Volbroker.com Limited
[2018] APO 53
•20 August 2018
IP AUSTRALIA
AUSTRALIAN PATENT OFFICE
Volbroker.com Limited [2018] APO 53
Patent Application: 2017202423
Title:System and Method for Trading Options (Credit Filters and Two Stage Updating)
Patent Applicant: Volbroker.com Limited
Delegate: M. G. Kraefft
Decision Date: 20 August 2018
Hearing Date: Written submissions filed on 22 June 2018
Catchwords: PATENTS – section 45 – examiner’s objections – proposed amendments filed with submissions – whether invention is a manner of manufacture – trading option contracts such as currency options – use of volatility data associated with option contracts, the creation of volatility surfaces and the dynamic updating of volatility data to avoid holding complete volatility surface – no manner of manufacture – whether claimed invention has inventive step – certain claims found to lack inventive step – application refused.
Representation: Patent attorney for the applicant: Fisher Adams Kelly Callinans
IP AUSTRALIA
AUSTRALIAN PATENT OFFICE
Patent Application: 2017202423
Title:System and Method for Trading Options (Credit Filters and Two Stage Updating)
Patent Applicant: Volbroker.com Limited
Date of Decision: 20 August 2018
DECISION
The claimed invention is not for a manner of manufacture. Moreover there is nothing of substance in the specification as a whole that would overcome this finding.
Claims 1-23 and 25 do not have an inventive step.
In view of the findings on lack of a manner of manufacture, the application is refused.
REASONS FOR DECISION
BACKGROUND
Volbroker.com Limited (“the applicant”) filed patent application 2017202423 on 12 April 2017. The application is a divisional application based on application 2015203042 (“the parent application”). There is a lineage of further ancestral applications back to an original Australian application 2002368137. The earliest claimed priority date is 5 August 2002.
An examination report was issued on 14 February 2018. The report contained objections that the claims of the application were not for a manner of manufacture, were not novel and did not have an inventive step, and that the claims did not relate to one invention only. The report also referred to an examination report, dated 12 April 2016, on the parent application for discussion of the objections. On the other hand, the latter report was similar to the report on the present application but further referred to an examination report, dated 4 June 2015, on the grandparent application 2012203528. The latter report contained substantial reasons for the majority of the objections.
The examiner’s report on the present application also included the following passage:
“My report below includes objections that are equivalent to objections raised in the examination of the related parent application which is directed to the same or essentially the same subject matter. As there have now been several adverse reports in relation to this subject matter, the application will be referred to a Hearing Officer to consider whether to accept or refuse the application under s49 or to direct amendment under s107. If you wish to be heard on this matter, you have 1 month from the date of this report to request a hearing.” (emphasis in the original).
The applicant subsequently requested to be heard.
Together with its written submissions for the hearing, the applicant also filed proposed amendments to the claims of the specification.
SPECIFICATION
The specification describes the invention as directed to a system and method for trading option contracts such as currency options. In financial markets, options or option contracts facilitate management of risk and generation of income. A financial instrument, such as currency, is one example of an underlying asset for which option contracts can be traded.
The specification indicates that, typically, there are two types of option contracts, a call option and a put option. The call option contract gives its holder a right to buy a specific quantity of an underlying asset at a specified price within a specified period of time. The specified price is known as a “strike price” and is a price at which a purchaser of the option contract can exercise the option to buy or sell the underlying asset. In the case of a currency option, the strike price is the exchange rate, or “strike rate”, at which the purchaser of the contract may exercise the option to buy or sell.
The specified period of time is known as a “tenor” and is an amount of time until the expiration date. In the currency options market, there are standard tenors for the majority of contracts traded. These include expiry dates set in the future by one week, one month, two months, three months, six months, nine months and one year.
Currency options may be traded on the basis of a parameter known as “delta” rather than the strike rate. The delta is a statistical relationship that measures the sensitivity of the value of an option contract to the market price movement of the underlying currency-pair of the option contract. The delta, as a ratio, indicates an absolute change in value of the option contract as a percentage of the change in the spot rate for the underlying currency-pair. Hence, an option whose value changes by half of the market rate has a delta of 50%.
The prices for currency options are often quoted in units of volatility, rather than in monetary terms. Volatility in this case is a market determined rate upon which option value is determined. It is the annualised standard deviation for the underlying currency being traded and bears a direct relationship to the value of the option. Another description of volatility in this context is as a measure of the change in value of the option contract.
A volatility surface is a three-variable relationship wherein a volatility price can be calculated so long as a given tenor and given strike rate are provided. A trading system, using information from volatility surfaces, must be able to calculate the volatility of any option that is requested. After an option contract is bought or sold at a specified volatility, the volatility is converted into a monetary purchase price for the option contract using a recognised methodology in the art known as the Black-Scholes option pricing equation.
