Method and system for offset matching
The trading of interest rate swaps or other interest rate derivatives gives rise to mismatch exposure. This can be offset by a series of FRA trades. Rather than conducting a series of exposure neutral trades, FRAs can be bought or sold for the entire amount of a trader's reset exposure. To hedge the offset trades, a series of IMM FRA trades are conducted. The relative size of the IMM contracts will be determined by the distance in time from the IMM quarterly contract settlement date. A system is disclosed for performing offset trades and IMM hedges. The embodiments allow for non-neutral trading and subsequent hedging brings trading back to a neutral position.
1. A method for electronically trading forward rate agreements (FRAs) using a computer system comprising at least one computer, the computer system being programmed to carry out the method and storing respective books of FRA positions for at least one tenor for each of a plurality of traders, the book of a first one of the traders having a respective initial net position for each tenor of the first trader's book, the method comprising:
the computer system executing one or more unilateral FRA trades between the first trader and one or more of the other traders so that the net position of the first trader's book, for at least one tenor, is changed; and
the computer system subsequently selecting and executing a plurality of International Money Market (IMM) FRA trades on behalf of the first trader, the computer system making the selection as a function of the previously executed unilateral FRA trades and so as to offset at least some of the unilateral FRA trades thereby returning the first trader's net position, for at least one tenor, back to or at least closer to its initial net position.
2. The method of claim 1 , wherein the computer system stores information concerning limitations under which one or more of the traders are willing to execute a trade and wherein the computer system uses the stored information to select which unilateral trades to execute.
3. The method of claim 2 , wherein at least one of the limitations is the amount of credit the first trader grants to other traders and/or the amount of credit other traders grant to the first trader.
4. The method of claim 1 , wherein the computer system selects, for each unilateral FRA trade, the quantity of two or more IMM FRA trades required to offset the FRA trade and executes the required IMM FRA trades as a function of such selection.
5. The method of claim 4 , wherein the amount of IMM FRA trades required to offset each respective unilateral FRA trade is selected as a function of the date overlap between the contract dates of the respective unilateral FRA trade and the respective contract dates of the corresponding two or more IMM FRA trades required to offset the respective FRA trade.
6. The method of claim 5 , wherein at least one of the IMM FRA trades is used to at least partially offset two or more of the unilateral FRA trades.
7. The method of claim 1 , wherein at least one of the IMM FRA trades is used to at least partially offset two or more of the unilateral FRA trades.
8. The method of claim 1 , wherein the computer system executes one or more unilateral FRA trades for each of two or more tenors of the first trader's book.
9. The method of claim 1 , wherein the computer system executes one or more unilateral FRA trades for all tenors of the first trader's book.
10. The method of claim 1 , wherein the computer system selects and executes a plurality of IMM FRA trades on behalf of the first trader so as to offset most of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position.
11. The method of claim 1 , wherein the computer system selects and executes a plurality of IMM FRA trades on behalf of the first trader so as to offset all of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position.
12. A method for electronically trading forward rate agreements (FRAs) using a computer system comprising at least one computer, the computer system being programmed to carry out the method and storing respective books of FRA positions for at least one tenor for each of a plurality of traders, the method comprising:
a first one of the traders submitting information concerning its respective book of FRA positions for at least one tenor, the first trader's book having a respective initial net position for each tenor of the first trader's book;
storing the first trader's respective book of FRA positions in said computer system;
the computer system executing one or more unilateral FRA trades between the first trader and one or more of the other traders so that the net position of the first trader's book, for at least one tenor, is changed; and
the computer system subsequently selecting and executing a plurality of International Money Market (IMM) FRA trades on behalf of the first trader, the computer system making the selection as a function of the previously executed unilateral FRA trades and so as to offset at least some of the unilateral FRA trades thereby returning the first trader's net position, for at least one tenor, back to or at least closer to its initial net position.
13. The method of claim 12 , wherein the computer system stores information concerning limitations under which one or more of the traders are willing to execute a trade and wherein the computer system uses the stored information to determine which unilateral trades to execute.
14. The method of claim 13 , wherein at least one of the limitations is the amount of credit the first trader grants to other traders and/or the amount of credit other traders grant to the first trader.
15. The method of claim 12 , wherein the computer system selects, for each unilateral FRA trade, the quantity of two or more IMM FRA trades required to offset the FRA trade and executes the required IMM FRA trades as a function of such selection.
16. The method of claim 15 , wherein the amount of IMM FRA trades required to offset each respective unilateral FRA trade is selected as a function of the date overlap between the contract dates of the respective unilateral FRA trade and the respective contract dates of the corresponding two or more IMM FRA trades required to offset the respective FRA trade.
17. The method of claim 16 , wherein at least one of the IMM FRA trades is used to at least partially offset two or more of the unilateral FRA trades.
18. The method of claim 12 , wherein at least one of the IMM FRA trades is used to at least partially offset two or more of the unilateral FRA trades.
19. The method of claim 12 , wherein the computer system executes one or more unilateral FRA trades for each of two or more tenors of the first trader's book.
20. The method of claim 12 , wherein the computer system executes one or more unilateral FRA trades for all tenors of the first trader's book.
21. The method of claim 12 , wherein the computer system selects and executes a plurality of IMM FRA trades on behalf of the first trader so as to offset most of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position.
22. The method of claim 12 , wherein the computer system selects and executes the plurality of IMM FRA trades on behalf of the first trader so as to offset all of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position.
