SYSTEM AND METHOD FOR EFFICIENTLY USING COLLATERAL FOR RISK OFFSET

• US 20110178956A1
• Filed: 03/29/2011
• Published: 07/21/2011
• 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 8,214,278 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• 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 for computing an adjustment to a margin requirement for a portfolio of a plurality of products traded on an exchange, the method comprising:

calculating, using a processor, the margin requirement for the plurality of products;

identifying, using the processor, a collateral as at least a portion of the margin requirement;

analyzing, using the processor, at least one factor indicative of a relationship between the collateral and one or more of the plurality of products; and

computing, using the processor, an adjustment to the margin requirement based on the factor indicative of the relationship between the collateral and the one or more of the plurality of products.

2. The method of claim 1, further comprising:

computing the factor from an interest rate associated with the collateral and an interest rate associated with the one or more of the plurality of products.

3. The method of claim 1, wherein the collateral includes a first spread and the one or more of the plurality of products includes a second spread.

4. The method of claim 3, further comprising:

computing the factor from a leg of the first spread and a leg of the second spread.

5. The method of claim 1, wherein the factor indicates perfect correlation between the collateral and a product of the plurality of products.

6. The method of claim 1, further comprising:

calculating a haircut for the collateral, wherein the processor uses the haircut for computing the adjustment to the margin requirement.

7. The method of claim 1, wherein the factor describes a degree of correlation between the collateral and the one or more of the plurality of products, and the adjustment to the margin requirement is a reduction of the margin requirement that increases as the degree of correlation decreases.

8. The method of claim 1, wherein the collateral includes a long position in an asset and the one or more products include a short position in the asset.

9. A margin requirement calculator, the calculator comprising:

a memory storing a listing of a portfolio of a plurality of products traded on an exchange and storing a margin requirement for the portfolio of the plurality of products; and

a processor for identifying a collateral as at least a portion of the margin requirement and analyzing at least one factor indicative of a relationship between the collateral and one or more of the plurality of products, wherein the margin requirement is adjusted based on the factor of the relationship between the collateral and the one or more of the plurality of products.

10. The margin requirement calculator of claim 9, wherein the factor is computed from an interest rate of the collateral and an interest rate associated with the one or more of the plurality of products.

11. The margin requirement calculator of claim 9, wherein the collateral includes a first spread and the one or more of the plurality of products includes a second spread.

12. The margin requirement calculator of claim 9, wherein the processor computes the factor from a leg of the first spread and a leg of the second spread.

13. The margin requirement calculator of claim 9, wherein the factor indicates perfect correlation between the collateral and a product of the plurality of products.

14. The margin requirement calculator of claim 9, wherein the processor calculates a haircut for the collateral, wherein the haircut is used in computing the adjustment to the margin requirement.

15. The margin requirement calculator of claim 9, wherein the factor describes a degree of correlation and the adjustment to the margin requirement is a reduction of the margin requirement that increases as the degree of correlation decreases.

16. The margin requirement calculator of claim 9, wherein the collateral includes a long position in a product and the one or more products include a short position in the product.

17. A non-transitory computer readable medium storing instructions, which when executed, perform a method for computing a margin requirement for a portfolio of a plurality of products traded on an exchange, the method comprising:

identifying, using a processor, a collateral as at least a portion of the margin requirement;

analyzing, using the processor, at least one factor indicative of a relationship between the collateral and one or more of the plurality of products; and

computing, using the processor, the margin requirement based on the factor between the collateral and the one or more of the plurality of products.

18. The computer readable medium of claim 17, wherein the collateral includes a first spread and the one or more of the plurality of products includes a second spread.

19. The computer readable medium of claim 18, the method further comprising:

computing the factor from a leg of the first spread and a leg of the second spread.

20. The computer readable medium of claim 17, the method further comprising:

calculating a haircut percentage for the collateral, wherein the processor uses the haircut for computing the margin requirement.