Brent/Dubai EFS nears $4/b as global oil complex rallies

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This application claims priority from U. Provisional Patent Application No. The present invention relates to an over the counter traded product and a system of offset or contingent trading of instruments which links an OTC marketplace with a futures exchange via an electronic interface. Particularly, the present invention is directed to a system wherein one contract is automatically exchanged for another contract on a related commodity.

Trading of financial derivatives contracts e. Many of the commodities traded in an OTC market have similar corresponding futures or options contracts traded on futures exchanges. This is for the simple reason that there is a pricing relationship between the futures contract, the underlying asset on which it is based, and a related OTC derivative.

This is particularly the case in crude oil markets where there is a price relationship between the physical wet crude oil and related derivatives. Also because of the linkages between different crudes, there are pricing brent crude futures dubai between different types of crude oil—e.

Besides the difference in the type of contract, regulatory supervision, and trading method open out-cry, voice brokered, auction, electronic, etc. This brent crude futures dubai is often significant because bilaterally settled transactions require that the counterparties e. From a purely performance risk perspective e.

In addition, there may be more liquidity in a particular contract on a particular brent crude futures dubai commodity e. In addition, in markets that are less liquid, there are potentially fewer counterparties with whom to trade, and the possibility that counterparties will be unacceptable from a contract performance, and consequently risk perspective, is increased. Alternatively, investors or principals that manage open brent crude futures dubai up to and throughout the delivery process may prefer the guaranteed contract performance that clearing provides for a derivative prior to delivery, but upon fulfilling the terms of the contract, may choose the selectivity that the OTC markets provide in terms of potential counterparties and the potential synergies that non-anonymous delivery offer.

To take advantage of the OTC market and the futures markets trading in similar base commodities, brent crude futures dubai manual process of initiating and offsetting open positions from one method of contract performance to another is currently the norm—usually by completing a form provided by the exchange, and then submitting to the relevant exchange via phone, fax, online, etc. For example, suppose a party holds a long position in a relatively illiquid OTC commodity, such as a Dubai crude oil swap, which is a derivative contract based on a particular type of oil.

The party wishes to convert that Dubai swap position into a position in a more liquid commodity, or a cleared commodity because it no longer wishes to maintain contract performance risk for its counterparty to the trade. In this case, the party could convert the Dubai swap to a futures contract in Brent, which is another derivative of an oil commodity that typically trades at a price level, or differential, with respect to the Dubai crude oil. According to the prior art, the counterparties would consummate an offsetting or contingent trade for the Dubai swap in the OTC market, then manually contact a clearing firm to submit the corresponding futures contract for registration on a futures exchange.

The futures exchange may request documentation from the counterparties as evidence to the corresponding OTC trade to ensure that there has been no abuse under the futures exchange rules. This method works, but is inefficient. It also leads to potential risk in that there is risk of human error in agreeing to the terms of the brent crude futures dubai, confirming with other counterparties, and completing a form for the relevant exchange. There is also a risk that the relevant exchange may refuse to accept the trade typically because it either does not reflect market value, or for other regulatory reasons.

What is needed to make the process more efficient and to provide effective risk management and straight-through processing for counterparties and reduce operational risk is an automated EFS or EFP process that links an electronic OTC market and an electronic futures exchange and automatically generates an exchange futures position. A further need is a system which provides near real-time audit and market supervision capabilities for futures exchanges. Another need is a system that reduces operational risk for counterparties and provides near immediate straight-through processing into back office and risk management systems.

The purpose and advantages of the present invention will be set forth in and apparent from the description that follows, as well as will be learned by practice of the invention. Additional advantages of the invention will be realized and attained by the methods and systems particularly brent crude futures dubai out in the written description and claims hereof, as well as from the appended drawings.

According to a preferred embodiment, one example of the invention is a method for brent crude futures dubai the offset or contingent trading of commodity contracts comprising: An alternative brent crude futures dubai of the invention is an over the counter product comprising: A system for offset or contingent trading of commodity contracts is also disclosed.

