changes in value of the proxy physical instrument.

The long position party may have the right to sell the instrument to the short position party on a predetermined or random basis.

The financial instrument may have no maturity, and exists as a non-expiring contract, or a long dated contract, such as for three years.

The financial instrument may be listed for trading by an exchange or offered for sale by a financial institution. The exchange or financial institution may retain the ability to expire the financial instrument with a minimum notice period provided to the long position party and the short position party.

The financial instrument may be closed out on market by the long position party or the short position party trading an offsetting position to that already held.

The long position and/or short position may be held by one or more parties.

In yet another aspect, the invention is a software program that in use is installed on a computer system described above, wherein the software causes the computer system to be operable to assist in transactions of a financial instrument described above.

Brief Description of the Drawings An example of the invention will now be described with reference to the accompanying drawing which is a block diagram of a financial instrument.

Best Modes of the Invention The financial instrument is a contract entered into between a Long Position Party 20 and a Short Position Party 60. It is a financial instrument and can be based on a proxy physical instrument such as an index, security, currency, other financial instrument or a real physical asset. It is listed on the financial market operated by 35 Sydney Futures Exchange (the Exchange) 15 as a derivatives contract. The financial instrument is related to a futures and an options contract and is traded through the Exchange's financial market via its computerised trading platform SYCOM. intellectual property office of n.z. - 6 NOV 2006 RECEIVED 4 The value of the financial instrument will change in response to the interaction of Long Position Parties 60 and Short Position Parties 20 in the financial market 15. The instrument need have no maturity and may exist as a non-expiring contract, or a long dated contract, for instance three years. The Exchange 15 retains the ability to 5 expire the instrument with a minimum notice period provided to the users.

A long position in the instrument is purchased by the Long Position Party 20 with the full value 30 of the instrument being paid to the Clearing House 10 via a Clearing Participant 5, being the traded price between the Long Position Party 20 and Short Position Party 60 at the time of purchase. The Short Position Party 60 now holds 10 the short position. The Clearing House 10 operated by SFE Clearing Corporation invests 40 the funds received 30 to realise an interest income stream 50. This interest income stream 50 is paid by the Clearing House 10 to the Short Position Party 60 less any fees or charges deducted by the Clearing House 10.

The Short Position Party 60, pays the Clearing House 10 via a Clearing 15 Participant 5 a percentage of the nominal value of the instrument in a manner similar to the margining of a futures contract. The margin 70 is also invested by the Clearing House 10.

All the transactions between the Long Position Party 20 and Short Position Party 60 are performed using Brokers 80 that are participants of the Exchange 15. Those 20 subsequent positions are then held on behalf of those Long Position Parties 20 / Short Position Parties 60 at the Clearing House 10 by Clearing Participants 5, that are participants of the Clearing House 10.

Once entered into, the financial instrument returns capital gains and losses as the instrument increases or decreases in value. The instrument also yields a dividend, 25 coupon or similar and these 90 are passed from the Short Position Party 60 to the Clearing House 10 which in turn pays the dividend, coupon or similar 90 the Long Position Party 20 less any fees or charges.

Interest income 50 earned by the Clearing House on the full value payment 30 paid by the Long Position Party 20 and margins 70 paid by the Short Position Party 60 30 are paid by the Clearing House 10 via the Clearing Participant 5 to the Short Position Party 60. The interest income 50 is calculated and paid to the Short Position Party 60 on a daily basis less fees and charges retained by the Clearing House 10. In the event the interest income payable to the Short Position Party 60 is negative, then the interest income 50 will flow from the Short Position Party 60 to the Clearing House 10 via the 35 Clearing Participant 5.

If the price of the financial instrument falls below the price of the proxy physical instrument, the Long Position Party 20 has the right to sell the long position to the intellectual property office of m.z. - 6 NOV 2006 RECEIVED.

Short Position Party 60. The Long Position Party 20 then receives the value of the proxy physical instrument at the time at which the long position party exercised its rights to sell.

If the price of the financial instrument rises more than a predetermined 5 percentage above the price proxy physical instrument, the Short Position Party 60 has the right to purchase the short position from the Long Position Party 20. In this case, the Short Position Party 60 has the right to purchase the offsetting short position at the price of the proxy physical instrument at the time at which the Short Position Party 60 exercised its right to purchase. The Short Position Party 60 receives any remaining 10 margin 70 money and any interest income payable 50, less any yield income 90 payment required to be made to the Long Position Party 20.

