Methods of exchanging an obligation

Abstract

A method of exchanging an obligation between parties where the exchange is administered by a supervisory institution that ensures real-time settling of obligations between parties by updating shadow records in real-time and instructing one or more exchange institutions to effect, from time to time, the exchange of obligations in accounts maintained external to the supervisory institution. Updates to the exchange institution accounts may reflect the net obligations of parties over a nominated period of time. The role of the supervisory institution is to ensure that obligations are only settled where parties have sufficient balance in their shadow records to complete the transaction. Obligations that can be exchanged include, but are not limited to: shares in financial or physical assets, participation rights in wagers, national or synthetic currencies, exchange settlement account deposits, taxation account deposits, and deposits of financial instruments or precious metals.

Claims

1. A method of exchanging an obligation between parties, wherein an exchange obligation is administered by a supervisory institution, and wherein at least one credit record and one debit record is maintained with an exchange institution, the method comprising:

(a) maintaining a shadow credit record and a shadow debit record for a party to be held independently by the supervisory institution from the exchange institution;

(b) for every transaction resulting in an exchange obligation, the supervisory institution electronically adjusting said shadow credit record and/or shadow debit record, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and

(c) at the end of a period of time, the supervisory institution providing an instruction to the exchange institution to credit and/or debit in accordance with said adjustments of said allowed transactions, wherein said instruction being an irrevocable, time invariant obligation placed on the exchange institution.

2. The method of claim 1, wherein said exchange obligation arises out of a transaction linked to a share price.

3. The method of claim 1, wherein said exchange obligation arises out of a transaction linked to a weather event.

4. The method of claim 1, wherein said exchange obligation arises out of a transaction linked to a market event.

5. The method of claim 1, wherein said exchange obligation involves the transfer of shares in financial or physical assets.

6. The method of claim 1, wherein said exchange obligation involves a wager.

7. The method of claim 1, wherein said exchange obligation involves the transfer of a commodity.

8. The method of claim 1, wherein said exchange obligation arises out of a transaction involving money for goods, services, promises, credits or warrants.

9. The method of claim 1, wherein said period of time is a part of a day.

10. The method of claim 1, wherein each said adjustment takes place in chronological order.

11. The method of claim 1, wherein said step of providing an instruction represents one or more credits and/or one or more debits netted throughout a period for each party in respect to transactions of that period of time.

12. The method of claim 1, wherein the exchange institution is a credit card company.

13. The method of claim 1, wherein the exchange institution is a debit card company.

14. The method of claim 1, wherein the exchange institution is a bank.

15. The method of claim 1, wherein the exchange institution is a central bank.

16. The method of claim 1, wherein the exchange institution is a guarantor offering credit to one or more parties involved in said exchange obligation.

17. The method of claim 1, wherein the exchange institution is a party offering credit to one or more other parties involved in said exchange obligation.

18. The method of claim 1, wherein said exchange obligation arises out of a currency exchange transaction.

19. The method of claim 1, wherein two or more exchange institutions operate in different time zones.

20. The method of claim 1, wherein two or more exchange institutions have different account processing cycles.

21. The method of claim 1, wherein the transaction arises out of a collateralization payment obligation.

22. The method of claim 1, further comprising the step of obtaining from the exchange institution a balance for said shadow credit record and/or said shadow debit record.

23. The method of claim 1, wherein the exchange institution is a non-bank clearing house or depository.

24. The method of claim 1, wherein at least one credit record and one debit record is maintained with another exchange institution, the method further comprising administering an exchange obligation involving said another exchange institution in accordance with steps (a)-(c).

25. The method of claim 24, wherein said another exchange institution operates in a different time zone than the exchange institution.

26. The method of claim 24, wherein said another exchange institution has a different account processing cycle than the exchange institution.

27. A method of exchanging an obligation between parties, wherein an exchange obligation is administered by a supervisory institution, and wherein an account is maintained with an exchange institution, the method comprising:

(a) maintaining a shadow record for a first party to be held independently by the supervisory institution from the exchange institution;

(b) for every transaction resulting in an exchange obligation, the supervisory institution electronically adjusting said shadow record, allowing only those transactions that do not result in a value of said shadow record being less than zero; and

(c) exchanging at least one transaction between the supervisory institution and the exchange institution at the end of a period of time in accordance with said adjustments made in step (b), wherein said transaction being an irrevocable, time invariant obligation placed on the exchange institution.