Yet a further embodiment of the invention is a system for offset or contingent trading of commodity contracts comprising: It is to be understood that both the foregoing general description and the following detailed description are exemplary and are intended to provide further explanation of the invention claimed. Reference will brent crude futures dubai be made in detail to the present preferred embodiments of the invention.

The method and corresponding steps of the invention will be described in conjunction with the detailed description of the system. The methods and systems presented herein may be used for taking a bilateral OTC contract and moving brent crude futures dubai a cleared position, or taking a cleared contract and moving into a bilateral OTC position, brent crude futures dubai simultaneously initiating a position in both a bilateral OTC contract and a cleared brent crude futures dubai.

For purpose of explanation and illustration, and not limitation, exemplary embodiments are described herein. The present invention is carried out in an electronic trading environment, such as that provided by ICE. According to the preferred embodiments, the trading environmentdepicted brent crude futures dubai FIG. Trades occurring on either the OTC exchange or the futures exchange are reported to the trading platform so that a user has access to a single platform for trading both OTC and futures or options contracts.

Individual users 202224and 26 are electronically linked to the trading platform via a network, such as the internet, The following example is explained with reference to FIG.

Assume Party A has an interest in the differential between the November contracts in a Dubai crude oil swap a bilateral OTC contract and a Brent crude oil future a cleared futures contract. Assume he wants to be long lots in the Brent futures contract and short lots in the Dubai OTC swap contract. According to a preferred embodiment, Party A would access an electronic exchange such as that provided by ICE. This means that he has sold lots of the November Dubai OTC swap contract which is priced by reference to the prevailing price in the November Brent futures market, i.

In stepParty A buys lots of November Brent futures at the prevailing market price. However, at the time of purchase, in stepthis is immediately automatically transmitted to the futures exchange, e. In stepthe details of the trade excluding price are publicized to the futures marketplace and on all trading screens. According to the preferred embodiment, because the OTC exchange is linked to the futures exchange, e. Assume he wants brent crude futures dubai be brent crude futures dubai lots in the Mars crude oil forward, but is generally viewed as being of unacceptable credit worthiness by the available counterparties e.

Of the counterparties in the market, most brent crude futures dubai willing to execute a bilateral contract with Party A contingent upon it being exchanged for a November WTI futures contract. This means that he has bought lots of the November WTI futures contract which is priced by reference to the prevailing price in the November WTI futures market, i.

Assume a party maintains a long position in a December Brent crude oil future a cleared futures contract and wants to manage the commodity bilaterally during a delivery phase to make a profit i. This means that he has sold a Brent crude oil future and correspondingly purchased a BFO Blend crude oil OTC forward contract at a price differential between the two commodities.

The sale of the Brent future is automatically registered on the future exchange when brent crude futures dubai OTC forward purchase occurs. In stepparty A sells a December Brent crude oil futures contract at the prevailing market price.

However, at the time brent crude futures dubai sale, in stepthis is immediately automatically transmitted to the futures exchange, e. Following the transaction, Party A has a bilateral BFO OTC forward contract with a counterparty, Party B, as well as an brent crude futures dubai of lot of the Brent futures contract for his existing futures position.

It will be seen in that in the above Example 2, a futures contract is offset and reestablished as an OTC position. Moreover, at the point of execution, although the two markets OTC and futures are linked, the product is an OTC product and is only registered automatically on the futures market to show that a trade has occurred and that a futures position has been created. Thus, disclosure is made in the futures market without affecting the price of that market. Additionally, because the counterparties preferably consummate the OTC leg of the trade electronically, their identities are known to the exchanges and readily reportable for documentation purposes.

Where the underlying commodity type is energy, the related first and second commodities may be, for example: For oil, the related first and second commodity may be, for example: Other commodity types may include precious metals, base metals, currency, agricultural commodities, fixed income financial futures, brent crude futures dubai others.

