SYSTEM AND METHOD FOR EFFICIENTLY USING COLLATERAL FOR RISK OFFSET

• US 20080301062A1
• Filed: 08/08/2008
• Published: 12/04/2008
• 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 8,055,567 B2
• Time in Patent Office: Days
• US Class Current: 705/36R
• 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 computer implemented method of computing an adjustment to a margin requirement for a portfolio of a plurality of products traded on an exchange, the method comprising:

computing the margin requirement based the plurality of products in the portfolio;

identifying collateral to at least partially fulfill the margin requirement, the identified collateral not being subject to the margin requirement;

identifying a relationship between the identified collateral and at least one of the plurality of products in the portfolio;

generating a correlation between the identified collateral and the at least one of the plurality of products in the portfolio based on the identified relationship; and

computing the adjustment to the margin requirement based on the correlation of the identified collateral to the at least one of the plurality of products in the portfolio.

2. The computer implemented method of claim 1, wherein the computing further comprises computing the adjustment in proportion to the correlation.

3. The computer implemented method of claim 2, wherein the computed adjustment decreases the margin requirement as the correlation increases.

4. The computer implemented method of claim 1, wherein the relationship includes the identified collateral being substantially identical to at least one of the plurality of products in the portfolio.

5. The computer implemented method of claim 1, wherein the relationship includes the value of the identified collateral and the value of at least one of the plurality of products varying based on at least one substantially identical factor.

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

7. The computer implemented method of claim 5, wherein the relationship includes that the value of the identified collateral is dependent upon the value of at least one of the plurality of products.

8. The computer implemented method of claim 5, the relationship includes a degree of similarity between the identified collateral and at least one of the plurality of products in the portfolio, the correlation changing with the increase in the degree of similarity.

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

an initial margin processor operative to compute a margin requirement based on the plurality of products in the portfolio;

a correlation processor operative to identify a relationship between collateral not subject to the margin requirement and identified to satisfy at least a portion of the margin requirement and at least one of the plurality of products in the portfolio, the correlation processor being further operative to compute a correlation between the identified collateral and the at least one of the plurality of products in the portfolio based on the relationship; and

a margin adjustment processor coupled with the initial margin processor and the correlation processor and operative to compute the adjustment of the margin requirement based on the correlation of the identified collateral to the at least one of the plurality of products in the portfolio.

10. The system of claim 9, wherein the margin adjustment processor is further operative to compute the adjustment of the margin requirement in proportion to the correlation.

11. The system of claim 10, wherein the computed adjustment decreases the margin requirement as the correlation increases.

12. The system of claim 9, wherein the identified relationship comprises the identified collateral being substantially identical to at least one of the plurality of products in the portfolio.

13. The system of claim 9, wherein the identified relationship comprises that the value of the collateral and the value of at least one of the plurality of products vary based on at least one substantially identical factor.

14. The system of claim 13, wherein the at least one substantially identical factor comprises an interest rate.

15. The system of claim 9, wherein the relationship comprises that the value of the identified collateral is dependent upon the value of at least one of the plurality of products.

16. The system of claim 9, the relationship comprises a degree of similarity between the identified collateral and at least one of the plurality of products in the portfolio, the correlation changing with the increase in the degree of similarity.