28. The method of claim 27, wherein the account pertains to shares in financial or physical assets.

29. The method of claim 27, wherein the account pertains to participation rights in wagers.

30. The method of claim 27, wherein the account pertains to goods.

31. The method of claim 27, wherein the account pertains to services.

32. The method of claim 27, wherein the account pertains to central bank exchange settlement account deposits.

33. The method of claim 27, wherein the account pertains to financial instrument deposits.

34. The method of claim 27, wherein the account pertains to credit extended to/from a party or to/from a guarantor of a party.

35. The method of claim 27, wherein the account includes an overdraft or line-of-credit with an exchange institution.

36. The method of claim 27, wherein said first party holds one or more accounts with more than one exchange institution.

37. The method of claim 27, wherein the supervisory institution and exchange institution are legally and/or geographically domiciled in different countries.

38. The method of claim 27, wherein one party is a buyer and the other party is a seller.

39. The method of claim 27, further comprising debiting and/or crediting said shadow record based on said transaction.

40. The method of claim 27, wherein said exchange obligation arises out of a collateralization payment obligation.

41. The method of claim 27, wherein said transaction involves a weather event.

42. The method of claim 27, wherein said transaction involves a market event.

43. The method of claim 27, wherein said transaction involves a wager.

44. The method of claim 27, wherein said transaction involves an exchange of money for goods, services, promises, credits or warrants.

45. The method of claim 27, wherein the exchange institution is a credit card company.

46. The method of claim 27, wherein the exchange institution is a debit card company.

47. The method of claim 27, wherein the exchange institution is a party offering credit to one or more other parties involved in said exchange obligation.

48. The method of claim 27, further comprising the step of obtaining from the exchange institution a balance for said shadow record.

49. The method of claim 27, wherein a second party maintains an account with an exchange institution that is different from the exchange institution that maintains the account for said first party.

50. The method of claim 49, wherein two or more exchange institutions operate in different time zones.

51. The method of claim 49, wherein two or more exchange institutions have different account processing cycles.

52. The method of claim 27, wherein exchanging said at least one transaction between the supervisory and the exchange institution at the end of a period of time represents netted adjustments made in step (b).

53. The method of claim 27, wherein said period of time is a part of a day.

54. The method of claim 27, wherein said exchange obligation arises out of a currency exchange transaction.

55. The method of claim 27, wherein the exchange institution is a bank.

56. The method of claim 27, wherein the exchange institution is a central bank.

57. The method of claim 27, wherein two or more exchange institutions have different account processing cycles.

58. The method of claim 27, wherein an account is maintained with another exchange institution, the method further comprising administering an exchange obligation involving said another exchange institution in accordance with steps (a)-(c).

59. The method of claim 58, wherein said another exchange institution operates in a different time zone than the exchange institution.

60. The method of claim 58, wherein said another exchange institution has a different account processing cycle than the exchange institution.

61. A method of exchanging a payment obligation of a currency exchange transaction between banks, wherein an exchange obligation is administered by a supervisory institution, and wherein at least one bank maintains a credit record and a debit record with a central bank, the method comprising:

(a) maintaining a shadow credit record and a shadow debit record for a bank to be held independently by the supervisory institution from the central bank;

(b) for every currency exchange transaction resulting in a payment obligation, the supervisory institution electronically adjusting said shadow credit record and/or shadow debit record, allowing only those currency exchange transactions that result in a net positive shadow record balance; and

(c) periodically providing an instruction to the central bank to credit and/or debit in accordance with said adjustment of said allowed currency exchange transaction, wherein said instruction being an irrevocable, time invariant obligation placed on the central bank.

62. The method of claim 61, wherein each said adjustment takes place in chronological order.

63. The method of claim 61, further comprising the step of obtaining from the central bank a balance for said shadow credit record and/or said shadow debit record.

