In January, GPD Systems announced that it was awarded a patent on a methodology it believes will allow for the creation of numerous global futures contracts on hard-to-deliver commodities. According to its inventor, the GPD methodology provides a method and system for consolidating commodity futures contracts having guaranteed price convergence with the physical underlying.
Kirk Kinnear, inventor of the methodology and majority owner of GPD, explains that many global commodities, such as iron ore, liquefied natural gas and different grades of crude oil, have difficulty trading because of delivery. Cash-settled contracts often develop a significant differential that creates basis risk, and physically delivered contracts have smaller lot sizes that do not match the required size to load on ocean-going vessels. Kinnear claims the GPD method solves these issues, allowing for the creation of more globally relevant futures contracts.
"GPD methodology can be applied to any commodity futures contract that calls for delivery at locations where the minimum acceptable delivery volume is a multiple of a single futures lot," Kinnear says.
He adds that GPD is in licensing discussions with several futures exchanges.