SYSTEM AND METHOD FOR REDUCING CURVE RISK

• US 20120310811A1
• Filed: 05/30/2012
• Published: 12/06/2012
• Est. Priority Date: 06/01/2011
• Status: Abandoned Application

• Current Assignee: CME Group Incorporated
• Original Assignee: CME Group Incorporated
• Inventors: PATEL, UMESH SUBHASH
• Application Number:
  US13/483,315
• Publication Number:
  US 20120310811A1
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A bond matching system receives positions from dealers identifying bonds to be matched and including the price value per basis point (PVPB) of the bonds and an indication of a percentage deviation from PVBP that the dealer is willing to accept in a matching bond. A matching engine performs a matching optimization during a run to match as many positions as possible and then calculates a series of hedge trades for each dealer to reduce the curve risk generated by matching with bonds having different maturity dates. The hedge trades are executed in a liquid external market such as a futures exchange.

Claims

1. A computerized bond trading system comprising:

a position store for receiving from a plurality of dealers bond positions to be traded, the bond positions including an identification of one or more bonds, a measure of the value of each bond and an indication of a range of values of bonds with which the dealer is willing for one or more bonds in his position to be matched;

a matching engine for executing a matching optimization on the received positions from the plurality of dealers to identify a series of matches between positions entered by dealers, the matching optimization matching buy positions with sell positions and being based on the identification of the bonds, the value of the bonds and the expressed range of values within which each party to the match is willing for bonds to be matched; and

a hedging calculation module for calculating from the matched positions, one or more hedges in a hedge instrument for reducing curve risk generated by the matched positions.

2. The system according to claim 1, wherein the indication of a range of values comprises a single indication for all bonds in the position entered by the dealer.

3. The system according to claim 1, wherein the indication of a range of values comprises an individual indication for each bond or groups of bonds in the position entered by the dealer.

4. The system according to claim 1, wherein the value of the bonds is expressed as price value per basis point (PVBP).

5. The system according to claim 4, wherein the indication of a range of values is expressed as a percentage of PVBP.

6. The system according to claim 1 wherein the hedge instrument for the one or more hedges hedge-trades is futures.

7. The system according to claim 6, wherein the futures trades are exchange traded contracts.

8. The system according to claim 1, wherein the hedge instrument for the hedge trades is bonds.

9. The system according to claim 1, wherein the hedge trades have a maturity date before and after the maturity date of the position to be hedged and the relative amount of each hedge trade is calculated on the basis of maturity date.

10. The system according to claim 1, wherein the hedge trades have a maturity date before and after the maturity date of the position to be hedged and the relative amount of each hedge trade is calculated on the basis of PVBP.

11. The system according to claim 1, wherein the matching optimization performed by the matching engine calculates an aggregate curve risk for each dealer generated by the matching process and the hedge trades are calculated by the hedging calculation module on the aggregated curve risk.

12. The system according to claim 1, wherein the matching engine executes the matching optimization a plurality of times.

13. The system according to claim 1, wherein the received bond positions include at least one linked order having a plurality of legs and the matching engine is arranged to match all or none of the legs.

14. The system according to claim 13, wherein the matching engine is arranged to match less than all legs of a linked order if it is not able to match all the legs and the received bond position indicates that a partial match is acceptable to the dealer.

15. The system according to claim 13, wherein the linked orders comprise switches.

16. The system according to claim 13, wherein the linked orders comprise butterflies.

17. The system according to claim 1, wherein the hedging execution module executes a pair of hedge trades for each executed matched position.

18. The system according to claim 1, wherein the hedging execution module includes a netting module which calculates a net hedging requirement for each dealer and executes the required hedge in the external market.

19. A computerized trading system for hedging a position in one or more financial instruments comprising:

a position store for receiving from a plurality of dealers positions in the financial instrument to be traded, the positions including an identification of one or more financial instruments, a measure of the value of each financial instrument and an indication of a range of values of counterparty financial instruments with which the dealer is willing for one or more financial instruments in his position to be matched; and

a computerized matching engine for retrieving the dealers'"'"' positions from the store and executing a matching optimization on the received positions from the plurality of dealers to identify a series of matches between positions entered by dealers, the matching optimization matching buy positions from dealers with sell positions from counterparty dealers on the basis of matching criteria comprising the identification of the financial instruments, the value of the financial instruments and the expressed range of values within which each party to the match is willing for financial instruments to be matched; and

a hedging calculation module for calculating from the matched positions, one or more hedges in a hedge instrument for reducing curve risk generated by the matched positions.