64. The method of claim 61, wherein the step of periodically providing said instruction occurs at an end of a processing cycle.

65. A method of exchanging a payment obligation between a buyer and a seller, wherein the exchange of the payment obligation is administered by a supervisory institution, and wherein the buyer and seller maintain an account with a bank, the method comprising:

(a) maintaining a shadow record for the buyer or the seller to be held independently by the supervisory institution from the bank;

(b) for every transaction resulting in a payment obligation, the supervisory institution electronically adjusting said shadow record, allowing only those payment transactions that do not result in a value of said shadow record being less than zero; and

(c) exchanging at least one account transaction between the supervisory institution and the bank at the end of a period of time in accordance with said adjustments made in step (b), wherein said account transaction being an irrevocable, time invariant obligation placed on the bank.

66. The method of claim 65, further comprising the step of obtaining from the bank a balance for said shadow record.

67. The method of claim 65, wherein said period of time is a part of a day.

68. A method of exchanging an obligation between parties, wherein an exchange obligation is administered by a supervisory institution, the method performed by the supervisory institution, comprising:

maintaining a first account for a first party, independent from a second account maintained by a first exchange institution;

maintaining a third account for a second party, independent from a fourth account maintained by a second exchange institution;

electronically adjusting said first account and said third account in order to effect the exchange obligation between said first party and said second party after ensuring that said first party and said second party have adequate value in said first account and said third account, respectively; and

providing an instruction to said first exchange institution and said second exchange institution to adjust said second account and said fourth account in accordance with the adjustment of said first account and said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and said second exchange institution.

69. The method of claim 68, wherein said first and/or second exchange institution is a central bank.

70. The method of claim 69, wherein said first exchange institution and said second exchange institution are the same.

71. The method of claim 68, wherein said second account and said fourth account are the same account.

72. The method of claim 68, wherein the exchange obligation involves currency.

73. The method of claim 68, wherein said first and/or second exchange institution is a non-bank clearing house or depository.

74. The method of claim 68, wherein adequate value requires that said first account and said third account have a positive balance.

75. The method of claim 68, wherein said instruction to said first exchange institution and said second exchange institution represents adjustments to said first and said third account netted throughout a period of time.

Description

TECHNICAL FIELD

This invention relates to methods and apparatus, including electrical computers and data processing systems applied to financial matters and risk management. In particular, the invention is concerned with the management of risk relating to specified, yet unknown, future events.

BACKGROUND ART

Individuals and enterprises are continually exposed to risk because of future events beyond their control. The outcome of those events can either positively or negatively impact on their wellbeing.

Individuals and enterprises should generally prefer not to face exposure to the possibility of adverse consequences, regardless of their perception of the likelihood of such events occurring. It is in their interest to consider foregoing 'resources' they currently possess if doing so would reduce the possibility of being so greatly exposed to future outcomes.

Risk can take many forms in view of the large range and type of future events which might result in adverse consequences. Risk can be categorised, in one instance, as 'economic'in nature. Phenomena that constitute economic risk include: commodity prices, currency exchange rates, interest rates, property prices, share prices, inflation rates, company performance, and market event based indices.

Another characterisation of risk concerns 'technical' phenomena. This can include things like the breakdown of an electricity generation plant, aircraft engine failure, and the damage to, or failure of, orbiting telecommunications satellites. The outcomes for each of these phenomena will be adverse for the users and/or supplier.

Other forms of risk defy ready characterisation, such as weather-based (viz., rain damage or lightning strike), or other natural occurrences (viz., earthquakes or iceberg collision with sea-going vessels).

There are also less tangible risks associated with, for example, the emission of atmospheric pollutants or the disposal of intractable toxic wastes, in the sense that the future consequences are unknown, save that there is a notion, based on current information, that they could be adverse.

The capability to manage risk is more important today than it was in the past, and is likely to become ever-more important into the future, because there is an ever increasing exposure to a wider generic range of future phenomena beyond the control of individuals or enterprises. There is also a wider feasible range of possible future events, and greater uncertainty about the likelihood of occurrence, associated with any single future phenomenon viz., an increasing volatility.