The specification then discusses the use of internally implemented volatility surfaces, particularly by larger banks, to allow small trades to be priced automatically. That is, the banks have a surface of volatility defining the volatility, and thus the price, of any option that falls within the defined two-dimensional space of tenor and strike rate. The surface is updated throughout the trading day. The normal implementation has been to provide a system with a series of volatilities, hence prices, for commonly traded strike prices and tenors. The system can then interpolate, according to certain rules, a surface of volatilities for any desired strike price and tenor. Once a surface is created, it is a relatively simple matter to provide a volatility for any option simply by looking up the correct strike price and tenor. Users of the system have the advantage of quickly pricing small specific interests.
The rules tend to vary from bank to bank but are broadly similar in general terms. Although the banks’ interpolation rules are broadly similar, the differences are sufficient to cause economically significant differences in volatilities from different banks for a particular interpolated option. This can lead to arbitrage opportunities, wherein market participants take advantage of small price differences in equivalent option contracts to the detriment of the banks making the market.
Thus, according to the specification, the design and implementation of any automatic or computerised trading system is difficult. Designing a system which accounts for the creditworthiness of buyers and sellers and separately maintains current prices for options is especially difficult since there is a complex relationship between creditworthiness and the acceptable option contract price.
The specification then discusses trading systems disclosed in several US patents to conclude that the trading of option contracts in financial instruments presents varying unique complexities that have not been adequately addressed by prior art systems.
The specification, as proposed to be amended, ends with 26 claims. Claims 1, 25 and 26 are independent claims. The full set of claims may be found at Annex A at the end of this decision.
APPLICABLE LAW
The application is governed by the Patents Act 1990 (“the Act”) as amended by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (“the Raising the Bar Act”). Amendments to Sections 7, 40 and 49 of the Act apply to the present case as a consequence of Schedule 1, items 55(1)(d) and 55(4)(a), and Schedule 6, item 133(7)(d), of the Raising the Bar Act. The application was filed after 15 April 2013.
Section 18 of the Patents Act 1990 provides that:-
(1)Subject to subsection (2), an invention is a patentable invention for the purposes of a standard patent if the invention, so far as claimed in any claim:
(a) is a manner of manufacture within the meaning of section 6 of the Statute of Monopolies; and
(b) when compared with the prior art base as it existed before the priority date of that claim:
(i)is novel; and
(ii)involves an inventive step; …
Subsection 40(4) provides as follows.
(4) The claim or claims must relate to one invention only.
The standard of proof that applies is the balance of probabilities (subsection 49(1)). I must accept the application if satisfied on the balance of probabilities that the application complies with the Act. If I am not so satisfied, then I can refuse the application.
PROPOSED AMENDMENTS AND SUBSECTION 40(4)
The proposed amendments to the claims delete the offending claim found, in the examination report on the application, to result in the claims relating to more than one invention. Consequently that objection would now be moot.
SUBMISSIONS
The applicant submitted that amended claim 1 clearly defined a computerised system with a practical application being for trading an option for a financial instrument. In contrast to non-specific information such as the index considered in Research Affiliates, the applicant stated that bids and offers are important information which a trading system provides to users. Further, the applicant submitted that, while claim 1 may produce information in a computerised system, the invention is directed to improvements in the design and function of the computerised system and is not a presentation of information characterised solely by the content of the information.
The applicant also submitted that amended claim 1 clearly defines more than an abstract idea or the concept of filtering a dataset. Specifically, volatility surfaces are associated with each user terminal, and the volatility data storage unit stores volatility data associated with the option contract and respectively obtained from at least one of the plurality of user terminals. The volatility data is updated dynamically from at least one of the plurality of user terminals to avoid holding a complete volatility surface in the volatility data storage unit. The applicant indicated that this had the benefit of reducing the load on, and memory usage of, the central computing unit, and also had the benefit of avoiding the publication of bids and offers from redundant volatility data. The avoidance of redundant volatility data when combined with the identification of bids and offers that met a user’s preferences also enabled a deal to be deemed binding without the system having to poll the user terminals for prices after an offer is matched. The applicant stated this led to fewer tasks being performed by the system and a further improvement in the efficiency of the system.
In respect to novelty and inventive step, the applicant submitted that the prior art cited by the examiner was silent regarding volatility surfaces and therefore could not lead the skilled addressee to the claimed invention.
MANNER OF MANUFACTURE
Case Law
In National Research Development Corporation v Commissioner of Patents (“NRDC”), [1959] HCA 67, (1959) 102 CLR 252, the High Court provided a statement of the law in this regard. At page 275, “… a process, to fall within the limits of patentability which the context of the Statute of Monopolies has supplied, must be one that offers some advantage which is material, in the sense that the process belongs to a useful art as distinct from a fine art …- that its value to the country is in the field of economic endeavour”. In discussing the “vendible product” proposition put forward by Morton J in Re G.E.C’s Application, (1942) 60 RPC 1, the High Court in NRDC upheld the validity of a patent for the use of previously unknown properties of a known chemical to effect a new purpose. At page 277:-
“The effect produced by the appellant’s method exhibits the two essential qualities upon which ‘product’ and ‘vendible’ seem designed to insist. It is a ‘product’ because it consists in an artificially created state of affairs, discernible by observing over a period the growth of weeds and crops respectively on sown land on which the method has been put into practice. And the significance of the product is economic; for it provides a remarkable advantage … for one of the most elemental activities by which man has served his material needs, the cultivation of the soil for the production of its fruits.”
The High Court though was not laying down a precise formulation that can be applied unthinkingly. In D’Arcy v Myriad Genetics Inc (“Myriad”), [2015] HCA 35, at [23]:-
“This Court in NRDC did not prescribe a well-defined pathway for the development of the concept of ‘manner of manufacture’ in its application to unimagined technologies with unimagined characteristics and implications. Rather, it authorised a case-by-case methodology.”
That case-by-case approach must have regard to the substance of the claimed invention, not simply the form of the claim. The point was made succinctly in the Myriad case by Gageler and Nettle JJ. At [144]:-
“Whatever words have been used, the matter must be looked at as one of substance and effect must be given to the true nature of the claim.”
In Commissioner of Patents v RPL Central Pty Ltd (“RPL”), [2015] FCAFC 177, the Full Court of the Federal Court stated the same thing in the context of an invention that was in substance a scheme. At [96]:-
“A claimed invention must be examined to ascertain whether it is in substance a scheme or plan or whether it can broadly be described as an improvement in computer technology. The basis for the analysis starts with the fact that a business method, or mere scheme, is not, per se, patentable. The fact that it is a scheme or business method does not exclude it from properly being the subject of letters patent, but it must be more than that. There must be more than an abstract idea; it must involve the creation of an artificial state of affairs where the computer is integral to the invention, rather than a mere tool in which the invention is performed.”
Moreover at [98]:-
“It is not a question of stating precise guidelines but of deciding, in each case, whether the claimed invention, as a matter of substance not form, is properly the subject of a patent”.
In Research Affiliates LLC v Commissioner of Patents, [2014] FCAFC 150, the Full Court of the Federal Court noted that a consistent approach in UK decisions, as distinct from previous Board of Appeal decisions of the European Patent Office, could be of assistance in the Australian context. At [23] of Research Affiliates:-
“In our opinion, it is more helpful to consider the analysis of the issue in the UK decisions which, with respect, provide a consistent approach. Despite being in the context of the statutory exclusion of computer programs ‘as such’, the UK decisions are of assistance in understanding the distinction to be drawn in the Australian context between an unpatentable business method and a claimed invention which may be patentable if the invention results in an ‘artificial effect’, within the understanding of that concept as explained in NRDC.”
At [36], the court further indicated that applying a test of a “technical contribution”, as opined for example in Aerotel Ltd v Telco Holdings Ltd; Macrossan’s Application, [2006] EWCA Civ 1371; [2007] RPC 7, can be useful in an analysis of an “artificial effect”.
Discussion
In assessing the nature of the claimed invention, I would direct initial attention to the independent claims 1, 25 and 26. In each case, the defined system architecture is straightforward. The architecture comprises a computer network which in turn comprises a plurality of user terminals each capable of communicating with a central computing unit. Claims 1 and 25 also define a database which stores a current set of preferences from a user defining counterparties with which the user can deal. Claim 26 defines the dealing capacity of a user with counterparties based on the user’s current set of preferences, but no storage of the current set of preferences. A volatility data storage unit is also part of the system. In claims 1 and 26, this unit is arranged to store, when in use, at least one set of volatility data associated with an option contract. The volatility data is respectively obtained from at least one of the plurality of user terminals. In claim 25, the volatility data unit is defined by what it does not store. Notably, volatility data is updated dynamically to avoid holding a complete volatility surface in the volatility data storage unit. Finally, claims 1, 25 and 26 define a calculation unit for identifying, from the volatility data, a highest bid to buy the option contract and a lowest offer to sell the option contract on which the user may deal based on the current set of preferences.
All of the above system features relate to data storage, data processing and data communication within and between computing devices in standard ways at the relevant time. The claimed invention appears to be characterised only by the nature of the data that is handled and presented. More specifically, the claimed invention appears to be characterised by defined relationships between volatilities, user preferences, and the highest bids and lowest offers to present to users. There does not appear to be any technical problem that is overcome in the present case, or any improvement in the functionality of the computing devices or the computer technology as a whole. In summary, there is no technical contribution apparent here.
As mentioned earlier, the specification discusses the difficulty of designing a system which accounts for the creditworthiness of buyers and sellers and separately maintains current prices for options since there is a complex relationship between creditworthiness and the acceptable option contract price. The claimed invention appears to deal with this in two ways. Firstly, the user’s current set of preferences are the maximum tenor the user can deal to with a counterparty and the maximum size of option the user can deal for with a counterparty. Preferentially, for example in claims 6, 8 and 9, the user input relates to their credit requirements. Secondly, volatility data associated with an option contract is updated dynamically to avoid holding a complete volatility surface in the volatility data storage unit. As a matter of substance, this would appear to be where the claimed invention lies.
