SYSTEM AND METHOD FOR REDUCING CURVE RISK

• US 20140195410A1
• Filed: 03/11/2014
• Published: 07/10/2014
• Est. Priority Date: 06/01/2011
• Status: Abandoned Application

• Current Assignee: CME Group Incorporated
• Original Assignee: ICAP Services North America LLC (TP ICAP Plc)
• Inventors: Patel, Umesh S.
• Application Number:
  US14/204,418
• Publication Number:
  US 20140195410A1
• 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 storing one or more bond positions for each of a plurality of dealers, each bond position being a buy or sell position and including an identification of the bond and a measure of the value of the bond;

a matching engine which;

uses the information stored in the position store to match buy and sell positions of the dealers as a function of the identification of and the value of the bond positions; and

calculates from the series of matches, one or more hedge trades in an exchange tradable market for each dealer with one or more positions that have been matched to reduce the curve risk generated by the matches.

2. The system according to claim 1, wherein the matches are made so as to minimize the number of positions left unmatched.

3. The system according to claim 1, wherein the matches are made so as to maximize the volume of the matched positions.

4. The system according to claim 1, wherein the position store also stores an indication of one or more ranges of values with which each dealer is willing to have his respective bond positions matched and where the matching engine uses such indication when matching buy and sell positions of the dealers.

5. The system according to claim 1, wherein, for at least one dealer, the range of values is the same for all of his bond positions.

6. The system according to claim 4, wherein, for at least one dealer, the range of values is different for at least two of his bond positions.

7. The system according to claim 1, wherein the matching engine calculates the hedge trades required by each respective dealer on the basis of an aggregated risk position for the respective dealer resulting from the series of matches.

8. The system according to claim 1, wherein the value of each bond is expressed as price value per basis point.

9. The system according to claim 4, wherein each indication of a range of values is expressed as a percentage of a price value per basis point.

10. The system according to claim 1, wherein for at least one of the respective matched positions, the matching engine calculates at least two hedge trades, one of which has a maturity date before and one of which has maturity date after the maturity date of the respective bond position and the relative amount of each hedge trade is calculated on the basis of its maturity date.

11. The system according to claim 1, wherein for at least one of the respective matched positions, the matching engine calculates at least two hedge trades, one of which has a maturity date before and one of which has maturity date after the maturity date of the respective bond position and the relative amount of each hedge trade is calculated on the basis of price value per basis point.

12. The system according to claim 1, wherein the matching engine matches buy and sell positions of the dealers using an algorithm that is run 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 matches all or none of the legs.

14. The system according to claim 13, wherein the matching engine matches 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 at least one of the linked orders comprises a switch.

16. The system according to claim 13, wherein at least one of the linked orders comprises a butterfly.

17. The system according to claim 1, wherein the at least some of the hedge trades are futures trades.

18. The system according to claim 1, wherein the matching engine calculates a net hedging requirement for each dealer and executes the required hedge trades in an exchange tradable market.

19. A computerized bond trading method comprising:

storing in a position store one or more bond positions for each of a plurality of dealers, each bond position being a buy or sell position and including an identification of the bond and a measure of the value of the bond;

using a matching engine to;

match buy and sell positions of the dealers as a function of the identification of and the value of the bond positions; and

calculate from the series of matches, one or more hedge trades in an exchange tradable market for each dealer with one or more positions that have been matched to reduce the curve risk generated by the matches.

20. The method according to claim 19, wherein the matches are made so as to minimize the number of positions left unmatched.

21. The method according to claim 19, wherein the matches are made so as to maximize the volume of the matched positions.

22. The method according to claim 19, further comprising storing in the position store an indication of one or more ranges of values with which each dealer is willing to have his respective bond positions matched and where the matching engine uses such indication when matching buy and sell positions of the dealers.

23. The method according to claim 22, wherein, for at least one dealer, the range of values is the same for all of his bond positions.

24. The method according to claim 22, wherein, for at least one dealer, the range of values is different for at least two of his bond positions.

25. The method according to claim 19, further including using the matching engine calculates the hedge trades required by each respective dealer on the basis of an aggregated risk position for the respective dealer resulting from the series of matches.

26. The method according to claim 19, wherein the value of the bonds is expressed as price value per basis point (PVBP).

27. The method according to claim 22, wherein each indication of a range of values is expressed as a percentage of a price value per basis point.

28. The method according to claim 19, wherein for at least one of the respective matched positions, the matching engine calculates at least two hedge trades, one of which has a maturity date before and one of which has maturity date after the maturity date of the respective bond position and the relative amount of each hedge trade is calculated on the basis of its maturity date.

29. The method according to claim 19, wherein for at least one of the respective matched positions, the matching engine calculates at least two hedge trades, one of which has a maturity date before and one of which has maturity date after the maturity date of the respective bond position and the relative amount of each hedge trade is calculated on the basis of price value per basis point.

30. The method according to claim 19, wherein the matching engine matches buy and sell positions of the dealers using an algorithm that is run a plurality of times.