Clearing System That Determines Margin Requirements for Financial Portfolios

• US 20110161244A1
• Filed: 12/29/2009
• Published: 06/30/2011
• Est. Priority Date: 12/29/2009
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Hadi, Moody, Iyer, Suneel, Patel, Ketan, Dedhia, Ankeet, McCormick, Amy
• Granted Patent: US 8,239,308 B2
• Time in Patent Office: Days
• US Class Current: 705/36.00R
• 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

Methods, systems and apparatuses are described for calculating a performance bond amount for a portfolio including interest rate swaps. A risk calculation module (or risk processor) may assist in the calculation. In some examples, values, such as swap (DV01) dollar values and volatility values, and adjustments/factors, such as calendar charge adjustments and liquidity charge minimums, may be used to enhance the margin calculation. These values may be maintained and updated in various ways, including but not limited to, lookup tables, matrices, and other structures. The margin calculations may be used by an exchange or clearinghouse to request a portfolio holder to deposit additional funds towards a performance bond associated with the portfolio.

Claims

1. A method comprising:

calculating a performance bond amount for a plurality of interest rate swaps in a portfolio of financial assets using a risk calculation module,

where the calculating includes;

receiving at the risk calculation module a swap dollar value, wherein the swap dollar value represents the dollar value of a one basis point change in the fixed interest rate of a swap;

receiving at the risk calculation module a volatility value; and

determining at the risk calculation module the performance bond amount as a function of the swap dollar value and the volatility value corresponding to each interest rate swap in the portfolio;

determining if a margin account balance associated with the portfolio is less than the performance bond amount; and

generating a notification that an increase in the amount of the account balance to at least the performance bond amount is required.

2. The method of claim 1, where the determining the performance bond amount as a function of the swap dollar value and the volatility value includes multiplying the swap dollar value by the volatility value corresponding to each interest rate swap in the portfolio.

3. The method of claim 2, where the calculating further includes:

summing the products of the multiplications corresponding to each interest rate swap in the portfolio.

4. The method of claim 1, where the calculating further includes:

adjusting the performance bond amount by a calendar charge adjustment to account for non-parallel shifts in a swap curve.

5. The method of claim 1, where the calculating further includes:

determining whether the performance bond amount is less than a liquidity charge minimum, where the liquidity charge minimum is a function of liquidity risk of swap tenors in the portfolio;

if the performance bond amount is less than the liquidity charge minimum, adjusting the performance bond amount to the liquidity charge minimum; and

if the performance bond amount is not less than the liquidity charge minimum, leaving unchanged the performance bond amount.

6. The method of claim 1, where the swap dollar value of an interest rate swap is based on time remaining until maturity of the interest rate swap and a fixed rate of the interest rate swap.

7. The method of claim 6, where the swap dollar value of the interest rate swap is updated on at least a daily basis.

8. The method of claim 7, where the swap dollar value of the interest rate swap is updated in realtime.

9. The method of claim 1, where the volatility value of an interest rate swap is based on time remaining until maturity of the interest rate swap.

10. The method of claim 9, where the volatility value of the interest rate swap is irrespective of the fixed rate of the interest rate swap.

11. The method of claim 9, where the volatility value of the interest rate swap is based on historical volatility values of interest rate swaps with substantially equal time remaining until maturity.

12. The method of claim 9, where the volatility value of the interest rate swap is determined using a volatility lookup table indexed by swap tenors at predetermined intervals.

13. The method of claim 1, where the calculating of the performance bond amount is performed at least daily.

14. The method of claim 13, where the calculating of the performance bond amount is performed in realtime.

15. The method of claim 1, where the plurality of interest rate swaps in the portfolio are configured to be centrally cleared.

16. The method of claim 4, where the calendar charge adjustment is determined using a calendar charge lookup table indexed by swap tenor combinations.

17. The method of claim 16, where the swap tenor combinations are based on a tiered structure.

18. The method of claim 5, where the liquidity charge minimum is determined using a liquidity charge minimum lookup table indexed by swap tenor tiers and gross notional values.

19. The method of claim 1, where the generating a notification includes requesting a holder of the portfolio to increase the amount of the performance bond to at least the calculated margin amount.

20. An apparatus comprising:

a computer memory, where the memory stores information corresponding to a volatility lookup table and a swap dollar value matrix; and

a processor coupled to the memory, where the processor comprises;

a risk processor that generates a performance bond amount, where the performance bond amount is a function of a plurality of swap dollar values and a plurality of volatility values corresponding to each interest rate swap in a portfolio.

21. The apparatus of claim 20, where the risk processor multiplies the swap dollar value by the volatility value corresponding to each interest rate swap in a portfolio.

22. The apparatus of claim 21, where the risk processor sums the products of the multiplications corresponding to each interest rate swap in a portfolio.

23. The apparatus of claim 20, where the memory further stores information corresponding to a calendar charge lookup table, and where the risk processor adjusts the performance bond amount by a calendar charge adjustment.

24. The apparatus of claim 20, where the memory further stores information corresponding to a liquidity charge minimum lookup table, and where the risk processor adjusts the performance bond amount to at least a liquidity charge minimum.

25. The apparatus of claim 20, where the information corresponding to the volatility lookup table and the swap dollar value matrix is updated at least daily.

26. The apparatus of claim 20, where the information corresponding to the volatility lookup table and the swap dollar value matrix is updated in realtime.

27. A computer-readable medium containing computer-executable instructions for performing a method comprising:

receiving swap dollar values;

receiving volatility values;

executing a function based on the swap dollar value and the volatility value corresponding to each interest rate swap in a portfolio, where the function determines a performance bond amount; and

determining whether a margin account balance associated with the portfolio is less than the calculated performance bond amount.

28. The computer-readable medium of claim 27, wherein the executing comprises multiplying the swap dollar value by the volatility value corresponding to each interest rate swap in a portfolio.

29. The computer-readable medium of claim 28, wherein executing comprises summing the products of the multiplications corresponding to each interest rate swap in a portfolio.

30. The computer-readable medium of claim 27 containing computer-executable instructions for performing a method comprising:

adjusting the performance bond amount by a calendar charge adjustment, where the calendar charge adjustment is determined using a calendar charge lookup table indexed by swap tenor combinations.

31. The computer-readable medium of claim 27 containing computer-executable instructions for performing a method comprising:

determining whether the performance bond amount is less than a liquidity charge minimum, where the liquidity charge minimum is determined using a liquidity charge minimum lookup table indexed by swap tenor tiers and gross notional values;

if the performance bond amount is less than the liquidity charge minimum, adjusting at the risk calculation module the performance bond amount to the liquidity charge minimum; and

if the performance bond amount is not less than the liquidity charge minimum, leaving unchanged the performance bond amount.