Method and system for efficiently matching long and short positions in securities trading and transacting a series of overnight trades for balance sheet netting

• US 7,797,223 B1
• Filed: 09/14/2006
• Issued: 09/14/2010
• Est. Priority Date: 03/28/2003
• Status: Active Grant

• Current Assignee: Gitigroup Global Markets Incorporated
• Original Assignee: Citigroup Global Markets Incorporated (Citigroup Incorporated)
• Inventors: Mellina, Thomas K.
• Primary Examiner(s): Havan; Thu Thao
• Application Number:
  US11/520,692
• Time in Patent Office: 1,461 Days
• Field of Search: 705 37- 38
• US Class Current: 705/37
• 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

Abstract

A method and system for trading long and short inventory positions in securities for participants involves systematically obtaining long and short position information from each participant, processing the information in accordance with participant-controlled parameters, matching the participants'"'"' short positions to other participants'"'"' long positions and feeding the resultant activity back to each participant in the form of system-generated repo and reverse repo trades, while maintaining the anonymity of the participants. Another aspect enables trading baskets of serial overnight trades, each of which is treated as an independent overnight repo/reverse trade for financial reporting purposes, with corresponding notional amount, that involves, for example, cancellation of a basket trade and creating in its place a series of overnight trades corresponding to the basket trade.

Claims

1. A method of trading baskets of serial overnight trades, each of which is treated as an independent overnight repo/reverse trade for financial reporting purposes, with corresponding notional amount, comprising:

receiving, by software executed by computer hardware, a feed of data regarding basket trades from internal systems of each of a plurality of participants;

comparing, by software executed by computer hardware, the basket trade data based on predefined transaction criteria to determine that both sides of each basket trade have been received and are matched;

if each basket trade is matched, canceling, by software executed by computer hardware, each basket trade and creating in its place a series of overnight trades corresponding to each basket trade; and

sending, by software executed by computer hardware, details of the cancellation and new overnight trades to the originating participants.

2. The method of claim 1, wherein canceling each basket trade and creating in its place the series of overnight trades further comprises canceling the basket trade for n days and creating a series of new overnight trades having an overnight trade and n−

1 forward overnight trades for each of two participants that submitted a matched term trade.

3. The method of claim 1, wherein canceling each basket trade and creating in its place the series of overnight trades further comprises canceling each basket trade and creating in its place one overnight trade, one forward overnight trade and one forward term trade.

4. The method of claim 1, further comprising submitting resultant trades for GSCC novation.

5. The method of claim 1, further comprising submitting resultant current overnight and one-day forward overnight trades for GSCC novation.

6. The method of claim 1, further comprising utilizing rate curvature in computing rates for resultant trades, such that the trades have market representative rates.

7. The method of claim 1, further comprising paying interest daily in connection with each maturing overnight trade.

9. The method of claim 1, wherein the data feed is received via at least one of direct entry and a batch process using File Transfer Protocol.

10. The method of claim 1, further comprising propagating substitutions, cancellations, and corrections to all trades in a series.

11. The method of claim 1, further comprising charging participants a fee.

8. A method of trading baskets of serial overnight trades, each of which is treated as an independent overnight repo/reverse trade for financial reporting purposes, with corresponding notional amount, comprising:

receiving, by software executed by computer hardware, a feed of data regarding basket trades from internal systems of each of a plurality of participants;

comparing, by software executed by computer hardware, the basket trade data based on predefined transaction criteria to determine that both sides of each basket trade have been received and are matched;

if each basket trade is matched, canceling, by software executed by computer hardware, each basket trade and creating in its place a series of overnight trades corresponding to each basket trade;

sending, by software executed by computer hardware, details of the cancellation and new overnight trades to the originating participants; and

splitting, by software executed by computer hardware, the trade using rate curvature to a daily interest rate for each overnight trade through a series of interpolated daily rates derived from a market curve current at the time of trade conversion, which is derived as follows;

i) periodically, extracting yield curve points from an available market source;

ii) performing straight-line interpolation for date points that are not given;

iii) comparing a rate on the trade with a rate on the yield curve for a corresponding duration and calculating the spread; and

iv) adding the spread is added to each yield curve point extracted from the market source, and using the resultant values with their respective durations and the rate on the trade with its corresponding duration to determine forward rates.

13. The method of claim 8, wherein canceling each basket trade and creating in its place the series of overnight trades further comprises canceling the basket trade for n days and creating a series of new overnight trades having an overnight trade and n−

1 forward overnight trades for each of two participants that submitted a matched term trade.

14. The method of claim 8, wherein canceling each basket trade and creating in its place the series of overnight trades further comprises canceling each basket trade and creating in its place one overnight trade, one forward overnight trade and one forward term trade.

15. The method of claim 8, further comprising submitting resultant trades for GSCC novation.

16. The method of claim 8, further comprising submitting resultant current overnight and one-day forward overnight trades for GSCC novation.

17. The method of claim 8, further comprising utilizing rate curvature in computing rates for resultant trades, such that the trades have market representative rates.

18. The method of claim 8, further comprising paying interest daily in connection with each maturing overnight trade.

19. The method of claim 8, wherein the data feed is received via at least one of direct entry and a batch process using File Transfer Protocol.

20. The method of claim 8, further comprising propagating substitutions, cancellations, and corrections to all trades in a series.

21. The method of claim 8, further comprising charging participants a fee.

12. A system for trading baskets of serial overnight trades, each of which is treated as an independent overnight repo/reverse trade for financial reporting purposes, with corresponding notional amount, comprising:

a server pre-programmed for receiving a feed of data regarding basket trades from internal systems of each of a plurality of participants;

comparing the basket trade data based on predefined transaction criteria to determine that both sides of each basket trade have been received and are matched;

if each basket trade is matched, canceling each basket trade and creating in its place a series of overnight trades corresponding to each basket trade;

and sending details of the cancellation and new overnight trades to the originating participants.