It is also thought that individuals are now more risk-averse in recessionary times, when there are fewer available discretionary resources to trade-off to protect themselves from such adverse future events.

In the prior art, individuals and enterprises faced with 'technical' risk have hedged against future outcomes by mechanisms such as the adoption of quality assurance practices, warranties, increased research and development activity (and associated intellectual property rights such as patents, utility models and registered designs), the purchase of modernised plant and equipment, and improved inventory, occupational health and safety and employer/employee relations practices.

Consider a manufacturer of, say, integrated circuits (ICs), which has many clients wishing to purchase its ICs. The demand may result in a delay in delivery due to limited manufacturing capacity, thereby requiring advance production scheduling for orders already in-hand. Typically, the manufacturer will give a warranty to a purchaser as to measurable performance criteria for its ICs; if a batch does not perform to the specified criteria, the manufacturer is required by contract to replace that batch. That is, a purchaser may have no interest in obtaining monetary compensation for the poor quality ICs, as the purchaser needs the components for their own products. In that case, the 'consideration' the warranty makes is the priority scheduling of a substitute batch of that type of IC, possibly displacing other scheduled production runs, or deferring delivery to another purchaser.

Such contractual arrangements are piece-meal in nature, and can only be struck between the manufacturer and each individual purchaser. They also leave the manufacturer exposed to claims from other customers whose orders are delayed by the re-scheduling. The manufacturer has no convenient mechanism available to it to hedge against such claims, perhaps by way of reserving production rights with another manufacturer, in lieu of unavailability of their own manufacturing facility.

In the face of such 'economic' risk, it is known for individuals and enterprises to hedge against adverse outcomes by indirect means such as self-insurance, and directly by means such as futures contracts, forward contracts, and swaps.

There are disadvantages or limitations associated with such available economic risk management mechanisms. Particularly, they provide, at best, only indirect approaches to dealing with the risk management needs. The available mechanisms are relatively expensive, and provide limited phenomenon coverage, and therefore cannot meet the requirements of the party seeking to hedge against such wide-ranging future risk. The infrastructure and pay-out costs associated with switching between, say, a commodities market and a stock market are often prohibitive for entities small and large alike. As a consequence, entities find themselves saddled with obligations they have little control over and cannot escape.

In respect of the "less tangible" forms of risk, an example in the prior art of a form of management of that risk is that of 'pollution rights' sold by the U.S. Environmental Protection Agency (EPA) in March 1993 for the atmospheric emission of sulphur dioxide. This was done by an auction of "allowances" permitting the release into the atmosphere. By the year 1995, any company or organisation emitting sulphur dioxide in the U.S. without enough allowances to cover their total emissions will face prosecution. This means polluters must either buy further allowances, or else modify or replace their plant and equipment to reduce these emissions. The EPA will regulate the total number of allowances able to be obtained. The existing allowances have already become a valuable tradeable 'property' as between sulphur dioxide emitters, that is, even before the time when no further allowances will be able to be purchased.

Management techniques for the "less tangible" forms of risk are in their infancy. The existing forms indicate an emerging demand for systems and methods to enable effective management.

Specific examples in the prior art of patents relating to methods and apparatus which deal with various forms of risk management include British Patent No. 2 180 380, in the name of Merrill Lynch Pierce Fenner and Smith Incorporated, directed to an Automated Securities Trading Apparatus (corresponding to U.S. Pat. No. 4,674,004, and further related to U.S. Pat. Nos. 4,346,442 and 4,376,978). Other examples include U.S. Pat. No. 4,739,478 assigned to Lazard Freres and Co., directed to Methods and Apparatus for Restructuring Debt Obligations, U.S. Pat. No. 4,751,640 assigned to Citibank, N. A., directed to An Automated Investment System, and U.S. Pat. Nos. 4,752,877, 4,722,055, and 4,839,804 assigned to College Savings Bank directed to Methods and Apparatus for Funding Future Liability of Uncertain Cost.

The present invention comes about in view of the shortcomings of existing risk management mechanisms, and the perceived increasing importance of the management of risk relating to specified, yet unknown, future events.

