WO2001020508A2 - Method and apparatus for multi-currency funds settlement - Google Patents

Abstract

Cross border multi-currency payment obligations are met not with conventional complex and expensive FX transactions, but instead with legal persons (typically corporations) in different countries in effect assigning payment obligations so that funds of a party in one country remain in that country and are used to meet the payment obligations in that country of a party outside of that country.

Description

Method and apparatus for multi-currency funds settlement

Field of the Invention

The present invention relates to a method of and apparatus for mulu-currencv funds setdement.

Description of the Prior Art

The Internet offers the promise of allowing buvers and sellers of goods and sen-ices to communicate directly with one another, eliminating the need for some of the intermediaries and the associated economic inefficiencies present in conventional selling. Hence, for example, it is in 1999 possible to transact many kinds of business using the Internet, which formerly would have required a broker or agent. Examples include the purchase of insurance, airline tickets, books and holidays.

The Internet also enables new models of buying and selling as well: for example, there are now many Internet aucuon sites, on which a wide range of goods and services are aucuoned to the highest bidder, with the seller merely setting a reserve price or a bid start price. The terms to 'buy^' and 'sell' and related expressions should be broadly construed to include any kind of transfer of rights or interests; 'buyers^' and 'sellers' should be also broadly construed to include any transferee and transferor of any kind of right or interest. The terms 'party' and 'counterparty' are commonly used to describe a situation in which a given party is both a buyer and simultaneously a seller. This can arise, for example, where a party wishes to exchange L^'SSI OO for the equivalent in Sterling. That parry is simultaneously a seller of L^TSS and a buyer of Sterling.

Computer systems linking many potenual buyers and sellers ot goods and services over an extensive computer network also existed prior to the widespread adopuon of the Internet, parucularh in the financial services sector One example is the foreign exchange dealing s\ stems developed and run

orgamsauons such as Reuters pic and the EBS Partnership In these systems, banks post the prices at which they are willing to b or sell defined uanuues of currencies The s\ stems may automaucally spot matches — 1 e. where a buyer is willing to buy at a price at which a seller is willing to sell

- and complete the trade. If a potenual bu\ er of currency can find no-one willing to sell at a price it considers low enough, then typically, that potential buyer will simply have to either wait for the pricing in the market to become more favourable, or else be prepared to pay more. Such systems are commonly used for currency speculaαon, namely taking a trading posiuon with respect to one or more given currencies to exploit favourable pricing movements.

Where a buyer and seller regularly trade with one another, it is normal to aggregate all transacuons over a defined period of time and for just a single net payment to be made. Hence, for example, if part}' A buys 50 units at SI from party B over a week, and counterparty B buys 20 units at SI from party A over that same week, then the respecnve payment obligaαons can be netted off so that A pays S30 to B at the end of the week. This same principle apphes to the more sophisticated environment of trading foreign exchange and other financial property Where more than a single partv and counter-party pair are involved, for example, a 3

group or even higher orders, multilateral netting can be applied.

Netting systems should minimize the number of intra and inter company receipts and payments, which incur float costs in the banking system. Netting reduces the total payments (cost and credit structure improvement), the number of transacuons (cost and system architecture improvement), and often, the risk in a transacuon system (credit structure improvement). To illustrate this concept, if UKCorp l ow es UKCorp2 100 Pounds Sterling and L^"KCorp2 owes UKCorp3 100 Pounds Sterhng, then UKCorp l could pay L^"KCorp3 100 Pounds directly thereb reducing the payments from 200 Pounds total to 100 Pounds, and the number of transacuons from 2 to 1. In addiuon to the need for speculauve currency trading, there exists also a very substanual need for coiporauons to b and sell foreign currency, for example, to pay overseas suppliers Similar , individuals travelling abroad or making foreign investments need to obtain oieign currencies as well. Currently, corporauons and individuals w ill approach a bank or foreign

vendor (such as American Express Inc.) to obtain foreign currency The bank or foreign currency vendor will in turn often have obtained its stocks of foreign currency from other banks, in many cases haλ'ing used an inter-bank trading system such as the Reuters or EBS s stems. Because of the chain of intermediaries, the transacuon cost of buying or selling foreign exchange in this

is quite high: this is reflected in the commission charged and the difference between the bid and the offer prices, a bank will typically sell foreign currency at a rate considerably higher than the rate at which it will buy it back. For small transacuons, the difference can be 4%. For larger transacuons, the difference is typically 5 basis points.

The mechanics of cross border payments is quite complex. For example, take the situauon, where a company C in the US, with L^'S dollars in a US account, wishes to pay a supplier in England in Sterling Assume also that company C has to pay a supplier in Sterling but has no Sterling receivables to do so The typical procedure, required for this transacuon to be completed using a wire transfer process is as follows:

A. Funds are debited from C's US home bank account immediately on direcuon to wire transfer and the US dollar funds credited to the US home bank, typically in a general account. A wire transfer is therefore in respect of "final or cleared funds". Depending on the nature of the transfer, a foreign exchange component may be completed between the originator and his financial insutuuon B. In most cases, the wire U'ansfer direcuon to pay is a "push driven" process, in which funds are directed to the international clearing banks (originating and/or receiving) via SWIFT or a network of correspondent financial insutuuons. In the case of Company C^"s funds, the US Dollars now resident in a general account of C's home bank are credited to the account of the correspondent or network bank and the chain of correspondent debits and credits begins until the funds are credited to the ultimate beneficiary account The "direct clearer" or correspondent bank in the receiving country is ultimately responsible to push the funds to the receiving bank, who subsequendv directs the funds to the beneficiary. The domesuc component of the wire transfer tvpicallv occurs via the domesuc payment system. It is common for each country to have multiple international clearing banks that have correspondent relauonships with internauonal clearing banks in other countries and that operate domesucallv with the payment system. Examples include Barclays Bank, Toronto Dominion Bank, Chase λlanhatten Bank, The US Federal Reserve.

C. In die case of a US Dollar to Sterling wire transfer, the UK clearer transfers the funds from the US bank's "GBP nostro" account (either the home bank if it has a nostro account or the correspondent US bank having a nostro account) to the account with the UK correspondent bank and then to the bank of die wire transfer receiver (if thev are not the same) through the UK domesuc payment system. Hence C has met its obhgauon in^' the UK. A US FI's GBP nostro is a bank account held at a GB FI in the name of the US FI but holding the currency of the foreign )uπsdιcuon, in this case GBP.

This process is relatively expensive and involves numerous participants: Two internauonal clearers, one per country, typically two correspondent banks having ΠOSUΌ accounts with each other, two home banks one each for receiver and originator, and two transactors, an originator and a receiver. Further to that, a push driven system is open to processing delays as financial insutuuons seek to maximize the use of available funds as part of their overnight float and hence only move the funds when absolutely necessary.

Summary of the Invention

In accordance with a first aspect of the invenuon, the method of mulu-currencv funds setdement comprises the follow ing steps: funds in a currency X of a first legal person who is situated in country X' are transferred in whole or part within country X to satisfy in whole or part the currency X¹ payment obhgauons of a second legal person, situated in a different country Y¹ , and the funds in a currency Y of that second legal person situated in country Y are transferred in whole or part within country Y to sansfy in whole or part the currency Y payment obhgauons of a legal person, who may be the first legal person or one or more different or addiuonal legal persons.

Hence, the essenual principle is for cross border mulu-currency payment obhgauons to be met not with convenuonal complex and expensive FX transacuons, but instead with legal persons (typically corporauons) in different countries in effect assigning, novaung, swapping or otherwise altering payment obhgauons so that funds of a party in one country remain in that country and are used to meet the payment obhgauons in that country of a part}' outside of that country. The term 'assigning' will be used in this specificauon to cover any such kind of alterauon of payment obhgauons and is not limited to a legal or equitable assignment as such.

