Electronic trading system and method for pricing transactions to account for risk
First Claim
1. A request for quote system for buying and selling swap-based financial instruments, having extended maturity periods, the system comprising:
- an order management server that;
receives a request for quote for a swap-based financial instrument from a first entity;
provides the request for quote to a second entity;
receives a base price for responding to the request for quote;
generates a response to the request for quote, the response to the request for quote comprising a response price determined from the base price and a price adjustment value; and
provides the response to the request for quote to the first entity; and
a risk processor that determines the price adjustment value by which the base price should be modified to account for risk to the second entity associated with a potential transaction of the swap-based financial instrument, the risk accounting for the potential for default over the extended maturity of the swap-based financial instrument.
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Accused Products
Abstract
An electronic trading system and method are described in which credit risk associated with a transaction is captured as a price adjustment on a trade-by-trade basis. In one preferred embodiment, a “request for quote” (RFQ) trading model is presented in which each dealer receiving an RFQ determines a base price as well as an additional credit risk adjustment amount by which the base price should be modified to account for credit risk. In other preferred embodiments, an exchange trading model is presented in which traders submit buy and sell orders whose prices are appropriately adjusted for presentation to each potential counterparty to account for credit risk associated with potential transactions. System designs are also presented to address the technical challenge of permitting each trading participant to apply its own credit risk algorithms and methodologies while avoiding their disclosure to other trading participants.
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Citations
13 Claims
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1. A request for quote system for buying and selling swap-based financial instruments, having extended maturity periods, the system comprising:
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an order management server that; receives a request for quote for a swap-based financial instrument from a first entity; provides the request for quote to a second entity; receives a base price for responding to the request for quote; generates a response to the request for quote, the response to the request for quote comprising a response price determined from the base price and a price adjustment value; and provides the response to the request for quote to the first entity; and a risk processor that determines the price adjustment value by which the base price should be modified to account for risk to the second entity associated with a potential transaction of the swap-based financial instrument, the risk accounting for the potential for default over the extended maturity of the swap-based financial instrument. - View Dependent Claims (10, 11)
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2. A method for the electronic buying and selling of swap-based financial instruments, having extended maturity periods, comprising:
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receiving, at an order management server, a request for quote from a first entity; providing, by the order management server, the request for quote to a second entity; receiving, by the order management server, a base price for responding to the request for quote; determining, by a risk processor, a price adjustment value by which the base price should be modified to account for risk to the second entity associated with a potential transaction of a swap-based financial instrument, the risk accounting for the potential for default over the extended maturity of the swap-based financial instrument; generating, by the order management server, a response to the request for quote, the response to the request for quote comprising a response price determined from the base price and the price adjustment value; and providing, by the order management server, the response to the request for quote to the first entity. - View Dependent Claims (3, 4, 5, 6, 7, 8, 9, 12, 13)
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Specification