System and method for managing a series of overnight financing trades

• US 20020188553A1
• Filed: 04/16/2002
• Published: 12/12/2002
• Est. Priority Date: 04/16/2001
• Status: Active Grant

• Current Assignee: JP Morgan Chase Bank, N.A. (JP Morgan Chase & Co)
• Original Assignee: JP Morgan Chase Bank, N.A. (JP Morgan Chase & Co)
• Inventors: Blauvelt, Joseph P., Curialle, Frank J.
• Granted Patent: US 7,596,526 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A system and method that decomposes what would otherwise constitute a term securities financing trade contract into one current trade and a plurality of forward trades. The decomposed trades (current and forward) are transmitted back to the contracting parties and executed simultaneously In order to assist in the decomposition of what would otherwise constitute a term trade, a unique forward yield curve is generated that determines the interest rate for each of the current and forward trades. The forward yield curve is based, in part, on the overall interest rate agreed to by the parties as well as the number of days of the term and the prevailing market interest rates at the time of the trade.

Claims

1. A method of managing financing trades, the method comprising:

receiving an original proposed financing trade, the original proposed financing trade having a term of a recited number of days; and

decomposing the original proposed financing trade into a series of decomposed trades with a final maturity of a final trade equal to the term of the original proposed financing trade.

2. The method according to claim 1, wherein a first day of the original proposed financing trade is a current day, the decomposing step further comprising decomposing the original proposed financing trade into a current trade and a series of forward trades.

3. The method according to claim 1, wherein the original proposed financing trade is between counterparties, the method further comprising:

storing the series of decomposed trades; and

transmitting the series of decomposed trades to the counterparties for netting and settlement.

4. The method according to claim 3, wherein the counterparties are a first and a second party, the method further comprising:

the first and second parties transmitting the series of decomposed trades to a netting and settlement party.

5. The method according to claim 3, wherein the counterparties are a first and a second party, the method further comprising:

transmitting all of the series decomposed trades at once to the first and second parties.

6. The method according to claim 1, wherein the original proposed financing trade is between a first and a second party, the step of receiving further comprising:

receiving a first proposed financing trade from the first party; and

attempting to match the first proposed financing trade to another proposed financing trade.

7. The method according to claim 6, further comprising:

receiving a second proposed financing trade from the second party; and

matching the first proposed financing trade to the second proposed financing trade, wherein each of the first and second proposed financing trades reflect the terms and conditions of the original proposed financing trade.

8. The method according to claim 6, further comprising:

repeating the step of attempting to match the first proposed financing trade until a cutoff time; and

returning the first proposed financing trade to the first party if the cutoff time has been passed and the first proposed financing trade has not been matched.

9. The method according to claim 1, wherein the original proposed financing trade involved an Inter-Dealer-Broker (IDB), the step of receiving further comprising:

receiving a first proposed financing trade from the first party;

receiving a second proposed financing trade from the second party;

receiving first and second IDB proposed financing trades from the IDB; and

attempting to match the first proposed financing trade, the second proposed financing trade, the first IDB proposed financing trade and the second IDB proposed financing trade.

10. The method according to claim 1, wherein the decomposing step further comprises:

insuring that the series of decomposed trades are each on market and in accordance with market convention, wherein market convention requires the interest from the decomposed trades be cleaned after completion of the trade.

11. The method according to claim 10, wherein the insuring step further comprises:

generating a forward yield curve, the forward yield curve containing daily on market rates for each day on which there is a decomposed trade.

12. The method according to claim 11, further comprising:

applying a respective on market rate from the forward yield curve to each of the decomposed trades.

13. The method according to claim 1, wherein the original proposed financing trade is a proposed repo trade.

14. The method according to claim 1, wherein each of the decomposed trades provides interest, the method further comprising:

calculating the compounding effect of the interest from the series of decomposed trades.

17. The method according to claim 16, wherein the generating step further comprises:

determining a forward yield curve for at least a period from the start date to the end date, the forward yield curve defining an on market interest rate for each day from the start date to the end date.

18. The method according to claim 17, wherein the forward yield curve is determined by interpolation.

19. The method according to claim 17, further comprising applying the on market interest rate to respective ones of the series of overnight trades.

20. The method according to claim 16, further comprising:

returning the first proposed financing trade to the first party and the second proposed financing trade to the second party if the first and second proposed financing trades do not match.

21. The method according to claim 16, further comprising:

storing the series of overnight trades; and

transmitting the series of decomposed trades to counterparties to the original proposed financing trade.

22. The method according to claim 21, further comprising:

cleaning up the interest on the particular decomposed trade after netting and settlement.

23. The method according to claim 16, wherein the original proposed financing trade is a proposed repo trade.

25. The system according to claim 24, wherein a first day of the original proposed financing trade is a current day, the decomposer decomposing the original proposed financing trade into a current trade and a series of forward trades.

26. The system according to claim 24, further comprising:

a memory; and

a distributor coupled to the decomposer and coupled to the memory, the distributor receiving the series of decomposed trades from the decomposer and storing the series of decomposed trades in the memory, the distributor further transmitting the decomposed trades to counterparties to the original proposed financing trade.

27. The system according to claim 26, wherein the counterparties are a first and a second party, and wherein the distributor transmits the series of decomposed trades to the first and second parties which in turn transmit the series of decomposed trades to a netting and settlement party.

28. The system according to claim 26, wherein the counterparties are a first and a second party, and wherein the distributor transmits all of the series decomposed trades at once to the first and second parties.

29. The system according to claim 24, wherein the counterparties are a first and a second party, and wherein the user interface receives a first proposed financing trade from the first party, the system further comprising:

a trade matcher coupled to the user interface, the trade matcher receiving the first proposed financing trade from the user interface and attempts to match the first proposed financing trade to another proposed financing trade.

30. The system according to claim 29, wherein the trade matcher receives a second proposed financing trade from the second party through the user interface, and wherein the trade matcher matches the first proposed financing trade to the second proposed financing trade if the first and second proposed financing trades have comparable terms and conditions.

31. The system according to claim 29, wherein the trade matcher repeatedly attempts to match the first proposed financing trade until a cutoff time, and wherein the trade matcher returns the first proposed financing trade to the first party if the cutoff time has been passed and the first proposed financing trade has not been matched.

32. The system according to claim 24, wherein the original proposed financing trade involved an Inter-Dealer-Broker (IDB), the system further comprising:

a trade matcher coupled to the user interface, the trade matcher being operable to;

receive a first proposed financing trade from the first party through the user interface,

receive a second proposed financing trade from the second party through the user interface,

receive first and second IDB proposed financing trades from the IDB through the user interface; and

attempt to match the first proposed financing trade, the second proposed financing trade, the first IDB proposed financing trade and the second IDB proposed financing trade.

33. The system according to claim 24, wherein the series of decomposed trades generated by the decomposer are each on market and in accordance with market convention, wherein market convention requires the interest from the decomposed trades be cleaned after completion of the trade.

34. The system according to claim 33, further comprising:

a forward yield curve generator coupled to the decomposer, the forward yield curve generator generating a forward yield curve containing daily on market rates for each day on which there is a decomposed trade and transmitting the forward yield curve to the decomposer.

35. The system according to claim 34, wherein the decomposer applies a respective on market rate from the forward yield curve to each of the decomposed trades.

36. The system according to claim 24, wherein the original proposed financing trade is a repo trade.

37. The system according to claim 24, wherein each of the decomposed trades provides interest, the system further comprising:

an interest compound calculator coupled to the user interface, the interest compound calculator receiving data from a user and calculating the compounding effect of the interest from the series of decomposed trades.

15. A method of managing financing trades, the method comprising:

receiving an original financing trade, the original financing trade having a term of a recited number of days; and

decomposing the original financing trade into a series of decomposed trades with a final maturity of a final trade equal to the term of the original proposed financing trade.

16. A method of managing financing trades, an original proposed financing trade being agreed to in principle by a first party and a second party, the original proposed financing trade having a start date, an end date and an interest rate associated therewith, the method comprising:

receiving a first proposed financing trade from the first party, the first proposed financing trade reflecting the first party'"'"'s understanding of the original proposed financing trade;

receiving a second proposed financing trade from the second party, the second proposed financing trade reflecting the second party'"'"'s understanding of the original proposed financing trade;

matching the first proposed financing trade with the second proposed financing trade, thereby generating a matched trade; and

generating a series of trades in response to the matched trade, the series of trades including a first trade starting on the start date, a last trade ending on the end date, and intervening overnight trades, if any, for the dates between the start and end dates.

24. A system for managing financing trades, the system comprising:

a user interface, the user interface receiving an original proposed financing trade, the original proposed financing trade having a term of a recited number of days; and

a decomposer coupled to the user interface, the decomposer receiving the original proposed financing trade from the user interface and decomposing the original proposed financing trade into a series of decomposed trades.

38. A system for managing financing trades, the system comprising:

a user interface, the user interface receiving an original financing trade, the original financing trade having a term of a recited number of days; and

a decomposer coupled to the user interface, the decomposer receiving the original financing trade from the user interface and decomposing the original financing trade into a series of decomposed trades.