Method and apparatus for managing risk

• US 7,774,248 B1
• Filed: 04/19/2005
• Issued: 08/10/2010
• Est. Priority Date: 11/30/2004
• Status: Active Grant

• Current Assignee: JP Morgan Chase Bank, N.A. (JP Morgan Chase & Co)
• Original Assignee: JP Morgan Chase Bank, N.A. (JP Morgan Chase & Co)
• Inventors: Haas, Lauren, Bainbridge, Dianne, Cox, Andrew, Chandumont, Jean-Christopher
• Primary Examiner(s): Nguyen; Nga B.
• Application Number:
  US11/109,203
• Time in Patent Office: 1,939 Days
• Field of Search: 705/35, 705/36.R, 705/37, 705/38, 705/36
• US Class Current: 705/35
• CPC Class Codes: G06Q 20/102 Bill distribution or payments
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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 evaluating financial transactions, which may involve credit requests, is provided. Credit requests are categorized into three tiers: the third-tier is for requests capable of being processed by computers, the second-tier is for requests that meet predefined criteria and cannot be categorized as third-tier requests, and the first-tier is for requests that cannot be categorized as second-tier or third-tier requests. The first-tier requests are manually reviewed by a credit executive. The second-tier requests are delegated to more junior credit personnel via an inventive pre-approval procedure. The third-tier requests are processed, at least in part, by computers. Additionally, requests that exceed a credit line, or limit, may be approved by reallocating credit from other credit lines.

Claims

1. A computer-implemented method for managing risk, the method comprising the steps of:

receiving, by a computer system, information regarding a client, wherein the information includes the client'"'"'s net asset value (“

NAV”

);

determining, by the computer system, a client specific risk rating based on one or more client evaluation factors;

determining, by the computer system, a guarantor associated with the client;

calculating, by the computer system, a remaining guaranteed allocation associated with the guarantor, wherein the remaining guaranteed allocation equals a total funds for allocation associated with the guarantor less a guaranteed allocation;

calculating, by the computer system, an exposure limit for the client based at least upon the NAV, the remaining guaranteed allocation and the client specific risk rating; and

assigning, by the computer system, a credit limit to the client based at least upon the calculated exposure limit, wherein the credit limit does not exceed the calculated exposure limit.

2. The method of claim 1, wherein the client is a Highly Regulated Fund (“

HRF”

), the exposure limit is a maximum primary exposure, and

the method further comprises the step of calculating a maximum settlement exposure for the client based at least upon the NAV.

3. The method of claim 1, wherein the client is a hedge fund that is manageable under a Hedge Fund Rule, and the exposure limit is calculated as a percentage of the NAV.

4. The method of claim 3, wherein the exposure limit is capped to not exceed a predetermined amount.

5. The method of claim 1, wherein the one or more client evaluation factors include an investment strategy of the client.

6. The method of claim 1, wherein the one or more client evaluation factors include the client'"'"'s capital.

7. The method of claim 1, wherein the one or more client evaluation factors include the client'"'"'s performance history.

8. The method of claim 1, wherein the one or more client evaluation factors include the client'"'"'s risk-management policies.

9. The method of claim 1, wherein the one or more client evaluation factors include the client'"'"'s exposure-management policies.

10. The method of claim 1, wherein the one or more client evaluation factors include the client'"'"'s organizational structure.

11. The method of claim 1, wherein the one or more client evaluation factors include the client'"'"'s liquidity-management capabilities.

12. The method of claim 1, wherein the one or more client evaluation factors include the client'"'"'s internal operations.

13. The method of claim 1, wherein the one or more client evaluation factors include the client'"'"'s communications.

14. The method of claim 1, wherein calculation of the exposure limit is further based upon the client'"'"'s quality of legal documentation and a risk category of the client'"'"'s trading lines.

15. The method of claim 1, wherein the exposure limit associated with the client is reduced upon violation of an exposure limit for a particular industry.

16. The method of claim 1, wherein the exposure limit associated with the client is reduced upon the violation of an exposure limit for a particular country.

17. The method of claim 1, wherein the client has a guarantor, and the exposure limit associated with the client is capped to not exceed an exposure limit for the client'"'"'s guarantor.

18. A computer-implemented method for managing risk, the method comprising the steps of:

receiving, by a computer system, information regarding a client, wherein the information includes the client'"'"'s net asset value (“

NAV”

);

determining, by the computer system, a client specific risk rating based on one or more client evaluation factors;

determining, by the computer system, a guarantor associated with the client;

calculating, by the computer system, a remaining guaranteed allocation associated with the guarantor, wherein the remaining guaranteed allocation equals a total funds for allocation associated with the guarantor less a guaranteed allocation;

calculating, by the computer system, an exposure limit for the client based at least upon the NAV, remaining guaranteed allocation and the client specific risk rating;

determining, by the computer system, that the exposure limit violates an exposure limit for a particular industry of region;

reducing the exposure limit, by the computer system, following the determination that the exposure limit violates the exposure limit for the particular industry or region; and

assigning by the computer system, a credit limit based to the client at least upon the calculated exposure limit, wherein the limit does not exceed the calculated exposure limit.

19. A computer-accessible memory storing computer code for causing one or more computers to implement a method for managing risk, wherein the method comprises the steps of:

receiving, by a computer system, information regarding a client, wherein the information includes the client'"'"'s net asset value (“

NAV”

);

determining, by the computer system, a client specific risk rating based on one or more client evaluation factors;

determining, by the computer system, a guarantor associated with the client;

calculating, by the computer system, a remaining guaranteed allocation associated with the guarantor, wherein the remaining guaranteed allocation equals a total funds for allocation associated with the guarantor less a guaranteed allocation;

calculating, by the computer system, an exposure limit for the client based at least upon the NAV, the remaining guaranteed allocation and the client specific risk rating; and

assigning, by the computer system, a credit limit to the client based at least upon the reduced exposure limit, wherein the credit limit does not exceed the calculated exposure limit.

20. The memory of claim 19, wherein

the client is a Highly Regulated Fund (“

HRF”

),

the exposure limit is a maximum primary exposure, and

the method further comprises the step of calculating a maximum settlement exposure for the client based at least upon the NAV.

21. The memory of claim 19, wherein the client is a hedge fund that is manageable under a Hedge Fund Rule, and the exposure limit is calculated as a percentage of the NAV.

22. The memory of claim 21, wherein the exposure limit is capped to not exceed a predetermined amount.

23. The memory of claim 19, wherein the one or more client evaluation factors include an investment strategy of the client.

24. The memory of claim 19, wherein the one or more client evaluation factors the client'"'"'s capital.

25. The memory of claim 19, wherein the one or more client evaluation factors include the client'"'"'s performance history.

26. The memory of claim 19, wherein the one, or more client evaluation factors include the client'"'"'s risk-management policies.

27. The memory of claim 19, wherein the one or more client evaluation factors include the client'"'"'s exposure-management policies.

28. The memory of claim 19, wherein the one or more client evaluation factors include the client'"'"'s organizational structure.

29. The memory of claim 19, wherein the one or more client evaluation factors include the client'"'"'s liquidity-management capabilities.

30. The memory of claim 19, wherein the one or more client evaluation factors include the client'"'"'s internal operations.

31. The memory of claim 19, wherein the one or more client evaluation factors include the client'"'"'s communications.

32. The memory of claim 19, wherein calculation of the exposure limit is further based upon the client'"'"'s quality of legal documentation and a risk category of the client'"'"'s trading lines.

33. The memory of claim 19, wherein the exposure limit associated with the client is reduced upon violation of an exposure limit for a particular industry.

34. The memory of claim 19, wherein the exposure limit associated with the client is reduced upon violation of an exposure limit for a particular country.

35. The memory of claim 19, wherein the client has a guarantor, and the exposure limit associated with the client is capped to not exceed an exposure limit for the client'"'"'s guarantor.

36. A computer-accessible memory storing computer code for causing one or more computers to implement a method for managing risk, wherein the method comprises the steps of:

receiving information regarding a client, wherein the information includes the client'"'"'s net asset value (“

NAV”

);

determining a client specific risk rating for the client, wherein the risk rating is based on one or more client evaluation factors;

determining, by the computer system, a guarantor associated with the client;

calculating, by the computer system, a remaining guaranteed allocation associated with the guarantor, wherein the remaining guaranteed allocation equals a total funds for allocation associated with the guarantor less a guaranteed allocation;

calculating, by the computer system, an exposure limit for the client based at least upon the NAV, the remaining guaranteed allocation and the client specific risk rating; and

assigning, by the computer system, a credit limit to the client based at least upon the calculated exposure limit, wherein the credit limit does not exceed the calculated exposure limit.