The trading exchange is operated by a computer system providing computer-user interfaces for trading, and inbuilt financial checking. The computer system is programmed to create and manage the cash flows 30, 50, 70 and 90 of this new 15 financial instrument, calculating and executing the cash flows 30, 50, 70 and 90 between Long Position Party 20, Short Position Party 60 and Clearing House 10.

It will be appreciated by persons skilled in the art that numerous variations and/or modifications may be made to the invention as shown in the specific embodiments without departing from the spirit or scope of the invention as broadly 20 described.

For example, the financial instrument could be offered for sale by a financial institution such as a bank. In this case, the bank may also choose to hold the position of the short party.

The present embodiments are, therefore, to be considered in all respects as 25 illustrative and not restrictive. intellectual property office of n.z. - 6 NOV 2MB RECEIVED

Claims (18)

What we claim is: 6

1. A computer system programmed for assisting in transactions of a financial instrument that is a contract based on the price of a proxy physical instrument and is listed for trading or offered for sale, the computer system programmed to perform the 5 steps of managing: receiving from a party of a long position payment of the full value of the financial instrument; receiving from a party of a short position payment of a margin; investing the full value of the financial instrument and the margin to realise an 10 interest income stream; paying the interest income stream to the short position party; receiving from the short position party an attached yield income of the financial instrument; and paying the attached yield income to the long position party. 15

2. A computer system according to claim 1, wherein if the price of the financial instrument falls below the price of the proxy physical instrument, the long positioned party has the right to sell the long position to the short position party. 20

3. A computer system according to claim 2, the method further comprising the step of paying to the long position party the value of the proxy physical instrument at the time at which the long position party exercised its rights to sell.

4. A computer system according to claim 1, 2 or 3, wherein if the price of the financial instrument rises more than a set percentage above the proxy physical instrument, the short position party has the right to purchase the offsetting short position from the long position party at the price of the proxy physical instrument at the time the short position party exercised its rights to purchase. 30

5. A computer system according to claim 4, the method further comprising the step of paying to the short position party any remaining margin money and any interest income payable, less any yield income payment required to be made to the long position party. intellectual. property office of n.z. -6 NOV 2006 RECEIVED 7

6. A computer system according to any one of the preceding claims, wherein the price of the proxy physical instrument is based on any asset, such as an index, security, currency, other financial instrument or real physical asset. 5

7. A computer system according to any one of the preceding claims, wherein the financial intermediary is a clearing house and the financial instrument is listed for trade on an exchange.

8. A computer system according to any one of the preceding claims, wherein the 10 financial intermediary is a bank and the financial instrument is offered for sale by the bank.

9. A computer system according to any one of claims 1 to 6 and claim 8, wherein the financial intermediary is also the short position party. 15

10. A computer system according to any one of the preceding claims, wherein any one or more of the receiving, investing and paying steps is performed via a clearing participant. 20

11. A computer system according to any one of the preceding claims, wherein the financial instrument changes in value in response to changes in value of the proxy physical instrument.

12. A computer system according to any one of the preceding claims, wherein the 25 long position party has the right to sell the instrument to the short position party on a predetermined or random basis.

13. A computer system according to any one of the preceding claims, wherein the instrument has no maturity, and exists as a non-expiring contract, or a long dated 30 contract, such as for three years.

14. A computer system according to any one of the preceding claims, wherein the method further comprises expiring the financial instrument by notifying the short position party and the long position party and providing a minimum notice period. 35

15. A computer system according to any one of the preceding claims, the method further comprising the steps of listing for trading an offsetting position to that already intellectual property office of n.z. - 6 NOV 2006 RECEIVED 8 held by the long position party or the short position party in order to close the financial instrument on the market.

16. A computer system according to any one of the preceding claims, wherein the long position and/or short position is held by one or more parties.

17. A computer system as substantially herein described with reference to the accompanying drawing.

18. A software program that in use is installed on a computer system according to any one of the preceding claims, wherein the software causes the computer system to be operable to assist in transactions of a financial instrument. Dated this thirty-first day of October SFE Corporation Limited Patent Attorneys for the Applicant: F B RICE & CO intellectual property ofpicf of m.z. -6 NOV 2006 RECEIVED