System and method for efficiently using collateral for risk offset

• US 8,055,567 B2
• Filed: 08/08/2008
• Issued: 11/08/2011
• 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., Michaels, Dale A., Gogol, Edward
• Primary Examiner(s): Hammond, III; Thomas M
• Application Number:
  US12/188,510
• Publication Number:
  US 20080301062A1
• Time in Patent Office: 1,187 Days
• Field of Search: 705 35- 45
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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 analyzing correlation between the assets given by the trader for collateral and that trader'"'"'s open positions is disclosed. Thus, if the collateral is correlated to the trader'"'"'s open positions, then some offset can be given. If there is no correlation than the collateral is valued in the conventional way. For example, if a trader provides t-bills as collateral for an account that has open positions (e.g. short futures) in T-bills, than that trader'"'"'s account can be credited with some offset since the value of T-bills and T-bill futures are highly correlated.

Claims

1. A computer implemented method of computing an adjustment to a margin requirement for a portfolio of a plurality of products traded on an exchange, the computer comprising a computer processor and a memory coupled therewith, the computer further comprising a computer program stored in the memory and executable by a computer processor to implement an initial margin generator, an asset correlation processor and a margin adjustment processor, the method comprising:

computing, by the initial margin generator implemented by the computer program executed by the computer processor, the margin requirement based the plurality of products in the portfolio;

identifying, by the initial margin generator implemented by the computer program executed by the computer processor, collateral to at least partially fulfill the margin requirement, the identified collateral not being subject to the margin requirement;

identifying, by the asset correlation processor implemented by the computer program executed by the computer processor, a relationship between the identified collateral and at least one of the plurality of products in the portfolio;

generating, by the asset correlation processor implemented by the computer program executed by the computer processor, a correlation between the identified collateral and the at least one of the plurality of products in the portfolio based on the identified relationship; and

computing, by the margin adjustment processor implemented by the computer program executed by the computer processor, the adjustment to the margin requirement based on the correlation of the identified collateral to the at least one of the plurality of products in the portfolio.

2. The computer implemented method of claim 1, wherein the computing further comprises computing the adjustment in proportion to the correlation.

3. The computer implemented method of claim 2, wherein the computed adjustment decreases the margin requirement as the correlation increases.

4. The computer implemented method of claim 1, wherein the relationship includes the identified collateral being substantially identical to at least one of the plurality of products in the portfolio.

5. The computer implemented method of claim 1, wherein the relationship includes the value of the identified collateral and the value of at least one of the plurality of products varying based on at least one substantially identical factor.

6. The computer implemented method of claim 5, wherein the at least one substantially identical factor comprises an interest rate.

7. The computer implemented method of claim 5, wherein the relationship includes that the value of the identified collateral is dependent upon the value of at least one of the plurality of products.

8. The computer implemented method of claim 5, the relationship includes a degree of similarity between the identified collateral and at least one of the plurality of products in the portfolio, the correlation changing with the increase in the degree of similarity.

9. A system for computing an adjustment to a margin requirement for a portfolio of a plurality of products traded on an exchange, the system comprising a computer including a processor and a memory coupled therewith, the system further comprising:

an initial margin generator computer software program stored in the memory and executable by the processor to compute a margin requirement based on the plurality of products in the portfolio;

an asset correlation processor computer software program stored in the memory an executable by the processor to identify a relationship between collateral not subject to the margin requirement and identified to satisfy at least a portion of the margin requirement and at least one of the plurality of products in the portfolio, the correlation processor computer software program being further executable by the processor to compute a correlation between the identified collateral and the at least one of the plurality of products in the portfolio based on the relationship; and

a margin adjustment processor computer software program stored in the memory coupled with the initial margin generator computer software program and the asset correlation processor computer software program and executable by the processor to compute the adjustment of the margin requirement based on the correlation of the identified collateral to the at least one of the plurality of products in the portfolio.

10. The system of claim 9, wherein the margin adjustment processor computer software program is further executable by the processor to compute the adjustment of the margin requirement in proportion to the correlation.

11. The system of claim 10, wherein the computed adjustment decreases the margin requirement as the correlation increases.

12. The system of claim 9, wherein the identified relationship comprises the identified collateral being substantially identical to at least one of the plurality of products in the portfolio.

13. The system of claim 9, wherein the identified relationship comprises that the value of the collateral and the value of at least one of the plurality of products vary based on at least one substantially identical factor.

14. The system of claim 13, wherein the at least one substantially identical factor comprises an interest rate.

15. The system of claim 9, wherein the relationship comprises that the value of the identified collateral is dependent upon the value of at least one of the plurality of products.

16. The system of claim 9, the relationship comprises a degree of similarity between the identified collateral and at least one of the plurality of products in the portfolio, the correlation changing with the increase in the degree of similarity.