Systems and methods for moving amount compressor

Abstract

An example method includes receiving fixed or fixated cash flows derived from derivative financial instruments. The method includes determining, based on a shared set of date-related attributes, a grouping of the cash flows so that cash flows within a group are synchronized to have substantially uniform date and accrual period adjustments in response to a change in the shared attributes. The method includes generating, for a group, a compression constraint set comprising an amount constraint so that a sum of cash flow amounts are substantially zero, and a Theta constraint so that a sum of Theta values are within a threshold of zero. The method includes determining, for the group, a portfolio compression to optimally reduce gross notional for the cash flows subject to the compression constraint set. The method includes executing a compression transaction that replaces the derivative financial instruments with a smaller collection of economically equivalent contracts.

Description

Atty. Docket: 24-1717-WOSYSTEMS AND METHODS FOR MOVING AMOUNT COMPRESSORCROSS REFERENCE TO RELATED APPLICATIONS

[0001] This application claims the benefit of, and priority to, U.S. Provisional Patent Application No. 63 / 715,764 filed November 04, 2024, the contents of which are expressly incorporated herein by reference in their entirety for any and all non-limiting purposes.BACKGROUND

[0002] This application generally relates to efficient and safe management of risk data in high- volume trading environments. Central Clearing Houses (CCPs) maintain a net-zero risk position for cleared derivatives portfolios, which portfolio compression services seek to achieve by replacing large volumes of redundant contracts with a smaller, economically equivalent set.SUMMARY

[0003] With an increasing reliance on electronic communication and record keeping, available computing resources remain at a premium. For example, as electronic communications increase, so have memory usage and computing processing power requirements. Often, enterprise organizations may desire to increase computing resources to account for the increases in computing power and memory use but are also needed to maintain existing or aging hardware and software resources. Further, as data processing requirements increase, available and / or existing computing resources on a computing network (e.g., memory and / or other data storage technologies), may be depleted. As such, costs to purchase, upgrade, and / or repair of the hardware and software infrastructure components may also continue to increase.

[0004] The data created, stored, and / or processed by computerized resources of the enterprise network may be communicated between computing systems for processing. These communication requirements may likewise be increasing and may result in reduced communications capability, as communication bandwidth on the enterprise organization's network may be a finite and limited resource. As such communications requirements resulting from additional data use may also consume additional resources that may need to be added to the system.

[0005] The date and / or day for a holiday may typically vary from one calendar year to the next. Such year to year changes may have an impact on portfolios, especially in the context of Interest Rate Swaps (IRS). For purposes of this application, the term “Interest Rate SwapAtty. Docket: 24-1717-WO(IRS)” generally refers to a financial derivative contract where two parties agree to exchange interest rate cash flows based on a specified notional amount. For example, a "vanilla" IRS may be one where one party pays a fixed interest rate, and the other pays a floating rate.

[0006] Generally, a holiday calendar event may impact the cash flow dates (e.g., cash flow end dates, cash flow pay dates, etc.) in an IRS. The term “holiday calendar event” may generally refer to a holiday being moved, added, and / or removed. A business day convention plays a significant role in determining the impact of holiday calendar changes on cash flow dates. Different conventions have different rules for adjusting dates, leading to variations in how the cash flows are affected. For example, a Following convention will likely move the date forward to the next business day, while a Modified Following convention may move the date backward if it falls on a month-end. Accordingly, holiday calendar changes may impact both cash flow end dates (e.g., by affecting the accrual period) and cash flow pay dates (e.g., by triggering adjustments based on the business day convention). Also, for example, real events such as natural disasters or significant sporting events may cause disruptions. For example, holidays shifts have occurred due to typhoon closures in Singapore, and the Olympic Games in Japan.

[0007] In the context of an IRS, different day count conventions may result in variations in a calculated interest, even for the same interest rate and notional amount. Also, for example, changes in holiday calendars may interact with the day count method to further influence the interest calculations. A Central Clearing Platform or House (CCP) plays a highly significant role in mitigating counterparty risk in financial markets. To fulfill this function effectively, the CCP has to generally maintain a position of neutrality in terms of market risk. This means that the CCP may be largely flat in amounts, both on a current date, and in future payment dates, regardless of potential market fluctuations or calendar changes.

[0008] Accordingly, there may be a need for a comprehensive approach to enable portfolio compression of fixed or fixated cash flows from different indices and accrual periods, while ensuring CCP market neutrality amidst holiday calendar changes. The term “portfolio compression” as used herein, generally refers to a reduction in a size and / or complexity of a derivatives portfolio held by a financial institution.

[0009] Generally, portfolio compression may be achieved by identifying and terminating offsetting trades, resulting in a smaller number of contracts with the same overall risk profile. Such an approach has several advantages, including, for example, reduced counterparty credit risk, lower operational costs, improved capital efficiency, and / or regulatory compliance. As described herein, sophisticated algorithms may be used to identify potential compressionAtty. Docket: 24-1717-WO opportunities across multiple asset classes and currencies. Also, for example, a secure and efficient platform for executing the terminations and novation may be provided.

[0010] When compressing trades against a CCP, more may be needed to achieve flatness in amounts on the initial payment dates. It may be preferable for such flatness to be preserved even when calendar events (e.g., holidays) shift payment dates and / or when floating rate indices move, potentially altering the amounts due on future dates. This may involve a high degree of precision and foresight in the compression process. Any remaining mismatches in future cash flows, subsequent to initial netting, could expose the CCP to unwanted market risk. Therefore, robust methodologies and tools may be needed to mitigate such risks by ensuring that the compressed portfolio remains flat in different scenarios, safeguarding the CCP's neutrality and its ability to manage counterparty risk effectively.

[0011] There are several advantages of the proposed techniques. For example, by reducing and / or eliminating redundant transactions without changing net positions, both clients and CCPs may significantly reduce the amount of data that may be stored and processed. This translates to lower storage costs and reduced computational power needed for risk calculations and initial margin computations. Gross notional may be a significant determinant of capital charges for clients. Accordingly, reducing redundant transactions directly lowers such capital charges, freeing up capital for other purposes. The enhanced efficiency and effectiveness of the proposed compression methods may lead to increased revenue for CCPs and clients through multilateral compression and Coupon Blending services.

[0012] The techniques described herein may not be performed in the human mind. Also, the techniques, including for example, the secure and efficient platform for executing the terminations and novations, are a significant improvement in the technical field of electronic trading platforms. For example, memory consumption may be significantly reduced using multilateral compression, risk-free netting, coupon blending, and / or other compression techniques.

[0013] Although various embodiments are described in the context of IRS, the techniques described herein may be applicable to any derivative financial instrument that has a cash flow that may be fixed or fixated, and where the fixed cash flow may be sensitive to calendar shifts. For example, the solutions described herein isolate the calendar risk (Theta) to manage the compression process. An eligible financial instrument may be one that generates a stream of cash flows where the amount of the future payment may be known and fixed at the time of compression. This may include a payment obligation defined by a constant rate, such as, for example, a fixed leg of an IRS or a Fixed-Rate Bond coupon, or a payment where a variableAtty. Docket: 24-1717-WO component has already been priced and locked in, such as, for example, a fixated floating leg of an IRS. Also, for example, an eligible financial instrument may be one where the calculated cash flow amount may be determined by a formula that incorporates an accrual period length (e.g., number of days between the start and end of the period), a day count convention (e.g., a rule such as Actual / 365 (Act / 365), 30 / 360, etc. that determines the year fraction based on the accrual period), and a business day convention such as Modified Following that may shift the end date if it falls on a non-business day.

[0014] Some applicable asset classes may include fixed-rate bonds or coupons. For example, the coupon payments on many bonds are calculated using similar day count conventions (e.g., 30 / 360 or Act / Act) and payment dates are subject to business day conventions. While bond futures and cash bonds are generally less subject to compression services than swaps, the individual fixed coupon payments themselves satisfy the technical requirements.

[0015] As another example, credit default swaps (CDS) contracts have fixed-rate payments, also referred to as premiums, that are typically calculated using fixed day count conventions and are subject to holiday calendars. Once the premium leg may be deemed fixed or has an established payment date, the Theta risk management applies. Also, for example, some foreign exchange (FX) forwards or swaps involve predetermined, fixed cash flows and rely on specific settlement conventions that may also incorporate a date sensitivity criterion.

[0016] Although various embodiments are described with reference to a CCP, the techniques are applicable to any digital central clearing platform that guarantees the settlement of financial transactions and manages counterparty risk. Such a platform may be defined by an ability to process, store, and execute algorithmic functions on digital representations of financial instruments (such as digital cash flows and risk profiles), and that may be optimized to perform risk-sensitive operations, such as portfolio compression, while maintaining regulatory constraints like market neutrality. A digital central clearing platform generally utilizes computer processors, memory, and specialized algorithms to perform complex financial calculations such as risk modeling, margin calculations, and advanced Theta constraint optimizations as described herein. The digital central clearing platform may be configured to connect multiple market participants (e.g., clients, banks) and vendors, facilitating the secure, high-speed electronic transfer and recording of large volumes of transaction data (e.g., the risk profile). The digital central clearing platform may be configured to operate as the financial guarantor, interposing itself between buyers and sellers to mitigate default risk, with a core mandate to maintain risk neutrality across cleared instruments.Atty. Docket: 24-1717-WO

[0017] The techniques described herein may also be applicable for an internal portfolio of a client, such as with trades between two books or units within a bank, so that the client may compress their trades using these techniques, and obtain a new representation between them, without changing the resulting positions. This may allow for compression of internal trades which a bank could change without any external changes or interactions.

[0018] In a first aspect, a computer-implemented method for improving memory consumption by a digital central clearing platform during multilateral portfolio compression is provided. The method includes receiving, by a computer processor and from a plurality of clients, a plurality of fixed or fixated digital cash flows derived from an initial collection of derivative financial instruments. The method also includes determining, by the computer processor and based on a shared set of date-related attributes, a grouping of the plurality of fixed or fixated digital cash flows into one or more groups, wherein the grouping is configured so that digital cash flows within a group are synchronized to comprise substantially uniform date and accrual period adjustments in response to a change in the shared attributes. The method further includes generating, by the computer processor and for a group of the one or more groups, a compression constraint set comprising: (a) an amount constraint configured so that a first sum of cash flow amounts within the group are substantially zero, and (b) a Theta constraint configured so that a second sum of Theta values for the cash flows within the group are within a threshold of zero. The method also includes determining, by the computer processor and for the group of the one or more groups, an optimized portfolio compression configured to optimally reduce gross notional for the digital cash flows subject to the compression constraint set. The method further includes executing, by the computer processor and based on the optimized portfolio compression, a compression transaction that replaces the initial collection of derivative financial instruments with a smaller collection of economically equivalent contracts, resulting in improved memory consumption by the digital central clearing platform while maintaining risk neutrality.

