Electrical computers and digital processing systems: support – Multiple computer communication using cryptography – Protection at a particular protocol layer
Reexamination Certificate
2000-11-13
2004-10-19
Elisca, Pierre E. (Department: 3621)
Electrical computers and digital processing systems: support
Multiple computer communication using cryptography
Protection at a particular protocol layer
C380S228000, C413S064000, C413S064000, C705S037000
Reexamination Certificate
active
06807635
ABSTRACT:
BACKGROUND
1. Field of the Invention
The present invention relates to computer-based systems for trading financial instruments. More specifically, the present invention relates to a method and an apparatus that uses digital signatures in validating trading and settlement operations involved in a financial transaction, such as a foreign exchange transaction.
2. Related Art
The foreign exchange market is the largest and most liquid market in the world. In 1998, the Federal Reserve Bank of New York estimated, that daily turnover was approximately $1.5 trillion.
Unlike stocks, which are market-traded, foreign exchange is primarily an over-the-counter market. There is no such thing as a “price” for a particular transaction. Rather, each dealer, bank, broker, or other trading source, provides their own rate for each transaction.
The trading and settlement processes for a typical foreign exchange transaction are illustrated in
FIG. 1. A
trader
102
, working on behalf of a corporation or other entity, makes a quote request
106
to a trader
104
, working on behalf of a bank. In response to this quote request, trader
104
makes a quote
108
proposing a rate for the transaction.
Trader
102
accepts the quote by sending an acceptance message to trader
104
, in which case trader
104
typically sends an acknowledgement message
112
back to trader
102
.
Note that the communication process outlined above typically takes place over the telephone or via facsimile.
After traders
102
and
104
agree to the terms of the transaction, trader
102
communicates trade information to settlement clerk
118
, who works on behalf of the same organization as trader
102
. Similarly, trader
104
communicates trade information
116
to settlement clerk
120
, who works on behalf of the same organization as trader
104
.
Settlement clerks
118
and
120
are responsible for actually causing funds to be transferred between accounts of the two organizations involved in the trade. Before doing so, settlement clerks
118
and
120
communicate and confirm settlement information
122
with each other. This settlement information
122
confirms the terms of the trade, and additionally specifies the accounts between which funds are to be transferred.
Note that settlement clerks
118
and
120
typically communicate settlement information
122
via telephone or facsimile. In some cases, this settlement information is communicated through a third party payment matching system
128
.
After the settlement information is communicated, and if the terms of the deal are in agreement, settlement clerk
118
communicates with funds transfer agent
126
, who actually transfers the funds. Similarly, settlement clerk
120
communicates with funds transfer agent
124
to transfer funds in the reverse direction.
Note that the separation of roles between trading and settlement provides a measure of protection against fraud because collusion between a trader and a settlement clerk is required to perpetrate most types of fraud. However, this protection has a price, because the many manual communications, validations, and confirmations involved in the role-based trading and settlement processes are time-consuming and expensive.
Also note that the trade terms and settlement instructions are typically entered manually on both sides of the transaction. Consequently, the trade terms and settlement instructions are often not entered in the same way, and may not match. Even if the trade terms and settlement instructions are entered properly, netting and aggregation can cause trades not to match. If trades do not match, a great amount of additional work is required to sort out inconsistencies.
What is needed is a method and an apparatus for facilitating trading and settlement of financial instruments, such as currencies, without the time-consuming manual processes involved in existing trading, settlement, and confirmation processes.
SUMMARY
One embodiment of the present invention provides a system that uses digital signatures in performing validations to facilitate a trade. This system operates by receiving a quote related to the trade at a first computer system, wherein the quote includes signed permission information that facilitates verifying permissions that have been granted to a quote maker. Upon receiving the quote, the system validates that the quote maker digitally signed the quote by using a public key of the quote maker to verify that the quote was signed by a corresponding private key belonging to the quote maker. The system also validates that the quote maker has permission to perform the trade by using a public key of a first security officer to verify that the permission information was signed by a corresponding private key belonging to the first security officer, thereby authorizing the quote maker to perform the trade. The system records acceptance of the quote by signing appropriate fields of the quote with a private key belonging to a quote receiver, and communicating a trade record, including the signed quote, to the quote maker.
In one embodiment of the present invention, the system additionally validates the identity of the quote maker and quote receiver by using a public key of a certification authority to verify that a certificate containing the public key of the quote maker or quote receiver was signed by a corresponding private key belonging to the certification authority. Note that signing by the certification authority indicates that the certification authority has verified the identity of the quote maker and quote receiver.
In one embodiment of the present invention, the quote includes multiple quotes from multiple quote makers, which have been aggregated into by a trade facilitator.
In one embodiment of the present invention, communicating the trade record to the quote maker involves sending the trade record to the trade facilitator, who forwards the trade record to the quote maker.
In one embodiment of the present invention, prior to receiving the quote at the first computer system, the system communicates a quote request from the quote receiver to the quote maker. This quote request includes information that allows the quote maker to validate the identity of the quote receiver. It also includes information that allows the quote maker to validate that the quote receiver has permission to perform the trade by using a public key of a second security officer associated with the quote receiver to verify that permission information within the quote request was signed by a corresponding private key belonging to the second security officer, thereby authorizing the quote receiver to perform the trade.
In one embodiment of the present invention, in accepting the quote, the system additionally sends the trade record to a settlement clerk associated with the quote receiver who is responsible for settling the trade.
In one embodiment of the present invention, prior to receiving the quote, the system allows the quote maker to obtain permission to make the trade. The quote maker does so by sending a request for permission to the first security officer associated with the quote maker. This allows the first security officer to digitally sign a permission record to indicate the quote maker has permission to trade.
In one embodiment of the present invention, the trade involves foreign exchange and the trade record includes: a trade date, an identifier for a first currency, a first currency amount, an identifier for a first organization providing the first currency, an identifier for a second currency, a second currency amount, and an identifier for a second organization providing the second currency.
One embodiment of the present invention provides a system that uses digital signatures in performing validations to facilitate a trade. This system operates by receiving a trade record from a quote receiver who has accepted a quote and has thereby created the trade. This trade record is received by a first settlement clerk associated with the quote receiver, who is responsible for settling the trade. Next, the system
Currenex, Inc.
Elisca Pierre E.
LandOfFree
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