In this sense, the invention is directed to something having economic value to individuals, enterprises and societies as a whole. Methods and apparatus that provide for the management of risk offer material advantages by, for example, minimising adverse future outcomes, providing both a form of compensation in the event of adverse future outcomes, and forms of risk management not otherwise supported or available in the prior art, and thus have value in the field of economic endeavour.

DISCLOSURE OF THE INVENTION

The invention encompasses methods and apparatus enabling the management of risk relating to specified, yet unknown, future events by enabling entities (parties) to reduce their exposure to specified risks by constructing compensatory claim contract orders on yet-to-be-identified counter-parties, being contingent on the occurrence of the specified future events. The entities submit such orders to a 'system' which seeks to price and match the most appropriate counter-party, whereupon matched contracts are appropriately processed through to their maturity.

Therefore, the invention enables parties to manage perceived risk in respect of known, yet non-predictable, possible future events. These future events may relate to measurable phenomena whose outcome is verifiable, and cannot be materially influenced by any other entity having a stake in that outcome.

The ability to price and match risk aversion contracts essentially comes about because of the nature of risk itself. Any number of people will each have differing views as to the likelihood of an outcome of some future event. This means that when each person is required to independently assess a range of outcomes for a specified future date, there almost always will be a variance in those assessments. Thus it is possible to match these expectations as between parties to form a contract. The potential counter-parties to an offered contract have the motivation of taking up an opportunity to exploit differing views of future outcomes to their advantage, either for some gain or, again, as a form of risk management.

It is important that the assessments as to future outcomes of events are made independently of any other party who could be a counter-party to a contract. The nature of the pricing and matching, therefore, is totally different to conventional negotiation or bidding as between parties.

The present invention enables entities to better manage risk, as they are able to think more explicity about possible future events beyond their control which they perceive will have adverse consequences for them. They will have the capacity to utilise existing resources to reduce exposure to a specific risk, and have access to a generally available mechanism by which they can explicity trade-off existing assets for increased certainty about the future. They are also free to decide upon the degree to which they should make such trade-offs, and to actually effect and subsequently manage such trade-offs in a simple and low cost manner.

Risk management contract formulation comprising the steps of order placement, pricing and matching. An ordering party initiates contract formulation by submitting an order that relates to a specified phenomenon that has a range of possible outcomes relative to a future date of maturity. The ordering party specifies elemental entitlements (pay-outs) due at maturity relative to the phenomenon's actual outcome, and a maximum consideration to be paid to a counterparty on matching of a contract. Independently, potential counterparties have submitted registering data based on their assessed probability of each possible outcome at maturity for the phenomenon in question. From this counterparty registering data, a data processing system then seeks to price each counterparty against the ordering party's specified entitlement. Broadly speaking, this involves multiplying each of the elemental ordering party entitlements with the corresponding counterparty probability and summing the results to derive counter considerations. The counter considerations must fall below the ordering party's maximum consideration for there to be the possibility of a match. Most usually a match will be made between the ordering party and the counterparty having the lowest counter consideration.

The ordering stakeholders and counter-party stakeholders can be considered to be contract buyers and contract sellers respectively. The entitlement for each outcome can be in the form of 'money' payoffs (both positive and negative) at maturity of a matched contract, or can be other types of compensation, possibly in the form of goods, services, promises, credits or warrants. The consideration, whether buyer specified or seller calculated, can again be in the nature of a premium or payments, or can relate to other 'non-money' forms of property or obligations, typically transferable when a contract is matched, although possibly deferable, until, and potentially beyond, the time of maturity.

In the period between the match of a contract and maturity the various buyers, sellers and other contract stakeholders can review any contract to which they are a party and seek to trade that contract to other parties by the pricing and matching procedure, or variations on the pricing and matching procedure. They would tend to do so if their view of the future outcome of the phenomenon, being the subject of the contract, had changed markedly, or as a means to minimise expected losses if some unforseen adverse trend in the present day outcome of the phenomenon has occurred. As well as trading existing contracts, further contracts can be offered to 'lay off' or avert risk. Stakeholder parties can build up a portfolio of matched contracts and offered contracts, which are continually traded to obtain the best possible position at any time, and that position can be continually reviewed with time.

