Coupon blending compression

The system of claim 28, wherein the non-transitory memory device stores instructions that, when executed by a processor, cause the one or more computing devices to: The system of claim 28 wherein the non-transitory memory device stores instructions that, when executed by a processor, cause the one or more computing devices to: The method of claim 32, wherein determining the fixed rate for use in blending the plurality of swaps further comprises: The method of claim 32, further comprising determining an adjustment trade associated with the blended swap, the adjustment amount for use in compensating for a difference between a notional amount of the blended swap and a total notional amount associated to the plurality of trades.

The method of claim 34, wherein the adjustment trade comprises a cash payment. The entire disclosure of the application is hereby incorporated by reference. After an exchange of an OTC product, counterparties may expend resources managing the product for the duration of its life. Each stream may be referred to as a leg. Swaps are often used to hedge certain risks, for instance, interest rate risk. They can also be used for speculative purposes. The vanilla swap includes an exchange of interest streams where one stream is based on a floating rate and the other interest stream is based on a fixed rate.

In a vanilla swap, one party makes periodic interest payments to the other based on a fixed interest rate. In return for the stream of payments based on the fixed rate, the party may receive periodic interest payments based on a variable rate. The payments are calculated over the notional amount.

This rate is called variable, because it is reset at the beginning of each interest calculation period to the then current reference rate, such as LIBOR published rate. The parties to an IRS swap generally utilize these exchanges to limit, or manage, exposure to fluctuations in interest rates, or to obtain lower interest rates than would otherwise be unobtainable. The variable rate may be based on any agreed upon factors such as a reference rate, the total return of a swap, an economic statistic, etc.

Other examples of swaps include total return swaps, and Equity Swaps. Each party may have a book of existing and new IRSs having a variety of maturity dates. In addition, for each IRS, the party maintains an element of risk that one of its counterparties will default on a payment. Steams of future payments must be valued to determine a current market price. The market value of a swap is the sum of the difference between the present value of the future fixed cash flows and the floating rate and the price of the swap is determined based on the fixed rate.

Because the fixed rate of a particular swap is determined based on the available fixed rate at the time the price is struck, the fixed rates associated with two different swaps will rarely be the same. As such, each swap that is struck causes a separate line item to be booked until an opposite swap with the same fixed rate is struck. Each of the swaps may have matching economics and a different associated fixed rate. The method may further include determining, by one or more computing devices, a first remnant swap using the first fixed rate and determining a second remnant swap using a second fixed rate, wherein the second fixed rate is different than the first fixed rate.

Each of the plurality of swaps may have matching economics and a different associated fixed rate. The instructions may further cause the one or more computing devices to determine a first remnant swap using the first blend rate and to determine a second remnant swap using the second blend rate to blend the plurality of swaps. The computing devices may include a processor and one or more non-transitory memory devices storing instructions that, when executed by the processor, cause the one or more computing devices to determine a first blend rate and a second blend rate for use in blending a plurality of swaps.

The instructions may further cause the one or more computing devices to determine a first remnant swap using the first blend rate and determine a second remnant swap using the second blend rate to blend the plurality of swaps together with first remnant swap. The one or more computing devices may then communicate, via the network, information corresponding to the first remnant swap and the second remnant swap to an institution associated with the plurality of swaps.

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Other features and advantages of the invention will be apparent from the description and drawings. For example, an organization may have multiple positions in fixed rate mortgages, while having less exposure to products associated with a floating rate. At such times, the organization may desire to enter into one or more swaps with another party to hedge risks that may be associated with having a majority of fixed rate products. For example, when interest rates fall, the organization may make money by having a majority of fixed rate products in a portfolio.

However, when the market goes up e. Generally, an available fixed rate dictates the price of a swap, where the fixed rate available at the market changes over time. For example, a dealer may quote a swap at a first rate at a time 0. A short time later e. Once the swaps are entered, the fixed rate will remain fixed for the lifetime of the swap.

Over time, a swap purchaser e. Few, if any, swaps may have the same interest rate resulting in a large number of swaps to remain open on the organization's books. For example, a customer may have a first swap for paying a set amount e. Although these swaps are associated with the same notional amount, the interest rates are likely to be different. As such, these swaps will not net out. These swaps may further be subject to regulatory requirements, such as governmental requirements, international banking requirements e. These regulatory requirements may, in turn, subject the organization to capital charges e.

Under the regulatory requirements, the financial institution is required to set aside capital e.


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For example, a pay swap having an associated first notional amount of may be offset by a second notional amount associated with a receive swap when the pay and receive swaps have the same interest rate. However this is rare. For example, a swap participant may use an investment strategy for achieving the same fixed rate for two or more different swaps. In such cases, the customer may specify a desired rate for a swap when contacting a dealer. While the dealer may be able to find a counter-party willing enter into a swap at that rate, the swap may incur a fee to equalize the economics of the swap.

For example, at the desired fixed rate, the economics of the swap may favor the paying party or the receiving party. By equalizing these differences, the swap may then be structured to allow the total value of the fixed rate leg to be equal to the floating rate leg of the swap. In general, when the interest rates are determined for the swaps, the precision may be specified by one or more parties to the swap. In some cases, the precision of the rates may be limited to a defined precision common to the market, such as about 2 decimal places, about 5 decimal places, up to 7 decimal places. In other cases, the rate precision may be specified to be a precision greater than 7 decimal places, such as 11 decimal places, up to 16 decimal places, etc.

For example, the clearing house may, on a periodic e. In such cases, the swap may be entered on a common platform, but the trade execution was completed by phone. Because swaps may not be fully transparent, governmental regulations have required that swaps be executed via a Swap Execution Facility SEF. Over time more and more types of swaps may be executed via a SEF, such as interest rate swaps. Because the SEF may operate using a more automated swap market mechanism, the likelihood that a customer may enter into different swaps, where each share a same interest rate will become increasingly rare.