The applicant highlighted the benefits of the alleged invention in terms of an improved efficiency of system resources. This was stated to occur in the following ways. The avoidance of holding a complete volatility surface in the volatility data storage unit provided the benefit of reducing the load on the central computing unit and reducing the memory usage of that unit. Moreover there was the benefit of avoiding the publication of bids and offers from redundant volatility data. Combined with identifying a subset of bids and offers that met the user’s preferences, the applicant indicated that this led to fewer tasks being performed by the system.
One may readily envisage several means in the art for improving the functioning of system resources that provide the requisite technical effect or technical contribution to the art. In the present case though, the allegedly improved efficiency of the system has nothing to do with any enhanced functioning of the system components or the system overall. Rather, the efficiency arises from operating with reduced data sets as determined by user preferences and from not holding a complete volatility surface by dynamically updating the volatility data. In the latter respect, dynamic or real-time updating of data, and reducing, removing and/or archiving redundant data from computer storage devices had been a feature of data management since well before the priority date. Claim 26 further defines the update occurring in two stages. On the other hand, these stages principally define the update of the 50% delta volatilities on the volatility surface consistent with the currently traded volatility run, and define what the off-the-run volatilities for options whose deltas are not 50% are adjusted to. It is not apparent in the present case that the claimed system and method involves any improvement in the computer technology. I find the computing system in the present claims is a mere tool in which the alleged invention is performed.
I conclude the claimed invention is not for a manner of manufacture. Moreover I cannot see anything of substance in the specification as a whole that would overcome this finding.
PRIOR ART
The examination report on the present application cited patent publication WO 99/19821 (“D1”). This document relates to the electronic trading of financial instruments such as derivatives. The system comprises a communications network interconnecting traders to a central processing unit. A market module associated with the central processing unit provides traders with order information including requests to buy and sell financial instruments. A trader module associated with each trader receives the order information and presents that to the traders according to trader-customised profiles. A credit preference module associated with each trader indicates the trade eligibility of respective traders for each of the requests to buy and sell. An execution module processes trades initiated by any of the traders desiring to trade on an order posted in the order information.
NOVELTY
It is well established that the general test for lack of novelty is the reverse infringement test. The classic formulation of this test is that given by Aickin J in Meyers Taylor Pty Ltd v Vicarr Industries Ltd, [1977] HCA 19 at [20]; 137 CLR 228 at 235:
“The basic test for anticipation or want of novelty is the same as that for infringement and generally one can properly ask oneself whether the alleged anticipation would, if the patent were valid, constitute an infringement”.
This test is satisfied if the alleged anticipation discloses all the essential features of the invention as claimed (see Nicaro Holdings Pty Ltd v Martin Engineering Co, [1990] FCA 40; (1990) 91 ALR 513 at 517). In order to meet this requirement, the prior art must "contain clear and unmistakeable directions to do what the patentee claims to have invented" (The General Tire & Rubber Company v The Firestone Tyre and Rubber Company Limited, [1972] RPC 457 at 486). In a similar vein, what a prior art document teaches is to be distinguished from what might be “included” or “encompassed”. “A prior broad disclosure thus may not be sufficient ‘in the absence of the skilled addressee understanding or perceiving’ the later claimed invention therein” (Sanofi-Aventis Australia Pty Ltd v Apotex Pty Ltd (No. 3), [2011] FCA 846 at [180]).
In the present case, the proposed claims are substantially different from those before the examiner in some respects. Nonetheless, proposed independent claims 25 and 26 are substantially the same as previous claims 32 and 33. In any case, the use of volatility data associated with option contracts, the creation of volatility surfaces and the dynamic updating of the volatility data to avoid holding a complete volatility surface in the volatility data storage unit, are features of all of the present claims. These features are not disclosed in D1.
I conclude the claimed invention is novel over D1.
INVENTIVE STEP
Subsections 7(2) and 7(3) of the Patents Act 1990 relevantly provide as follows.
S7(2)For the purposes of this Act, an invention is to be taken to involve an inventive step when compared with the prior art base unless the invention would have been obvious to a person skilled in the relevant art in the light of the common general knowledge as it existed (whether in or out of the patent area) before the priority date of the relevant claim, whether that knowledge is considered separately or together with the information mentioned in subsection (3).
S7(3) The information for the purposes of subsection (2) is:
(a) any single piece of prior art information; or
(b) a combination of any 2 or more pieces of prior art information that the skilled person mentioned in subsection (2) could, before the priority date of the relevant claim, be reasonably expected to have combined.