It is further possible for offered contracts to be based on the difference between phenomena, and so manage perceived risk as between the phenomena. Elemental contract phenomena can therefore be developed to meet the most particular needs of buyers and sellers, thus creating great flexibility.

In most instances the date of maturity will be predetermined by a 'product sponsor' stakeholder, who otherwise cannot be a buyer or seller of contracts they sponsor. Even so, it is conceivable that the date of maturity can be tied to a specified time from the instant a contract is matched. This may be appropriate where the time of maturity is in the near future, in which case offered contracts could otherwise remain unmatched following initial offer even up until the time of maturity.

Other stakeholders have executive roles in administration, guaranteeing the performance of buyers and seller, regulation, supervision and so on. In this way the number and types of buyers and sellers that can be considered in pricing and matching offered contracts can be controlled.

The invention also encompasses apparatus and method dealing with the handling of contracts at maturity, and specifically the transfer of entitlement.

In another preferred form, the invention provides that the phenomenon for an offered contract is specified such that the elemental entitlements for the range of outcomes are the same for each outcome. In mathematical terms this corresponds to a shape in an x-y cartesian coordinate system where entitlement value (y) with respect to the outcome values (x) is a flat line. Put another way, the entitlement vs. outcome (y,x) shape has zero gradient (Δy/Δx). This type of entitlement/outcome shape can be thought of as a form of lending (if the entitlement is positive, or borrowing if the entitlement is negative), in that the ordering party wishes to make the consideration available for lending now, having the expectation of receiving a known (non-contingent) entitlement in the future. Contract pricing and matching with a counterparty can proceed as described above.

Embodiments of the invention significantly advance the state-of-the-art of formulating and trading risk management contracts. Essentially, this is achieved by a computing/telecommunications infrastructure that is capable of being accessed worldwide by any enterprise/individual having access to a computer and telephone network. Furthermore, a virtually infinite number and range of risk typescan be accommodated. One embodiment presents itself in a form that assists users in making consideration-entitlement (insurance-type) trade-off decisions and provides a blind yet transparent price-discovery and trading process. Through its capability to create special case lending/borrowing and exchange products, end users are also provided with a low-cost mechanism for pricing and acquiring these products without the involvement of traditional intermediaries.

BRIEF DESCRIPTION OF THE DRAWINGS

A number of embodiments of the invention will now be described with reference to the accompanying drawings, in which:

FIG. 1 shows a block diagram of a generic 'system' embodying the invention;

FIG. 2a shows a schematic block diagram of an indicative hardware platform supporting the system of FIG. 1;

FIG. 2b is a schematic block diagram of an alternate hardware platform supporting the system of FIG. 1;

FIG. 3 shows a representation of INVENTCO and its main component parts;

FIG. 4 shows a block diagram of a subset of the components of an INVENTCO system's markets-depository (M-INVENTCO);

FIG. 5 shows a block diagram of the process components of a subset of one type of 'market' (termed CONTRACT APP) which can reside within M-INVENTCO;

FIG. 6 shows a timeline applicable to Example I;

FIG. 7 shows a timeline applicable to Example II;

FIGS. 8 to 16 show flow diagrams of the contract pricing and matching methodology;

FIG. 17 shows a timeline applicable to Example III; and

FIGS. 18 to 40 show flow diagrams of the first to ninth process components for a CONTRACT APP; and

FIG. 41 shows a timeline for Example IV;

FIG. 42 shows a timeline for Example V; and

FIGS. 43A to 82B show tables and charts associated with Examples I, II, III, IV, and V.

DETAILED DESCRIPTION OF A BEST MODE FOR CARRYING OUT THE INVENTION

1. Introduction

The description firstly discusses the relation of the various users (stakeholders) of the 'system', followed by a consideration of a hardware data processing platform and peripheral input/output devices by which stakeholders interact with each other and the system.

This is followed by a discussion of the scope of the 'applications' that can be supported by the system in relation to the various stakeholders, and the interrelation of component parts thereof.

Details as to software methodologies for implementation of the applications supported by the system are also described, including a number of worked examples relating to the formulation and trading of risk management contracts.