Clearly, full settlement of payment obhgations is unhkely to occur where the total system involves only 2 parues and 2 countries, although this too is possible if both parues have corresponding bank accounts in both of the relevant jurisdictions (4 accounts total). The practical reahsauon of the present invenuon therefore likely occurs in mulu-partv, mulu country situauons, where, given sufficient fund volumes and diversity, all or virtually all payment obhgations can be fully sausfied. With sufficient fund diversity and volumes, most if not all mulu-currency cross border settlements can be satisfied using solely domesuc transactions: only the residual elements left over after all domesuc transacuons have been netted off require genuine cross-border settlement. This inherently operates as a risk reducuon mechanism as the bank never takes a principal posiuon, but rather acts solely as a custodian. It further reduces the amount that can ever be in dispute by only ever using precleared funds of the various participants. Therefore in the event of a problem which requires transacuon unwinding, the most at risk for any parry is the gain or loss associated with the interim movement in exchange rates between the relevant currencies.

In a second aspect, there is a computer program receiving data defining the non- domestic payment obhgauons of parues located in two or more countries, and programmed to identify opportunities to satisfy those non-domestic payment obhgations by assigning payment obhgauons using the funds settlement method defined above.

A third aspect of the invenuon is a computer server programmed with the computer program of the second aspect.

A fourth aspect is a computer terminal acting as a client, in which the chent accepts from a party a foreign exchange requirement and sends that requirement to a server as defined in the third aspect.

A fifth aspect is a computer based system which enables parues located in two or more jurisdicuons to meet their foreign currency payment obhgauons, comprising a first computer terminal into which a party located in a first junsdicuon inputs details of a potenual first foreign currency financial transacuon, a second computer terminal into which a second party located in a second jurisdiction inputs details of a potenual second financial transacuon, a computer network connecting the first and second terminals; characterised in there being a computer program arranged to determine if any transfer of funds fiom the first party to a payee located in the first juπsdicuon sausfies in whole or part the requirement of the second part}- to transfer funds to that payee. Instead of a mereh bi-lateral s\ stem, in a pracucal implementauon there may be numerous computer terminals in numerous countries and the computer program is then arranged to determine if any transfer of funds from a party to a pavee located in the juπsdicuon of that party sausfies in whole or part the requirement of another party to ttansfer funds to that payee

The present invenuon utilises and exploits a special aspect of currency dealing, namely that the currency of am country does not, typically, ever leave that countπ That is to say, for example, a US dollar account in Canada is merely a Canadian dollar account with a conversion factor to a US dollar equivalent.

The present invenuon utilises a computer-based system to restructure the method of payment and settlement to reduce the number of parucipants, thereby streamlining ie procedure and improving efficiency.

Brief Description of the Drawings

The invenuon will be described in more detail widi reference to-

Figure 1 which is a diagram represenung the bid/ offer pricing for USD priced in CAD;

Figures 2A, 2B and 2C which is a table showing how a FX netting

stem can operate;

Figures 3A and 3B, which are schemauc depicuons of a computer based system which enables buyers and sellers of foreign exchange to be efficιend\ matched, and Figure 4, which is a schemauc represenung the steps in the system as applied to

FX matching; and

Figure 5, which illustrates the mechanics and benefits of transacuons netting

Figure 6 winch is simplified schemauc showing the principle of the payment approach of the present invenuon

Figure 7 which is a table relating to an example of a series of payments made using the present invenuon and

Figure 8 which is a schemauc of the computer system for implemenung internauonal payments as defined in the present invenuon

Detailed Description

The present invention will be described with reference to various examples, as illustrated in the attached Figures.

Currendy, banks broker foreign exchange transacuons, providing an intermediary to purchase and sell currency for both theirs' and their chents' accounts. For each transacuon the bank garners the "spread", typically 5 basis points on large transacuons and up to 4° o on smaller transacuons.

In the present invenuon, the appropriate underlying ttansacuonal software allows one end user of the foreign exchange (e.g. a first corporauon, Corporauon A, doing a cross border procurement) to liaise directly or indirectly with a counterparty, a second corporauon, Corporauon B, which requires the home currency of Corporauon A. The bank brokering function, as it pertains to the financial instrument itself, can be reshaped; that is, the spread currently absorbed b\ the two sample corporauons could be reduced or negated. Each party might therefore improve its cash posiuon by one half the value of the spread that they would incur, for example on a 5 basis points spread, the corporauon would improve its posiuon by 2.5 basis points. For smaller customers the

mgs on a percentage basis would be substanually greater.

Moreover, transacuons could be executed in a mulutude of dimensions: two way; three way; four way; etc, since the software would expose the transacuonal opportuniues available to each of the chents. (This process is described in more detail in Appendices 1 & 3)

The overall system approach can best be understood through a sample problem:

Sample problem

Imagine the following-

1. That the spot price of CDNS is USS 1.5363 - 1.5373 at November 27/98.

2. That Corporauon A is buying US SIM to purchase equipment at a cost of CDN $1,537,300.00. Corporauon A. has CDN Sl,536,800.00 on account with a bank for the transacuon (note: this assumes that die bank provides the best rate to Corporauon A).

3. That Corporation B has USSIM on account with the bank but requires CDNS 1,536,300.00 to purchase raw materials.

If the bank matches its own funds to supply Corporation A with USSIM and Corporauon B with CDNSl , 536,300.00, then it makes a profit of S1 ,000.00 per Smilhon transacted. Although SI, 000 is a very small amount in the context of a significant SIM transacuon, the total global volume of such transacuons is extremely large, so that the cumulaπve profits to banks are veπ^τ substanual.

In the present invenuon, the following occurs- Corporauon A and B agree before transacting that thev will do so at an exchange rate that is the mid-point of the posted

Interbank rate, for example, the Interbank highest bid, lowest offer at the appropriate time. This is a fair compromise for each parucipant. Hence, the transacuon can be completed automatically, rapidly and efficiently. The parry and counterparty each deposit die funds needed to execute a transacuon w ith a financial insutuuon; die funds are preferably pre-cleared and are not marginable through the system. A sophisucated computer program determines that the parπ and counter-part}- are taking reciprocal posiuons, which can be matched against each other and instructs the relevant financial institutions to transfer the required foreign exchange as, in effect, a swap. By matchrng Corporauon A with Corporauon B, each of their posiuons is improved by S500.00 per million, less a transacuon fee to an intermediary of perhaps S50.00 per side. The result is that Corporauon A receives USS IM for $ 1,536,750 per rnillion; a saving of S450.00 per million; Corporauon B Receives S I , 536, 850 for USSIM; an improvement in profit of S450.00. The system has in effect reduced the spread to 1 basis point. The spread can theoreucallv be reduced to just short of zero since the present invenuon operates efficiendy and automaucally. This example works because of the exactly matching reciprocal requirements of the parues. In pracuce, that will rarely happen and some sort of netting will be required.

The fundamental netung concept apphed in this embodiment is that a computer is programmed with informauon relating to a parπ- and counterpart}- transacuon, to determine a net payment posiuon if both the first and second transacuons were to occur and to actually complete each transaction on the basis of the net payment posiuon.

This approach can be contrasted with convenuonal netung, in which a transacuon is completed and only subsequendv does netting occur to reduce the number and size of payments, ^ picallv, there might be several pam / counterparty pairs in a connected series of transacuons in the present embodiment.