It will be apparent to those skilled brent crude futures dubai the art that various modifications and variations can brent crude futures dubai made in the method and system of the present invention without departing from the spirit or scope of the invention.

Thus, it is intended that the present invention include modifications and variations that are within the scope of the appended claims and their equivalents. Year of fee payment: A method for facilitating the offset or contingent trading of commodity contracts comprising: In certain embodiments, the invention is an over the counter product comprising: Field of the Invention The present invention relates to an over the counter traded product and a system of offset or contingent trading of instruments which links an OTC marketplace with a futures exchange via an electronic interface.

Description of Related Art Trading of financial derivatives contracts e. The following examples demonstrate aspects of the present invention. EXAMPLE 3 Assume a party maintains a long position in a December Brent crude brent crude futures dubai future a cleared futures contract and wants to manage the commodity bilaterally during a delivery phase to make a profit i. A method of offset or contingent trading comprising: The method of claim 1wherein the first financial derivatives contract corresponds to the consummated trading transaction.

The method of claim 2wherein the one of an offsetting and contingent brent crude futures dubai transaction is one of brent crude futures dubai exchange for physical EFP and exchange for swap EFS transaction. The method of claim 3further comprising publicizing details of the trade for the first derivatives contract to marketplace participants of the first exchange.

The method of claim 4wherein the first financial derivatives contract is a futures or options contract, wherein the first financial exchange is a brent crude futures dubai exchange, wherein the second financial derivatives contract is an OTC bilateral contract, and wherein the second financial exchange is an OTC exchange. The method brent crude futures dubai claim 5wherein the OTC bilateral contract is one of a swap, forward and options contract.

The method of claim 1wherein the first financial derivatives contract is based on a first commodity of a commodity type, and wherein the second brent crude futures dubai derivatives contract is based on a second commodity of said commodity type. The method of claim 7wherein the commodity type is one of energy, oil, precious metals, base metals, currency, agricultural commodities, and fixed income financial futures. The method of claim 8wherein the commodity type is energy and wherein the first and second commodities are selected from the group consisting of natural gas, crude oil, refined crude oil products, electricity, emissions, coal, liquid natural gas, natural gas liquids, weather, bio fuels, nuclear fuel, petrochemicals, hydroelectric energy generation, solar energy generation, and wind energy generation.

The method of claim 7wherein the commodity type is oil and wherein the first and second commodities are selected from the group consisting of oil futures, oil forwards, oil options, oil swaptions, rolling date forwards, contracts-for-difference, front line swaps, fixed-for-floating swaps, float-for-float swaps, and index swaps. A system for offset and contingent trading in an electronic trading environment, the system comprising: The system of claim 11wherein the first exchange is a futures exchange, wherein the second exchange is an OTC exchange, and wherein the electronic trading platform is configured to move a bilateral OTC contract into a cleared position upon consummating one of an offsetting and contingent trading transaction.

The system of claim 12wherein the electronic trading platform is further configured to move a cleared contract into a bilateral OTC position upon consummating one of an offsetting and contingent trading transaction. The system of claim 13wherein the electronic trading platform is further configured to simultaneously initiate a position in both brent crude futures dubai bilateral Brent crude futures dubai contract and a cleared contract upon consummating one of an offsetting and contingent trading transaction.

The system of claim 12wherein the first financial derivatives contract is one of a futures and options contract, and wherein the first exchange is a futures exchange. The system of claim 12wherein the second financial derivatives contract is an over-the-counter OTC bilateral contract.

The system of claim 16wherein the OTC bilateral contract is one of a swap, forward and options contract. The system of claim 17wherein the first and second financial derivatives contracts are based on one of commodities, natural resources, and brent crude futures dubai instruments.