Case Law
The test for whether an invention is obvious is whether it would have been a matter of routine to proceed to the claimed invention. In Wellcome Foundation Ltd v VR Laboratories (Aust.) Pty Ltd, [1981] HCA 12, 148 CLR 262 at 286 [45], Aickin J stated:
"The test is whether the hypothetical addressee faced with the same problem would have taken as a matter of routine whatever steps might have led from the prior art to the invention, whether they be the steps of the inventor or not."
The High Court in Aktiebolaget Hässle v Alphapharm Pty Ltd, [2002] HCA 59, (2002) 56 IPR 129 at [50] – [53], appeared to approve of the Wellcome test. In discussing what was meant by a matter of routine the High Court noted and accepted an affinity with the approach in Olin Mathieson Chemical Corporation v Biorex Laboratories Ltd, (1970) 87 RPC 157, of whether the person skilled in the art would directly be led as a matter of course to try what was claimed in the expectation that it might well produce a useful alternative.
In AstraZeneca AB v Apotex Pty Ltd, [2014] FCAFC 99, the court held at [203] that in formulating the problem it is not permissible to incorporate information that is not available to the person skilled in the art either as common general knowledge or information available under subsection 7(3).
Where the invention lies in a combination of integers, the question is not whether each individual integer was obvious but rather whether the combination as a whole was obvious when compared to the prior art base. In Alphapharm at [41], the High Court stated:
“The claim is for a combination, the interaction between the integers of which is the essential requirement for the presence of an inventive step. It is the selection of the integers out of ‘perhaps many possibilities’ which must be shown by Alphapharm to be obvious, bearing in mind that the selection of the integers in which the invention lies can be expected to be a process necessarily involving rejection of other possible integers.”
Person Skilled In The Art
In Root Quality Pty Ltd v Root Control Technologies Pty Ltd, [2000] FCA 980, Finkelstein J stated at [70] and [71] that the skilled addressee is the person to whom the patent is addressed and who must construe it. Such person works in the art or science with which the invention is connected or is likely to have a practical interest in the subject matter of the invention. A variety of people may have that interest. Finkelstein J further noted various descriptions given to the skilled addressee. These included the “uninventive skilled worker in the particular field” (Leonardis v Sartas No 1 Pty Ltd, (1996) 67 FCR 126) and the “person skilled in the art” (Genentech Inc v Wellcome Foundation Ltd, (1989) 15 IPR 423).
The applicant did not appear to offer an indication in submissions as to the nature of the person skilled in the present art. In the absence of any contrary indications, I would suggest the relevant person skilled in the present case would comprise a team including one skilled in the trading of option contracts in financial markets and one skilled in software solutions to facilitate such trading.
WO 99/19821 (“D1”)
D1 clearly has similar system architecture to that of the claimed invention in terms of traders’ user terminals communicating with a central computing unit, and a number of other units or modules for storage, processing, manipulating or communicating of data within or between devices. The presentation of the highest bids and the lowest offers to traders based on user preferences is also featured in D1. From page 84 line 22 of D1, a user may input data including a proposed trade of a financial instrument. The financial instrument is advantageously defined by a symbology comprising a source field, a class field, a symbol field and a currency field. This abbreviated form for identifying a financial instrument facilitates ease of transmission to other users. At page 85 lines 4-10, once the orders have been input via the symbology, a market entry interface displays the best bid and best offer for each instrument, as well as the sum quantity available to trade at the best price and other relevant information. The order information, that is, the bids and offers for each instrument, is coded with the relevant credit preferences, unless several prices are currently posted at the same price but have different credit status. As such, there is a relationship between the presentation of bids and offers and the user’s credit preferences in substantially the same way as in the presently claimed invention. Notably, page 48 lines 17 and 18 of D1 further describe pre-screening in accordance with credit preferences, and page 92 lines 27-30 describe the matching of orders in accordance with the credit preferences of all parties.
As noted above, the differences with the claimed invention over D1 reside in the use of volatility data associated with option contracts, the creation of volatility surfaces and the dynamic updating of the volatility data to avoid holding a complete volatility surface in the volatility data storage unit in the present case.
As the specification may suggest as background discussion, it may be that the quoting of prices for currency options in units of volatility was well known before the priority date (page 4 lines 16 and 17). Notably, the Black Scholes option pricing equation is described as a recognised methodology in the art that translates volatility prices for option contracts into cash prices with all other variables in the equation, such as strike rate, tenor, spot rate, forward rate and interest rates, being determined or determinable (page 4 lines 24-29). At lines 30 and 31 of page 4, the specification further describes volatility as a key concept in options trading because it is typically used as a proxy for the premium price by all market participants. As such, I am prepared to accept that volatility pricing was common general knowledge in the field of options trading before the priority date.