Multilateral Netting Example

In the present system, it will be seen that the netung step is not simply a stage subsequent to but independent from the underlying exchange transacuon, performed for accounung simplicity to reduce the numbers and sizes of cross-payments. Instead, it is an integral part of the underlying exchange transaction between party and counterparty. This is most clearly emphasised when considering a multi-party exchange of currencies. Take, for example, a situation in which there are 3 Corporauons - .V, B and C . A has CAD and needs JPY; B has JPY and needs USD; C has USD and needs CAD. The exact needs are shown in Figure 2A. A cannot satisfy its requirements in whole or in part by dealing with B exclusively. However, if C can be "hnked" into the transacuon, all three corporauons can be sausfied to the value of the smallest available currency. (A more detailed example with muluple parues and jurisdictions is available for review in Appendices 1 , 2, and 3).

We assume that the mid-point of Interbank B/O at a point in time is as follows: 1.53675 CAD; 1 USD; 88.7755 YEN; (i.e. all numbers are relative to the USD base currency).

The desired amounts indicated on Figure 2A reflect the mid-market value of the available currency. The post-match situation using this embodiment is shown on Figure 2B.

It will be noted that the limiting factor in this match example was the avanability of CAD for JPY.

The embodiment uses a "currency link" to match partially or fully the desired quantities of the match. .V currency link is created using the source currency and the beneficiary (desired) currency for a series of transacuons. Figure 2C illustrates a simple three-way currency link.

Note, that if, for example, Party C wanted a currency other than AAA, say DDD, there would not be a currency link from which to synthesize a transacuon. A link is therefore defined as (A to B: B to A), or (A to B; B to C; C to A); or (A to B; B to C, C to D, D to A) etc. . mathemaucal relauonshrp at a point in time therefore exists between the currencies. Another example is A to C, B to A and C to B.

The disuncuon from tradiuonal netung programs is three-fold. First, netung in the present embodiment happens m "real-ume", not at a fixed point in time post transacuon for various parues, none of which are necessarily the same from one "link" to the next, and consequently, from one "match" ^whole or partial) to the next. Second, the program is designed to seek out the "currency linking" through a combinauon of user defined parameters and system transacuon rules. As complete matches occur ( as in A above), the matched parπ- drops out of the matrix or queue. The program seeks out the next currency links based on a set of transacuons rules to fulfill wholly or partially the next match. Third, traditional netting occurs on compleuon of a series of transacuons. For example, if Part}^* A is obligated to pay Party B three units of a currency and Parπ^* B is obligated to pay Part}- C three units of a currency, a netung transacuon would have Parπ^r A pay Party C three umts of currency directly. In this embodiment, transactions are synthesized by matching source (available) currency to beneficiary (desired) currency requirements. As such the transacuon could be deemed a netung 'hybrid'.

The present system may be further understood with reference to Figures 3A and 3B, which each show a schemauc of the major elements in a foreign exchange matching system in accordance with the present invenuon Figure 3A is an actual proposed architecture schemauc for an FX embodiment prepared by Primix Soluuons Inc; the embodiment is called 'BuvFX'. The funcuons of the major blocks in Figure 3A and

3B are the same and are as follows: the parπ" and counterparty each interact with the foreign exchange matching system using their web browsers (1 , 2), which communicate via the Internet 3 with a convenuonal \X eb cluster/ firew all 4 connected to an apphcation server cluster 5 running Netscape Application Server, IBM WebSphere or BEA WebLogic. Cluster 5 is connected to a message bus 7, such as AcuveWorks or Tibco. The message bus 7 is connected to a live data feed 6, which provides continuous and up to date pricing informauon A Reuters or Bloomberg feed could be used. Message bus ~ is also connected to a mail server 8 which communicates with various enuues, including the parπ- and counterparn-

Message bus 7 is also connected to the matching system server 9, which runs a Java or C++ program calculating not only the mid-point prices (and related spreads, if apphcable) using data from the live feed 6 but also identifying where netting opportuniues exist to enable a currency match to occur and the nature of the netung. Matching System server 9 is connected to an Oracle database 10. Message bus 7 is connected to the various s\ stem financial partners 1 1 (π-picallv one, but not limited to one, in each jurisdicuon whose currency is available for matching through the system). These are typically banks or deposit taking insutuuons These partners actually take the payment from and make payments 12 to each party and counterpart in the amounts defined by the matching system server 9.

Reference should now be made to Figure 4, which is a step by step walk through the process. Figure 4 includes, but is not hmited to, the denoted steps to execute a transacuon. At step 1 , a parπ' with a need for foreign exchange logs onto a secure web site using its browser. Imual , the parπ' has to complete a customer profile and user authenucauon. This involves the following steps. On entering the secure FX Matching System web portal, the customer has to: (A) Register with the FX Matching System and its jurisdicuonal banking partners in a secure environment (if a new user), or (B) Authenucate its idennπ- with a user name and password (if an exisung user)

(C) If a new user, it also has to enter various administrator-defined resrricuons- user restπcuons, currency resrricuons, -. olume resrricuons e g User "XXXX" can transact in currenc\ "XXX" and "YYY" only, in volumes not to exceed "XXXXXX" Once authenticated as a user, the customer w ill be able to complete a secure submission document using its W eb brow-ser (Step 1) Tins document enables a user to:

(A) List, in a secuie environment, commonh used source accounts and beneficiary accounts.

(B) Enter an electronic funds transfer request, with funds moving from a source account to a beneficiary account at a _junsdicuonal banking partner, if necessary.

Once its funds have been deposited and the cleared funds are "held" b^*, a junsdicuonal banking partner, the customer is able to 'post' funds using the browser based submission document as follow s

(A) By requesting a conversion on a defined source amount e g the customer has a source quanutv of SIM USD which it requires to be converted to CAD), or

(B) By requesting a beneficiary amount, the computer program w ill calculate the quanu v of source funds required, utilizing a "buffer percentage" to account for potenual currency fluctuauons. The "buffer percentage" is a convenience feature for customers and will be calculated on a currency specific basis at πvo standard deviauons of the daily fluctuauon of the currency.

The secure submission document also allows each user to define the kind of transaction required. Examples of user-defined funcuonahπ' include, but are not limited to, the following

(A) 'Match' - the exchange transacuon is completed as and w hen reciprocal funds become

ailable in w hole or in a series of paruals for a customer to fulfil a currency order; tins process can be time-sensiuve. Implicit in the Match order is end of da\ execution of

unfilled balances, unless the customer has his own beneficiary account and elects to

pass that opuon, (B) 'Match (All or nonei' — the exchange transacuon is completed only as and when a complete block of currency (as a series of paruals or in one reciprocating block) becomes available to fulfill a currency order; (again, this can be time-sensitive);

(C) 'Match and Market (M & M's)' - a time sensiuve order to fill the customer currency requirement with as much "matched" currency as is available during a user- defined period of time, with the opuon of execuung the balance at the prevailing market rate with a banking parmer or financial insutuuon;

(D) 'Market' — an order allowing a customer to bypass the matching process and go directly to a junsdicuonal partner for execuuon; this can be time-sensitive; (E) 'Special Liquidkv' - certain corporate partners, and, in some circumstances, regular customers will be able to submit orders at preferred rates to augment liquidity. "D-SL" orders never haλ'e precedence over regular "Direct" orders.