The system of claim 18wherein the first financial derivative contract brent crude futures dubai for a first commodity of a commodity type and wherein the second financial derivative contract is for a second commodity of said commodity type. The system of claim 19wherein the commodity type is one of oil, natural gas, and energy.

US USB2 en Over the counter traded product and system for offset and contingent trading of commodity contracts. Method and system for providing automatic execution of black box strategies for electonic trading.

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This application claims priority from U. Provisional Patent Application No. The present invention relates to an over the counter traded product and a system of offset or contingent trading of instruments which links an OTC marketplace with a futures exchange via an electronic interface. Particularly, the present invention is directed to a system wherein one contract is automatically exchanged for another contract on a related commodity.

Trading of financial derivatives contracts e. Many of the commodities traded in an OTC market have similar corresponding futures or options contracts traded on futures exchanges. This is for the simple reason that there is a pricing relationship between the futures contract, the underlying asset on which it is based, and a related OTC derivative.

This is particularly the case in crude oil markets where there is a price relationship between the physical wet crude oil and related derivatives. Also because of the linkages between different crudes, there are pricing relationships between different types of crude oil—e. Besides the difference in the type of contract, regulatory supervision, and trading method open out-cry, voice brokered, auction, electronic, etc.

This difference is often significant because bilaterally settled transactions require that the counterparties e. From a purely performance risk perspective e. In addition, there may be more liquidity in a particular contract on a particular base commodity e. In addition, in markets that are less liquid, there are potentially fewer counterparties with whom to trade, and the possibility that counterparties will be unacceptable from a contract performance, and consequently risk perspective, is increased.

Alternatively, investors or principals that manage open positions up to and throughout the delivery process may prefer the guaranteed contract performance that clearing provides for a derivative prior to delivery, but upon fulfilling the terms of the contract, may choose the selectivity that the OTC markets provide in terms of potential counterparties and the potential synergies that non-anonymous delivery offer.

To take advantage of the OTC market and the futures markets trading in similar base commodities, a manual process of initiating and offsetting open positions from one method of contract performance to another is currently the norm—usually by completing a form provided by the exchange, and then submitting to the relevant exchange via phone, fax, online, etc.

For example, suppose a party holds a long position in a relatively illiquid OTC commodity, such as a Dubai crude oil swap, which is a derivative contract based on a particular type of oil. The party wishes to convert that Dubai swap position into a position in a more liquid commodity, or a cleared commodity because it no longer wishes to maintain contract performance risk for its counterparty to the trade.

In this case, the party could convert the Dubai swap to a futures contract in Brent, which is another derivative of an oil commodity that typically trades at a price level, or differential, with respect to the Dubai crude oil. According to the prior art, the counterparties would consummate an offsetting or contingent trade for the Dubai swap in the OTC market, then manually contact a clearing firm to submit the corresponding futures contract for registration on a futures exchange.

The futures exchange may request documentation from the counterparties as evidence to the corresponding OTC trade to ensure that there has been no abuse under the futures exchange rules. This method works, but is inefficient. It also leads to potential risk in that there is risk of human error in agreeing to the terms of the trade, confirming with other counterparties, and completing a form for the relevant exchange.

There is also a risk that the relevant exchange may refuse to accept the trade typically because it either does not reflect market value, or for other regulatory reasons. What is needed to make the process more efficient and to provide effective risk management and straight-through processing for counterparties and reduce operational risk is an automated EFS or EFP process that links an electronic OTC market and an electronic futures exchange and automatically generates an exchange futures position.

A further need is a system which provides near real-time audit and market supervision capabilities for futures exchanges. Another need is a system that reduces operational risk for counterparties and provides near immediate straight-through processing into back office and risk management systems.

The purpose and advantages of the present invention will be set forth in and apparent from the description that follows, as well as will be learned by practice of the invention. Additional advantages of the invention will be realized and attained by the methods and systems particularly pointed out in the written description and claims hereof, as well as from the appended drawings.