Similarly, the specification appears to suggest that the use of volatility surfaces by banks may have been well known (page 8 lines 28 and 29). As mentioned previously, a volatility surface is a three-variable relationship wherein a volatility price can be calculated so long as a given tenor and given strike rate are provided. Visually, in the art the volatility surface is a three-dimensional plot where one axis, say the x-axis, is the time to maturity or the tenor, another axis, say the z-axis, is the strike rate, and the third axis, the y-axis, is the implied volatility. Since these parameters have been well used in options trading since before the priority date, and given that the banks had adopted separate sets of, typically slightly different, rules that meant that the interpolation of volatility surfaces tended to vary in some way from bank to bank (page 9 lines 17-20), I am prepared to accept the use of volatility surfaces was also common general knowledge at the relevant time.
The question then remains as to whether the claimed dynamic updating of the volatility data to avoid holding a complete volatility surface would have been a matter of routine at the relevant time. I have already considered above that the dynamic or real-time updating of data, and the reducing, removing and/or archiving of redundant data from computer storage devices had been a feature of data management since well before the priority date. I consider that the application of that practice to avoid holding a complete volatility surface with some redundant data in a storage unit would have been a matter of routine or something the person skilled in the art in the present case would directly have been led as a matter of course to try at the relevant time.
I conclude that claims 1 and 25 do not have an inventive step over D1.
Claim 2 adds the feature of a user interface displaying the bids and offers on which a user may deal based on the current set of preferences. I would regard such selective display of the relevant bids and offers as a matter of routine for the person skilled in the art at the relevant time.
Claim 3 effectively adds the backend processing by the calculation unit to determine which user display should display new bids or offers. For similar reasons as for claim 2, I would regard claim 3 as defining matters of routine at the relevant time.
Claims 4 and 6 add features related to the interaction with the user interface. These would have been standard interface features at the relevant time.
Claim 5 defines the maximum size of option to be the maximum value at risk (“VAR”). I would regard such a variant to have been a matter of routine for the person skilled in the art at the relevant time.
Claims 7 and 8 add the features of the system not showing irrelevant bids and offers as per the user’s current set of preferences or, in the alternative, showing the bids and offers of all counterparties. Similarly to claim 2, I would regard claim 7’s selectivity of what is not shown as defining matters of routine for the person skilled in the art at the relevant time. In respect to claim 8, D1 clearly discloses the presentation of all possible trades to users, for example at page 9 lines 6-15. Moreover this passage, and similarly page 13 line 1, further discloses the coding of the market information presented to the user with credit preference data and, more specifically, with the use of a colour coding scheme to enable users to determine which counterparties they may trade with based on the credit preference data. Thus the features of claims 9 and 10 are also disclosed in D1.
Claim 11 adds the feature of the highest bid to buy and the lowest bid to sell defining a first range and communicating that in response to a user request for a quote for the option contract. The system process between the user request and system output would have been standard practice for the person skilled in the art at the relevant time. The claim is characterised only by the nature of the input and the resulting output and definition thereof.
Claims 12 and 13 add the features of a second user terminal communicating an associated set of volatility data comprising an associated bid to buy and offer to sell defining a second range, and identifying the existence of arbitrage to the second user in response to the second range not mathematically overlapping the first range. Arbitrage had been a common practice in trading financial instruments since well before the priority date and I would regard its application as defined in these claims to have been well within the domain of the person skilled in the present art at the relevant time.
Claims 14 and 15 add features relating to the accessibility of a volatility surface to a respective user, and the highest bid to buy and the lowest bid to sell the option contract. I would regard such features to have been a matter of routine for the person skilled in the art at the relevant time.
Claims 16 and 17 add features relating to system management and storage of changed data. I would regard such features to have been a matter of routine for the person skilled in the art at the relevant time.
Claims 18 and 19 add the features of preventing or allowing particular users to trade depending on the identification of the existence of arbitrage. I would regard such features to have been a matter of routine for the person skilled in the art at the relevant time.
Claim 20 adds the features of the volatility data being time-limited or value-limited, and the central computing unit being arranged to withdraw such data in response to the thresholds being met or crossed. I would regard such features to have been a matter of routine for the person skilled in the art at the relevant time.
Claims 21-23 add the features of defining users in first, second and third tiers, respectively, with the central computing unit controlling the nature of specific trades that each tier is able to perform. I would regard such features to have been a matter of routine for the person skilled in the art at the relevant time.
In summary, I conclude that claims 2-23 do not have an inventive step over D1.
Claim 24 adds the feature of the updating of information on volatility surfaces occurring in two stages. The first is that the 50% delta volatilities on the surface are updated to be consistent with the currently traded volatility run. The second is that the off-the-run volatilities for options whose deltas are not 50% are adjusted to maintain the same relationship with the 50% deltas as were specified on the volatility surface. The concluding step of the method of independent claim 26 also defines substantially the same two-stage process for updating information on the volatility surface. On the face of it, this would appear to be matter beyond mere routine for the person skilled in the art at the relevant time.
I conclude that claims 24 and 26 have an inventive step over D1.
