Abstract:
Systems and methods are provided for processing fixed unit futures contracts. The initial notional value of a fixed unit futures contract is set to a round number. As the value changes over time, gains and losses are settled and the value of the fixed unit futures contract is returned to the notional value. The value of the fixed unit futures contract may begin each trading session at the notional value.

Description:
FIELD OF THE INVENTION 
       [0001]    Aspects of the present invention relate to the processing of orders and clearing of trades of financial instruments. More specifically, aspects of the present invention provide systems and methods for processing fixed unit futures contracts. 
       BACKGROUND 
       [0002]    Futures contracts are conventionally based on specific quantities of underlying assets. For example, a futures contract may be based on 5,000 bushels of soybeans, 1,000 barrels of crude oil or $50 times the value of the Standard &amp; Poor (S&amp;P) 500 Index. Since these contracts are based on fixed quantities, the values of the contracts fluctuate over time. 
         [0003]    The fluctuating values of futures contracts can make futures contracts less than ideal for hedging risks associated with the purchase of over-the-counter derivatives. Over-the-counter derivatives, such as interest rate swaps, generally have constant notional values that are round numbers. As a result, it becomes difficult to precisely hedge the purchase of an over-the counter derivative that has a constant round value with a futures contract that may have a fluctuating value that is not a round value. The difficulty associated with not being able to precisely hedge a risk can make it difficult to comply with accounting standards or regulations. 
         [0004]    Many retail investors also generally prefer to invest specific round dollar amounts instead of quantities. For example, an investor wishing to invest $10,000 in an oil futures contract would have to find a round quantity that has a value closest to $10,000. 
         [0005]    Therefore, there is a need in the art for improved systems and methods for processing futures contracts. 
       SUMMARY OF THE INVENTION 
       [0006]    Embodiments of the invention overcome at least some of the problems and limitations of the prior art by providing systems and methods for creating and processing fixed unit futures contracts. The notional value of the fixed unit futures contract may be initially set to a round number. A computer system may be used to periodically determine gains and losses. The periods may correspond to trading sessions, fiscal periods or times agreed to by buyers and sellers. At the expiration of the time periods gains and losses may be determined and settled by a clearing firm. The value of the fixed unit futures contract may be returned to the notional value before the beginning of a trading session or other time period. 
         [0007]    In various embodiments, aspects of the present invention can be partially or wholly implemented on a computer-readable medium, for example, by storing computer-executable instructions or modules, or by utilizing computer-readable data structures. 
         [0008]    Of course, the methods and systems disclosed herein may also include other additional elements, steps, computer-executable instructions, or computer-readable data structures. 
         [0009]    The details of these and other embodiments of the present invention are set forth in the accompanying drawings and the description below. Other features and advantages of the invention will be apparent from the description and drawings, and from the claims. 
     
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
         [0010]    The present invention may take physical form in certain parts and steps, embodiments of which will be described in detail in the following description and illustrated in the accompanying drawings that form a part hereof, wherein: 
           [0011]      FIG. 1  shows a computer network system that may be used to implement aspects of the present invention. 
           [0012]      FIG. 2  illustrates the value of a fixed unit futures contract over time in accordance with an embodiment of the invention. 
           [0013]      FIG. 3  illustrates a process that may be used to process fixed unit futures contracts in accordance with an embodiment of the invention. 
       
    
    
