Chicago Mercantile Exchange Inc.

Dale Michaels

Dmitriy Glinberg

Edward M Gogol

Tae S Yoo

Jodi L Abudarham

Ketan Patel

Muhammed Hadi

Suneel Iyer

Amy Stephen

Sunil Kiran Cutinho

Keith Anguish

Jodi L Aburdarham

Dmitry Glinberg

A system and method for using asymmetrical offsets for products in a risk management analysis system are disclosed. Conventional systems assign symmetrical offsets for products, that is, if two products have an 80% correlation they each would be assigned an offset of 80% with respect to each other. However, it is desirable to allow for asymmetrical offsets. In the disclosed system and method, when two products have a correlation of 80%, one may be assigned an offset of 75% and the other may be assigned an offset of 80%. There are many reasons to vary the offset between the products. The varying offset may reflect an asymmetry in the risk in one of the products, such as being traded in an illiquid market or in a less desirable venue. The varying offset may correct for an imbalance in spread credits due to special charges from intra spreading.

System and method for asymmetric offsets in a risk management system

Systems and methods are disclosed for processing binary options (also referred to as digital options) in existing clearing systems, such as futures clearing systems. The binary option is treated, or processed, similar to standard options on a non-tradeable cash-settled underlying futures contract. A hypothetical instrument, referred to as a book instrument is created to facilitate clearing of the binary option. The book instrument has an expiration date after the expiration of the binary option, such as the day after the expiration of the binary option. For each binary option that expires in the money, a transaction is created for the book instrument future. The underlying book future has an assigned price that is a fixed amount less that the final price for the underlying statistical or actual value of the binary option at expiration. Transactions are loaded in the clearing system and processed and all positions are liquidated.

Processing binary options in future exchange clearing

A graphic user interface is disclosed that combines a traditional trading, bookkeeping system or clearing system window with a detailed margin and/or collateral asset calculation analysis window on a single screen. The disclosed GUI provides the flexibility to analyze any combination of products or instrument classes such as single stock futures, futures (of all types), options (of all types), forward contracts, security options, securities and cash-based assets. Conventional systems merely block entry of orders beyond a predetermined credit limit or display clearing/bookkeeping information on all types of portfolio or accounts. The disclosed GUI, in an automated real-time or manual execution control basis, provide the user useful information (all types of numerical and/or graphical display) concerning which products contribute to and how much each product position contribute to the margin limits on, for example, multiple levels; all types of product level, product period (duration) level, account level and clearing level, etc. In one embodiment, the margin window may include a 'what if' Scenario Panel and an 'Actuals' Margin Analysis Panel. This Scenario Panel allows the user to experiment with &#x201c;what-if&#x201d; scenarios in real time or on an as-needed basis. This allows the user to better assess the changes an &#x201c;actual&#x201d; position(s) or &#x201c;what-if&#x201d; position(s) may have on the margin requirements on all account level types. Further, the actual panel displays the account's actual positions and the associated contributions each position has to that account's margin requirements.

System and method for displaying a combined trading and risk management GUI display

A system and method is disclosed for determining performance bonds for fixed payoff products, i.e. contracts which payoff a fixed amount based on the outcome of an underlying event regardless of the value thereof. The worst outcome of the overall portfolio, which may contain more multiple instruments, is calculated, allowing the portfolio to have both long and short positions on the same underlying event and offsets among instruments within the portfolio. A universe of outcomes is constructed including single events with single outcomes, and the probability thereof, and single events with multiple outcomes, each with a probability thereof. Each outcome has an associated price and probability. Low probability events will have low values, resulting in a lower margin requirement. The margin requirement is then the amount of the maximum loss that the portfolio can sustain for any possible outcome of the underlying event, adjusted for the probability thereof.

System and method of margining fixed payoff products

A method of liquidating defaulted positions associated with centrally cleared financial product is disclosed. The method includes identifying a defaulted position associated with a centrally cleared financial product, calculating a value differential between the defaulted position and a standard position, offering the value differential and the standard position to a party such that the value differential and the standard position represent a converted position, and settling the converted position upon acceptance of the offer by the party.

Conversion and liquidation of defaulted positions

A system and method for factoring in a trader's trading activity into the margin requirements is disclosed. In the securities arena, day traders are assessed different margins than non-day-traders, however, the specific profile of the trader is analyzed (that is, the same rule applies to all day traders).

System and method for activity based margining

A system and method for risk analysis of a portfolio of derivative products is disclosed which is conducted based on a set of flexible rules. The system and method allow creating predefined sets of products for the purpose of future risk offsets. If a futures trade as a subset of that set of products that met a threshold level, then the subset is assigned the offset value (or a pro rata or other portion of the offset value) of the predefined set. For example, assume that the predefined set consists of one S&P 500 futures, one NASDAQ futures, one S&P Midcap 400 futures and one Russell 1000 futures and the threshold is three. If the futures trader holds any three of those four futures, the three futures can be grouped, assigned an offset value, and this group can be used as one asset for purpose of further risk offsets.

System and method for flexible spread participation

A computer-implemented method for analyzing a risk offset associated with a portfolio including a plurality of products traded on an exchange is disclosed. The method includes comparing a first market response of a first product in the portfolio with a second market response of a second product in the portfolio where the first and second market responses result from a change in market data, calculating an offsetting effect between the first market response and the second market response where the first and second market responses are substantially different responses to the same change in the market data, determining a diversification spread based on the offsetting effect derived between the first product and the second product, calculating a diversification spread credit based on the determined diversification spread, and adjusting a margin requirement for the portfolio based on the diversification spread credit.

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Westmont, IL, United States of America

Dale Michaels