The Submssions Document is then securely transmitted (step 2) to the Matching System Server (B). The Matching System Server (B) then requests (step 3) the appropriate financial insutution (C) to verify the informauon given by the party (including the availabiliπ' of funds) and to authenticate the user from the financial insutution's perspective. An account held with this multi junsdictional financial partner(s) serves nothing but a transactional purpose through which funds are matched and distributed. The mulu junsdicuonal financial partner(s) accepts funds on account in the currency by which they were deposited. Correspondingly, this instituuon delivers funds to the customer in the beneficiaπ' currency at the prescribed rate of exchange. All currency exchange is electromc so that no physical securities are required for clearing.

Once the financial insutuuon (C) has confirmed that the user has the required funds to be exchanged it in effect freezes those funds, and then authorises the matching system (step 4) to post the required informauon and proceed with the transaction. The Matching System (D) then performs the netung ldenuficauon process illustrated at Figure 2B, using the mid-point prices it calculates using the data from live feed (A). Matching

stem (D) uses the following order pπoπusation feature. In order to prevent one company and/or transacuon from "locking out" other customers by placing a substanual order in relauon to the available hquidiπ', customers will be able to place orders to a maximum size of "X" USD equivalent. The software will accept volumes in excess of this size. These will be automaucallv processed into a series of smaller transacuons, determined by the Matching System (D) and contingent on the liquidiπ' of the currency. Execuuon of these smaller transacuon volumes will occur in sequence with the lniual block being completed on a "first in, first out", followed by the next Matching System (D) customers in that currency, if any, on a FIFO basis; followed bv the second block from the ttansacuon; followed by the next customers in that currency, if any, and so on until the cumulauve volume is filled. This prevents one customer from monopolizing any one currency to the detriment of other customers.

Where a successful match has occurred, the Matching System (D) noufϊes the various financial insutuuons to complete the funds transfer. More exacdy, transacuons are aggregated bv Matching System (D), reconciled, and recorded to one central file per jurisdictional financial institution. The "batched" files are transmitted to the junsdicuonal partner (step 5).

Nouficauon arises through the Matching System (D) issuing an 'Internauonal Payment

Instrucuon'. Tins is an order to a financial partner to record payment mstrucuons to a customer defined benefician' account;

Issuance of the 'Internauonal Payment Instrucuon' will occur under, but will not be limited to, the following condiuons:

(A) When a customer is "matched" fully

(B) When a customer is filled at the end of the day

(C) When a "Match and Market" order has been fulfilled. (D) If customer selects "Market" or "Match (All or none)" order. (E) If a customer elects to carry an order over a number of davs, until that order is filled in its enureπ', the direcuon to pay opuon to a Payee Account remains unavailable. In that circumstance, the customer must maintain his own benefician account.

In addiuon to handling Internauonal Payment Insmicuons, the s\ stem can equally well handle Domesuc Payment Instrucuons — for corporauons who seek to transfer funds domesucallv.

In addiuon to issuing the Internauonal Payments Instrucuon, the Matching System (D) records the ttansacuon details and time-stamps diem Pricing is also screened by the Matching System (D) for anomalous trades to ensure transacuon integrity. Matching System (D)also causes an e-mail customer nouficauon of a match to be issued, pending final payment and setdement.

Payment mstrucnons are then confirmed, aggregated, and reconciled at the financial partner. Payment is subsequently effected (step 6) to the denoted beneficiary accounts (payee or customer). Each junsdicuonal banking partner will release funds at the earliest available opportunity after the daily batching funcuon. Confirmauon details are recorded for transmission to customers; confirmauon emad and online transacuon reporung details are transmitted to each customer (step ~) Call centre funcuonahπ' allows customer to gain transacuon detads should their ISP be experiencing technical details. At step 8, each customer can obtain a transacuon confirmauon ceruficate (Step 9). The transacuon is now fully completed.

There are various additional aspects to the FX Matching System, which are not illustrated. For example, a product for individuals (business travelers) is available; as is a corporate wholesale product for intermediaπ exchange requirements: and a "market" product for blue-chip multinationals. The transaction size in these incarnations may dictate the transacuons "fee" for execuung a currency match; the program could, but does not have to automaticalh categorize the trade into the appropriate product w ith the appropriate rate scale.

Another use of the s\ stem is as an intra/inter corporate netting and money management facihπ ( see The Mechanics of Netting Figure 5), in which currenc\ requirements can be met as the mtra corporate currencλ becomes avadable in other juris dicuons.

A hedging facility for foreign exchange exposure may also be included, in which matched forwards can be offered by die junsdicuonal financial partner

In addiuon, exposure positions are available to the multi junsdictional financial partner (s) to miugate svstemauc risk with one another.

The system can be implemented as a series of scalable products available for distribuuon through many different channels through the Internet; the customer may enter the system directly through the denoted web site to transact; the customer may enter via the web site of our mulu junsdicuonal partner(s) in a co-branded product, or the customer may enter via the web site of a mulu junsdicuonal partner in a "partner- branded aka white-branded" or non-branded interface. For the retail individual, an affihauon beπveen the present

stem and a courier and travellers cheques compa is possible. This enables a transacuon to be completed anywhere in world with the traveller's cheque couriered directly to the individual. Tins is envisaged as a premium service delivered via the Internet

As explained aboλ'e, the s\ stem can provide cross-border settlement of accounts, converted to the currency of choice, at exchange rates that represent the closest to fullv efficient currency markets This is particularly advantageous for the small/medium corporate user Clearing transactions

In a preferred embodiment, there is a central clearer (or a group of clearers, presumably financial insutuuons), with access to the juπsdicuons in which currency is both sourced and req red. This could be a single financial insutution or trustee, or a g^rouP °f financial insutuuons or trustees which can secure the transactions. An account held with the clearing body serves nothing but a transactional purpose through which funds are matched and distributed. The central clearer or its affiliates should have the abiliπ' to accept funds on account or with a financial insutution in the currency by which they were deposited. Correspondingly, this insutuuon delivers funds to the customer in the beneficiary currency at the prescribed rate of exchange.

All currency exchange is electronic and no physical secuπues are required for clearing.

Payment & Settlement

The simplest scheme involves 2 parues in 2 countries with equal and off-setting obhgauons. In the United Kingdom, imagine that a party C has £1 million GBP

(Great Britain Pounds) in available funds in a bank account in the United Kingdom and needs to pay S1.5million (L^'S dollars) to its suppher A in die L^TS. In the US, party' C^" has $1.5milhon in available funds in a bank account and needs to pay lmillion to its suppher B in the UK. Assume for simplicity that the exchange rate is SI .5 per GBP. Convenuonallv, C' might wire transfer S l .SmiUion (US dollars) to suppher A in the US: that process involve the complex steps involving numerous parues explained in the Description of the Prior Art secuon of this specificauon.

Likewise, C^~ might wire transfer million to suppher B in the UK, with equivalent steps. This prior art process is however relauvelv expensive and slow. In the system of the present invenuon, shown in Figure 1 , however, a central computer system is fed the payment obhgations of each party, and rapidly spots that a simple swap of obhgauons is possible. It then causes parry C ~ £^"1 million to be paid to suppher B in setdement of C^"'s payment obhgauon to suppher B and also causes C^"'s Sl .Smiihon to be paid to suppher A in settlement of C "s payment obhgauon to suppher A. As noted above, this ludimentaπ 2 party example is offered as an introductory example of the underlying concept In pracuce, there w ill hkeh be many parues and many countries.

As a somew hat more complex example, a 3 party example would operate as follows. In this example, a new intermediaπ , BuvFX.com, is introduced. BuvFX.com operates the central computer system underlying the present invenuon.

