System and method for activity based margining

• US 8,117,115 B2
• Filed: 06/14/2011
• Issued: 02/14/2012
• 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., Abudarham, Jodi L., Michaels, Dale A.
• Primary Examiner(s): Havan, Thu Thao
• Application Number:
  US13/160,250
• Publication Number:
  US 20110246350A1
• Time in Patent Office: 245 Days
• Field of Search: 705 35- 38
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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 factoring in a trader'"'"'s trading activity into the margin requirements is disclosed. In the securities arena, day traders are assessed different margins than non-day-traders, however, the specific profile of the trader is analyzed (that is, the same rule applies to all day traders).

Claims

1. A method of determining a margin requirement for a portfolio of products traded on an exchange, the method comprising:

storing past trading activity in a database, wherein the past trading activity occurred before a predetermined time period;

comparing, by a processor, the trading activity for the predetermined time period with the stored past trading activity;

determining, by the processor, that trading activity of the portfolio of products on the exchange during the predetermined time period varies from the stored past trading activity;

correlating, by the processor, trading activity of the portfolio of products on the exchange during the predetermined time period with an assessment of risk based on the determining; and

computing, by the processor, the margin requirement based on the portfolio of products and the assessment of risk wherein the margin requirement is increased if it is determined that the trading activity of the portfolio of products on the exchange during the predetermined time period varies from the stored past trading activity.

2. The method of claim 1, further comprising:

storing, in a memory, the trading activity of the portfolio of products on the exchange during the predetermined time period.

3. The method of claim 1, further comprising:

monitoring, by the processor, the trading activity of the portfolio of products on the exchange during the predetermined time period.

4. The method of claim 1, further comprising:

determining whether the portfolio of products included any positions at a close of a preceding trading period; and

setting the margin requirement to an initial margin requirement based on the portfolio of products, if the portfolio of products did not include any positions at the close of the preceding trading period.

5. The method of claim 1, wherein the trading activity is a trading volume associated with the portfolio of products.

6. The method of claim 1, wherein the assessment of risk for the trading activity is correlated for the portfolio of products based on at least one parameter selected from a group consisting of a range of potential price changes, a range of implied volatility, an intracommodity spread amount, an intercommodity spread amount, and a short option minimum amount.

7. The method of claim 1 wherein the past trading activity is associated with a trading entity and the trading activity of the portfolio of products is associated with the trading entity.

8. The method of claim 1, wherein the past trading activity is historical data associated with a plurality of trading entities.

9. A system for determining margin requirements for a portfolio of positions on products traded on an exchange, the system comprising:

a database configured to store past trader activity;

a memory configured to store trading activity associated with the portfolio of positions on products on the exchange during a trading time period;

a processor configured to correlate the trading activity with an assessment of risk and compute the margin requirement based on the portfolio of positions of products and the assessment of risk, wherein the processor is further configured to compare the trading activity for the trading time period with the stored past trader activity and compute the margin requirement based on the comparison, the margin requirement being increased when the activity during the trading time period varies from the past trader activity.

10. The system of claim 9, further comprising:

determining whether the portfolio included any positions at a close of a preceding trading period; and

setting the margin requirement to an initial margin requirement based on the portfolio, if the portfolio did not include any positions at the close of the preceding trading period.

11. The system of claim 10, wherein the margin requirement is a maintenance margin requirement, wherein the initial margin requirement exceeds the maintenance margin requirement.

12. The system of claim 9, wherein the margin requirement increases as the trading volume associated with the portfolio of positions on products increases.

13. The system of claim 9, wherein the assessment of risk for the trading activity is correlated for the portfolio of positions on products based on at least one parameter selected from a group consisting of a range of potential price changes, a range of implied volatility, an intracommodity spread amount, an intercommodity spread amount, and a short option minimum amount.

14. A method of determining a margin requirement for a portfolio, the method comprising:

storing past trader activity in a database;

monitoring current trading activity associated with the portfolio;

comparing, by a processor, the current trading activity with the stored past trader activity to correlate the portfolio with an assessment of risk; and

computing, by the processor, the margin requirement based on the comparison as a function of a variance between the current and past trading activity.

15. The method of claim 14, further comprising:

determining whether the portfolio included any positions at a close of a preceding trading interval; and

setting the margin requirement to an initial margin requirement based on the portfolio, if the portfolio did not include any positions at the close of the preceding trading interval.

16. The method of claim 14, wherein the margin requirement is a maintenance margin requirement, wherein the initial margin requirement exceeds the maintenance margin requirement.

17. The method of claim 14, wherein the margin requirement increases as the trading volume associated with the portfolio.

18. The method of claim 14, wherein the assessment of risk for the trading activity is correlated for the portfolio based on at least one parameter selected from a group consisting of a range of potential price changes, a range of implied volatility, an intracommodity spread amount, an intercommodity spread amount, and a short option minimum amount.