     DETAILED DESCRIPTION 
       [0014]    Aspects of the present invention are preferably implemented with computer devices and computer networks that allow users to exchange trading information. An exemplary trading network environment for implementing trading systems and methods is shown in  FIG. 1 . An exchange computer system  100  receives orders and transmits market data related to orders and trades to users. Exchange computer system  100  may be implemented with one or more mainframe, desktop or other computers. A user database  102  includes information identifying traders and other users of exchange computer system  100 . Data may include user names and passwords. An account data module  104  may process account information that may be used during trades. A match engine module  106  is included to match bid and offer prices. Match engine module  106  may be implemented with software that executes one or more algorithms for matching bids and offers. A trade database  108  may be included to store information identifying trades and descriptions of trades. In particular, a trade database may store information identifying the time that a trade took place and the contract price. An order book module  110  may be included to compute or otherwise determine current bid and offer prices. A market data module  112  may be included to collect market data and prepare the data for transmission to users. A risk management module  134  may be included to compute and determine a user&#39;s risk utilization in relation to the user&#39;s defined risk thresholds. An order processing module  136  may be included to decompose delta based and bulk order types for processing by order book module  110  and match engine module  106 .) 
         [0015]    The trading network environment shown in  FIG. 1  includes computer devices  114 ,  116 ,  118 ,  120  and  122 . Each computer device includes a central processor that controls the overall operation of the computer and a system bus that connects the central processor to one or more conventional components, such as a network card or modem. Each computer device may also include a variety of interface units and drives for reading and writing data or files. Depending on the type of computer device, a user can interact with the computer with a keyboard, pointing device, microphone, pen device or other input device. 
         [0016]    Computer device  114  is shown directly connected to exchange computer system  100 . Exchange computer system  100  and computer device  114  may be connected via a T 1  line, a common local area network (LAN) or other mechanism for connecting computer devices. Computer device  114  is shown connected to a radio  132 . The user of radio  132  may be a trader or exchange employee. The radio user may transmit orders or other information to a user of computer device  114 . The user of computer device  114  may then transmit the trade or other information to exchange computer system  100 . 
         [0017]    Computer devices  116  and  118  are coupled to a LAN  124 . LAN  124  may have one or more of the well-known LAN topologies and may use a variety of different protocols, such as Ethernet. Computers  116  and  118  may communicate with each other and other computers and devices connected to LAN  124 . Computers and other devices may be connected to LAN  124  via twisted pair wires, coaxial cable, fiber optics or other media. Alternatively, a wireless personal digital assistant device (PDA)  122  may communicate with LAN  124  or the Internet  126  via radio waves. PDA  122  may also communicate with exchange computer system  100  via a conventional wireless hub  128 . As used herein, a PDA includes mobile telephones and other wireless devices that communicate with a network via radio waves. 
         [0018]      FIG. 1  also shows LAN  124  connected to the Internet  126 . LAN  124  may include a router to connect LAN  124  to the Internet  126 . Computer device  120  is shown connected directly to the Internet  126 . The connection may be via a modem, DSL line, satellite dish or any other device for connecting a computer device to the Internet. 
         [0019]    One or more market makers  130  may maintain a market by providing constant bid and offer prices for a derivative or security to exchange computer system  100 . Exchange computer system  100  may also exchange information with other trade engines, such as trade engine  138 . One skilled in the art will appreciate that numerous additional computers and systems may be coupled to exchange computer system  100 . Such computers and systems may include clearing, regulatory and fee systems. 
         [0020]    The operations of computer devices and systems shown in  FIG. 1  may be controlled by computer-executable instructions stored on computer-readable medium. For example, computer device  116  may include computer-executable instructions for receiving order information from a user and transmitting that order information to exchange computer system  100 . In another example, computer device  118  may include computer-executable instructions for receiving market data from exchange computer system  100  and displaying that information to a user. 
         [0021]    Of course, numerous additional servers, computers, handheld devices, personal digital assistants, telephones and other devices may also be connected to exchange computer system  100 . Moreover, one skilled in the art will appreciate that the topology shown in  FIG. 1  is merely an example and that the components shown in  FIG. 1  may be connected by numerous alternative topologies. 
         [0022]      FIG. 2  illustrates the value of a fixed unit futures contract over time in accordance with an embodiment of the invention. The fixed unit futures contract may be based on a variety of underlying assets, such as equities, fixed income instruments, currencies, commodities and indexes. A time axis  202  is marked with times T 0 , T 1 , T 2 , T 3 , T 4 , T 5  and T 6 . A value axis  204  is marked with a notional value  206 . A fixed unit futures contract may initially have a notional value  206 . The notional value may be a constant round number, such as $10,000 or $50,000.  FIG. 2  shows a trading session  1  occurring between times T 0  and T 1 . At time T 0 , the value of the fixed unit futures contract starts at notional value  206 . Between times T 0  and T 1 , the value may fluctuate. At time T 1 , the value of the fixed unit futures contract is less than notional value  206 . After trading session  1  ends at time T 1 , the value of the fixed unit futures contract returns to notional value  206  so that at time T 2 , which corresponds to the beginning of trading session  2 , the value of the fixed unit futures contract is recalibrated to notional value  206 . Segment  208  represents a loss in value experienced during trading session  1 . A clearing system may be used to clear the loss. Alternatively, the parties to a fixed unit futures contract may settle gains and losses directly with one another. 
         [0023]    The value of the fixed unit futures contract may similarly fluctuate during trading session  2 . After the end of trading session  2 , which corresponds to time T 3 , the value of the fixed unit futures contract is recalibrated to notional value  206 .  FIG. 2  shows that the recalibration does not have to occur immediately after time T 3 . In some embodiments the recalibration occurs immediately after a trading session ends and in other embodiments the recalibration occurs at some time before the beginning of the next trading session.  FIG. 2  also shows the fixed unit futures contract gaining value during trading session  2 . Segment  210  represents the gain experienced during trading session  2 . This gain may be cleared with a clearing system. 
         [0024]    The value of the fixed unit futures contract may fluctuate during additional trading sessions or time periods and the value may be recalibrated to the notional value prior to the beginning of another trading session or time period. A clearing system may be used to clear gains and losses. Gains and loss may also be accumulated and cleared after multiple trading sessions or time periods. For example, gains and losses may be tracked daily and clearing of accumulated gains and losses may occur once per fiscal quarter. 
         [0025]      FIG. 3  illustrates a process that may be used to process fixed unit futures contracts in accordance with an embodiment of the invention. First, in step  302  a fixed unit futures contract value is calibrated to a notional value. The notional value may be a round number. The calibration may occur at the beginning of a trading session or other time period. Next, it is determined whether a time period has expired in step  304 . Step  304  may include determining whether a trading session has ended. In alternative embodiments the time period may correspond to an end of a month, fiscal quarter or a time agreed to by a buyer and seller of the fixed unit futures contract. If the time period has not expired, in step  306  the process waits for a predetermined time period and checks again to see if the time period has expired. In an alternative embodiment, instead of determining whether a time period has expired, the process may receive a notice when the time period has expired. 
         [0026]    After the time period has expired, in step  308  a gain or loss from the notional value of the fixed unit futures contract is determined. Step  308  may be performed with a processor of a computer system. Next, any gain or loss is settled in step  310 . Step  310  may be performed by a clearing firm computer system or some other computer system and may include debiting and crediting accounts of a buyer and a seller of the fixed unit futures contract. The value of the futures contract may be recalibrated to the notional value in step  312 . Step  312  may be performed after the expiration of trading session and prior to the beginning of a new trading session. 
         [0027]    The present invention has been described in terms of preferred and exemplary embodiments thereof. Numerous other embodiments, modifications and variations within the scope and spirit of the invention will occur to persons of ordinary skill in the art from a review of this disclosure.