Assume the following simple scenario, depicted in the table at Figure 1.0 below:

Corporauons: C, C^", C

Corporauon's Domesuc Financial Insutuuon: FP τ« 1 ', F ΓTT¹ -^", F rτT< '

Corporauon's Foreign Financial Insutuuon: FI , FI ^", FI

BuyFX.com's Correspondent Banking Partners: FI , FI 131 \2 ^", F τττIl'1-λl

C' - Owns GBP; Requires USD;

C² - Owns USD; Requires YEN; - Owns YEN; Requires GBP

In this example, C ' cannot sausfv its requirements in whole or in part by dealing with C^" exclusively. However, if C can be "linked" into the transaction, all three corporauons can be sausfied to the value of the smallest available currency.

Therefore, in simple terms, if C ^hs USD requirement could be sausfied λ'ia C^", C^"'s YEN requirement via C\ C "s GBP requirement via C , \ ou could reduce the number of parucipants in any leg of a transacuon. That is, the various "cross border" elements of a transacuon become nothing more than a series of netted domesuc transacuons. Where previously there could be 18 or more parucipants over 3 transacuons, there is now a maximum of 15, with a minimum of 9 (assuming distinct financial insutuuons in each juπsdicuon)

The relauonship and methodolog\ to achieve tins end is depicted in Figure 1.

The fundamental requirements for this s-, stem are:

• A central computer s} stem, neπvorking parucipaung financial insutuuons, which calculates transfer amounts and electronically instructs financial insutuuons in the area of funds direcuon. (FEDI)

A neπvork of financial insutuuons (one or more), which has avadable to it the mathemaucal and communicauons sofπvare to relay customer mstrucnons regarding the transfer of funds to a payee. A central computer system, which uses batch file processing to execute recorded transacuons and direct payments accordingly.

Referring to Figure 3, each parπ' using the BuvFX.com system (i.e. C , C^", and C^"') instructs its own domesuc financial insutuuon that it requires a foreign exchange payment to be made. That can be done in several wavs; for example, each parπ' could access a BuvFX.com web site and enter the details of the amount and the payee; it would previously have entered into a mandate with BuvFX.com so that any mstrucuons given

it in an authorised manner to the BuvFX.com web site triggers an automated debiting of cleared funds from that parπ 's bank account into the BuvFX.com correspondent bank. Hence, w hen C' , w hich banks in GBP, instructs its bank FI* ' that it wishes a USD payment to be made to its US suppher, then, the equivalent amount in GBP is debited from the cleared funds in the account of C held at Ff ' and transferred to FI^{BI X 1} Generally, that w ill onh occur after the Central System of BuvFX.com has determined that a match can be established which will led to a full or parual satisfacuon of several parues payment obhgauons That requires the Central to monitor all foieign exchange requests, and, w hen it spots a match, to inform the FX com correspondent banks, FI , FI etc, over the FEDI neπvoik The

FX com correspondent bank in a given jurisdiction then pulls payment from the pa\ er's domesuc financial insutuuon and forwards it to the foreign financial insutuuon acung for the parπ^τ w ho wishes to make a payment to a payee in that same juπsdicuon e g in the case of GB in Figuie 1 , the

in GB is C"s suppher, where C is based in Japan Hence, the B FX.com correspondent bank in GB sends the GBP it has obtained from C 's bank monev to C3's GB foreign financial insutuuon, FI , who then passes it to the GB

in sausfacuon of C "s debt to that payee

Further detailed aspects of an implementation are contained in the following appendices, in which.

1. Appendix 1 , which details the searching methodology and algorithm; and

2. Appendix 2, which details the transacuon aging procedure and the order of operauons, and

3. Appendix 3; which details the matching algorithm and netting (hybrid) procedure

Appendix 1 - The Searching Methodology and Algorithm

1. Each currency is assigned a umque base ten exponenual value henceforth known as an Assignment λ^'alue (AV) see Table 1.0 below. Example: GBP-AY l.E+02

2. Source Currency Assignment λ^τalue (SCAV) e.g. SCAY for USD = 1.E+00

Beneficiary Currency Assignment λ^'alue (BCAY) e.g. BCAY for CAD = l .E+01 see Glossaπ^* of Terms.

Table 1.0: Assignment V a lues

# Currency Values Exponential

1 USD-AV 1 1.E+00

2 CAD-AV 10 1.E+01

3 GBP-AV 100 1.E+02

4 JPY-AV 1000 1.E+03

5 EUR-AV 10000 1.E+04

6 AUD-AV 100000 1.E+05

7 CHF-AV 1000000 1.E+06

1000000 8 ZAR-AV 0 1.E+07

3. To distinguish between currency combinauons, one aggregates the assignment values of the underlying currencies. Example CAD/GBP/EUR = 10110. No other currency grouping can generate this assignment value. Each groupmg has its own umque assignment value.

4. Key to the process is that no combinauon of assignment values can be aggregated to equal the assignment value of any other currency. A base ten searching mechanism provides this characteπsuc. 5. Using A Vs. from Table 1 0, one can generate matches mathemaucallv. See Example 1.0.

6. The searching mechanism has a finite number of combmauons that can be easily defined by Formula 1.0.

7. Formula 1.0: Total Combinauon Calculauon

T (n,x) = C(n,x) + C(n,x-1) + C(n,x-2) + . . + C(n,2) where C represents the number of combmauons given n, the size of the umverse and x, the number of elements m any one combinauon; x can be less than or equal to n and greater than or equal to 2.

8. Examples: Eight and Nine Currency Environments

Therefore, in an eight currency environment, the total number of combinauons equals: T (8,8) = C(8,8) + C(8,7) + C(8,6) + C(8,5) + C(8,4) + C(8,3) + C(8,2) T (8,8) = 1 + 8 + 28 + 56 + 90 + 56 + 28 T (8,8) = 267 maximum combinauons assuming we accept all possible links.

In a nine currency environment, the total number of combmauons equals:

T (9,9) = C(9,9) + C(9,8) + C(9,7) + C(9,6) + C(9,5) - C(9,4) + C(9,3) + C(9,2)

T (9,9) = 1 + 9 + 36 + 84 + 126 + 126 + 84 + 36

T (9,9) = 502 maximum combinauons assuming we accept all possible links

9. Note that the above equation is terminated at C(n,2) as πvo items at least are necessary to generate a match.

10. Note that the above equation can readily generate the number of available combinauons should BuvFX.com wish to limit the matching procedure to any maximum 2

number of parucipants. For example, BuvFX.com could have a 20 currency environment with a maximum of 6 parucipants to a transacuon; mathemaucally the number of possible combinauons to reflect these parameters can be described as:

T (n,x) = C(n,x) -t- C(n,x- 1) + .. . + C(n,2) where n is the number of available currencies and x is the maximum number of parucipants in any one ttansacuon.

For a 20 currency environment, with a maximum of 6 parucipants to any one transacuon:

T (20:6) = C(20,6) +C(20,5) + C(20,4) + C(20,3) -r C(20,2)

T (20:6) = 38,760 + 15,504 + 4,845 + 1,140 + 190 T (20:6)60439 possible combinauons

11. Source Currency Assignment Value (SCA\^T) is compared to the Beneficiary Currency Assignment Value (BCAΛ") to generate the match(es). Where the SCAY = BCAV for the same subset of chents, a match exists.