23. A method for electronically trading forward rate agreements (FRAs) and for generating a report showing trades made, the method being carried out by a computer system comprising at least one computer, the computer system being programmed to carry out the method and storing respective books of FRA positions for at least one tenor for each of a plurality of traders, the book of a first one of the traders having a respective initial net position for each tenor of the first trader's book, the method comprising:
the computer system executing one or more unilateral FRA trades between the first trader and one or more of the other traders so that the net position of the first trader's book, for at least one tenor, is changed; and
the computer system subsequently selecting and executing a plurality of International Money Market (IMM) FRA trades on behalf of the first trader, the computer system making the selection as a function of the previously executed unilateral FRA trades and so as to offset at least some of the unilateral FRA trades thereby returning the first trader's net position, for at least one tenor, back to or at least closer to its initial net position; and
the computer system generating a report showing the trades made on behalf of the first trader.
24. The method of claim 23 , wherein the computer system stores information concerning limitations under which one or more of the traders are willing to execute a trade and wherein the computer system uses the stored information to select which unilateral trades to execute.
25. The method of claim 24 , wherein at least one of the limitations is the amount of credit the first trader grants to other traders and/or the amount of credit other traders grant to the first trader.
26. The method of claim 23 , wherein the computer system selects, for each unilateral FRA trade, the quantity of two or more IMM FRA's required to offset the FRA trade and executes the required IMM FRA trades as a function of such selection.
27. The method of claim 26 , wherein the amount of IMM FRA trades required to offset each respective unilateral FRA trade is selected as a function of the date overlap between the contract dates of the respective unilateral FRA trade and the respective contract dates of the corresponding two or more IMM FRA trades required to offset the respective FRA trade.
28. The method of claim 26 , wherein at least one of the IMM FRA trades is used to at least partially offset two or more of the unilateral FRA trades.
29. The method of claim 23 , wherein at least one of the IMM FRA trades is used to at least partially offset two or more of the unilateral FRA trades.
30. The method of claim 23 , wherein the computer system executes one or more unilateral FRA trades for each of two or more tenors of the first trader's book.
31. The method of claim 23 , wherein the computer system executes one or more unilateral FRA trades for all tenors of the first trader's book.
32. The method of claim 23 , wherein the computer system selects and executes a plurality of IMM FRA trades on behalf of the first trader so as to offset most of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position.
33. The method of claim 23 , wherein the computer system selects and executes a plurality of IMM FRA trades on behalf of the first trader so as to offset all of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position.
34. The method of claim 23 , further comprising the step of sending the report to the first trader.
35. A method for electronically trading forward rate agreements (FRAs) and for generating a report showing trades made, the method being carried out by a computer system comprising at least one computer, the computer system being programmed to carry out the method and storing respective books of FRA positions for at least one tenor for each of a plurality of traders, the method comprising:
a first one of the traders submitting information concerning its respective book of FRA positions for at least one tenor, the first trader's book having a respective initial net position for each tenor of the first trader's book;
storing the first trader's respective book of FRA positions in said computer system;
the computer system executing one or more unilateral FRA trades between the first trader and one or more of the other traders so that the net position of the first trader's book, for at least one tenor, is changed; and
the computer system subsequently selecting and executing a plurality of International Money Market (IMM) FRA trades on behalf of the first trader, the computer system making the selection as a function of the previously executed unilateral FRA trades and so as to offset at least some of the unilateral FRA trades thereby returning the first trader's net position, for at least one tenor, back to or at least closer to its initial net position; and
the computer system generating a report showing the trades made on behalf of the first trader.
36. The method of claim 35 , wherein the computer system stores information concerning limitations under which one or more of the traders are willing to execute a trade and wherein the computer system uses the stored information to select which unilateral trades to execute.
37. The method of claim 36 , wherein at least one of the limitations is the amount of credit the first trader grants to other traders and/or the amount of credit other traders grant to the first trader.
38. The method of claim 37 , wherein the computer system selects, for each unilateral FRA trade, the quantity of two or more IMM FRA's required to offset the FRA trade and executes the required IMM FRA trades as a function of such selection.
39. The method of claim 38 , wherein the amount of IMM FRA trades required to offset each respective unilateral FRA trade is selected as a function of the date overlap between the contract dates of the respective unilateral FRA trade and the respective contract dates of the corresponding two or more IMM FRA trades required to offset the respective FRA trade.
40. The method of claim 38 , wherein at least one of the IMM FRA trades is used to at least partially offset two or more of the unilateral FRA trades.
41. The method of claim 35 , wherein at least one of the IMM FRA trades is used to at least partially offset two or more of the unilateral FRA trades.
42. The method of claim 35 , wherein the computer system executes one or more unilateral FRA trades for each of two or more tenors of the first trader's book.
43. The method of claim 35 , wherein the computer system executes one or more unilateral FRA trades for all tenors of the first trader's book.
44. The method of claim 35 , wherein the computer system selects and executes a plurality of IMM FRA trades on behalf of the first trader so as to offset most of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position.
45. The method of claim 35 , wherein the computer system selects and executes a plurality of IMM FRA trades on behalf of the first trader so as to offset all of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position.
46. The method of claim 35 , further comprising the step of sending the report to the first trader.
47. The method of claim 1 , wherein the computer system both selects and executes the one or more unilateral FRA trades.
48. The method of claim 12 , wherein the computer system both selects and executes the one or more unilateral FRA trades.
49. The method of claim 23 , wherein the computer system both selects and executes the one or more unilateral FRA trades.
50. The method of claim 35 , wherein the computer system both selects and executes the one or more unilateral FRA trades.