[0019] In a second aspect, a computing for improving memory consumption by a digital central clearing platform during multilateral portfolio compression is provided. The computing device includes one or more processors, and data storage, wherein the data storage has stored thereon computer-executable instructions that, when executed by the one or more processors, cause the computing device to perform operations. The operations include receiving, by a computer processor and from a plurality of clients, a plurality of fixed or fixated digital cash flows derived from an initial collection of derivative financial instruments. The operations further include determining, by the computer processor and based on a shared set of date-relatedAtty. Docket: 24-1717-WO attributes, a grouping of the plurality of fixed or fixated digital cash flows into one or more groups, wherein the grouping is configured so that digital cash flows within a group are synchronized to comprise substantially uniform date and accrual period adjustments in response to a change in the shared attributes. The operations also include generating, by the computer processor and for a group of the one or more groups, a compression constraint set comprising: (a) an amount constraint configured so that a first sum of cash flow amounts within the group are substantially zero, and (b) a Theta constraint configured so that a second sum of Theta values for the cash flows within the group are within a threshold of zero. The operations further include determining, by the computer processor and for the group of the one or more groups, an optimized portfolio compression configured to optimally reduce gross notional for the digital cash flows subject to the compression constraint set. The operations additionally include executing, by the computer processor and based on the optimized portfolio compression, a compression transaction that replaces the initial collection of derivative financial instruments with a smaller collection of economically equivalent contracts, resulting in improved memory consumption by the digital central clearing platform while maintaining risk neutrality.

[0020] In a third aspect, a computer program for improving memory consumption by a digital central clearing platform during multilateral portfolio compression is provided. The computer program comprises instructions that, when executed by a computer, cause the computer to perform operations. The operations include receiving, by a computer processor and from a plurality of clients, a plurality of fixed or fixated digital cash flows derived from an initial collection of derivative financial instruments. The operations further include determining, by the computer processor and based on a shared set of date-related attributes, a grouping of the plurality of fixed or fixated digital cash flows into one or more groups, wherein the grouping is configured so that digital cash flows within a group are synchronized to comprise substantially uniform date and accrual period adjustments in response to a change in the shared attributes. The operations also include generating, by the computer processor and for a group of the one or more groups, a compression constraint set comprising: (a) an amount constraint configured so that a first sum of cash flow amounts within the group are substantially zero, and (b) a Theta constraint configured so that a second sum of Theta values for the cash flows within the group are within a threshold of zero. The operations further include determining, by the computer processor and for the group of the one or more groups, an optimized portfolio compression configured to optimally reduce gross notional for the digital cash flows subject to the compression constraint set. The operations additionally include executing, by the computerAtty. Docket: 24-1717-WO processor and based on the optimized portfolio compression, a compression transaction that replaces the initial collection of derivative financial instruments with a smaller collection of economically equivalent contracts, resulting in improved memory consumption by the digital central clearing platform while maintaining risk neutrality.

[0021] In a fourth aspect, an article of manufacture for improving memory consumption by a digital central clearing platform during multilateral portfolio compression is provided. The article of manufacture may include a non-transitory computer-readable medium comprising program instructions executable by one or more processors to cause the one or more processors to perform operations. The operations include receiving, by a computer processor and from a plurality of clients, a plurality of fixed or fixated digital cash flows derived from an initial collection of derivative financial instruments. The operations further include determining, by the computer processor and based on a shared set of date-related attributes, a grouping of the plurality of fixed or fixated digital cash flows into one or more groups, wherein the grouping is configured so that digital cash flows within a group are synchronized to comprise substantially uniform date and accrual period adjustments in response to a change in the shared attributes. The operations also include generating, by the computer processor and for a group of the one or more groups, a compression constraint set comprising: (a) an amount constraint configured so that a first sum of cash flow amounts within the group are substantially zero, and (b) a Theta constraint configured so that a second sum of Theta values for the cash flows within the group are within a threshold of zero. The operations further include determining, by the computer processor and for the group of the one or more groups, an optimized portfolio compression configured to optimally reduce gross notional for the digital cash flows subject to the compression constraint set. The operations additionally include executing, by the computer processor and based on the optimized portfolio compression, a compression transaction that replaces the initial collection of derivative financial instruments with a smaller collection of economically equivalent contracts, resulting in improved memory consumption by the digital central clearing platform while maintaining risk neutrality.

[0022] In a fifth aspect, a system for improving memory consumption by a digital central clearing platform during multilateral portfolio compression is provided. The system includes means receiving, by a computer processor and from a plurality of clients, a plurality of fixed or fixated digital cash flows derived from an initial collection of derivative financial instruments; means for determining, by the computer processor and based on a shared set of date-related attributes, a grouping of the plurality of fixed or fixated digital cash flows into one or more groups, wherein the grouping is configured so that digital cash flows within a groupAtty. Docket: 24-1717-WO are synchronized to comprise substantially uniform date and accrual period adjustments in response to a change in the shared attributes; means for generating, by the computer processor and for a group of the one or more groups, a compression constraint set comprising: (a) an amount constraint configured so that a first sum of cash flow amounts within the group are substantially zero, and (b) a Theta constraint configured so that a second sum of Theta values for the cash flows within the group are within a threshold of zero; means for determining, by the computer processor and for the group of the one or more groups, an optimized portfolio compression configured to optimally reduce gross notional for the digital cash flows subject to the compression constraint set; means for executing, by the computer processor and based on the optimized portfolio compression, a compression transaction that replaces the initial collection of derivative financial instruments with a smaller collection of economically equivalent contracts, resulting in improved memory consumption by the digital central clearing platform while maintaining risk neutrality.

[0023] The foregoing summary is illustrative only and is not intended to be in any way limiting. In addition to the illustrative aspects, embodiments, and features described above, further aspects, embodiments, and features will become apparent by reference to the figures and the following detailed description and the accompanying drawings.BRIEF DESCRIPTION OF THE FIGURES

[0024] FIG. 1 illustrates an example of a day count convention Theta jump, in accordance with example embodiments.

[0025] FIG. 2 illustrates an example flowchart, in accordance with example embodiments.

[0026] FIG. 3 depicts a distributed computing environment, in accordance with example embodiments.

[0027] FIG. 4 is a block diagram illustrating an example computer device, in accordance with example embodiments.

[0028] FIG. 5 is a flowchart of an example method for improving memory consumption by a digital central clearing platform during multilateral portfolio compression, in accordance with example embodiments.DETAILED DESCRIPTION

[0029] This application relates to intelligent data compression techniques and systems. Specifically, systems and methods for portfolio adjustments in the context of Interest Rate Swaps (IRS) are described.Atty. Docket: 24-1717-WO

[0030] A financial instrument trading system, such as a futures exchange, also referred to herein as an “exchange,” provides a contract market where financial instruments, for example futures and options on futures, are traded. The term “futures” is used to designate contracts for the purchase or sale of financial instruments or physical commodities for future delivery or cash settlement on a commodity futures exchange. A futures contract may be a legally binding agreement to buy or sell a commodity at a specified price at a predetermined future time. An option may be the right, but not the obligation, to sell or buy the underlying instrument (in this case, a futures contract) at a specified price within a specified time.

[0031] Typically, the exchange provides for a centralized “clearinghouse” through which trades made are confirmed, matched, and settled each day until offset or delivered. The clearinghouse is often (e.g., sometimes) adjunct to the exchange, and may be an operating division of the exchange, which may be responsible for settling trading accounts, clearing trades, collecting, maintaining performance bond funds, regulating delivery, and reporting trading data. One role of the clearinghouse may be to mitigate credit risk. Clearing may be the procedure through which the clearinghouse becomes buyer to each seller of a futures contract, and seller to each buyer, also referred to as a novation, and assumes responsibility for protecting buyers and sellers from economic loss (e.g, due to breach of contract), by assuring performance on each contract. A clearing member may be a firm qualified to clear trades through the clearinghouse.

[0032] An interest rate swap (“IRS”) may be a contractual agreement between two parties, i.e., the counterparties, where one stream of future interest payments may be exchanged for another (e.g, a stream of fixed interest rate payments in exchange for a stream of floating interest rate payments) based on a specified principal amount. An IRS may be used to limit or manage exposure to fluctuations in interest rates. One usual form of IRS exchanges a stream of floating interest rate payments on the basis of the 3-month London interbank offered rate for a stream of fixed-rate payments on the basis of a swap's fixed interest rate. Another common form of IRS, knows as an overnight index swap, exchanges at its termination (or at other intervals, e.g., every three months) a floating rate payment determined by daily compounding of a sequence of floating interest rates on the basis of an overnight interest rate reference (e.g., the U.S. daily effective federal funds rate, or the European Overnight Index Average (EONIA)) over the life of the swap, for a fixed rate payment on the basis of daily compounding of the overnight index swap's fixed interest rate over the life of the swap. In some cases (e.g., a zero coupon overnight index swap), there may be a single payment at maturity. In other cases (e.g., a regular overnight index swap), payments are made at regular intervals.Atty. Docket: 24-1717-WO

[0033] Floating rates are typically based on a reference interest rate index. Indices may include London Interbank Offered Rate (LIBOR), or Euro Interbank Offered Rate (Euribor). The floating rate may be reset periodically, with common index periods being 3 months (3M), 6 months (6M), or 1 year (1 Y). The fixed leg pays a predetermined interest rate on the notional amount, while the floating leg pays a variable rate based on the chosen index and index period. The floating rate may be determined by the prevailing market rate of the index on a specific fixing date, which may be typically two business days before the start of the interest period. The day count method involves calculation of interest payments using a day count convention, which determines how interest accrues overtime. Common day count methods include Act / 360, Act / 365, and 30 / 360. In a business day convention, cash flow dates may be adjusted to the next business day if they fall on a weekend or holiday, following specific business day conventions such as Modified Following or Following. The business day conventions are applied based on specified holiday calendars, which list non-business days for the relevant currency and jurisdiction. The unadjusted cash flow dates are the original start and end dates of the interest periods, while the adjusted cash flow dates reflect any adjustments made due to business day conventions and holiday calendars.

[0034] When a floating cash flow is "fixed" at its fixing date, it means the prevailing market rate of the reference index on that date may be locked in and applied to calculate the interest payment for the upcoming period. From that point onward, the floating cash flow becomes a known quantity and may be treated as a fixed cash flow for that specific period. Even if the market interest rates fluctuate subsequently, the fixed cash flow remains unchanged. This process provides certainty to the parties involved in the interest rate swap, as they know the exact amount of the upcoming payment on the floating leg.

[0035] In a typical futures trading environment, the standardization of futures contracts and the nature of the central counterparty-based trading system allows an exchange, or market participant thereof, to net together offsetting positions in the same contract for the purpose of reducing the margin requirement to reflect the reduced risk of loss of such positions and / or to outright consolidate positions to reduce the size of the portfolio and / or reduce transaction fees therefore. As the exchange, being a central counterparty to transactions, ensures that each counterparty is not at risk of loss due to the default of the other party, such netting and consolidation by one market participant does not affect the positions and risk undertaken by another participant. Such netting functionality allows for data objects storing information representative to the positions of a portfolio to be leveraged when compressing the set of data objects representative of the portfolio.Atty. Docket: 24-1717-WO

[0036] In the case of IRS contracts, the variability in the characteristics of positions which may exist in any given portfolio, such as the maturity date, coupon, etc. may make it difficult to identify suitable positions for netting though, for example, such positions, though not identical, may exist which are similar enough as to represent a reduced risk of loss meriting a reduction in the margin requirement. Further complicating this process is the bilateral nature of an IRS contract where a particular position of one party may be coupled with a counter position of a counterparty thereto. For instance, an adjustment to improve one party's portfolio may affect the portfolio of the counterparty, in which case adjustments to the counterparty's portfolio may be needed. Further, as described above, positions in IRS contracts, and in particular, various combinations of positions therein, are typically undertaken to serve particular economic purposes, such as to achieve a particular risk exposure or risk profile, which may be tied to that market participant. Accordingly, IRS contract positions within a particular portfolio may not be consolidated without affecting the economic purpose intended by the market participant holding that portfolio and the economic purposes, which may be different, of any counter party market participants to the contract positions.