12. Example 1.0

Numerical Example: Searching Methodology

Λssumptwns a. Randomly entered data points denoting source and beneficiary currency req'ts.

b. All transactions entered at time t= 1.0; hence no transacuon in the example has precedence based on time.

c. Source Currency USD Beneficiary Currencies CAD CHF

d. Source Currency CAD Beneficiary Currencies fPY AL^'D

e. Source Currency GBP Beneficiary Currencies USD EL^'R

f. Source Currency JPY Beneficiary Currencies GBP ZAR

g. Source Currency EUR Beneficiary Currencies USD

h. Source Currency ALT⁾

Beneficiary Currencies EUR

i. Source Currency CHF

Beneficiary Currencies USD GBP ZAR

j. Source Currency ZAR

Beneficiary Currencies EUR

13. The above observauons could be illustrated numerically as m Table 1.1

Table 1.1 Assumpuons Denoted in Table Form with Corresponding Assignment λ^'alues

14. AV Matches

Assumpuons: In tins example, all transacuons aged idenucally at t=l

Assumptions: In this example, all transactions aged identically at t= =1

Match 1 1.E+01 1.E+05 1.E+00 1 E+04 SCAV 110011 USD,CAD,EUR,AUD BCAV 110011

Match 2 1.E+06 1.E+00 SCAV 1000001 USD,CHF BCAV 1000001

Match 3 1.E+01 1.E+03 1.E+00 1.E+02 SCAV 1111 USD,CAD,GBP, JPY BCAV 1111

Match 4 1.E+06 1.E+00 1.E+07 1.E+04

1101000 SCAV 11010001 USD.EUR.CHF.ZAR BCAV 1

15. Bv comparing the aggregated assignment values of the source currencies against the benefician' currencies, one can discover the matches Where the values are idenucal, there is a match.

16. Mathemaucally, tins is lUusttated as follows: SCAV - BCAV = 0 (Formula 1.1) Matches. Denoted

source and benelician- assignment values being equal.

a. Source Value 110011 Benefician Value 110011

Match: USD CAD EUR AUD

b. Source Value 1000001 Beneficiary λ^'alue 1000001 Match: USD CHF

c. Source Value 1111 Beneficiary Value 1111

Match: USD CAD GBP JPY

d. Source Value 11010001

Benefician- Value 11010001

Match: USD EUR CHF ZAR

1^~\ Since the subset of required assignment values is finite; the searching procedure is easily executable.

18. The system is easily scalable with the addiuon of currencies see #4 above. The maximum number of combinauons is finite and can be defined. As this relates to CPU capacity, the req rements can be estimated with confidence. Appendix 2 - Transaction Aging Procedure and Order of Operations

1. While the Searching Algorithm provides a very clear methodology to exposing matches mathemaucal . Considerauon must also be given to:

l. the Transacuon Aging Process ii. the Order of Operauons

2. The Transaction Aging Process is a time-based order management procedure through winch entries are pπoπuzed on a first in, first out basis, subject only to the parameters and hmitauons of either the BuvFX.com Transacuons Rules or User Defined Parameters.

3. Order of Operauons is a combinauon of Transacuon Rules and User Defined

Parameters, which necessitate unique treatment of the data entry in quesuon. For example, if a customer tags the "All or none" order, the system must provide for this restriction by ensuring that the complete execuuon of the order can occur prior to engaging this entn- in any transacuon.

4. The Transacuon Aging Process

l. Given that the user entry requires no special treatment in relanon to the BuvFX.com Transacuons Rules, and that the entry is not tagged with a user defined krmtauon, precedence of one entry over another is exclusively ume based. In other words, the first entn' into the system will, ceteπs parabis, have pnoππ' over any subsequent entry.

5. Example 1.0 Table 1.0: Assignment λ^ralues # Currency Values Exponential

1 USD-AV 1 1.E+00

2 CAD-AV 10 1.E+01

3 GBP-AV 100 1.E+02

4 JPY-AV 1000 1.E+03

Randomly entered data points denoting the following transactions conditions:

At t= 1.0; USD-SC; CAD-BC, dierefore SCAV = 1, BCAV = 10

At t= l.l; EUR-SC; USD-BC, dierefore SCAV = 100, BCAV = 1

At t= 1.2; CAD-SC; EUR-BC, therefore SCAV = 10, BCAV = 100

At t= 1.3; USD-SC; EUR-BC, therefore SCAV = 1, BCAV = 100

where SC is Source Currency &_~ BC is Benefician^* Currency

6. Transacuon Aging Procedure

SC USD CAD EUR JPY

SCAV 1 10 100 1000

BC BCAV

T=1.1,

USD 1 AV=1

CAD 10 T=1.0; AV=10

T=1.3; T=1.2;AV=10

EUR 100 AV=100 0

JPY 1000

7. AV Matches by Age

I. AtT=1.0 No match

II. AtT=l.l No match

III. AtT=1.2 Match SCAV=BCAV=111

IV. AtT=1.3 Match SCΛV=BCAV=101

Notes:

I. Match at T=1.3; if USD and EUR remaining in the queue after Match at T=1.2.

II. If USD or EUR supply exhausted at T=1.2, Match at T— 1.3 will not occur.

III. If observauon at T=1.3 occurs prior to T=1.2; Match AY=101 will have priority over Match AV=111. In this example Match AV= 111 will not occur as one, of either, L^'SD or EUR would be exhausted.

The Factors Influencing the Order of Operauons

Time Stamp - per Aging Rules above

Size - parcehng if necessan* to ensure customer fulfillment and prevent

"monopohzauon" bv any one customer.

Type of Transacuon - Match; Match and Market, Match (AU or None),

Market, Special Liquidiπ*

User Defined Parameters - price limits, durauon, etc.

Appendix 3 - The Matching Algorithm

1. Bv combining the BuvFX.com Searching Algorithm w ith the Transacuons Aging Procedure, AY Matches can be discovered, ( see BuvFX Searching Algorithm and BuvFX Transacuon Aging Methodology & Order of Operauons)

2. When an AV Match is discovered via the Bu\ FX Searching Algorithm, at least πvo chents will be parπ' to the transacuon. The hmiting factor to the transacuon will, therefore, be the least supply of currency (or the smallest Source Currency Quanuu- or SCQq) among the parues to the transacuon. eg. Assume Aλ^' Match = 101 (GBP and USD); one chent has 100,000 USD for GBP and another has 100,000 GBP for L SD: LSD/GBP = 62225: the h iung factor to this transacuon is the SCQq of 100 000 L SD. Therefore, the chent with SC=USD and BC=GBP will receive all of his desired GBP and drop from the queue. All other parues will remain m the queue subject to user parameters and transacuon rules.

3. To calculate the amount of currency aUocated to each of the parues in a transacuon:

A. Each supply of currency is denoted in a common or base currency equivalent form. Since USD is the global standard against winch aU currencies are typically quoted, USD wiU be used as the base currency for these calculauons. Formula

1.0 describes a currency in terms of the base currenc-, , in this case, L^'SD.

Formula 1.0:

Q^{L SD}(SC in Base terms) =SCQ/SC FX Rate as against the Base Currency

J

Example: To calculate JPY in LSD terms, R= 109.45, SCQ= 109,450 JPY

Q^{L D} = 109,450/109.45 = 1000 L^'SD

Therefore, at time t, 109,450 JPY was equal to 1000 USD.

B. The SCQq is detertruned, thereby defining the lirniting source and quantiπ* of currency against which the other participant volumes can be calculated. Each parπ' to the transacuon will undergo the calculauon denoted in Formula 1.1 to determine the supply of currency which that parucular client will contribute to die transaction (SCQ¹)

Formula 1.1:

SCQ^r (quantiπ* supplied to the transaction) = SCQq x Source FX Rate as against the Base Currency

or SCQ¹ = SCQq x R I¹ sD SC

Example: To calculate the volume of source currency contributed to a transaction.

If the SCQq = 10 USD, and R ^sα ™^p = 0.62225,

_SCQ ^K;BP _ _{1 Q} * 0.62225 = 6.2225 GBP

Therefore, the chent with SC=GBP would supply 6.2225 Pounds to this transaction and the chent with BC=GBP would receive 6.2225 Pounds as a parπ- to this transacuon. Consider the following example:

• Chent B has 15 CAD as Source Currency Quanuπ^* (SCQJand requires XJPY as Beneficiary Currency Quanuπ^* (BCQ)

• Chent H has 3000 JPY as Source Currency Quanuπ' (SCQ) and requires Y CAD as Benefician^* Currency Quanuπ^* (BCQ)

The prevailing foreign exchange rates are noted in the Table below:

Sample

Transaction

FX Rate SCQ (in USD) Residual

Client SCQ (see Table 7.1) Formula 1.0 BCQ BC SCQ ^R

B 15 1.45425 10.31 1128.93 JPY 0

H 3000 109.45 27.41 15.00 CAD 1871.068

SCQq = 10.31 LSD

Therefore,

Applying the calculauon SCQ ¹ = SCQq χ R^{L > <}

Chent B:

SCQ ^{1 ( ND} = 10.31 X 1.45425 = 15 CAD (therefore "B" provides 15 CAD to "H")

_BCQ ^{I Π} _ _π 28.93 JPY

CHent H:

SCQ^{1 IPV} = 10.31 X 109.45 = 1 ,128.93 JPY (therefore "H" provides 1,128.93 JPY to "B") BCQ^{I C D} = 15 CAD

CHent B, holding the smaUer USD equivalent posiuon, can be executed in its entirety; 1128.932 JPY for 15 CAD.

Chent H receives 15 CAD and remains in the queue having available 1871.068 JPY for the next counterparπ*.

5. To calculate the residual source funds SCQ^R for the next apphcable transaction, one need only subtract the SCQ^r (the quantiπ* supphed to the transaction) from the original SCQ.

Formula 1.3:

SCQ^R = SCQ - SCQ¹

Example: To calculate the volume of source currency remaining after a transacuon.

If the SCQ = 3000 JPY, and SCQ^{1 IPV} = 1128.93 _SCQ^{R M} _{= 3000} . 1 128.93 = 1871.07 JPY

Therefore, the chent with SC=JPY would be ready to supply at most, 1871.07 JPY to the next transaction. A. AU details of the transacuon will be stored to a database for aggregauon & "batch payment and settlement" B. As currencies fluctuate agamst the USD, calculauons will be generated from live data to supply the chent with "real-time" compeuuve pricmg.

7. Applying the BuvFX Algorithms and Procedures

7.1 Sample Foreign Exchange Rate Table

Mid Point FX Rates

Mid-

Currency Quotation Point

1.4542 a USD/CAD 1.45375/475 5

0.6222 p USD/GBP 0.6220/25 5

O USD/JPY 109.40/50 109.45

0.9862 p USD/EUR 0.9860/65 5 p USD/AUD 1.5830/40 1.5835

1.6272 p USD/CHF 1.6270/75 5 p USD/ZAR 6.3260/70 6.3265

Quotations as at 02/16/00

Note: Currency rates are dvnamicaUy reflected in the calculations in USD terms at any time T=match. The rates above are merely a static sampling for the purposes of this example.

.2 Sample Currency Assignment Values

# Currency Values Exponential

1 USD-AV 1 1.E+00

2 CAD-AV 10 1.E+01

3 GBP-AV 100 1.E+02

4 JPY-AV 1000 1.E+03

5 EUR-AV 10000 1.E+04

6 AUD-AV 100000 1.E+05

7 CHF-AV 1000000 1.E+06

8 ZAR-AV 10000000 1.E+07

7.3 Random Currency Entries usmg Tables

SC BC SC-AV BC-AV SCQ

T=1.0 GBP USD 100 1 20

T=1.1 CAD JPY 10 1000 15

T=1.2 GBP CAD 100 10 10

T=1.3 JPY USD 1000 1 800

T=1.4 AUD USD 100000 1 30

T=1.5 USD EUR 1 10000 35

T=1.6 CAD ZAR 10 10000000 15

T=1.7 JPY CAD 1000 10 3000

T=1.8 EUR GBP 10000 100 30

T=1.9 CAD JPY 10 1000 40

T=2.0 EUR CHF 10000 1000000 25

T=2.1 ZAR GBP 10000000 100 110

T=2.2 CAD AUD 10 100000 19.5

T=2.3 USD GBP 1 100 30

Where SC/BC is Source/Beneficiary Currency; AV is Assignment Value; Q is Quantity Sample Iniual SCQs and AY Matches

Initial Initial

Time Client SCAV BCAV AV-Match SCQ _Q USD

T=1.0 A 100 1 N/A 20 32.14

T=1.1 B 10 1000 N/A 15 10.31

T=1.2 C 100 10 N/A 10 16.07

T=1.3 D 1000 1 N/A 800 7.31

T=1.4 E 100000 1 N/A 30 18.95

T=1.5 F 1 10000 N/A 35 35.00

T=1.6 G 10 10000000 N/A 15 10.31

T=1.7 H 1000 10 1010 3000 27.41

T=1.8 I 10000 100 10101 30 30.42

T=1.9 J 10 1000 1010 40 27.51

T=2.0 K 10000 1000000 N/A 25 25.35 1000000

T=2.1 L 0 100 10000110 110 17.39

T=2.2 M 10 100000 N/A 19.5 13.41

T=2.3 N 1 100 101 30 30.00

T=2.3 100111

The results of each subsequent chent entn^* are recorded in ^".5 below

5 Results of Sample Currency Entries

Time Client Initial Position SCQ ^R Description

Client B receives 1 128.93244 T=1.7 B (T=1.1) 15.0 CAD 0 CAD JPY

H (T=1.7) 3000 JPY ¹⁸jpγ⁶⁸ Client H receives 15.0 CAD

Client B requirement is e.xecuted in its entirety and Client B is removed from the queue. Client H requirement is partially executed and Client H remains in the queue.

Time Client Initial Position SCQ ^R Description

B T=1.8 I (T=1.8) 30 EUR 0 EUR Client I receives 18.92776 GBP

1 072Η A (T=1.0) 20 GBP _TT_D Client A receives 30.41825 USD

F (T=1.5) 35 USD ^'\JSO Client F receives 30 EUR

Client I requirement is executed in its entirety and Client I is removed from the queue. Client A requirement is partially executed and Client A remains in the queue. Client F requirement is partially executed and Client F remains in the queue.

Time Client Initial Position SCQ ^R Description

C T=1.9 H (T=1.7) 1871.068 JPY 0 JPY Client H receives 24.86067 CAD

15 13933 J (T=1.9) 40 CAD CAD Client J receives 1871.068 JPY

Client H requirement is executed in its entirety; Client H is removed from the queue. Client J requirement is partially executed and Client J remains in the queue. Time Client Initial Position SCQ ^R Description

D T=2.1 G (T=1.6) 15 CAD 0 CAD Client G receives 65.25529 ZAR

44.74471 L (T=2.1⁾ 1 10 ZAR _ZAR Client L receives 6.41826 GBP

C (T=1.3) 10 GBP _GBp Client C receives 15.0 CAD

Client G requirement is executed in its entirety and Client G is removed from the queue. Client L requirement is partially executed and Client L remains in the queue. Client C requirement is partially executed and Client C remains in the queue.

Using Transaction Aging Rules, Transaction E has priority over Transaction F.

