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 computerised method of reducing risk in derivative trades, comprising the steps of:
identifying positions to be matched;
unilaterally performing a set of first offset trades to match the identified positions; and
performing a series of hedge trades on the unilateral offset trades by performing at least two corresponding trades having a fixed settlement date in a FRA market.
2 . A computerised method according to claim 1 , wherein the offset trades are forward rate agreement (FRA) trades.
3 . A computerised method according to claim 2 , wherein the FRA trade is an offset match to a corresponding position entered by a trader.
4 . A computerised method according to claim 1 , wherein the hedge trades are IMM FRA trades.
5 . A computerised method according to claim 4 , wherein the series of IMM FRA trades comprises two IMM FRA trades each trade having a different settlement date.
6 . A computerised method according to claim 4 , wherein the series of IMM trades is calculated with reference to the date of the position to be hedged and the expiry date of IMM contracts, wherein two IMM contracts are traded in a ratio determined by the number of days between the expiry date of the position to be hedged and adjacent IMM settlements dates
7 . A computerised method according to claim 1 , wherein the positions to be hedged result from mismatches in trades in reset markets.
8 . A computerised method according claim 7 , wherein the positions to be hedged result from trades in interest rate swap markets.
9 . A computerised method for reset matching, comprising: receiving from traders, positions to be matched;
matching the positions at a match time by unilaterally performing an offset sale or purchase of a FRA corresponding to each position; and
hedging the unilateral offset FRA trades by performing a series of two or more IMM FRA trades.
10 . A computerised method according to claim 9 comprising notifying traders of the unilateral matches and the IMM trades.
11 . A computer readable storage medium having instructions stored thereon which, when run on a computer, cause the computer to perform the steps of:
receiving from a trader positions to be matched;
unilaterally performing a set of offset trades to match the received positions; and
performing a series of hedge trades on the unilateral offset trades by performing two or more corresponding trades having a fixed settlement date in a FRA market.
12 . A computer readable storage medium according to claim 11 , wherein the offset trades are forward rate agreement (FRA) trades.
13 . A computer readable storage medium according to claim 12 , wherein the FRA trades are offset matches to corresponding positions entered by a trader.
14 . A computer readable storage medium according to claim 11 , wherein the hedge trade comprises at least two IMM FRA trades.
15 . A computer readable storage medium according to claim 14 , wherein the at least two IMM FRA trades each have a different settlement date.
16 . A computer readable storage medium according to claim 14 , wherein the series of IMM trades is calculated with reference to the date of the position to be hedged and the expiry date of IMM contracts, wherein two IMM contracts are traded in a ratio determined by the number of days between the expiry date of the position to be hedged and adjacent IMM settlements dates
17 . A computer readable storage medium according to claim 11 , wherein the positions to be hedged result from mismatches in trades in reset markets.
18 . A computer readable storage medium according to claim 17 , wherein the positions to be hedged result from mismatches in interest rate swap trades.