According to a preferred embodiment, one example of the invention is a method for facilitating the offset or contingent trading of commodity contracts comprising: An alternative embodiment of the invention is an over the counter product comprising: A system for offset or contingent trading of commodity contracts is also disclosed.

Yet a further embodiment of the invention is a system for offset or contingent trading of commodity contracts comprising: It is to be understood that both the foregoing general description and the following detailed description are exemplary and are intended to provide further explanation of the invention claimed.

Reference will now be made in detail to the present preferred embodiments of the invention. The method and corresponding steps of the invention will be described in conjunction with the detailed description of the system. The methods and systems presented herein may be used for taking a bilateral OTC contract and moving into a cleared position, or taking a cleared contract and moving into a bilateral OTC position, or simultaneously initiating a position in both a bilateral OTC contract and a cleared contract.

For purpose of explanation and illustration, and not limitation, exemplary embodiments are described herein. The present invention is carried out in an electronic trading environment, such as that provided by ICE. According to the preferred embodiments, the trading environment , depicted in FIG. Trades occurring on either the OTC exchange or the futures exchange are reported to the trading platform so that a user has access to a single platform for trading both OTC and futures or options contracts.

Individual users 20 , 22 , 24 , and 26 are electronically linked to the trading platform via a network, such as the internet, The following example is explained with reference to FIG. Assume Party A has an interest in the differential between the November contracts in a Dubai crude oil swap a bilateral OTC contract and a Brent crude oil future a cleared futures contract.

Assume he wants to be long lots in the Brent futures contract and short lots in the Dubai OTC swap contract. According to a preferred embodiment, Party A would access an electronic exchange such as that provided by ICE. This means that he has sold lots of the November Dubai OTC swap contract which is priced by reference to the prevailing price in the November Brent futures market, i. In step , Party A buys lots of November Brent futures at the prevailing market price. However, at the time of purchase, in step , this is immediately automatically transmitted to the futures exchange, e.

In step , the details of the trade excluding price are publicized to the futures marketplace and on all trading screens.

According to the preferred embodiment, because the OTC exchange is linked to the futures exchange, e. Assume he wants to be long lots in the Mars crude oil forward, but is generally viewed as being of unacceptable credit worthiness by the available counterparties e. Of the counterparties in the market, most are willing to execute a bilateral contract with Party A contingent upon it being exchanged for a November WTI futures contract.

This means that he has bought lots of the November WTI futures contract which is priced by reference to the prevailing price in the November WTI futures market, i. Assume a party maintains a long position in a December Brent crude oil future a cleared futures contract and wants to manage the commodity bilaterally during a delivery phase to make a profit i. This means that he has sold a Brent crude oil future and correspondingly purchased a BFO Blend crude oil OTC forward contract at a price differential between the two commodities.

The sale of the Brent future is automatically registered on the future exchange when the OTC forward purchase occurs.

In step , party A sells a December Brent crude oil futures contract at the prevailing market price. However, at the time of sale, in step , this is immediately automatically transmitted to the futures exchange, e.

Following the transaction, Party A has a bilateral BFO OTC forward contract with a counterparty, Party B, as well as an offset of lot of the Brent futures contract for his existing futures position. It will be seen in that in the above Example 2, a futures contract is offset and reestablished as an OTC position. Moreover, at the point of execution, although the two markets OTC and futures are linked, the product is an OTC product and is only registered automatically on the futures market to show that a trade has occurred and that a futures position has been created.

Thus, disclosure is made in the futures market without affecting the price of that market. Additionally, because the counterparties preferably consummate the OTC leg of the trade electronically, their identities are known to the exchanges and readily reportable for documentation purposes. Where the underlying commodity type is energy, the related first and second commodities may be, for example: For oil, the related first and second commodity may be, for example: Other commodity types may include precious metals, base metals, currency, agricultural commodities, fixed income financial futures, and others.

It will be apparent to those skilled in the art that various modifications and variations can be made in the method and system of the present invention without departing from the spirit or scope of the invention. Thus, it is intended that the present invention include modifications and variations that are within the scope of the appended claims and their equivalents.

Year of fee payment: A method for facilitating the offset or contingent trading of commodity contracts comprising: In certain embodiments, the invention is an over the counter product comprising: Field of the Invention The present invention relates to an over the counter traded product and a system of offset or contingent trading of instruments which links an OTC marketplace with a futures exchange via an electronic interface.

Description of Related Art Trading of financial derivatives contracts e. The following examples demonstrate aspects of the present invention. EXAMPLE 3 Assume a party maintains a long position in a December Brent crude oil future a cleared futures contract and wants to manage the commodity bilaterally during a delivery phase to make a profit i.

A method of offset or contingent trading comprising: The method of claim 1 , wherein the first financial derivatives contract corresponds to the consummated trading transaction. The method of claim 2 , wherein the one of an offsetting and contingent trading transaction is one of an exchange for physical EFP and exchange for swap EFS transaction. The method of claim 3 , further comprising publicizing details of the trade for the first derivatives contract to marketplace participants of the first exchange.

The method of claim 4 , wherein the first financial derivatives contract is a futures or options contract, wherein the first financial exchange is a futures exchange, wherein the second financial derivatives contract is an OTC bilateral contract, and wherein the second financial exchange is an OTC exchange. The method of claim 5 , wherein the OTC bilateral contract is one of a swap, forward and options contract.

The method of claim 1 , wherein the first financial derivatives contract is based on a first commodity of a commodity type, and wherein the second financial derivatives contract is based on a second commodity of said commodity type. The method of claim 7 , wherein the commodity type is one of energy, oil, precious metals, base metals, currency, agricultural commodities, and fixed income financial futures. The method of claim 8 , wherein the commodity type is energy and wherein the first and second commodities are selected from the group consisting of natural gas, crude oil, refined crude oil products, electricity, emissions, coal, liquid natural gas, natural gas liquids, weather, bio fuels, nuclear fuel, petrochemicals, hydroelectric energy generation, solar energy generation, and wind energy generation.

The method of claim 7 , wherein the commodity type is oil and wherein the first and second commodities are selected from the group consisting of oil futures, oil forwards, oil options, oil swaptions, rolling date forwards, contracts-for-difference, front line swaps, fixed-for-floating swaps, float-for-float swaps, and index swaps. A system for offset and contingent trading in an electronic trading environment, the system comprising: The system of claim 11 , wherein the first exchange is a futures exchange, wherein the second exchange is an OTC exchange, and wherein the electronic trading platform is configured to move a bilateral OTC contract into a cleared position upon consummating one of an offsetting and contingent trading transaction.

The system of claim 12 , wherein the electronic trading platform is further configured to move a cleared contract into a bilateral OTC position upon consummating one of an offsetting and contingent trading transaction.

The system of claim 13 , wherein the electronic trading platform is further configured to simultaneously initiate a position in both a bilateral OTC contract and a cleared contract upon consummating one of an offsetting and contingent trading transaction. The system of claim 12 , wherein the first financial derivatives contract is one of a futures and options contract, and wherein the first exchange is a futures exchange.

The system of claim 12 , wherein the second financial derivatives contract is an over-the-counter OTC bilateral contract. The system of claim 16 , wherein the OTC bilateral contract is one of a swap, forward and options contract. The system of claim 17 , wherein the first and second financial derivatives contracts are based on one of commodities, natural resources, and financial instruments.

The system of claim 18 , wherein the first financial derivative contract is for a first commodity of a commodity type and wherein the second financial derivative contract is for a second commodity of said commodity type. The system of claim 19 , wherein the commodity type is one of oil, natural gas, and energy. US USB2 en Over the counter traded product and system for offset and contingent trading of commodity contracts.

Method and system for providing automatic execution of black box strategies for electonic trading.