A SEF may execute many swaps with multiple coupons at a centralized location. In some cases, different swaps may share the same, or similar, economics to another swap. However, the coupons are likely to differ due to the swaps executing at different times.

As such a client may quickly build a book e.

Exemplary Operating Environment [] Aspects of at least some embodiments can be implemented with computer systems and computer networks that allow users to communicate trading information. An exemplary trading network environment for implementing trading systems and methods according to at least some embodiments is shown in FIG. The implemented trading systems and methods can include systems and methods, such as are described herein, that facilitate trading and other activities associated with financial products based on currency pairs. Financial products of the exchange may include, without limitation, futures contracts, options on futures contracts "futures contract options" , and other types of derivative contracts.

Exchange computer system may be implemented with one or more mainframe, desktop or other computers. In one embodiment, a computer device uses one or more bit processors. A user database includes information identifying traders and other users of exchange computer system Data may include user names and passwords.

Compression via Coupon Blending - CME Group

An account data module may process account information that may be used during trades. A match engine module is included to match prices and other parameters of bid and offer orders. Match engine module may be implemented with software that executes one or more algorithms for matching bids and offers. In particular, a trade database may store information identifying the time that a trade took place and the contract price. A market data module may be included to collect market data, e.

Module may also prepare the collected market data for transmission to users. A risk management module may be included to compute and determine a user's risk utilization in relation to the user's defined risk thresholds. An order processor module may be included to decompose delta based and bulk order types for further processing by order book module and match engine module Clearinghouse module may facilitate the financial product exchange acting as one of the parties to every traded contract or other product. For example, computer system may match an offer by party A to sell a financial product with a bid by party B to purchase a like financial product.

Module may then create a financial product between party A and the exchange and an offsetting second financial product between the exchange and party B. As discussed in further detail below, module may determine values for performance bonds associated with trading in products based on various types of currency pairs. Exchange computer system and computer device may be connected via a T1 line, a common local area network LAN or other mechanism for connecting computer devices.

Computer device is shown connected to a radio The user of radio may be a trader or exchange employee. The radio user may transmit orders or other information to a user of computer device The user of computer device may then transmit the trade or other information to exchange computer system LAN may implement one or more of the well-known LAN topologies and may use a variety of different protocols, such as Ethernet. Computers and may communicate with each other and other computers and devices connected to LAN Computers and other devices may be connected to LAN via twisted pair wires, coaxial cable, fiber optics, radio links or other media.

PDA may also communicate with exchange computer system via a conventional wireless hub As used herein, a PDA includes mobile telephones and other wireless devices that communicate with a network via radio waves. Computer device is shown connected directly to the Internet Capital pressures have driven more clients to leverage the benefits of CME Group's Compression via Coupon Blending solution - reducing both the number of outstanding trades and the amount of gross notional in their portfolios.

Read Overview Presentation.

Portfolio compression takes the spotlight

CME Group is the world's leading and most diverse derivatives marketplace. Toll Free US Only: Trading All Products Home. Active Trader Daily market data and insight for the Individual Active Trader Cryptocurrency Bitcoin futures and other cryptocurrency products are now available. Read more. Delayed Quotes Block Trades. Learn Practice Trading Follow the Markets. Trading Challenge Event Calendar Podcasts. All Education Materials. Alternative Investment Resources. Regional Sites. Compression via Coupon Blending.

This increases the pool of trades available for termination. Second, by including the ability to set risk-based constraints that limit changes in risk profile, trades can be compressed that have similar but not identical payment dates. Without the constraint of perfectly matched cashflows and payment dates for each participating entity, a multilateral risk constrained exercise results in significantly increased compression efficiency. Third, each participant can terminate its trades at its own midmarket valuation rather than having to agree the valuation of each compressed trade with the counterparty.

Multilateral compression cycles run according to a schedule. Currently TriOptima offers at least two cycles in various products and locations a week and modifies or adds to the schedule as requested by its clients. While the notionals compressed in the cleared environment are substantial, eliminating notionals in uncleared interest rate swap currencies also contributes to achieving Basel III leverage ratios and reduces capital charges, credit risk and country risk.


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  4. The same is true for commodity transactions and for uncleared credit default single name and index swaps. The increase in opportunities to reduce notional by any of the methods now offered to both sellside and buyside market participants is a positive development. Always working closely with clients to introduce new services that meet their evolving needs, in TriOptima inaugurated compression in precious metals and cross currency swaps, as well as an on-demand bespoke compression service with a new focus on compressing buyside cleared trades.

    In , inflation swaps and FX forwards compression as well as additional CCP relationships are planned in a bid to continue to reduce notionals and line items; and enhance best practice risk management. Susan Hinko. Provide a reasonable and valid explanation that a portfolio compression exercise is not appropriate As sellside institutions look to gain the capital, credit and leverage ratio benefits of compression, buyside firms are examining the new regulatory and operational environment and their own opportunities to reduce their portfolios. The Clearing House Effect Mandated clearing has dramatically impacted the OTC derivatives market in general and has opened up new portfolio compression possibilities.

    Understanding the Compression Landscape Compression is now shorthand for many new initiatives that seek to reduce notionals concurrent with execution on a SEF or after execution, in the clearinghouse. Execution driven, cleared compaction , Post-trade bilaterally uncleared, Post-trade in a clearinghouse netting, coupon blending, multilateral risk-constrained compression , or Post-trade uncleared multilateral risk-constrained compression.

    Bilateral Negotiated Compression: