Clearing system that determines margin requirements for financial portfolios

• US 8,239,308 B2
• Filed: 12/29/2009
• Issued: 08/07/2012
• Est. Priority Date: 12/29/2009
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Iyer, Suneel, Hadi, Moody, McCormick, Amy, Patel, Ketan, Dedhia, Ankeet
• Primary Examiner(s): Akintola, Olabode
• Application Number:
  US12/649,267
• Publication Number:
  US 20110161244A1
• Time in Patent Office: 952 Days
• Field of Search: 705/35, 705/36.R, 705/37
• US Class Current: 705/36.R
• 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

Methods, systems and apparatuses are described for calculating a performance bond amount for a portfolio including interest rate swaps. A risk calculation module (or risk processor) may assist in the calculation. In some examples, values, such as swap (DV01) dollar values and volatility values, and adjustments/factors, such as calendar charge adjustments and liquidity charge minimums, may be used to enhance the margin calculation. These values may be maintained and updated in various ways, including but not limited to, lookup tables, matrices, and other structures. The margin calculations may be used by an exchange or clearinghouse to request a portfolio holder to deposit additional funds towards a performance bond associated with the portfolio.

Claims

1. A method comprising:

calculating a performance bond amount for a plurality of interest rate swaps in a portfolio of financial assets using a risk calculation module of an exchange computer system,

where the calculating includes;

receiving swap dollar values at the exchange computer system risk calculation module, wherein each swap dollar value represents a dollar value of a one basis point change in a fixed interest rate swap;

receiving volatility values at the exchange computer system risk calculation module; and

determining the performance bond amount, at the exchange computer system risk calculation module, as a function of the swap dollar value and the volatility value corresponding to each interest rate swap in the portfolio;

determining if a margin account balance associated with the portfolio is less than the calculated performance bond amount; and

generating a notification that an increase in the amount of the margin account balance to at least the calculated performance bond amount is required.

2. The method of claim 1, where the determining the performance bond amount as a function of the swap dollar value and the volatility value includes the exchange computer system risk calculation module multiplying the swap dollar value by the volatility value corresponding to each interest rate swap in the portfolio.

3. The method of claim 2, where the calculating further includes:

the exchange computer system risk calculation module summing the products of the multiplications corresponding to each interest rate swap in the portfolio.

4. The method of claim 1, where the calculating further includes:

the exchange computer system risk calculation module adjusting the performance bond amount by a calendar charge adjustment to account for non-parallel shifts in a swap curve.

5. The method of claim 1, where the calculating further includes:

the exchange computer system risk calculation module determining whether the performance bond amount is less than a liquidity charge minimum, where the liquidity charge minimum is a function of liquidity risk of swap tenors in the portfolio;

if the performance bond amount is less than the liquidity charge minimum, the exchange computer system risk calculation module adjusting the performance bond amount to the liquidity charge minimum; and

if the performance bond amount is not less than the liquidity charge minimum, the exchange computer system risk calculation module leaving unchanged the performance bond amount.

6. The method of claim 1, where the swap dollar value of an interest rate swap is based on time remaining until maturity of the interest rate swap and a fixed rate of the interest rate swap.

7. The method of claim 6, where swap dollar values of interest rate swaps are updated on at least a daily basis.

8. The method of claim 7, where swap dollar values of interest rate swaps are updated in realtime.

9. The method of claim 1, where the volatility value of an interest rate swap is based on time remaining until maturity of the interest rate swap.

10. The method of claim 9, where the volatility value of the interest rate swap is irrespective of the fixed rate of the interest rate swap.

11. The method of claim 9, where the volatility value of the interest rate swap is based on historical volatility values of interest rate swaps with substantially equal time remaining until maturity.

12. The method of claim 9, where the volatility value of the interest rate swap is determined using a volatility lookup table indexed by swap tenors at predetermined intervals.

13. The method of claim 1, where the calculating of the performance bond amount is performed at least daily.

14. The method of claim 13, where the calculating of the performance bond amount is performed in realtime.

15. The method of claim 1, where the plurality of interest rate swaps in the portfolio are configured to be centrally cleared.

16. The method of claim 4, where the calendar charge adjustment is determined using a calendar charge lookup table indexed by swap tenor combinations.

17. The method of claim 16, where the swap tenor combinations are based on a tiered structure.

18. The method of claim 5, where the liquidity charge minimum is determined using a liquidity charge minimum lookup table indexed by swap tenor tiers and gross notional values.

19. The method of claim 1, where the generating a notification includes requesting a holder of the portfolio to increase the amount of the performance bond to at least the calculated performance bond amount.

20. An apparatus comprising:

a computer memory storing computer-executable instructions; and

a processor coupled to the memory and configured to execute the instructions so as to cause the apparatus to calculate a performance bond amount for a plurality of interest rate swaps in a portfolio of financial assets, and wherein the calculating includes

receiving swap dollar values, wherein each swap dollar value represents a dollar value of a one basis point change in a fixed interest rate swap,

receiving volatility values, and

determining the performance bond amount as a function of the swap dollar value and the volatility value corresponding to each interest rate swap in the portfolio.

21. The apparatus of claim 20, where the calculating includes multiplying the swap dollar value by the volatility value corresponding to each interest rate swap in a portfolio.

22. The apparatus of claim 21, where the calculating includes summing the products of the multiplications corresponding to each interest rate swap in a portfolio.

23. The apparatus of claim 20, where the memory further stores information corresponding to a calendar charge lookup table, and where the processor is configured to execute the instructions so as to cause the apparatus to adjust the performance bond amount by a calendar charge adjustment.

24. The apparatus of claim 20, where the memory further stores information corresponding to a liquidity charge minimum lookup table, and where the processor is configured to execute the instructions so as to cause the apparatus to adjust the performance bond amount to at least a liquidity charge minimum.

25. The apparatus of claim 20, where the processor is configured to execute the instructions so as to cause the apparatus to receive information corresponding to an updated volatility lookup table and updated swap dollar value matrix at least daily.

26. The apparatus of claim 20, where the processor is configured to execute the instructions so as to cause the apparatus to receive information corresponding to an updated volatility lookup table and updated swap dollar value matrix in realtime.

27. A computer-readable storage medium containing computer-executable instructions for performing a method comprising:

receiving swap dollar values, wherein each swap dollar value represents a dollar value of a one basis point change in a fixed interest rate swap;

receiving volatility values;

calculating a performance bond amount for a plurality of interest rate swaps in a portfolio of financial assets as a function of the swap dollar value and the volatility value corresponding to each interest rate swap in a portfolio; and

determining whether a margin account balance associated with the portfolio is less than the calculated performance bond amount.

28. The computer-readable storage medium of claim 27, wherein the calculating comprises multiplying the swap dollar value by the volatility value corresponding to each interest rate swap in a portfolio.

29. The computer-readable storage medium of claim 28, wherein calculating comprises summing the products of the multiplications corresponding to each interest rate swap in a portfolio.

30. The computer-readable storage medium of claim 27 containing computer-executable instructions for performing a method comprising:

adjusting the performance bond amount by a calendar charge adjustment, where the calendar charge adjustment is determined using a calendar charge lookup table indexed by swap tenor combinations.

31. The computer-readable storage medium of claim 27 containing computer-executable instructions for performing a method comprising:

determining whether the performance bond amount is less than a liquidity charge minimum, where the liquidity charge minimum is determined using a liquidity charge minimum lookup table indexed by swap tenor tiers and gross notional values;

if the performance bond amount is less than the liquidity charge minimum, adjusting at the risk calculation module the performance bond amount to the liquidity charge minimum; and

if the performance bond amount is not less than the liquidity charge minimum, leaving unchanged the performance bond amount.