In the course of the detailed description reference is made to a number of non-conventional expressions and terminologies. For convenience, an explanation of these is listed in the Glossary hereinbelow.

2. 'Systems' Configurations

FIG. 1 shows a block diagram of a generic 'system' embodying the invention. The various stakeholders or parties to the system 10 each have access to a centralised processing unit 20. The processing units 20 can be constituted by one or more data processing apparatus, with each one thereof providing access for any one or more of the various stakeholders to applications software supported by the system 10, as all the processing units would be interconnected. Access to the one or more data processing apparatus is controlled by a generic form of communications co-ordination and security processing unit 25.

FIG. 1 also indicates that there are a number of types of stakeholder, and a number of individual stakeholders within each stakeholder type. The basic types of stakeholder are described as: applications promoters 11, product sponsors 12, product ordering parties (buyers) 13, potential product counter-parties (sellers) 14, counter-party guarantors 15, regulators 16, consideration/entitlement transfer ('accounting') entities 17, and miscellaneous parties 18. The detailed roles of each of these stakeholders will be subsequently described in greater detail at a later time. The number of types of stakeholder represented in FIG. 1 is typically the largest that will be supported by the system 10.

An embodiment of a computer system for the system 10 is shown in FIG. 2. The core of the system hardware is a collection of data processing units. In the embodiment described, the processing unit 20 comprises three inter-linked data processors 93, 97, 104, such as the Sun 670 MP manufactured by Sun Microsystems, Inc. of the USA. Each processing unit 93, 97, 104 runs operational system software, such as Sun Microsystems OS 4.1.2, as well as applications software. The applications software is, in part, written around the flow diagrams subsequently described in FIGS. 8 to 16, and FIGS. 18 to 40, and accesses, or otherwise creates, the data files as summarized in the section headed PROCESS 2 VARIABLES AND DATA FILES hereinbelow. The processor configuration shown in FIG. 1 represents a large system designed to handle the transactions of thousands of stakeholders, the input and output data generated by those stakeholders, and risk management contact pricing, matching and subsequent processing functions.

Each processing unit 93,97,104 is operably connected with it one or more mass data storage units 95,100,110 to store all data received from stakeholders, and other data relating to all other software operations generating or retrieving stored information. Suitable mass storage units are, for example, such as those commercially available from Sun Microsystems.

A number of communications controllers 80,84,87, forming the communications coordination and security processing unit 25, are coupled with the processing unit 20. These controllers effect communications between the processing units 93,97,104 and the various external hardware devices used by the stakeholders to communicate data or instructions to or from the processing units. The communications controllers are such as the Encore ANNEX II, the IBM AS/400 server or the CISCO Systems AGS+.

A large range of communications hardware products are supported, and collectively are referred to as the stakeholder input/output devices 70. One amongst many of the communication devices 70 are personal computers 51 and associated printers 52, which have communications connection with the communications controller 80 by means of a modem 50. There can also be an external host device 53, such as a mini or mainframe computer, again linked with the communications controller 80 by means of a modem 54. In other forms, communications can be established simply by means of a tone dialing telephone 56, which provides for the input of instructions or data by use of the tone dialing facility itself. In the alternative, a voice connection via an operator 75 can be effected by a conventional telephone 58. Both these external devices are shown connected with the communications controller 84. A further possibility is to have data transfer by means of a facsimile machine 65, in this case shown linked to the communications controller 87.

In all cases, users of the input devices are likely to be required to make use of system access password generation and encryption devices such as the Racal RG 500 Watchword Generator 66,67,68,69, (for personal use) and the Racal RG 1000, which is incorporated in a mainframe computer 53. The corresponding decoding units for these devices are incorporated in the communications controllers 80,84,87.

The generic processing unit 20 also includes a large number of 'portable' information recordal devices, such as printers, disc drives, and the like, which allow various forms of information to be printed or otherwise written to storage media to be transferable. This is particularly appropriate where confirmatory documentation of matched risk contracts is required to be produced, either for safekeeping as a hard copy record, else to be forwarded to any one or more of the stakeholders that are a party to each individual matched contract.