[0037] Although described in connection with examples involving data objects representative of IRS trades, aspects of this disclosure are useful in connection with other types of data obj ects. For instance, the data objects may be representative of other types of trades or transactions, including, for instance, various types of credit default swap transactions. Still other types of data objects may be processed by the disclosed methods and systems, including, for instance, other data storage or processing systems for which data compression may be useful. The types, sources, and other characteristics of the data objects may vary accordingly.

[0038] Due to the nature of IRS trading, a given portfolio may include a large number of trades, and thus a large number of individual positions, also referred to as line items. In some embodiments, compression may involve or refer to netting non-identical line items.Holiday Calendar Changes

[0039] When a holiday calendar event occurs, such as a holiday being moved, added, or removed, it may impact the cash flow dates in an interest rate swap (IRS) in the following ways: Cash Flow End Dates mark an end of the period for which interest may be calculated. If a holiday may be added or moved within this period, it may affect the accrual period and, consequently, the interest amount. Cash Flow Pay Dates are the dates when the interest payments are exchanged. If a holiday falls on a scheduled pay date, the business day convention will determine the adjusted pay date. Common conventions like Modified Following orAtty. Docket: 24-1717-WOFollowing will typically move the pay date to the next available business day. If a holiday is added or removed, it could shift the pay date accordingly.

[0040] The business day convention plays a significant role in determining the impact of holiday calendar changes on cash flow dates. Different conventions have different rules for adjusting dates, leading to variations in how the cash flows are affected. For example, a Following convention will move the date forward to the next business day, while a Modified Following convention might move the date backward if it falls on a month-end.

[0041] Accordingly, holiday calendar changes may impact both cash flow end dates (by affecting the accrual period) and cash flow pay dates (by triggering adjustments based on the business day convention). The specific impact will depend on the business day convention and the nature of the holiday calendar change. A careful consideration of these factors when managing IRS contracts may be needed to ensure accurate cash flow calculations and avoid any settlement disputes.Impact of the Day Count Method

[0042] In an Interest Rate Swap (IRS), the day count method significantly impacts the calculation of interest payments and, consequently, the amount of each cash flow. It determines how interest accrues over time by defining the number of days in the interest period and the year.

[0043] Different day count conventions may lead to variations in the calculated interest, even for the same interest rate and notional amount. For instance, the Act / 360 method considers the actual number of days in the period and assumes a 360-day year, while the Act / 365 method uses the actual number of days and a 365-day year. This difference may result in varying interest amounts, especially for longer periods or when leap years are involved.

[0044] The choice of day count method may have a material impact on the overall economics of the IRS, affecting the net present value and the timing of cash flows. Therefore, it may be significant to carefully select the appropriate convention based on market practices, regulatory conditions, and the specific terms of the IRS contract.

[0045] Moreover, changes in holiday calendars may interact with the day count method to further influence the interest calculation. For example, if a holiday is added or removed within the interest period, it might alter the number of business days considered in the Act / 360 or Act / 365 methods, leading to adjustments in the interest amount.

[0046] Accordingly, the day count method plays a significant role in determining the cash flow amounts in an IRS. Understanding the implications and choosing the appropriate conventionAtty. Docket: 24-1717-WO may be needed to ensure accurate calculations and manage the financial risks associated with the swap.Calculating Fixed Amount

[0047] The amount of a fixed cash flow in an Interest Rate Swap (IRS) may be calculated using several components. A fixed rate may be the predetermined interest rate applied to the notional amount. It remains constant throughout the swap's life for fixed legs or for the specific period in the case of fixated floating cash flows. In some embodiments, a spread may be added to or subtracted from the fixed rate, adjusting the overall interest payment. A notional amount may be the principal amount on which the interest may be calculated, though it may not actually be exchanged. An accrual period may be a length of time for which the interest may be calculated, typically corresponding to the payment frequency. A day count convention determines how interest accrues over the accrual period, considering the number of days in the period and the year (e.g., Act / 360, Act / 365, 30 / 360). A fixed cash flow amount may be determined as:Fixed Cash Flow= Fixed Rate + Spread) * Notional Amount(Eqn. 1)

[0048] where Accrual Period Length may be determined by the day count convention and the actual number of days in the period, and Days in Year may be determined by the day count convention (e.g., 360 or 365). Generally, the business day convention might adjust the actual payment date if it falls on a non-business day, but it does not directly affect the calculation of the fixed cash flow amount itself. This may indirectly impact the accrual period if the end date may be adjusted, which would then affect the calculation.Portfolio Compression

[0049] Portfolio compression, as delivered by OSTTRA™ TRIREDUCE™, is a service that allows financial institutions to reduce the size and complexity of their derivatives portfolios. This may be achieved by identifying and terminating offsetting trades, resulting in a smaller number of contracts with the same overall risk profile.

[0050] Some benefits of portfolio compression include reduced counterparty credit risk (e.g. , by netting offsetting trades, the overall exposure to counterparties may be decreased), lower operational costs (e.g, fewer trades mean reduced administrative and processing costs), improved capital efficiency (e.g, compression may free up capital that would otherwise be tiedAtty. Docket: 24-1717-WO up in collateral or margin requirements), and regulatory compliance (e.g., compression may help firms meet regulatory conditions for risk management and capital adequacy).

[0051] TRIREDUCE™ uses sophisticated algorithms to identify potential compression opportunities across multiple asset classes and currencies. It also provides a secure and efficient platform for executing the terminations and novations.

[0052] A Central Clearing House (CCP) plays a significant role in mitigating counterparty risk in financial markets. To fulfill this function effectively, a CCP maintains a position of complete neutrality in terms of market risk. This means that the CCP may be flat in amounts, both today and in future payment dates, regardless of potential market fluctuations or calendar changes.

[0053] This stems from the CCP's core responsibility of guaranteeing the settlement of trades even if one party defaults. If the CCP were to hold a net position in any market variable, it would be exposed to market risk, jeopardizing its ability to fulfill its obligations in a default scenario. Therefore, maintaining a risk-neutral position may be non-negotiable for a CCP.

[0054] In the context of portfolio compression, this has significant implications. When compressing trades against a CCP, more may be needed to achieve flatness in amounts on the initial payment dates. This flatness may be preserved even if calendar events like holidays shift payment dates or if floating rate indices move, potentially altering the amounts due on future dates.

[0055] This may involve a high degree of precision and foresight in the compression process. Any remaining mismatches in future cash flows, even after initial netting, could expose the CCP to unwanted market risk. Therefore, robust methodologies and tools may be needed to ensure that the compressed portfolio remains flat in different scenarios, safeguarding the CCP's neutrality and its ability to manage counterparty risk effectively.

[0056] Overall, portfolio compression is a significant tool for financial institutions looking to optimize their derivatives portfolios and improve their risk management practices.Portfolio Compression of Known Amounts

[0057] Some embodiments involve receiving, by a computer processor and from a plurality of clients, a plurality of fixed or fixated digital cash flows derived from an initial collection of derivative financial instruments. A fixed or fixated digital cash flow as used herein generally refers to a payment obligation derived from a financial derivative (specifically an Interest Rate Swap or IRS) whose future amount may be fixed and known at the time of compression, making it suitable for netting and compression. The term broadly covers two types of cash flows. A fixed cash flow (e.g., predetermined) and a fixated cash flow (e.g., crystallized).Atty. Docket: 24-1717-WO

[0058] For example, a fixed cash flow may be a traditional fixed leg payment of an IRS, where the interest rate may be set when the swap is initiated and remains constant. The amount may be calculated based on the fixed rate, notional amount, accrual period, and day count convention.

[0059] A fixated cash flow may be a payment that originated as a floating leg payment but has since reached its fixing date. Once the floating rate is locked in based on the prevailing market index rate on the fixing date, the payment amount becomes a known quantity and may be treated as a fixed cash flow for that specific period. This fixing process eliminates the uncertainty associated with future interest rate movements.

[0060] The cash flows are "digital" in the sense that they are data objects that are digital representations of financial obligations stored in a computer system (e.g., in a CCP or client database). The goal may be to manage and compress the data objects representing these cash flows to reduce computational load and storage. Because the amount may be known, these digital objects may be grouped and constrained using mathematical constraints (amount and Theta) within the computational compression algorithm. Accordingly, fixed or fixated digital cash flows are a set of derivative payment obligations that have no residual market rate uncertainty, allowing the grouping to focus on mitigating the residual calendar-based uncertainty (Theta risk) introduced by holiday changes.

[0061] In the context of portfolio compression, Interest Rate Swaps (IRS) with fixed cash flows or floating cash flows that have already been fixed present a significant opportunity. These contracts, with their known future cash flow amounts, may be netted against each other, even if they initially had different characteristics like varying cash flow lengths or reference indices.

[0062] This is possible because the fixing of floating rates eliminates the uncertainty associated with future interest rate movements. Once fixed, these cash flows become effectively "crystallized," transforming the IRS into a series of payment obligations which become predetermined one by one. This allows for a more straightforward netting process, where offsetting cash flows may be identified and eliminated, regardless of their original underlying indices.

[0063] In some embodiments, the plurality of fixed or fixated cash flows comprises fixed cash flows from multiple initial derivative financial instruments having different reference indices. In traditional compression methods, contracts may typically share the same underlying index (e.g., based on LIBOR-3 M, or LIBOR-6M) to be netted together. The techniques described herein overcome that limitation by relying on the concept of fixation.Atty. Docket: 24-1717-WO

[0064] For example, the netting and compression would not be feasible if the floating cash flows were still unfixed. The reason lies in the volatility of floating rate indices. Different indices, such as LIBOR, or Euribor, may fluctuate independently in response to market conditions. This means that the future cash flows of derivative financial instruments tied to different indices would likely diverge over time, making it impossible to accurately predict and net them against each other.

[0065] The ability to net cash flows from different indices relies on the fact that the floating legs of these contracts may be fixated (or "crystallized") before they enter this specific compression process. If two IRS contracts are tied to different indices (e.g., one to LIBOR and one to Euribor) and are still floating, their future cash flows would fluctuate independently based on different market conditions. This makes accurate netting impossible, as the net position would be exposed to basis risk (the risk that the two indices move differently), impacting the CCP's risk neutrality. Once a floating cash flow is "fixed" at its scheduled fixing date, its amount becomes a known quantity, a predetermined payment obligation. At this point, the original index (LIBOR, Euribor, etc.) becomes irrelevant for the purpose of compression, as the market risk associated with the index movement has been eliminated.

[0066] Because the floating rate uncertainty may be removed, the compression method may treat the payments as pure, known amounts. The cash flows are now simply a collection of future payments and receipts. If a payment of $100 originally derived from a LIBOR swap offsets a receipt of $100 originally derived from a Euribor swap, the CCP may be financially flat (zero net amount). The grouping and compression allows these to be netted against each other, even if they initially had different characteristics like varying reference indices. This index-agnostic approach significantly broadens the pool of eligible cash flows that may be compressed together. A larger pool leads to greater netting opportunities, resulting in a higher reduction in gross notional and, consequently, the associated operational and capital charges.