CONCLUSION
I have found that the claimed invention is not for a manner of manufacture. Moreover I have also found that I cannot see anything of substance in the specification as a whole that would overcome this finding.
I have also found that claims 1-23 and 25 do not have an inventive step over D1.
In view of the findings on lack of a manner of manufacture, it is appropriate in these circumstances that the application be refused.
M. G. Kraefft
Delegate of the Commissioner of PatentsAnnex A
1.A computerised system for trading an option contract for a financial instrument, the system comprising:
a computer network comprising a plurality of user terminals each capable of communicating with a central computing unit;
an input, wherein the input is used by a user to define a counterparty with which it can deal, by providing for each counterparty a current set of preferences, wherein the current set of preferences are:(a)the maximum tenor it can deal to;
(b)the maximum size of option it can deal for;
a database, wherein the current set of preferences are stored in the database;
a volatility data storage unit arranged to store, when in use, at least one set of volatility data associated with the option contract and respectively obtained from at least one of the plurality of user terminals each having an associated volatility surface;
a calculation unit supported by the central computing unit and arranged to implement, when in use, a protocol for identifying from the at least one set of volatility data a highest bid to buy the option contract and a lowest offer to sell the option contract on which the user may deal based on the current set of preferences; and
a communications unit supported by the central computing unit and arranged to communicate in real time, when in use, to a first of the plurality of user terminals the highest bid to buy the option contract and the lowest offer to sell the option contract on which the user may deal based on the current set of preferences;
wherein the at least one set of volatility data associated with the option contract in the volatility storage unit is obtained from at least one of the associated volatility surfaces; and
wherein the at least one set of volatility data associated with the option contract in the volatility storage unit is updated dynamically from at least one of the plurality of user terminals to avoid holding a complete volatility surface in the volatility data storage unit.2.The system of claim 1, wherein each user terminal further comprises a user interface, on which are displayed the bids and offers on which a user may deal based on the current set of preferences.
3.The system as claimed in claim 2, wherein the calculation unit further implements a protocol whereby every time a new bid, or offer is entered by a user, the calculation unit consults the user preferences in the database to determine which user display should display the newly entered bid, or offer.
4.The system as claimed in any preceding claim, wherein the user may update the user preferences at any time they choose.
5.The system as claimed in claim 1, wherein the maximum size of option is the maximum value at risk (VAR).
6.The system as claimed in claim 1, wherein the input is one of the following: an online credit input screen; an automatic file upload.
7.The system as claimed in any preceding claim, wherein the system does not show to a user bids and offers from a counterparty other than one with which the user can deal, or show bids and offers on an option that is of an inappropriate tenor, or is too large.
8.The system as claimed in any of claims 1 to 6, wherein the user may view bids and offers of all counterparties, regardless of whether the counterparties meet the user’s credit requirements.
9.The system as claimed in claim 8, wherein the user can discern by an on-screen indicator the bids and offers which meet the user’s credit requirements.
10.The system as claimed in claim 9, wherein the indicator is a specific colour.
11.The system as claimed in claim 1, further comprising:
wherein the highest bid to buy the option contract and the lowest bid to sell the option contract define a first range; and
wherein the communications unit is also arranged to communicate, when in use, to a first of the plurality of user terminals a highest bid to buy the option contract and a lowest bid to sell the option contract, defining a first range in response to a request for a quote from the first of the plurality of user terminals for the options contract.12.A system as claimed in claim 11, wherein the plurality of user terminals comprises:
a second user terminal arranged, when in use, to communicate an associated set of volatility data to the central computing unit, the associated set of volatility data comprising an associated bid to buy and an associated offer to sell defining a second range, and the system further comprises:
an arbitrage identification unit capable of accessing the highest bid to buy the option contract and the lowest bid to sell the option contract identified by the calculation unit and, when in use, arranged in response to the communication of the associated set of volatility data to determine if the second range does not mathematically overlap the first range.13.A system as claimed in claim 12, wherein the central computing unit is arranged to identify the existence of arbitrage to the second user terminal in response to the second range not mathematically overlapping the first range.
14.A system as claimed in claim 13, wherein the at least one volatility surface is respectively accessible by at least one associated user terminal of the plurality of user terminals.
15.A system as claimed in any one of claims 10 to 14, wherein the user interface unit is arranged to communicate, when in use, the highest bid to buy the option contract and the lowest bid to sell the option contract to a user of the first user terminal.
16.A system as claimed in any one of claims 10 to 15, wherein the central computing unit is arranged to receive an indication that at least one of the at least one set of volatility data associated with the option contract has changed.
17.A system as claimed in claim 16, wherein the volatility data storage unit is arranged to receive an updated set of volatility data corresponding to the at least one of the at least one set of volatility data that has changed.
18.A system as claimed in any one of claims 11 to 17, wherein the first user terminal is prevented from executing a purchase of the option contract when the first range does not mathematically overlap the second range.