Time Client Initial Position SCQ ^R Description

T=2.3 A (T=1.0) 1.07224 GBP 0 GBP Client A receives 1.72317 USD

N (T=2 31 30 USD -8.27683

^{1 J Jυ ύ} USD Client N receives 1.07224 GBP

Client A requirement is executed in its entirely and Client A is removed from the queue. Client N requirement is partially executed and Client N remains in the queue. Time Client Initial Position SCQ Description

T=2.3 C (T=1.2) 3.58174 GBP 0 GBP Client C receives 8.37083 CAD

1 1.12917 (T=2.2) 19.5 CAD Client M receives 9.1 1481 AUD CAD

20.88519

E (T=1.4) 30 AUD Client E receives 5.75612 USD AUD

"^ 5^071 N (T=2.3) 28.27683 USD USD ^{CIient N receives 3}-^{58 174 GBP}

Client C requirement is executed in its entirety and Client C is removed from the queue. Client M requirement is partially executed and Client M remains in the queue. Client E requirement is partially executed and Client E remains in the queue. Client N requirement is partially executed and Client N remains in the queue.

Sample Client Positions ( after 14 observations)

Net

Client SCQ SC BC BCQ (A) SCQ ■> USD %B/A

A

20 GBP USD 32.14 0.00 0.00%

B

15 CAD JPY 1128.93 0.00 0.00%

C

10 GBP CAD 23.37 0.00 0.00%

D

800 JPY USD 0.00 7.31 100.00%

E

30 AUD USD 5.76 13.19 69.62%

F

35 USD EUR 30.00 4.52 13.09%

G

15 CAD ZAR 65.26 0.00 0.00%

H

3000 JPY CAD 39.86 0.00 0.00%

I

30 EUR GBP 18.93 0.00 0.00% J

40 CAD JPY 1871.07 1139.42 37.85%

K

25 EUR CHF 0.00 41.25 100.00%

L

110 ZAR GBP 6.42 4.40 40.68%

M

19.5 CAD AUD 9.11 12.12 57.07%

N 30 USD GBP 4.65 14.01 75.07%

Note: %B/A is the percentage of currency which is. as yet. unfilled after 14 observations.

mmarv of Results

Initial Req't Value Executed

Client (in USD) (in USD) % Executed

A 32.14 32.14 100%

B 10.31 10.31 100%

C 16.07 16.07 100%

D 7.31 0.00 0%

E 18.95 5.76 30%

F 35.00 30.42 87%

G 10.31 10.31 100%

H 27.41 27.41 100%

I 30.42 30.42 100%

J 27.51 17.10 62%

K 25.35 0.00 0%

L 17.39 10.31 59%

M 13.41 5.76 43%

N 30.00 7.48 25%

Totals 301.57 203.49 67% 0. Observations from Table 8.0

A Percentage of Transactions executed fully 43%

B Percentage of Transactions executed partially 43%

C Percentage of Remaining Transactions 14%

D Initial USD equivalent value in queue 301.57

E Value of USD equivalent Matched 203.49

F Percentage of Value Matched 67%

11. Glossary of Terms

SC Source Currency - the avadable currencv i.e the

to be converted

BC Beneficiary Currency - the desired oi desunauon currenα i.e. the currency mto w*hιch the source funds will be converted

AV Assignment Value - an idenufier used to disunguish one currency from another eg GBPAY= 1 E+02, AYs are used to source matches beπveen chents (see Searching Algorithm). Currency pairs or muluples have unique Aλ^' totals (see Table 7.2); for example, a pairing of CAD &_~ GBP is idenufied by 110; GBP & USD by 101, CAD & JPY by 1010 etc.

SCAV Source Currency Assignment Value - the value assigned to the source currency of a chent transacuon e.g. if chent has GBP for conversion to CAD, SC = GBP, therefore SCAV =GBPAV= l.E+02 (see Table 7.2)

BCAV Beneficiarv Currency Assignment Value - the value assigned to the beneficiary currency of a client transaction e.g if chent has GBP for conversion to CAD, BC = CAD, therefore BCAV =CADAV= l.E+01

(see Table 7.2)

AV Match Assignment Value Match - bv defmiuon, a match occurs when the Source Currency AY of πvo or more parues is equal to the Benefician Currency Aλ^' of those same parues, SCAλ'=BCAλ^' or SCAλ^r-BCAλ^τ=0 eg If one chent has GBP to convert to CAD and another chent has C.VD to convert to GBP, SCAV = GBPAλ' - CADAV =110 = BCAV = GBPAλ^' -r CADAV

SCQ Source Currency Quantity - the amount of source

to be converted

BCQ Beneficiary Currency Quantity - the amount of beneficiary currency available post-transacuon(s)

Q^USD Represents a Source Currency in USD equivalent terms; used to compare the SCQs of the parucipants in a transacuon to discover the SCQq (see below)

R Foreign Exchange Rate - the amount of one currency required to procure another

eg. If 109.45 JPY = 1 USD; R = USD/JPY = 109.45

SCQq Represents the limiting factor to a transacuon, the SCQq is the smaUest SCQ (or SCQ^R), as denoted m USD terms, from the parucipants to a transacuon.

SCQ^T Represents the quanuπ* of currency contributed by a chent in execuung a transacuon

SCQ¹ = SCQq x R LSD s(

SCQ^R Represents the residual currency post-transacuon available in the queue for future matches.

SCQ^R = SCQ - SCQ¹ Queue AU of the SCQ'S available for transacuons, prionuzed by system transaction rules and user-defined parameters.

Claims

Claims

1. A method of mulu-currencv funds setdement comprising the foUowing steps: funds in a currency X of a first legal person who is situated in country X are transferred in whole or part within country X to sausfv in whole or part the currency X payment obhgauons of a second legal person, situated in a different country Y¹; and the funds in a currency Y of that second legal person situated in country Y are transferred m whole or part within country Y¹ to sausfv in whole or part the currency Y payment obhgauons of a legal person, who may be the first legal person or one or more different or addiuonal legal persons.

2. The method of mulu-currencv funds settlement as defined in Claim 1 in which each legal person seeking to transfer foreign currencv enters into a computer program an amount of foreign currency required and an apphcable payee.

3. The method of Claim 2 in which the computer program is hosted on one or more web sen*ers.

4. The method of any preceding claim in which funds winch are transferred to a payee in a given jurisdicuon are generated from a series of debits and credits passmg back to a debit of cleared funds of a bank account held by a legal person in that same jurisdicuon, that legal person not seeking to transfer funds to that

ee but to a payee in a different lurisdicuon

5. A computer program receiving data defining the non-domestic payment obhgauons of parues located in πvo or more countries, and programmed to ldenufv opportuniues to sausfv those non-domesuc payment obhgauons bv assigning payment obhgauons using the funds settlement method defined in Claim 1 - 4.

6. A computer sen^rer programmed with the computer program of Claim 5.

7. A computer terminal acung as a chent, in which the chent accepts from a parπ^* a foreign exchange requirement and sends that requirement to a sen^rer as defined m Claim 6.

8. A computer based system which enables parues located in πvo or more junsdicuons to meet their foreign currency payment obhgauons, comprising a first computer terminal mto which a party located in a first jurisdicuon inputs details of a potenual first foreign currency financial transacuon, a second computer terminal into which a second parπ* located in a second jurisdicuon inputs details of a potenual second financial transacuon, a computer network connecung the first and second terminals; characterised in there being a computer program arranged to deterrmne if any transfer of funds from the first party to a payee located in the first jurisdiction satisfies in whole or part the requirement of the second party to transfer funds to that payee.

9. The computer based system of Claim 8 in which there are numerous computer terminals m numerous countries and the computer program is arranged to determine if any transfer of funds from a party to a payee located in the jurisdicuon of that parπ^* sausfies in whole or part the requirement of another parπ^* to transfer funds to that pavee.