The generic system 10 shown in FIG. 1 encompasses many varied configurations, relating not only to the number and types of stakeholders, but also the 'architectures' realisable by the system hardware and software in combination. In that sense the arrangement shown in FIG. 2a is to be considered only as broadly indicative of one type of hardware configuration that may be required to put the invention into effect.

For example, FIG. 2b shows an alternative configuration that does not rely upon a centralised (hub) data processing unit, rather the necessary processing is performed locally at each stakeholder site 200_n by means of distributed software.

The 'virtual' level of the system 10 is termed INVENTCO. INVENTCO is a collection of one or more potentially interrelated systems, as shown in FIG. 3. Each INVENTCO system (INVENTCO SYSTEM #1 . . . INVENTCO SYSTEM #N) enables the formulation and trading of a wide range of contractual obligations, including risk management contracts. The hardware configuration shown in FIG. 2, is to be understood both as a realisation for a single INVENTCO system, and equally can represent a number of INVENTCO SYSTEMS, where the processing unit 20 is common to all and supports a number of communications co-ordination and security units 25, others of which are not shown, together with associated external communications devices 70, also not shown.

While INVENTCO allows the formulation and trading of risk management contracts, it is also responsible for processing of such contracts through to, and including, their maturity, and in some respects, subsequent to maturity.

Where there are a number of INVENTCO systems, those systems may be inter-dependent or stand-alone in nature. If inter-dependent, INVENTCO (10) is responsible for transactions between those systems.

INVENTCO and all of its component parts can be legally or geographically domiciled in separate countries or states. The supra-national nature of INVENTCO enables the stakeholders to avail themselves of the risk management mechanisms independently of legal domicile or other such restrictions that are often a feature of some conventional risk management mechanisms, subject to meeting certain criteria regarding credit worthiness and such. Indeed, the legal domicile, location, ownership and participating stakeholders of INVENTCO, or any of the sub-systems, can be continually changing.

FIG. 3 further shows that each INVENTCO SYSTEM comprises an infrastructure component, termed I-INVENTCO, and a markets depository component M-INVENTCO. I-INVENTCO is concerned with coordination of communications and other security considerations, that part termed AXSCO, and also provides a network and general management system, termed VIRPRO. M-INVENTCO is a depository of authorised product-market (applications) software residing within INVENTCO under the authorisation of VIRPRO, and as distributed using I-INVENTCO.

One or more local or wide area telecommunication networks may link VIRPRO and M-INVENTCO to AXSCO, and thus to each other. In this way both VIRPRO and M-INVENTCO effectively reside around AXSCO.

AXSCO therefore comprises multiple, uniquely addressed communications controllers linked together in a number of possible ways. In one embodiment, AXSCO is represented by the communications co-ordination and security processing unit 25 shown in FIG. 2. The component hardware, such as the three controllers 80,84,87 shown in FIG. 2, typically are responsible for three types of operational applications. The first is in respect of time stamping data received from other parts of INVENTCO and data similarly transmitted to entities external of INVENTCO. The second is in respect of protecting the identity and/or location of entities within INVENTCO from one another, and from entities external to INVENTCO. The third is responsible for overall management of the routing of data received and to be transmitted within INVENTCO and to external entities thereto.

Referring now to FIG. 4, within M-INVENTCO reside different collections of system sponsored phenomena or 'markets', one collection of which is termed CONTRACT APPS. Each CONTRACT APP within the CONTRACT APPS 'markets' collection is essentially related to a specific type of risk management phenomenon. The purpose of individual CONTRACT APPS is two-fold. First, to effect the trading/exchange/transfer of risk management contracts (and derivatives of these transactions) between participating product ordering parties and counter-parties on terms acceptable to the parties involved, as well as to others within INVENTCO registered as having a legitimate interest in the nature, size and composition of these trades/exchanges/transfers. And second, to appropriately manage all matched/confirmed contracts through to their time of maturity.

Individual CONTRACT APPS are responsible for performing the above-described tasks according to the specific rules they embody, defined by their applicable stakeholders.

The role played by the various stakeholders to CONTRACT APPS, remembering that in many cases it would not be necessary to have the involvement of all the possible types of stakeholder, briefly stated is as follows: