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This application claims the benefit of U. Generally these exchanges provide an open market for the purchase and sale of securities and commodities. Principle or designated market makers can be employed at these exchanges to maintain a market in securities and commodities. The market maker maintains a market by being on the opposite side of every trade. The use of a human market maker in a trading environment is known. For example, the tradency brokers clearing house of a market maker has been employed in connection with trading securities.
However, these rules have not been implemented. The PMM's functions are similar to that of a market making foreign exchange bank and broker specialist. This market should be of a designated minimum quantity and maximum spread, i. Also, the PMM should maintain the "public order book" collection of public customer orders to purchase or sell with respect to the assigned products. Finally, the PMM should give priority to customer order execution over personal trading.
As compensation for the above functions, the PMM is tradency brokers clearing house entitled to participatory volume defined as the average daily pit traded volume tradency brokers clearing house the preceding calendar quarter. No entitlements are currently tradency brokers clearing house if volume exceeds 5, transactions per day.
Additionally, the PMM is entitled to the retention of floor executed brokerage transactions commissions except where principal-agency conflicts of interest apply, or other arrangements have been made. The foreign exchange spot cash market facilitates the exchange of currency between two parties. The actual currency transfer generally occurs two business days following the transaction date. At the close of business of each trading day, market participants roll or swap their open spot positions forward one business day.
This enables the next trading day's position to be maintained in spot terms. Eventually, future spot positions are netted against existing positions. Thus, the CME's Rolling Spot Currency contracts combine the price convention of the interbank market with all the benefits of the CME and its existing central clearing facility. The need for a credit-worthiness counterparty check is eliminated because the counter-party is always the CME Clearing House.
Overdraft expenses are eliminated using Rolling Spot Currency contracts because there is no need to actually make a payment or tradency brokers clearing house a delivery as in the foreign exchange forex markets. Unlike regular spot tradency brokers clearing house in the foreign exchange markets, Rolling Spot Currency trades do not tie up bank credit lines.
Therefore, institutional traders can conserve their firm's credit lines for other uses. Because Rolling Spot Currencies are a centralized exchange traded contract, these contracts allow all traders to obtain the same quotes regardless of their firm's credit rating or size. Quick access to cash flows can also be created by combining the CME's Rolling Spot Currencies with currency forwards to produce forward swap positions. By circumventing the tasks of tradency brokers clearing house transfer and multiple ticket writing to facilitate the roll, the CME replicates the one-day roll with a simple line entry and no deliveries.
Furthermore, multiple trades transacted in the interbank market with several counterparties require separate ticketing for each buy and sell. The APS significantly reduces costly paperwork because the trader has the benefit of averaging all trades into single buy and sell tickets. Previous attempts at providing an active interbank exchange traded currency market have failed. Failure of prior attempts to develop an interbank exchange traded currency has kept the transaction cost the difference between bid and offer of market participation in worldwide international currency trade very high because liquidity of the exchange traded futures market is relatively low vis-a-vis the interbank over-the-counter forex market.
Futures exchange traded foreign currency trading has failed to compete with the over-the-counter-forex market. The CME's foreign currency volume has recently declined, while over-the-counter volume increased. In addition, a "second tier" of currency trading banks have recently entered the "top twenty" group of currency traders. This suggests that market growth in foreign currency trading is dynamic, not static, and represents another failure of the current methodology of exchange traded foreign currencies.
Prior attempts have also been made by exchanges to capture market share in the area of currency trading which is established between the spot current date transaction and the short duration days of currency market derivative products. Foreign exchange average daily volume may be as tradency brokers clearing house as billion dollars.
Two thirds of this figure may also represent forward and swap derivative transactions. These transactions represent an important untapped market for exchange traded currency products. This area is currently a fast growing, off-exchange trade between Futures Clearing Merchants FCMwhich are analogous to brokerage houses in the securities industry. Because of the failure to provide a market maker with long term growth incentives to position itself in the market hours per day, and to market and make the essential business tradency brokers clearing house to promote its service and the exchange's products, exchange traded currencies are losing business to the EFPs.
Furthermore, the EFP is another area of over-the-counter, unregulated currency trading which is developing to the detriment of tradency brokers clearing house financial stability.
The greatest failure of the over-the-counter forex currency market is its inability to transfer risk in a timely, cost effective manner. The possibility of failure of one or more large currency market making banks is great because no present arena provides the vital service of efficient, cost effective risk transfer. Prior attempts at capturing flexibility in establishing new innovative currency contracts and direct marketing contacts with currency trading personnel have failed on the tradency brokers clearing house futures exchanges.
This failure to innovate and communicate is also exposing the world to potential currency risk because exchanges cannot provide the necessary products to limit risk. By establishing a mechanism associated with an exchange responsible for making a market at all times and charged with the responsibility of marketing that presence, the futures exchanges will be able to provide a much needed service similar to a bank, but with all the inherent advantages of cost competitiveness and regulatory safety of an exchange.
The present invention provides a method and system for linking Rolling Spot Currency contracts with a PMM specialist program. The Rolling Spot Currency contracts are futures contracts which in almost all aspects replicate spot currencies in the forex market. In a first aspect of the present invention, the system includes an electronic brokerage and trading network having at least one computer coupled to receive and transmit bids and offers for international currency trading; a display terminal and input; and a PMM computer coupled to the electronic brokerage and trading network wherein the PMM computer is operative to receive and transmit the bids and offers and execute international currency trades by maintaining a bid and offer market for such currencies.
In a second aspect of the present invention, the system includes means for receiving a primary currency purchase order tradency brokers clearing house of whether a currency is to be bought or sold; means for receiving a secondary currency purchase order indicative of a currency option hedge; a PMM futures computer coupled to the means for receiving the primary currency purchase order and operative to execute primary currency purchase orders and maintain a currency futures market; a PMM options computer coupled to the means tradency brokers clearing house receiving the secondary currency purchase order and operative to execute secondary currency purchase orders and maintain a currency options bid and offer market; and a bidirectional communications link coupled between the futures and options computers to facilitate intermarket trading to manage risk taken in a position resulting from a trade in either market.
In a third aspect of the present invention, the system includes a communications interface operative to transmit currency bids and tradency brokers clearing house from at least one financial institution; and a PMM computer coupled to the communications interface and operative to receive the currency bids and offers and execute trades to maintain a market for international currency trades. In a fourth aspect of the present invention, the system includes an electronic tradency brokers clearing house and trading network having at least one computer, display terminal and input coupled to receive and transmit bids and offers; and a principal market maker computer coupled to the electronic brokerage and trading network to tradency brokers clearing house and transmit the bids and offers and execute trades by maintaining a constant bid and offer market.
A fifth aspect of the present invention involves a method of trading currencies including the steps of receiving and transiting bids tradency brokers clearing house offers for publicly traded currencies; storing the received bids and offers in tradency brokers clearing house memory; identifying matching bids and offers; executing the matching bids and offers; identifying unmatched bids and offers; and providing a complementary trade to maintain a market for such currencies.
A sixth aspect of the present invention involves a method of maintaining a market for publicly traded currencies including the steps of receiving a primary currency purchase order, the primary currency purchase order indicative of whether a currency is to be bought or sold; receiving a secondary currency purchase order, the secondary currency purchase order indicative of a currency option hedge; matching and executing the primary currency purchase order to maintain tradency brokers clearing house currency futures market; matching and executing the secondary currency purchase order to maintain a currency options market; and providing intermarket futures and options trading to manage risk taken in a position resulting from a trade in tradency brokers clearing house market.
A seventh aspect of the present invention involves a method of trading currencies including the steps of receiving currency bids and offers from at least one financial institution; storing the currency bids and offers in a memory; matching the stored bids and offers to maintain a market for the currency traded; and executing the matched trades.
An eighth aspect of the present invention involves a method of trading including the steps of receiving and transmitting bids and offers; storing the received bids and offers in a memory; identifying matching bids and offers; executing the matching bids and offers; tradency brokers clearing house unmatched bids and offers; and providing a complementary trade to maintain a market.
Some of the benefits tradency brokers clearing house be expected from the merger of the PMM specialist and Rolling Spot Currency contracts include, tradency brokers clearing house are not limited to: The invention itself, together with further objects and attendant advantages, will be understood by reference to the following detailed description, taken in conjunction with the accompanying drawings. Preferably, the system includes PMM tradency brokers clearing house 12; a computer 10 coupled to the PMM computer 12 for trading rolling spot currency; an electronic brokerage and trading network 14 including a plurality of electronic trading systems 16, 18, 20, 22, 24 for use primarily by professional traders such as banks, dealers and institutions; a limited access network 26 primarily for use by non-professional traders such as individuals; and a clearing facility 48 coupled to the PMM computer 12, tradency brokers clearing house computer 10, the electronic brokerage and trading network 14 and the limited access network tradency brokers clearing house to confirm and settle trades executed by the PMM computer The PMM computer 12 tradency brokers clearing house the purchase and sale of currencies and is constantly charged with maintaining a currency market, i.
Preferably, as those skilled in the art would appreciate, computers 10 and 12 should be able to accommodate a large amount of transactions in a timely manner. These systems are coupled to the PMM computer 12 to receive and transmit bids and offers for international tradency brokers clearing house trading. Preferably, these trades include forward spread 28, forward outright 30, currency swap 34, odd value and odd date 32, and covered interest rate arbitrage This process is called primary risk transfer.
Such communications preferably include wireless, telephone, touch and voice activation computer. Primary risk transfer involves inventory hedge defense through the use of call option the right to buy the underlying purchase or sale and put option the right to buy the underlying purchase or sale. The purchase of a call option allows upside potential investment increase when a market rises, while the sale of a call option allows limited downside investment increase when the market decreases.
On the other hand, the purchase of a put option allows potential upside investment increase when a market declines, while the sale of a put option allows limited upside investment increase when a market rises. This action neutralizes the PMM's inventory risk. Therefore, the original inventory action tradency brokers clearing house been canceled.
These transactions disperse the risk among a multitude of traders. As shown in FIG. Secondary risk transfer is distinguished from primary risk transfer in that a bank or other institution does not wish to purchase the underlying currency prior to entering into an options transaction. This secondary process is accomplished as follows.
A typical example of a primary risk transfer transaction is illustrated as follows. A typical secondary risk transfer is illustrated as follows. Assume tradency brokers clearing house a bank has previous ownership of Rolling Spot Currency futures and now needs to hedge its own inventory. The bank has now transferred or neutralized its risk. The first transfer mode would be the inverse of the primary risk transfer. At this point, the risk can be dispersed horizontally through time spreads, vertically through volatility spreads or a combination of horizontal and vertical spreads.
The ultimate product of its risk transfer product is always the same--enabling the PMM computers 33, 35 to make hour markets in a risk minimum exchange traded environment--something never before accomplished. With this exchange traded market maker function, a hour exchange electronic traded banking market--a forex bank and institutional trading market--is now possible. This electronic traded banking market can be accomplished by forming an exchange of non-equity owning banks and other qualified financial institutions which would have electronic linkage to the exchange traded forex markets of the rolling spot and other derivative currencies.
These non-equity members preferably would have the ability to execute their transactions at member exchange rates, electronically as any other member of the exchange s would have. The major difference between the electronic market and full exchange privilege would be tradency brokers clearing house electronic market participants would only have the electronic ability to access the exchange trading PMM computer directly and not have physical access to the exchange trading floor.
This does not present an obstacle because most banks do not want the cost or responsibility of accessing the exchange floor directly. They simply would like the opportunity to trade competitively and at a very low cost. The electronic brokerage and trading network 14 allows remote terminal trading between financial institutions. Preferably, a remote terminal 42 located at a financial institution receives customer orders and queues them by time received and price.
These requests remain tradency brokers clearing house the system until matched or tradency brokers clearing house. The remote terminal 42 accesses PMM computer 44, preferably via modem, to obtain required bid, offer and quantity markets information. The PMM computer 44 displays last trades and quantity on its screen for information purposes of computing risk transfer information.
The financial institution, via remote terminal 42, can match the bid or offer based on stored customer requests. If a trade is completed to the PMM computer's 44 inventory, the PMM computer 44 will automatically transfer the risk assumed in the trade by transmitting to the PMM Options computer 46 a request to purchase the same amount of put options or sell the same amount of call options, thereby producing a synthetic short sale as described above. A clearing firm 48 receives confirmation of the trade after its screen not shown displays printed transaction record and tradency brokers clearing house accounts are settled.
Finally, a clearing system 50 matches and settles the trades. The PMM futures computer 33 then decides whether a trade will be executed. If a trade will not be executed, the PMM tradency brokers clearing house computer 33 queues the bid or offer in order of time of receipt and price and updates the video display to reflect the bid or offer.