19.A system as claimed in any one of the claims 11 to 18, wherein the central computing unit permits, when in use, the second user terminal to trade the option contract with a terminal associated with the lowest bid to sell and/or the highest offer to buy in response to the first range not mathematically overlapping the second range.
20.A system as claimed in any one of claims 10 to 19, wherein the at least one set of volatility data comprises one or more of the following:
a time-limited set of volatility data having a predetermined period of time associated therewith, the central computing unit being arranged, when in use, to withdraw the time-limited set of volatility data in response to the predetermined period of time expiring;
a value-limited set of volatility data having a predetermined threshold value associated therewith, the central computing unit being arranged, when in use, to withdraw the value-limited set of volatility data in response to a current market price for the option contract being equal to or crossing the threshold value.21.A system as claimed in any of claims 10 to 20, further comprising:
a first tier of users, the central computing unit supporting a protocol to permit the first tier of users to enter runs of offers to sell and bids to buy option contracts, enter offers to sell specific interest option contracts and bids to buy specific interest option contracts, deal on offers to sell option contracts or bids to buy option contracts and improve on outstanding offers to sell option contracts or bids to buy option contracts.
22.A system as claimed in claim 21, further comprising:
a second tier of users, the central computing unit supporting a protocol to permit the second tier of users to enter runs of offers to sell option contracts and bids to buy option contracts, deal on offers to sell option contracts or bids to buy option contracts and improve on outstanding offers to sell option contracts or bids to buy option contracts, the central computing unit supporting a protocol to preclude the second tier of users from entering offers to sell specific interest option contracts and bids to buy specific interest option contracts.
23.A system as claimed in claim 22, further comprising:
a third tier of users, the central computing unit supporting a protocol to permit the third tier of users to deal on offers to sell or bids to buy option contracts, the central computing unit supporting a protocol to preclude the third tier of users from entering runs of offers to sell and bids to buy option contracts, entering offers to sell specific interest option contracts and bids to buy specific interest option contracts, and improving on outstanding offers to sell option contracts or bids to buy option contracts.
24.The system of any one of claims 13 to 23, wherein the system updates information on volatility surfaces to keep values consistent with the way currency options are currently trading, wherein the updating occurs in two stages:
(i)the 50% delta volatilities on the surface are updated to be consistent with the currently traded volatility run; and
(ii)the off-the-run volatilities for options whose deltas are not 50% are adjusted to maintain the same relationship with the 50% deltas, as was specified in the volatility surface.
25.A method for electronic trading of currency options contracts among a plurality of users via a computer network comprising a plurality of user terminals each capable of communicating with a central computing unit, the method comprising:
providing a user via one of the user terminals a list of counterparties;
receiving from the user a current set of preferences that each counterparty must meet to deal with the user;
storing the current set of preferences in a database, and the current set of preferences including whether the counterparty will accept a contract with the user, the maximum tenor the user will accept on contracts with the counterparty and the size of option the user will accept with the counterparty;
respectively obtaining from at least one of the plurality of user terminals each having an associated volatility surface at least one set of volatility data associated with an option contract; and
displaying to the user via their user terminal a highest bid to buy the option contract and a lowest offer to sell the option contract identified from counterparties that meet the user’s current set of preferences for dealing, such counterparties identified by a protocol implemented by a calculation unit supported by the central computing unit which identifies the highest bid to buy the option contract and the lowest offer to sell the option contract from the at least one set of volatility data based on the user’s current set of preferences;
wherein the at least one set of volatility data associated with the option contract is updated dynamically from at least one of the plurality of user terminals to avoid holding a complete volatility surface in the volatility data storage unit.26.A method of updating information on volatility surfaces to keep values consistent with the way currency options are currently trading in a computerised system for the electronic trading of currency options, the system comprising:
a computer network comprising a plurality of user terminals each capable of communicating with a central computing unit;
a volatility data storage unit arranged to store, when in use, at least one set of volatility data associated with the option contract and respectively obtained from at least one of the plurality of user terminals each having an associated volatility surface; and
a calculation unit supported by the central computing unit for identifying from the at least one set of volatility data a highest bid to buy the option contract and a lowest offer to sell the option contract on which a user may deal based on a current set of preferences for each counterparty defined by the user, the current set of preferences including a) the maximum tenor the user will accept on contracts with the counterparty and b) the maximum size of option the user will accept with the counterparty,
wherein the at least one set of volatility data associated with the option contract is updated dynamically from at least one of the plurality of user terminals to avoid holding a complete volatility surface in the volatility data storage unit; and
wherein the method of updating information on volatility surfaces occurs in two stages:(i)the central computing unit updating the 50% delta volatilities on the volatility surface to be consistent with the currently traded volatility run; and
(ii)the central computing unit adjusting the off-the-run volatilities for options whose deltas are not 50% to maintain the same relationship with the 50% deltas volatilities (sic) as were existing on the volatility surface prior to the adjustment.