20. The system according to claim 19, wherein the hedging calculation module calculates the hedge trades required by each dealer on the basis of an aggregated risk position for the dealer after the matching optimization.

21. A computerized bond trading system comprising:

a position store for receiving from a plurality of dealers bond positions to be traded, the bond positions including an identification of one or more bonds, and a measure of the value of each bond;

a matching engine for executing a matching optimization on the received positions from the plurality of dealers to identify a series of matches between positions entered by dealers, the matching optimization matching buy positions with sell positions and being based on the identification of the bonds and the value of the bonds; and

a hedging calculation module for calculating from the series of matches, one or more futures trades in a exchange tradable market for each dealer to reduce curve risk generated by the matches identified by the matching optimization.

22. The system according to claim 21, wherein the hedging calculation module calculates the futures trades required by each dealer on the basis of an aggregated risk position for the dealer after the matching optimization.

23. A computerized bond trading method comprising:

receiving at a computerized matching system, from a plurality of dealers, bond positions to be traded, the bond positions including an identification of one or more bonds, a measure of the value of each bond and an indication of a range of values of bonds with which the dealer is willing for one or more bonds in his position to be matched;

executing at the computerized matching system a matching optimization on the positions received from the plurality of dealers to identify a series of matches between positions entered by dealers, the matching optimization matching buy positions with sell positions and being based on the identification of the bonds, the value of the bonds and the expressed range of values within which each party to the match is willing for bonds to be matched; and

calculating at a hedge calculating module, from the series a matches, one or more hedge trades for each dealer for reducing curve risk generated by the matches identified by the matching optimization.

24. The method according to claim 23, wherein the indication of a range of values comprises a single indication for all bonds in the position entered by the dealer.

25. The method according to claim 23, wherein the indication of a range of values comprises an individual indication for each bond or groups of bonds in the position entered by the dealer.

26. The method according to claim 23, wherein the value of the bonds is expressed as price value per basis point (PVBP).

27. The method according to claim 26, wherein the indication of a range of values is expressed as a percentage of PVBP.

28. The method according to claim 23, wherein the one or more hedge trades are futures trades.

29. The method according to claim 28, wherein the futures trades are exchange traded contracts.

30. The method according to claim 23, wherein the hedge trades are bond trades.

31. The method according to claim 23, wherein the hedge trades have a maturity date before and after the maturity date of the position to be hedged and the relative amount of each hedge trade is calculated on the basis of maturity date.

32. The method according to claim 23, wherein the hedge trades have a maturity date before and after the maturity date of the position to be hedged and the relative amount of each hedge trade is calculated on the basis of PVBP.

33. The method according to claim 23, wherein the matching optimization performed by the matching engine calculates an aggregate curve risk for each dealer generated by the matching process and the hedge trades are calculated by the hedging calculation module on the aggregated curve risk.

34. The method according to claim 23, comprising executing the matching optimization a plurality of times.

35. A computerized trading method for hedging a position in one or more financial instruments comprising:

receiving at a computerized matching system, from a plurality of dealers, positions in the financial instrument to be traded, the positions including an identification of one or more financial instruments, a measure of the value of each financial instrument and an indication of a range of values of counterparty financial instruments with which the dealer is willing for one or more financial instruments in his position to be matched;

executing by a computerized matching engine a matching optimization on the received positions from the plurality of dealers to identify a series of matches between positions entered by dealers, the matching optimization matching buy positions from dealers with sell positions from counterparty dealers on the basis of matching criteria comprising the identification of the financial instruments, the value of the financial instruments and the expressed range of values within which each party to the match is willing for financial instruments to be matched; and

calculating by a hedging calculation module from the series of matches, one or more hedge trades for each dealer for reducing curve risk generated by the matches identified by the matching optimization.

36. The method according to claim 35, wherein the hedge trades required by each dealer are calculated on the basis of an aggregated risk position for the dealer after the matching optimization.

37. A computerized bond trading method comprising:

receiving at a computerized matching system, from a plurality of dealers, bond positions to be traded, the bond positions including an identification of one or more bonds, and a measure of the value of each bond;

executing by a computerized matching engine a matching optimization optimisation on the received positions from the plurality of dealers to identify a series of matches between positions entered by dealers, the matching optimization matching buy positions with sell positions and being based on the identification of the bonds and the value of the bonds; and

calculating by a hedging calculation module from the series a matches, one or more futures trades in a exchange tradable market for each dealer to reduce curve risk generated by the matches identified by the matching optimization.

38. The method according to claim 37, wherein the futures trades required by each dealer are calculated on the basis of an aggregated risk position for the dealer after the matching optimization.