System and method for efficiently using collateral for risk offset

• US 20060059064A1
• Filed: 01/07/2005
• Published: 03/16/2006
• Est. Priority Date: 09/10/2004
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Glinberg, Dmitriy, Yoo, Tae S., Michaels, Dale A., Gogol, Edward
• Granted Patent: US 7,426,487 B2
• Time in Patent Office: Days
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A system and method for analyzing correlation between the assets given by the trader for collateral and that trader'"'"'s open positions is disclosed. Thus, if the collateral is correlated to the trader'"'"'s open positions, then some offset can be given. If there is no correlation than the collateral is valued in the conventional way. For example, if a trader provides t-bills as collateral for an account that has open positions (e.g. short futures) in T-bills, than that trader'"'"'s account can be credited with some offset since the value of T-bills and T-bill futures are highly correlated.

Claims

1. A method of computing a margin requirement for a portfolio of a plurality of products traded on an exchange, the method comprising:

computing an initial margin requirement based on the portfolio;

receiving at least one asset as collateral to fulfill the margin requirement;

correlating the at least one asset to at least one of the plurality of products in the portfolio; and

adjusting the margin requirement based on the correlation.

2. The method of claim 1, wherein the adjusting in proportion to the correlation.

3. The method of claim 2, wherein the margin requirement is decreased as the correlation increases.

4. The method of claim 1, wherein the at least one asset is substantially identical to at least one of the plurality of products in the portfolio.

5. The method of claim 1, wherein the value of the at least one asset and the value of at least one of the plurality of products varies based on at least one substantially identical factor.

6. The method of claim 5, wherein the at least one substantially identical factor comprises an interest rate.

7. A system for computing a margin requirement for a portfolio of a plurality of products traded on an exchange, the method comprising:

an initial margin processor operative to compute an initial margin requirement based on the portfolio;

a correlation processor operative to receive at least one asset as collateral to fulfill the margin requirement and correlate the at least one asset to at least one of the plurality of products in the portfolio; and

a margin adjustment processor coupled with the initial margin processor and the correlation processor and operative to adjust the margin requirement based on the correlation.

8. The system of claim 7, wherein the margin adjustment processor is further operative to adjust the margin requirement in proportion to the correlation.

9. The system of claim 8, wherein the margin requirement is decreased as the correlation increases.

10. The system of claim 7, wherein the at least one asset is substantially identical to at least one of the plurality of products in the portfolio.

11. The system of claim 7, wherein the value of the at least one asset and the value of at least one of the plurality of products varies based on at least one substantially identical factor.

12. The system of claim 11, wherein the at least one substantially identical factor comprises an interest rate.

13. A system for computing a margin requirement for a portfolio of a plurality of products traded on an exchange, the method comprising:

means for computing an initial margin requirement based on the portfolio;

means for receiving at least one asset as collateral to fulfill the margin requirement;

means for correlating the at least one asset to at least one of the plurality of products in the portfolio; and

means for adjusting the margin requirement based on the correlation.