Introduction: e-Counter is a barter and countertrade fulfillment solution integrated with exchange-traded derivatives (“ETD”) platforms innovated by Global e-Bourse Suites (“Suites”; www.globale-boursesuites.com), a unit of Chicago-based Dearborn Financial, Inc.
Suites solutions are focused on problems commonly encountered by physical delivery oriented counter-parties (“Commercials”) dealing in globally substantial asset classes traded “forward” over opaque illiquid OTC platforms operated by broker-dealer intermediaries. Such platforms have become increasingly arbitrary in terms of price discovery, associated with excessive financialization of global markets and deemed “systemically risky” entities by government regulators around the world. Arguably many of those problems are attributable to lack of innovation in the field.
Commercial hedgers and traders, particularly those in developing world markets, are ideally suited and thus targeted for Suites’ alternative solutions: novel ETD predicated on settlement via physical delivery rather than merely cash, taking the form of Exchange of Futures for Physical (“EFP”) contracts executed over centralized platforms designed to optimize order transparency, depth and liquidity, while reducing risks that counterparties won’t live up to contractual obligations. See the attached chart for comparison of Suites platforms with the “conventional” types currently defining the derivatives market landscape.
To date, Suites has customized conventional and Sharia-based ETD platforms covering energy commodities and industrial minerals and rocks (“IMR”). e-Counter has been designed to deal with those and any other commodities produced and shipped globally that possess varying quality and logistics properties integral to Suites’ proprietary assortment of tradable instruments discussed more below.
All of these platforms are designed to match, execute and settle buy/sell orders placed over a Suites-controlled network by authenticated counterparties desiring to manage asset price volatility risks by using EFP derivatives tied to the novel weighted average benchmarks and complementary differential indexes that are key products of Suites’ patented Benchmark Complex systems/methods.
Systems/Methods Key to Suites’ Benchmark Complex Novelty: Rather than arbitrarily specifying one form of a denoted asset to serve as the benchmark proxy for all forms of that asset (e.g. Brent in the case of globally priced crude oil), Suites’ EFP derivatives contracts are linked to an exchange-specified plurality of denoted asset forms. Together, they serve as the basis for a weighted average benchmark formulated for the overall set. Counterparties owning or seeking to own a particular asset that is a component of the exchange-specified set are qualified to initiate trades (offers or bids, as the case may be) for that asset using EFP derivatives contracts employing the operative weighted average benchmark.
Each component within the weighted average benchmark’s plurality has varying degrees of quality and logistics properties, which add to or detract from asset value pursuant to methodology unique to Suites’ benchmark-specific sets and complementary differential indexes, all of which were crafted to be uniformly co-settled as of the operative EFP derivatives contract physical delivery date in a manner that enhances order depth and liquidity, benefitting Commercials and other counterparties having practically, rather than absolute, opposite interests or “coincidence of wants”.
Following are proprietary Benchmark Complex systems and methods embodied in all Suites platforms integrated with e-Counter, as disclosed in a March 2015 USPTO-issued patent assigned to Suites and/or its continuation-in-part application (details available upon request):
Benchmark Data Collection Module configured to collect data for a plurality of tradable assets underlying a particular derivatives contract wherein the data includes permitted asset types and classes, plus quantitative and qualitative data properties unique to each asset.
Benchmark Selection Module configured to select tradable assets from the plurality of tradable assets based on their quantitative and qualitative properties to generate sets of assets (i.e. benchmark sets) that are formulated for a particular derivatives contract.
Benchmark Weight Generating Module configured to generate weights for use in generating weighted averages wherein a specific weight for generating a specific weighted average for a specific tradable asset within a set of said assets is based on the quantitative properties of each asset relative to the aggregate quantitative properties of all assets in the specific set (i.e. benchmark set).
Benchmark Generating Module configured to generate benchmarks formulated for each derivatives contract indicating aggregate properties of the sets of tradable assets, wherein a benchmark for any specific set of assets is generated based on weighted averages of the qualitative properties of the assets in the set (i.e. benchmark set).
Benchmark Communication Module configured to communicate tradable asset benchmarks formulated for each derivatives contract to traders and receive orders from those traders to buy or sell derivatives contracts based on said benchmarks.
Order Processing Module configured to process orders for derivatives contracts based on differences between (a) the actual properties of the tradable asset to be physically delivered under the terms of an operative derivatives contract and (b) the aggregate properties indicated by an operative benchmark associated with the specific set of assets from which the asset to be physically delivered is only one component of the plurality of assets in the set (i.e. benchmark set).
Data Update Module configured to periodically receive updated data for each of the tradable assets in the sets of tradable assets, and using said data to update tradable asset benchmarks listed over the exchange-controlled network.
Dongle comprised of hardware and software, or a subsystem comprised of at least software, each configured for exchange-controlled communications required to enable information to be securely and selectively passed along the network for purposes of creating the tradable asset benchmarks formulated for derivatives contracts, and for determining or effectuating orders to be placed for the complementary differential index contracts to be presented at future settlement dates along with underlying EFP derivatives contracts being settled by physical delivery.
Application: e-Counter employs Suites’ Benchmark Complex embodiments to list, match and execute contracts over its barter and countertrade fulfillment platform, enabling importers and exporters to match their “double coincidence of wants” in practical (rather than absolute) ways under bilateral compensation arrangements.
Generally, any globally traded commodity listed over a Suites platform qualifies for e-Counter barter or countertrade fulfillment. Suites exchanges and e-Counter meld IT systems and ETD instruments to construct “equivalent-for-equivalent” trades, whilst guarding against practices that invite elements of unjust enrichment. This is achieved by employing the following standard processes:
- Each authenticated trader posts barter or countertrade qualifying bids and offers over its respective initiating ETD platform (i.e., the Suites ETD platform dealing in the commodity to be delivered by the trader).
- Each initiating exchange becomes counterparty to its authenticated barter or countertrade qualifying customers’ bids and offers.
- Each initiating exchange then simultaneously posts an offsetting offer or bid, which upon back-to-back execution module processing is converted to a qualifying offer or bid with e-Counter.
- e-Counter, after matching counterparties’ bids and offers, executes and settles all barter or countertrade ETD contracts and determines the nature and extent of currencies to be co-delivered or received with the attendant commodities as of the operative ETD contract settlement date or dates.
- Valuation adjustments are made to account for each commodity’s physical quality and logistics variability – a key factor resulting in practical construction of countertrade equivalence since this method can be uniformly applied to each commodity class. Such adjustments are facilitated via the buying and selling of complementary differential indexes at fair values in the open market to reconcile (prior to settlement) differences between:
a. actual properties of commodity to be physically delivered/received under the respective terms of operative ETD contract; and
b. the aggregate qualities indicated by exchange-specified benchmark.
e-Counter fulfillment is designed to minimize (potentially eliminate) actual exchanges of currencies. Notwithstanding, it should be emphasized that e-Counter instruments are uniformly price referenced using globally recognized financial mediums, be they currency-based or in the form of a “basket” of specified assets, the fair market values of which are transparently posted each trading day over one or more Suites ETD platforms.