[0067] While index risk is removed by fixation, the new challenge addressed herein may be calendar risk (Theta). The CCP may allow this cross-index netting if it is sure that its risk neutrality may be maintained against calendar changes. The platform uses the grouping step to ensure that the contracts, even those from different indices, share the date-related attributes (like holiday calendars or business day conventions) to ensure they will experience uniform adjustments in case a holiday is added or moved. By imposing the Theta constraint, the platform ensures that the net sensitivity to calendar shifts for the group (which contains cash flows from multiple indices) remains zero or within a tight tolerance, thus preserving the CCP's risk-neutral position.Atty. Docket: 24-1717-WO

[0068] In some embodiments, the plurality of fixed or fixated cash flows comprises cash flows from multiple initial derivative financial instruments having different cash flow lengths. In an IRS, the "cash flow length" or "index period" refers to the time period between payment dates (or resetting of the floating rate). Common lengths include three months when payments occur quarterly, six months where payments occur semi-annually, or twelve months where payments occur annually. A significant restriction in traditional netting is that two opposing contracts may often share the same periodicity to be matched easily.

[0069] Similar to the logic for different indices described herein, the enabler here may be that the cash flows may be fixed or fixated. Once a cash flow is fixed, the platform stops considering the original frequency (3M, 6M, etc.) as a factor and analyzes the final known payment and the known payment date. As described herein, contracts may be netted even if they initially had different characteristics like varying cash flow lengths. This is because fixation transforms the IRS into a series of predetermined payment obligations. The original length may now be just historical information; the current obligation is just a fixed amount due on a fixed date.

[0070] The ability to net cash flows of different original lengths dramatically increases compression opportunities. The platform manages this expanded pool using its core safeguards: grouping synchronization and Theta constraint. Even though the original length differed, the cash flows being netted may be grouped based on shared date-related attributes relevant to their current existence as known amounts, such as the same holiday calendar and business day convention. This ensures that if a holiday shift occurs, both the short-length and long-length cash flows in the group move uniformly. The Theta Constraint acts as the safety net. It guarantees that the net sensitivity to calendar shifts for the group remains neutral. As long as the sum of all Theta contributions, regardless of whether they came from a 3M or 6M contract, may be zero, the CCP's risk neutrality may be preserved.

[0071] Therefore, the fixing of floating cash flows acts as a significant enabler for portfolio compression in the case of IRS contracts. It removes the uncertainty associated with future interest rate movements, allowing for a more efficient and effective netting process, even across contracts with different original characteristics. This highlights the importance of considering the timing of fixings when evaluating the potential for portfolio compression and optimizing the management of IRS portfolios.

[0072] In some embodiments, the plurality of fixed or fixated cash flows are held in a portfolio by a single client or institution, and wherein the portfolio compression may be performed unilaterally on the portfolio. For example, the CCP risk management may involve internal portfolio optimization for a single financial entity. In such embodiments, the plurality of fixedAtty. Docket: 24-1717-WO or fixated cash flows may belong to a single client or institution, and the computer processor performs the portfolio compression on that entity's holdings. While the primary goal may be the technical reduction of gross notional for efficiency, the core benefit for the single client may be substantial. For example, the reduction of data objects translates directly into lower storage and computational costs, a reduction in capital charges may be tied to gross notional, and an internal guarantee that their simplified, compressed portfolio remains risk-equivalent and protected against calendar shifts, similar to the benefits achieved in a central clearing setting.Impact of Holiday Changes in CCP Compression

[0073] Even when a CCP achieves initial amount flatness after compressing fixed IRS cash flows, subsequent changes to holiday calendars may disrupt this balance and introduce market risk. This may occur through various mechanisms described herein.Impact on Accrual Periods and Amount Sizes

[0074] If a holiday is added or removed within an accrual period, the number of days for which interest may be calculated changes. This directly impacts the interest amount, as demonstrated in the formula: 'Fixed Cash Flow = (Fixed Rate + Spread) * Notional Amount * (Accrual Period Length / Days in Year)' .

[0075] There may be varying impact across contracts because different IRS contracts might have different fixed rates, notional amounts, day count conventions, and accrual period start / end dates. Consequently, a holiday change will affect each contract's cash flow amount differently.

[0076] Netted imbalances may occur if the netted compression was initially flat, a holiday change may create a mismatch in the summed amounts on a given payment date. This exposes the CCP to market risk, as it now has a net position sensitive to interest rate movements.Payment Date Shifts and Business Day Conventions

[0077] If a holiday falls on a scheduled payment date, the business day convention (e.g., Modified Following, Following) will adjust the date, potentially to different days for different contracts.

[0078] Even if the netted compression was initially flat, payment date adjustments due to holiday changes may lead to mismatched payment dates. Cash flows that were previously netted might now fall on different days, creating a temporary net position for the CCP.

[0079] These mismatched payment dates may create market risk exposure for the CCP during the interim period. Any interest rate movements during This time will affect the CCP's net position, potentially leading to gains or losses.Atty. Docket: 24-1717-WO

[0080] In operating as a central platform, there may be a need for the CCP to maintain risk neutrality. This may be based on careful consideration of holiday calendar changes in the compression process. Compression methodologies may have to be robust enough to anticipate and mitigate the potential impact of holiday changes on netted cash flows. Ongoing monitoring of holiday calendars and potential adjustments may be a significant aspect of maintaining the CCP's flat position and avoiding unintended market risk exposure. While portfolio compression offers significant benefits, it is a significant aspect to address the complexities introduced by holiday calendar changes. By employing robust methodologies and continuous monitoring, CCPs may ensure a risk-neutral position even in the face of evolving market conditions and calendar events.Movement of Cash Flow Dates

[0081] Some embodiments involve determining, by the computer processor and based on a shared set of date-related attributes, a grouping of the plurality of fixed or fixated digital cash flows into one or more groups, wherein the grouping may be configured so that digital cash flows within a group are synchronized to comprise substantially uniform date and accrual period adjustments in response to a change in the shared attributes. As described herein, the technical challenge is that a single holiday calendar change (e.g., adding or moving a holiday) will change the cash flow dates and accrual periods of different derivative contracts unevenly if those contracts have different conventions. This uneven change creates a mismatch in net amounts on a given payment date, exposing the CCP to market risk. The computer processor addresses this by creating groups based on a shared set of date-related attributes. In some embodiments, the date-related attributes comprise one or more of a trade end date, a roll date, a holiday calendar, an accrual business day convention, or a day count convention.

[0082] For example, grouping may ensure that contracts use the same list of non-business days. Also, for example, grouping may be based on business day conventions. For example, ensure that contracts adjust dates (e.g., for month-ends) using the same rule (e.g., "Modified Following" or "Following"). Alignment may also be ensured based on the contract. By sharing these attributes, the platform guarantees synchronization so that even if a holiday is added or moved, every contract within that specific group will be adjusted by the exact same number of days or experience the same change in the accrual period.

[0083] Accordingly, because cash flows in the group move uniformly, the total net amount of the group remains constant at zero (i.e., the debits and credits still offset each other), and the Theta (the sensitivity to that change) remains neutral. This grouping may be a significantAtty. Docket: 24-1717-WO condition that allows the techniques described herein to impose and maintain the Theta Constraint and preserve CCP risk neutrality.

[0084] Grouping fixed cash flows based on relevant characteristics may significantly mitigate the cash flow date issues arising from holiday changes in CCP compression. This may be achieved by ensuring that compressed contracts share the same date-related attributes. The trade end date may be used to group contracts. For example, contracts within a group mature simultaneously, eliminating discrepancies in final payment dates. The trade roll date may be used to group contracts. For example, uniform roll dates ensure floating-rate fixings align, preventing mismatches in interest calculation periods. Another grouping criterion may be to use the same holiday calendar for contracts in a group. This ensures that adjustments due to holidays are applied uniformly, avoiding payment date misalignments. Aligning business day conventions guarantees uniform adjustments for both accrual period calculations and payment dates, minimizing discrepancies. Such a grouping strategy ensures that, even if holidays are added, removed, or moved, the cash flows within a compressed group will remain synchronized. This prevents situations where previously netted cash flows end up on different days due to varying holiday adjustments.Amount Changes

[0085] The term “Theta” as used herein generally refers to time decay. For example, Theta measures the sensitivity of a cash flow or a contract's value to the passage of time. It is the derivative of the value of the cash flow or contract with respect to time, keeping other factors constant. The use of Theta in this document, specifically in relation to holiday calendar changes and the resulting movement of cash flow dates or changes in accrual periods, may be different from the manner in which it may be traditionally used. For example, in finance, Theta is defined as a time decay risk and measures the sensitivity of a value of a financial instrument (such as an option or a swap) to the mere passage of one day, assuming other factors remain constant. The risk described herein is a sensitivity to changes in a cash flow's present value due to altered accrual periods from calendar shifts. In comparison to the traditional Theta which is focused on the erosion of value over time, this is a different sensitivity more akin to a specific Basis Risk or Calendar Risk. The same term “Theta” is used herein since it is the Greek letter typically associated with this kind of time related risk.

[0086] Theta indicates how much the value of a cash flow or contract may be expected to decrease as time passes, assuming no changes in other underlying variables like interest rates or market prices. This may be particularly relevant for options, where Theta is typically negative, reflecting the erosion of an option's time value as it approaches its expiration date.Atty. Docket: 24-1717-WO

[0087] For example, if an option has a Theta of -0.1, it means that the option's value may be expected to decrease by 0.1 units per day. As the option gets closer to expiration, its time value decays, and Theta increases in magnitude, reflecting the accelerated loss of value.

[0088] Understanding Theta may be a significant component for managing the risk of options and other time-sensitive financial instruments. It helps traders and investors assess the impact of time decay on their positions and make informed decisions about when to enter or exit trades. By considering Theta alongside other values such as Delta, Gamma, and Vega, market participants may develop a comprehensive understanding of the risks and potential rewards associated with their investments.Theta of a Fixed Cash Flow

[0089] When a business holiday calendar change impacts the accrual period of a fixed cash flow in an IRS, the Theta of that cash flow captures the sensitivity of its value to this change. In this scenario, Theta may be understood as the change in the fixed cash flow's present value resulting from the change in the accrual period, keeping other factors (notional size, fixed / fixated rate, day count convention) constant.

[0090] Factors influencing Theta may include a change in accrual period, a fixed and / or fixated rate, a notional size, a day count convention, and so forth. For example, one driver of Theta in this context may be a change in the number of days in the accrual period due to the holiday adjustment. A longer accrual period generally leads to a higher cash flow amount, and vice versa. Another factor may be the magnitude of the cash flow change (and hence Theta) is directly proportional to the fixed or fixated interest rate. A higher rate amplifies the impact of the accrual period change on the cash flow value. Similarly, the notional amount of the IRS contract scales the impact of the accrual period change. A larger notional amount results in a larger change in the cash flow value and a higher Theta. The specific day count convention used (e.g., Act / 360, Act / 365) determines how the change in accrual days translates into a change in the interest calculation, influencing the Theta value.

[0091] A positive Theta indicates that the present value of the fixed cash flow increases due to the holiday-induced change in the accrual period which makes the period longer, and decreases if the change makes the period shorter. Also, for example, a negative Theta signifies a decrease in the present value of the cash flow which makes the period longer, and increase if the change makes the period shorter.Non-Constant Theta for Day Count Conventions

[0092] Some day count conventions, like 30 / 360, do not have a constant Theta impact throughout the year. This is because they do not reflect the actual number of days in each monthAtty. Docket: 24-1717-WO or year and use a standardized approach where each month is assumed to have 30 days and a year has 360 days.

[0093] This creates discrepancies between the assumed accrual period and the actual calendar days, leading to "jumps" in the calculated interest and, consequently, the Theta value. These jumps typically occur around month-ends, especially for months with 31 days or during the transition from February to March.

[0094] For example, in a 30 / 360 convention, if the original cash flow was scheduled for January 1 and January 31, and the end date was moved to February 1, it would result in no change to the accrual period, as it was 30 before and now the convention says 30 after as well, even though the actual time elapsed is one day. This results in a higher interest amount and a positive Theta jump compared to other days within the month. The non-linear day count or Theta jump occurs in 30 / 360 convention because months have different number of days.

[0095] Similarly, when transitioning from February to March, the assumed accrual period might be shorter or longer than the actual calendar days, depending on whether it is a leap year. This again leads to a Theta jump, either positive or negative, at the month-end.

[0096] These non-constant Theta impacts may create challenges for risk management and portfolio compression, as they introduce additional volatility and uncertainty in the valuation of fixed cash flows. Therefore, it is significant to carefully consider the choice of day count convention and its implications for Theta when managing IRS contracts and performing compression exercises.

[0097] FIG. 1 illustrates an example of a day count convention Theta jump, in accordance with example embodiments when a hypothetical end date of a cash flow is adjusted across the year. Non-constant Theta impacts may create challenges for risk management and portfolio compression, as they may introduce additional volatility and uncertainty in the valuation of fixed cash flows. Accordingly, it is desirable to carefully consider the choice of day count convention and its implications for Theta when managing IRS contracts and performing compression exercises. FIG. 1 illustrates an example of Theta jump for 30 / 360 day count convention, where the jump may be observed clearly over 2025. For example, FIG. 1 is a line graph 100 illustrating the volatility of the calculated Theta contribution for fixed cash flows using the 30 / 360 day count convention over the course of a year. The vertical axis labeled “30 / 360 Theta contribution," ranges from 0.0000 to 0.0100. This represents the relative change in the value of the fixed cash flow due to an adjustment to its end date, specifically as influenced by the chosen day count convention. The horizontal axis labeled “Date” shows the timeAtty. Docket: 24-1717-WO progression over the year 2025, with significant ticks at the start of odd-numbered months (e.g. , 2025-01-01, 2025-03-01, etc.).

[0098] The line graph 100 displays a relatively constant, low level of Theta contribution for a sizable portion of the year, represented by horizontal lines. This pattern is sharply interrupted by large, momentary vertical spikes. These spikes are referred to herein as "Theta jumps". A significant jump is visible just before 2025-03-01 (March 1st), where the Theta contribution briefly peaks near 0.008. Smaller but still significant downward spikes occur at the end of months (e.g., just before 2025-05-01, 2025-07-01, 2025-09-01, and 2025-11-01).

[0099] As described herein, these jumps are caused by the nature of the 30 / 360 convention, which standardizes months to 30 days regardless of the actual calendar length. This creates discrepancies that lead to "jumps" in the calculated interest and, consequently, the Theta value, particularly around month-ends and the transition involving the month of February.

[0100] FIG. 1 visually demonstrates the technical problem to which a technical solution is described herein. The non-constant, jumping Theta creates uncertainty that may compromise the CCP's risk neutrality when combining different contracts. This is mitigated by introducing risk parameters (e.g., num-Theta-jump-safety-days) to manage cash flows that end too close to these unpredictable jump dates.Theta Constraint

[0101] Introducing a Theta tolerance for a group of fixed cash flows may effectively address the issue of varying amount changes due to holiday calendar adjustments in CCP compression. By incorporating This tolerance, the compression process constrains the current amount sum of the group to zero and also limits the sum of the derivatives (Theta) of the cash flows to zero. This dual constraint ensures that the CCP remains market neutral even in the face of holiday calendar changes.

[0102] For example, Theta tolerance acts as a buffer, allowing for slight variations in the individual cash flow sensitivities to time. As long as the overall sum of Theta within the group remains close to zero (within the defined tolerance), the CCP's net position is not significantly affected by changes in accrual periods due to holidays. As another example, Theta tolerance may be dynamically adjusted based on the specific characteristics of the compressed contracts and the CCP's risk appetite. A tighter tolerance reduces the potential for market risk exposure, while a wider tolerance allows for greater flexibility in the compression process. By explicitly considering the time sensitivity of cash flows, this approach enhances the CCP's risk management capabilities. It helps anticipate and mitigate the impact of holiday calendar changes on the compressed portfolio, ensuring a more robust and stable risk profile.Atty. Docket: 24-1717-WO

[0103] Accordingly, incorporating a Theta tolerance into the grouping strategy for fixed cash flows provides a comprehensive solution for managing the complexities introduced by holiday calendar changes in CCP compression. It complements the existing constraint on the amount sum, ensuring that the CCP remains market neutral both in terms of current amounts and their sensitivity to time. This approach enhances the overall robustness and effectiveness of portfolio compression, contributing to a more resilient and risk-managed CCP environment.Day Count Convention Theta Jump

[0104] The introduction of two parameters may effectively address the issue of Theta jumps associated with some day count conventions in the context of moving amount compression.

[0105] The first parameter, also referred to herein as num ThetaJump safety days, defines the minimum number of business days between a cash flow's accrual end date and a potential Theta jump for the cash flow to be eligible for compression. By setting this threshold, the compression service may control its risk appetite. A higher value of the first parameter reflects a more conservative approach, as it demands a greater buffer between the accrual end date and any potential Theta jump caused by holiday calendar changes. This reduces the likelihood of the CCP's market neutrality being compromised by sudden, near-term holiday adjustments. In some embodiments, using the num ThetaJump safety days involves moving the date forward three days and backward three days and recalculating the amount. If the daily change is the same, it may be considered safe.

[0106] The second parameter, also referred to herein as furthest moving amount compression, sets the maximum time horizon for fixed amounts to be considered for compression. For example, a value of six months means that fixed amounts occurring within the next six months are eligible. This second parameter also reflects the service's risk appetite. A shorter time horizon implies a lower risk tolerance, as it focuses on near-term cash flows where holiday calendar changes are less likely to have a significant impact. Also, for example, a longer time horizon allows for greater compression opportunities but increases the potential exposure to holiday-induced Theta jumps.

[0107] By combining these two parameters, the compression service may fine-tune its risk management strategy. For instance, a conservative approach might involve a high num ThetaJump safety days value and a short furthest moving amount compression horizon, prioritizing near-term cash flows with minimal Theta jump risk. A more aggressive strategy could use a lower safety days threshold and a longer compression horizon, accepting a higher potential for Theta jumps in exchange for increased compression opportunities.Atty. Docket: 24-1717-WO

[0108] Overall, these parameters provide a flexible and effective framework for managing the challenges posed by Theta jumps in day count conventions. They allow the compression service to balance its risk appetite with the potential benefits of compression, ensuring the CCP's market neutrality while optimizing portfolio efficiency.

[0109] These techniques describe a comprehensive approach to enable portfolio compression of fixed or fixated cash flows from different indices and accrual periods, while ensuring CCP market neutrality even in the face of holiday calendar changes. Cash flows are grouped based on shared trade end dates, roll dates, holiday calendars, and business day conventions. This minimizes discrepancies in payment dates and accrual periods within a group, enhancing compression efficiency and reducing the impact of holiday adjustments. A Theta tolerance is introduced for a group, limiting the sum of Theta (time sensitivity) of the cash flows to zero. This complements the existing constraint on the amount sum, ensuring market neutrality in terms of current amounts and also their sensitivity to time. Two parameters are introduced.

[0110] Some embodiments involve determining a first risk management parameter indicative of a minimum number of business days between an accrual end date and a potential Theta jump date for a cash flow to be eligible for the grouping. Such embodiments involve determining a second risk management parameter indicative of a maximum time horizon for a cash flow to be eligible for the grouping. For example, Theta jumps associated with some day count conventions: num ThetaJump safety days defines the minimum business days between a cash flow's accrual end date and a potential Theta jump for compression eligibility; and furthest moving amount compression sets the maximum time horizon for fixed amounts considered for compression.

[0111] The first risk management parameter (num ThetaJump safety days) specifies a minimum safety buffer of business days between a cash flow's end date and a date where its sensitivity (Theta) might suddenly "jump" due to some day count conventions (like 30 / 360), allowing the compression service to maintain a conservative approach by excluding near-term volatile cash flows from the advanced grouping. Simultaneously, the second risk management parameter (furthest moving amount compression) sets a hard limit on the furthest-out time horizon, ensuring that fixed amounts occurring within a defined, manageable window (e.g., the next six months) are considered eligible for the grouping and subsequent compression, thereby allowing the system to fine-tune its risk appetite and balance potential compression opportunities against exposure to hard-to-predict, far-future calendar-induced Theta risk.Atty. Docket: 24-1717-WO

[0112] In some embodiments, the grouping excludes cash flows that have an accrual end date within the number of business days defined by the first risk management parameter of the potential Theta jump date. This is a risk-gating strategy by using the num ThetaJump safety days parameter to establish a defensive perimeter around dates where a cash flow's value sensitivity (Theta) might become highly unstable, often due to nonstandard day count conventions like 30 / 360. Specifically, if a cash flow's accrual end date falls within this defined minimum number of business days of a potential Theta jump date, the contract may be automatically excluded from the advanced grouping and compression methodology, ensuring that the digital central clearing platform avoids exposure to sudden, volatile, and unpredictable changes in cash flow amounts that could occur from near-term holiday calendar adjustments, thereby preserving the digital central clearing platform's market neutrality.

[0113] In some embodiments, the Theta jump date for the cash flow may be identified based on a sensitivity discontinuity in a day count convention. For example, the platform may preemptively identify specific calendar dates that pose a threat to the stability of the compression constraints. The Theta jump date may be identified by analyzing the formulaic rules of a specific day count convention. In some embodiments, the day count convention comprises a ratio of 30 to 360 near month-ends, which standardizes month lengths. Because this standardization does not reflect the actual calendar days, it creates sensitivity discontinuities or "jumps" in the calculated interest amount, particularly around month-ends (e.g., the transition from February to March, as illustrated in FIG. 1), leading to an abrupt change in the cash flow's Theta value. By identifying these known jump dates in advance, the system may use them to define the risk exclusion zones for cash flows, ensuring that no contracts susceptible to such artificial volatility are included in the risk-neutral grouping.

[0114] These parameters allow the compression service to control its risk appetite and balance compression opportunities with potential exposure to holiday-induced Theta jumps. By combining these strategies, the proposed approach enables effective compression of diverse fixed cash flows while mitigating the risks associated with holiday calendar changes. This ensures the CCP's market neutrality may be preserved both in the present and in the future, contributing to a more robust and efficient portfolio compression process.Zero-Coupon Known-Amount Swap Description

[0115] A Zero-Coupon Swap (ZCS) may be a type of interest rate swap where one party pays a single lump sum payment at maturity, while the other party makes periodic interest payments based on a fixed or floating rate. In some embodiments, a ZCS swap may involveAtty. Docket: 24-1717-WO choosing a really small notional and a start date ten (10) or twenty (20) years in the past (a long year fraction) to achieve the desired fixed amount while minimizing the gross notional contribution. In some embodiments, the ZCS may be a Zero-Coupon Known- Amount (KA) Swap having a fixed cash flow amount that may be predetermined and independent of the passage of time or fluctuating market variables, thereby having a Theta value of zero. As used herein, a ZCS with a Known-Amount (KA) fixed cash flow offers a significant advantage. Because the fixed cash flow amount of a KA Swap may be predetermined and may be specifically engineered to be independent of the passage of time or fluctuating market variables, the resulting instrument possesses a Theta value that may be zero by construction. This attribute makes the KA Swap an ideal clearing agent, as it may be introduced into any compression group to facilitate netting without introducing any net sensitivity to calendar risk, thus satisfying the stringent Theta constraint, and preserving risk neutrality for the platform.

[0116] Unlike traditional ZCS or IRS, where the fixed rate may be derived from current market prices and may be flagged if it deviates significantly from market norms, a KA ZCS has a predetermined fixed cash flow amount. This eliminates the reliance on market prices and the associated risk of large absolute values, which may be problematic for banks.

[0117] The KA ZCS provides a more flexible and customizable tool for managing interest rate risk. It allows for precise control over the timing and amount of cash flows, making it particularly useful in scenarios where a specific payment obligation may be matched or hedged.

[0118] In a Zero-Coupon Swap (ZCS) with a Known Amount (KA) fixed leg, the Theta may be zero. This is because the fixed cash flow amount may be predetermined and not dependent on the passage of time or any fluctuating market variables. As Theta measures the sensitivity of a cash flow's value to time, a fixed KA in a ZCS, which remains unchanged over time, has a Theta of zero.

[0119] Even with the grouping of cash flows and the introduction of Theta constraints, the actual payment date of a cash flow may still be affected by holiday calendar changes and the applicable business day convention. If a scheduled payment date falls on a holiday, the business day convention will adjust the date to the next available business day, ensuring that the payment is made on a valid business day.

[0120] In a Zero-Coupon Swap (ZCS) that utilizes an accrual period and a fixed rate instead of a Known Amount (KA), the Theta will not be zero. This is because the fixed cash flow amount is now directly tied to the length of the accrual period, which may be influenced by business day conventions and holiday calendar adjustments.Atty. Docket: 24-1717-WO

[0121] The Theta of such a ZCS may be adjusted in several ways. A Business Day Convention on Accrual End Date may be adopted. For example, if the accrual end date falls on a non-business day, the business day convention will adjust it, potentially changing the accrual period's length. This directly impacts the calculated interest and, consequently, the ZCS's Theta.

[0122] Another approach may involve pushing the accrual start date further into the past. This may increase the potential for holiday adjustments and business day convention impacts on the accrual period, leading to a more volatile Theta.

[0123] As with any fixed cash flow, the notional size and fixed rate directly influence the magnitude of the cash flow and its sensitivity to changes in the accrual period. A larger notional size or fixed rate will result in a higher Theta.

[0124] The choice of day count convention (e.g., Act / 360, Act / 365) affects how the accrual period may be calculated, influencing the Theta's behavior and potential jumps.

[0125] By adjusting these parameters, the Theta of a ZCS with an accrual period and fixed rate may be tuned to achieve desired risk management outcomes. A careful consideration of the implications of these adjustments on the overall risk profile of the ZCS and the potential impact on portfolio compression and CCP market neutrality may be a significant factor.

[0126] Although techniques described herein are illustrated using ZCS and IRS in their last cash flow period, these techniques apply to IRS contracts where the ongoing floating cash flow is fixed, and the remainder of the IRS includes unfixed cash flows. These contracts may be part of the grouping as well. This is done by taking the original IRS and splitting it into a synthetic ZCS representing the current fixed cash flows and a synthetic IRS representing the remaining cash flows, similarly to how a contract may include several legs, this is now split into multiple components. This synthetic ZCS is then grouped with other similar trades with constraints applied to Theta and fixed amounts. The remaining synthetic IRS may be modified in order to account for the removed current cash flows and may be managed using traditional compression methods.

[0127] Some embodiments involve, upon a determination that a given IRS contract has an ongoing fixed floating cash flow and additional unfixed cash flows, the determining of the grouping involves splitting the IRS contract into a synthetic ZCS representing the ongoing fixed floating cash flow and grouping the synthetic ZCS with other similar fixed cash flows for Theta constraint application. For example, the number of contracts eligible for the modified Moving Amount Compression may be increased by managing mixed-status Interest Rate Swaps (IRS). When the platform determines that an IRS contract still contains additionalAtty. Docket: 24-1717-WO unfixed cash flows alongside an ongoing fixed floating cash flow (which is a known, fixed amount), it performs a computational split on the single contract. This process separates the known, fixed portion of the contract and represents it as a new synthetic Zero-Coupon Swap (ZCS). This synthetic ZCS, which now has a known amount and a computable Theta value, may then be logically grouped with other purely fixed cash flows. The remaining, unfixed part of the original IRS may be managed via traditional compression methods, while the synthetic ZCS may be incorporated into the grouping and subject to the strict Theta constraint, efficiently extracting the maximal compression opportunity from the fixed component while ensuring the Central Clearing House (CCP) remains risk-neutral.

[0128] In some embodiments, the determining of the grouping comprises grouping a cash flow having a Modified Following business day convention with a cash flow having a Following business day convention by using a month-end-safety-days parameter to ensure that a potential holiday adjustment is not likely to cause a Modified Following date to cross a month-end. For example, the specific difference between the Modified Following (MOD FOLLOWING) and Following (FOLLOWING) business day conventions may be overcome to allow contracts using both to be included in the same risk-neutral compression group. The differentiating factor between the two is the month-end rule: MOD FOLLOWING shifts a date backward if moving forward crosses a month-end. By introducing a month-end- safety-days parameter, the platform ensures that the cash flow's unadjusted end date may be sufficiently far from the month-end. If this minimum distance is met, any expected holiday adjustment would not be large enough to cause the date to cross the month boundary, effectively making the behavior of the MOD FOLLOWING cash flow practically identical to the FORLOWING convention. This synchronization allows otherwise incompatible contracts to be grouped together under a single, unified Theta constraint, thereby increasing the overall efficiency and netting opportunity of the compression algorithm.

[0129] For example, grouping a Modified Following (MOD FOLLOWING) end date business day convention with a Following (FOLLOWING) convention for cash flows under Theta constraints may be achieved by mitigating the specific month-end jump risk that differentiates them. A parameter, such as month end safety days, may be used to define a minimum number of business days between the cash flow’s unadjusted end date and the actual month-end. If this distance is greater than the parameter, any likely holiday adjustment would not cause the MOD FOLLOWING date to cross the month end, making its forward-adjustment behavior practically identical to FOLLOWING. For example, dates before the 16th or 18th of the month to be deemed safe to group Following and Modified Following conventions together.Atty. Docket: 24-1717-WOThis synchronization allows the contracts to be grouped, as their cash flow adjustments and resulting Theta would align. It may be worth noting that this same principle applies to Modified Preceding (MOD PRECEEDING) and Preceding (PRECEEDING) conventions, where the parameter governs the distance to the month start.

[0130] Grouping may also be applied to contracts with Theta jump problems, such as those arising from the use of the 30 / 360 day count convention during some periods of the year. These contracts may be grouped together to apply the compression techniques described herein. The grouping ensures that contracts constrained within a particular Theta constraint group are synchronized, meaning they move the same number of days (or reflect the same change in the accrual period), even when a calendar change triggers a Theta jump. By ensuring uniform movement and sensitivity across the group, the collective Theta constraint of zero may be maintained, preserving the CCP's market neutrality.

[0131] Some embodiments involve determining that a Theta for cash flows paying on a given payment date is substantially zero. The determining of the grouping, for a secondary payment date constraint, may be based on a payment date property that may be independent of an accrual -related property. For example, an efficiency and relevance optimization for creating a secondary compression constraint, focusing on cash flows whose payment dates have been set, is performed. The core logic is that for cash flows paying on a given, established payment date, the Theta (sensitivity to small time-related changes, like a holiday shift) may be substantially zero, because the accrual period calculation has concluded, and the final payment date itself is fixed. Consequently, when setting up this secondary grouping (which may be focused on the payment constraints and not on the primary accrual constraints), the platform determines that the grouping may be based on the payment date property (such as the specific date or payment business day convention), and may safely ignore accrual-related properties (like the day count convention), streamlining the grouping process and reducing the complexity of the optimization engine.

[0132] In such cases, for the payment amount tolerance of a specific payment date, the grouping of cash flows does not need to be based on accrual-related properties, such as the day count convention of the cash flow or the business day convention of the accrual end date. In some embodiments, the grouping may be based on payment date properties, such as the specific date or the business day convention of the payment date. This is because the Theta (the derivative or sensitivity to time-related changes) of cash flows paying on that specific, already- set payment date may be zero. Consequently, by construction, the sum of the amounts fromAtty. Docket: 24-1717-WO cash flows with accrual end dates settling on that payment date may not change due to small time-related adjustments, making the accrual details irrelevant for this constraint.

[0133] In some embodiments, an accrual business day convention may be Following and an adjusted end date for the cash flow may be the same as an unadjusted end date for the cash flow. Such embodiments involve bypassing a backward search for the potential Theta jump date. The Following convention moves a date forward in time to the next business day if it falls on a non-business day. Therefore, if the platform determines that a cash flow's adjusted end date may already be the same as its unadjusted (original) end date, it mathematically confirms that no adjustment has occurred and that the date could not have moved backward. Since a backward-moving Theta jump (caused by a hypothetical holiday removal) may be possible if the date originally shifted, the system may confidently bypass the backward search using the num ThetaJump safety days parameter, saving computational resources, and speeding up the eligibility determination without compromising the Central Clearing House's (CCP) risk neutrality.

[0134] In some embodiments, an accrual business day convention may be Following and an adjusted end date for the cash flow may be different from an unadjusted end date for the cash flow. Such embodiments involve terminating a backward search for the potential Theta jump date upon hitting a weekend day. Unnecessary risk checks for contracts using the Following business day convention, particularly when the accrual end date has already been adjusted, may be terminated, allowing for efficiency optimization. Since the Following convention may be limited to moving a date forward, any backward-moving Theta jump (which would occur if a previously non-business day, like an explicit holiday, was removed from the calendar) may happen up to the point of the unadjusted date. Therefore, if the system is performing a backward search (using the num ThetaJump safety days parameter) and encounters a weekend day, which may be a non-business day that may not be "removed" by a calendar change, it knows that the date may not possibly move backward further than that point. By terminating the search upon hitting the weekend day, the system conserves computational resources without compromising the stringent risk neutrality requirements of the Central Clearing House (CCP).

[0135] For example, for cash flows using the Following business day convention (or Modified Following when it is grouped with Following by the month end safety days parameter), the process of checking backward for num ThetaJump safety daysis optimized. If the cash flow's adjusted end date is the same as its unadjusted end date, a backward search may be bypassed because the date may move forward from the unadjusted date and thereforeAtty. Docket: 24-1717-WO may not cause a backward-movement Theta jump. If the adjusted and unadjusted dates are different, indicating an adjustment has occurred, and the unadjusted end date falls on a weekend day, the backward search for potential jump issues may be stopped when it hits a weekend day. This is because weekend days are non-business days and may not be "removed" by a calendar change (explicit holidays can), which is the mechanism that would cause a backward-moving Theta jump past the num ThetaJump safety daysthreshold. A similar logic may be applied to Preceding (e.g., for forward search of jumps).Additional Improvements to Portfolio Compression

[0136] The efficiency of portfolio compression may be significantly enhanced by strategically introducing Zero-Coupon Swaps (ZCS) into the optimization process. This involves seeding potential ZCS pairs with carefully designed characteristics. For example, the notional size may be small, minimizing the impact on gross notional, a significant driver of compression. Offsetting characteristics may be employed where each pair includes ZCS with equal and opposite characteristics, ensuring they net out in terms of risk exposure. Pairs may have different Known Amounts (KA) or fixed rates, leading to varying amounts and Theta (time sensitivity).

[0137] In some embodiments, the ZCS may be an accrual -based ZCS, and the defined Theta value may be non-zero and may be adjusted by manipulating one or more of the accrual start date, notional size, fixed rate, or day count convention. For example, an accrual-based ZCS may be used as a highly flexible clearing agent whose calendar sensitivity (Theta) may be engineered by the computer processor. Unlike the Zero-Coupon Known-Amount (KA) Swap, the accrual -based ZCS's fixed cash flow amount may be tied to the length of its accrual period, meaning its defined Theta value is non-zero and may be naturally affected by business day conventions and holiday changes. The volatility may be leveraged by allowing the processor to adjust one or more of the accrual start date, notional size, fixed rate, or day count convention. Such an adjustment allows the system to tune the clearing agent's Theta to a specific, non-zero value, ensuring it offsets the net non-zero Theta of a subset of residual cash flows within the group, thereby maintaining the overall group's risk-neutrality while maximizing compression efficiency. Both types of ZCS (KA and accrual-based with non-zero Theta) may be utilized, offering flexibility in managing risk and optimizing compression.

[0138] These ZCS constructs function as "clearing agents" for remaining fixed cash flows in portfolios. By replacing existing trades, with fixed cash or fixed float cash flows left, with these low-gross-notional, offsetting pairs, a sizable portion of the remaining gross notionalAtty. Docket: 24-1717-WO may be eliminated. This may be particularly advantageous as it reduces the overall risk exposure and complexity of the portfolio.

[0139] Accordingly, seeding potential ZCS pairs with varying amounts and Theta in portfolio compression offers a powerful tool. This innovative approach has the potential to revolutionize portfolio compression, enabling financial institutions to achieve greater efficiency, risk reduction, and overall portfolio optimization.

[0140] Some embodiments involve, prior to the determining of the optimized portfolio compression, adding at least one of a Zero-Coupon Swap (ZCS) or a synthetic IRS contract to the plurality of fixed or fixated digital cash flows to function as a clearing agent for the group, wherein the clearing agent has known cash flow amounts and a defined Theta value. For example, the computer processor may introduce either a Zero-Coupon Swap (ZCS) or a modified synthetic IRS contract to the grouped cash flows, designating these new instruments as clearing agents. These agents are designed with known cash flow amounts and a defined (often zero or easily controlled) Theta value, allowing them to be nettable against residual fixed cash flows in the group. By replacing a large number of remaining trades with these low-gross- notional, offsetting agents, the computer effectively "clears" the remaining portfolio clutter, enabling a far greater overall reduction in gross notional than would be possible through simple bilateral netting alone.

[0141] Some embodiments involve generating the synthetic IRS contract by reducing a notional amount of an initial IRS contract while simultaneously scaling up an associated fixed rate or an associated spread to maintain a substantially equivalent present value of cash flows for the initial IRS contract. For example, for the float leg, a spread may be added so that the sum of the spread and the fixed float rate may be ten (10) times the original rate, instead of multiplying the existing spread by ten (10). In some embodiments, two simultaneous and compensatory steps may be involved. First, the processor reduces the notional amount of an original Interest Rate Swap (IRS) contract, which directly lowers the gross notional (and thus the capital charges and data footprint). Second, to ensure that This reduction in size does not alter the contract's financial value, the processor scales up the associated fixed rate or associated spread by a proportional factor. This adjustment maintains a substantially equivalent present value of the cash flows for the original contract, allowing the resulting synthetic IRS to be used effectively in the compression optimization as a known-amount instrument that clears out residual cash flows while minimizing its contribution to the final gross notional.Atty. Docket: 24-1717-WOUsing Original IRS Instead of ZC: Fixed Rate

[0142] In scenarios where clients are amenable to large, fixed rates that deviate significantly from market norms, the original Interest Rate Swaps (IRS) with fixed cash flows remaining may be leveraged as an alternative to Zero-Coupon Swaps (ZCS) for portfolio compression.

[0143] This approach involves reducing the notional amount of the original IRS contract while simultaneously scaling up the fixed rate by a substantial factor. This manipulation maintains the overall present value of the cash flows while drastically reducing the gross notional, a significant driver in portfolio compression.

[0144] By transforming the original IRS contracts in this manner, they may effectively function as "synthetic ZCS" with known amounts and potentially non-zero Theta, depending on the day count convention and remaining accrual periods. These synthetic ZCS may then be utilized in the same way as the seeded ZCS pairs described earlier, acting as clearing agents for other fixed cash flows in the portfolio.

[0145] Such a strategy offers several advantages. For example, leveraging existing contracts eliminates the need to introduce new ZCS contracts, simplifying the compression process. Also, gross notional may be significantly reduced by scaling down the original IRS notional amounts, enhancing compression efficiency. Economic value of the cash flows may be preserved by adjusting the fixed rate proportionally. This helps maintain present value. The approach also offers flexibility in managing risk by choosing between synthetic ZCS with zero or non-zero Theta, depending on the specific requirements and risk appetite.

[0146] Such an approach relies on client acceptance of large, non-market-conforming fixed rates. It may involve careful calculation and management of the scaled fixed rates to ensure the desired present value and risk profile are maintained. Overall, leveraging original IRS contracts as synthetic ZCS presents a viable alternative for portfolio compression, particularly when clients are open to large, fixed rates. This strategy may further enhance compression efficiency, risk reduction, and portfolio optimization, contributing to a more robust and streamlined derivatives management process.Using Original IRS Instead of ZC: Float Rate Spread

[0147] In scenarios where clients are amenable to large spreads that deviate significantly from market norms, the original Interest Rate Swaps (IRS) with fixed cash flows (including those with fixated floating legs) remaining may be leveraged as an alternative to Zero-Coupon Swaps (ZCS) for portfolio compression.Atty. Docket: 24-1717-WO

[0148] This approach involves reducing the notional amount of the original IRS contract while simultaneously scaling up the spread on the fixed float rate cash flows by a substantial factor. This manipulation maintains the overall present value of the cash flows while drastically reducing the gross notional, a significant driver in portfolio compression.

[0149] By transforming the original IRS contracts in this manner, they may effectively function as "synthetic ZCS" with known amounts and potentially non-zero Theta, depending on the day count convention and remaining accrual periods. These synthetic ZCS may then be utilized in the same way as the seeded ZCS pairs described earlier, acting as clearing agents for other fixed cash flows in the portfolio.

[0150] This strategy offers several advantages. For example, leveraging existing contracts eliminates the need to introduce new ZCS contracts, simplifying the compression process. Also, gross notional may be significantly reduced by scaling down the original IRS notional amounts, enhancing compression efficiency. Economic value of the cash flows may be preserved by adjusting the spread proportionally. This helps maintain present value. The approach also offers flexibility in managing risk by choosing between synthetic ZCS with zero or non-zero Theta, depending on the specific requirements and risk appetite.

[0151] Such an approach relies on client acceptance of large, non-market-conforming spreads. It may involve careful calculation and management of the scaled spreads to ensure the desired present value and risk profile are maintained.

[0152] Overall, leveraging original IRS contracts with large spreads as synthetic ZCS presents a viable alternative for portfolio compression, particularly when clients are open to such terms. This strategy may further enhance compression efficiency, risk reduction, and portfolio optimization, contributing to a more robust and streamlined derivatives management process.

[0153] FIG. 2 illustrates an example flowchart 200, in accordance with example embodiments. Flowchart 200 illustrates both phases described herein. For example, it illustrates the comprehensive, multi-step method for portfolio compression using the novel grouping and Theta constraint approaches described herein.

[0154] At block 205, the process begins by gathering the full universe of IRS contracts in the portfolio to be compressed.

[0155] A first filter may be applied at block 210. For example, contracts are checked to determine whether they include unfixed, variable-rate cash flows.

[0156] At block 215, it may be determined that floating point cash flows are left. Accordingly, the contract may not be eligible for a Moving Amount Compressor, which mayAtty. Docket: 24-1717-WO be designed for fixed or fixated cash flows. This contract may be routed to Standard IRS compression performed at block 220, which uses traditional compression methods.

[0157] At block 225, it may be determined that no floating point cash flows are left. If a contract has fixed or already-fixated floating cash flows (e.g., known amounts), it proceeds to the next filter at block 230 to check for eligibility for the Moving Amount Compressor.

[0158] At block 230, a second filter may be applied which applies the risk parameters to ensure CCP neutrality. Contracts are excluded if they are beyond the maximum time horizon for compression (e.g., controlled by furthest moving amount compression) or they have an accrual end date too close to a potential date where the Theta value might jump (e.g., controlled by num ThetaJump safety days).

[0159] At block 235, it may be determined that the contract ends too late or close to Theta jump and may be therefore deemed ineligible for the Moving Amount Compressor. For example, if a contract may be deemed too risky due to its date or proximity to a Theta jump, it may be excluded and routed to Standard IRS compression performed at block 220, which uses traditional compression methods.

[0160] At block 240, it may be determined that the contract does not end too late or close to Theta jump and may be therefore deemed eligible for the Moving Amount Compressor. For example, if the contract has fixed / fixated cash flows and passes the Theta risk checks, it may be eligible for the Moving Amount Compressor.

[0161] At block 245, remaining contracts are grouped based on dates and relevant attributes. For example, eligible cash flows are organized into groups based on shared attributes like trade end date, roll date, holiday calendars, and business day conventions to ensure uniform movement in response to calendar changes.

[0162] At block 250, for a group and a client, ZC or IRS clearing agents are added. For example, strategically offsetting Zero-Coupon Swaps (ZCS) or synthetic IRS contracts are introduced to the group to facilitate a greater reduction in gross notional during the optimization.

[0163] Some embodiments involve generating, by the computer processor and for a group of the one or more groups, a compression constraint set comprising: (a) an amount constraint configured so that a first sum of cash flow amounts within the group are substantially zero, and (b) a Theta constraint configured so that a second sum of Theta values for the cash flows within the group are within a threshold of zero. For a group of synchronized cash flows, the platform generates a compression constraint set that includes two rules: first, the amount constraint, which may involve that the net sum of cash flow amounts within the group may beAtty. Docket: 24-1717-WO substantially zero, thereby preserving the current economic net position. Second, the Theta constraint may involve the net sum of the Theta values (the cash flows' collective sensitivity to calendar-induced accrual changes) to be within a defined threshold of zero, which acts as a dynamic buffer guaranteeing that the Central Clearing House's market neutrality may be maintained even when holidays shift, allowing the compression optimization to proceed with confidence.

[0164] Accordingly, at block 255, for a group, amount and Theta constraints are created. For example, for a grouped set of cash flows, the two mathematical requirements are formalized: the Amount Constraint (sum equals zero) and the Theta Constraint (sum of sensitivity to calendar changes equals zero or may be within tolerance).

[0165] Some embodiments involve applying the Theta constraint to cash flows associated with a grouping that may be based on accrual -related properties. The Theta constraint may be introduced specifically to limit the Central Clearing House's (CCP) exposure to changes in cash flow amounts resulting from an altered accrual period length, which may be caused by calendar shifts. Therefore, the constraint may be logically and mathematically applied to groupings that are themselves defined by accrual-related properties, such as the day count convention, accrual business day convention, and holiday calendars. Also, for example, a payment date constraint would ignore accrual properties because the Theta of a cash flow paying on a specific, already-set date may be zero; hence, the Theta constraint may be tethered to groups where the accrual details are the moving parts the techniques described herein seek to synchronize and control.

[0166] In some embodiments, the Theta constraint may be configured to limit a risk exposure of the digital central clearing platform to changes in cash flow amount resulting from a holiday calendar change that alters an accrual period length. For example, the Theta constraint may be introduced to directly solve the technical problem that a Central Clearing House (CCP) faces when processing contracts with known (fixed) amounts: while the cash flow amount is fixed, an unexpected holiday calendar change may alter the number of days in the accrual period (e.g., in Act / 365 day count), which, in turn, changes the final calculated cash flow amount. By configuring the Theta constraint to enable the net sum of this calendar-induced sensitivity to be near zero, the system mathematically limits the risk exposure of the CCP, guaranteeing that the compressed portfolio will remain market-neutral and financially flat across time, even in the face of evolving calendar events.

[0167] In some embodiments, the Theta constraint may be configured so that the second sum may be zero. For example, the computer processor may set the net sensitivity ofAtty. Docket: 24-1717-WO the grouped cash flows to calendar risk to be precisely zero. While the general constraint permits a small "threshold" or tolerance around zero, in some embodiments the second sum of Theta values may be zero, thereby enforcing an absolute guarantee of market neutrality for the digital central clearing platform. By requiring a perfect offsetting of calendar-based accrual period sensitivities, the rigor of the risk management may be maximized while still enabling the efficiency gains of portfolio compression.

[0168] Some embodiments involve determining, by the computer processor and for a group of the one or more groups, an optimized portfolio compression configured to optimally reduce gross notional for the digital cash flows subject to the compression constraint set. For example, after the processor has successfully grouped the cash flows and imposed the amount and Theta constraints, the optimized portfolio compression step may be executed. Generally, different clients may have different constraints that are selected by each client. For example, the client may select how a Delta is allowed to move. The central clearing platform may impose constraints (e.g., amount constraint, Theta constraint) to ensure that after compression, the net financial exposure is mathematically zero, both immediately and in the future. A client (e.g., a bank or financial institution) uses the compression service to achieve efficiency (e.g., lower capital charges, lower gross notional). Unlike the CCP, the client manages risk; they do not necessarily demand perfect zero risk. Accordingly, the client may seek to maximize notional reduction while keeping their overall risk exposure (e.g., Delta) and other risk metrics within acceptable, self-defined bounds. The primary objective function of this optimization may be to maximally reduce the gross notional of the fixed or fixated cash flows, which may be a significant determinant for lowering capital charges, storage costs, and computational overhead for financial institutions. Because the solution may be calculated subject to the compression constraint set, the resulting compressed portfolio, which represents the optimal reduction in data objects, maintains the original economic value and the Central Clearing House's risk neutrality against future calendar events.

[0169] In some embodiments, the determining of the optimized portfolio compression comprises maximizing a reduction in the gross notional while simultaneously minimizing an introduction of new gross notional from newly added clearing agents. While one objective may be to maximize the reduction in gross notional from existing, redundant trades, the introduction of clearing agents (Zero-Coupon Swaps or synthetic IRS) may also add new gross notional to the portfolio. Therefore, the computer processor may simultaneously minimize the introduction of this new gross notional from these agents. This dual objective ensures that the maximum possible efficiency may be achieved, as it drives down the gross notional of the old trades whileAtty. Docket: 24-1717-WO strategically limiting the size of the clearing agents, ensuring the final, compressed portfolio has the lowest possible overall gross notional subject to satisfying risk-neutral constraints.

[0170] In some embodiments, the determining of the optimized portfolio compression comprises maximizing a reduction in gross notional for the plurality of fixed or fixated cash flows, thereby reducing a data footprint of a risk profile of the portfolio while maintaining a net risk position. For example, computer processor may be configured to maximize the reduction in gross notional for the fixed or fixated cash flows, resulting in a highly efficient data compression algorithm on the portfolio's risk profile. The result of this optimization may be the substantial reduction of the data footprint, meaning fewer derivative data objects need to be stored, transmitted, and processed by clients and vendors. Such a significant reduction in data size may be achieved while simultaneously maintaining the net risk position, as the optimization may be constrained by the amount and Theta constraints, ensuring that the final, smaller set of derivative contracts may be economically and risk-neutral equivalent to the original, much larger set.

[0171] Block 260 involves portfolio compression execution. For example, the optimization problem may be solved subject to the generated constraints, maximizing notional reduction, and formally recording the resulting compression transaction.

[0172] Some embodiments involve executing, by the computer processor and based on the optimized portfolio compression, a compression transaction that replaces the initial collection of derivative financial instruments with a smaller collection of economically equivalent contracts, resulting in improved memory consumption by the digital central clearing platform while maintaining risk neutrality. For example, the computer processor, upon executing the optimized portfolio compression, replaces the initial, large collection of derivative financial instruments with a smaller collection of economically equivalent contracts. This resulting reduction in the number of derivative data objects directly leads to improved memory consumption (and reduced storage) for the digital central clearing platform, which may be a significant technical advantage. Also, for example, this efficiency gain may be guaranteed because the process may be constrained by the strict amount and Theta constraints, which ensure that the reduced portfolio fully maintains risk neutrality against both current market values and future calendar shifts.

[0173] In some embodiments, the compression transaction results in a reduced set of derivative contracts that represents the same risk profile using fewer data objects than the original plurality of fixed or fixated digital cash flows. For example, the process begins with an original plurality of fixed or fixated digital cash flows, a large number of derivative contractsAtty. Docket: 24-1717-WO represented as data objects in a computer system. The execution of the compression transaction results in a reduced set of derivative contracts that represents the same risk profile as the original portfolio. This may be achieved by systematically identifying and eliminating redundant trades, leading directly to the use of fewer data objects in the database. This technical outcome may be highly significant as it yields quantifiable operational advantages, including reduced storage requirements and decreased computational power needed for risk calculations.

[0174] In some embodiments, the reduction in the number of data objects results in a corresponding reduction in storage volume to persist a risk profile for a given portfolio on a computer-readable storage medium. For example, a direct, tangible technical benefit may be derived from the data compression efficiency. By successfully executing the optimized portfolio compression, the computer processor reduces the total number of data objects (e.g., derivative contracts) needed to digitally represent the portfolio's risk profile. This reduction translates into a proportionate reduction in storage volume on the computer-readable storage medium (e.g., hard drives or databases) used by clients and clearing platforms. This technical gain may be a significant commercial advantage, as it directly lowers operational expenses associated with data storage and persistence.

[0175] In some embodiments, the reduction in the number of data objects results in a corresponding reduction in network bandwidth usage needed to transmit a risk profile for a given portfolio between a client and a compression service vendor. Another technical benefit relates to the transmission of portfolio data over a network. By maximizing the reduction in the number of data objects (e.g., derivative contracts) that may be needed to represent the risk profile, the processor significantly decreases the total volume of data that may be sent across the network. This reduction directly translates into a corresponding reduction in network bandwidth usage when a client sends their portfolio data to a compression service vendor, or when the platform transmits its post-compression status. This technical advantage saves on networking costs, reduces latency in data processing cycles, and increases the speed and efficiency of the overall transaction workflow between financial institutions and their service providers.

[0176] In some embodiments, the reduced set of derivative contracts results in a lower consumption of computational power to calculate risk numbers selected from one or more of an Initial Margin (IM) or an XVA. The term “XV A” as used herein may generally refers to valuation adjustments such as a Credit Valuation Adjustment (CVA), a Debit Valuation Adjustment (DVA), a Funding Valuation Adjustment (FVA), a Margin Valuation Adjustment (MV A), or a Capital Valuation Adjustment (KVA). A CVA involves cost (or price reduction)Atty. Docket: 24-1717-WO needed to compensate the dealer for the risk that the client defaults on the transaction. A DVA refers to a benefit (or price increase) that a client receives by accounting for their own default risk (though regulatory changes have complicated its treatment). An FVA involves a cost or benefit of funding the collateral required to support the derivative trade over its lifetime. An MVA involves a cost of funding the initial margin (IM) posted on cleared or non-cleared derivatives. A KVA refers to the cost of holding regulatory capital against the derivative trade.

[0177] The data compression efficiency results in computational savings in risk calculations. Because the optimized compression transaction replaces a large set of data objects with a reduced set of contracts while maintaining the same risk profile, the computational workload needed for complex, iterative risk calculations may be significantly decreased. This may be particularly significant for calculating relevant resource-intensive risk numbers, such as Initial Margin (IM), which determines collateral requirements, and XV A, which measures the cost of credit risk. By reducing the number of contracts that may be modeled and processed in these calculations, the processor achieves a lower consumption of computational power, thereby speeding up processing times and lowering hardware costs for both the platform and its member clients.

[0178] In some embodiments, the reduced set of derivative contracts results in a lower consumption of computational power to produce transaction data selected from one or more of a cash flow data or risk vectors. For example, technical efficiency gain may be achieved in the routine production of portfolio data following the compression transaction. Because the system has replaced a large volume of redundant derivative contracts with a reduced set of contracts that may be economically and risk-equivalent, the subsequent computational processes that generate significant portfolio reports and analysis are substantially sped up. Specifically, the lower consumption of computational power may be realized when the computer processor is tasked with producing relevant transaction data, such as detailed future cash flow data (e.g., the list of scheduled payments / receipts) or complex risk vectors (e.g., datasets used to model the portfolio's sensitivity across various factors), leading to faster reporting cycles and lower processing overhead for both clients and service vendors.

[0179] The compression process terminates at block 265.

[0180] As described flowchart 200 visually integrates the two phases, the creation of risk-managed groups with Theta constraints, and the use of ZC / Synthetic IRS clearing agents, into a single, robust compression methodology.Atty. Docket: 24-1717-WOExample Computing Environment

[0181] FIG. 3 depicts a distributed computing environment 300, in accordance with example embodiments. Distributed computing environment 300 includes a compression platform 310 (e.g., a server device, a distributed system, a hybrid cloud, a cloud server, and so forth) that may be configured to communicate, via network 305, with one or more computing devices, such as a tablet device 315, a smartphone device 320, and a desktop 325. The compression platform 310 may be a digital central clearing platform described herein. Network 305 may correspond to a local area network (LAN), a wide area network (WAN), a WLAN, a WWAN, an intranet, a public Internet, or any other type of network configured to provide a communications path between networked computing devices. Network 305 may also correspond to a combination of one or more networks.Example Computing Device

[0182] FIG. 4 is a block diagram illustrating an example computer device 400, in accordance with example embodiments. Example computer devices 400 may include one or more computing devices of FIG. 3, such as a tablet device 315, a smartphone device 320, and a desktop 325.

[0183] Computing device 400 may include modules to provide various functionalities, such as for example, an input / output (I / O) bus interface 405, a network controller 415, a processor 420, memory 430, and interface 440, which may be linked together via a system bus, or other connection mechanism 450.

[0184] Input / output (I / O) bus interface 405 may be configured to send data to and / or receive data from peripheral devices 410 such as a touch screen, a computer mouse, a keyboard, a microphone, external monitors, and the like.

[0185] Network controller 415 may be configured to provide one or more wireless interface(s) and / or one or more wireline interface(s) that may be configured to communicate with a network (e.g, network 305 of FIG. 3). Wireless interface(s) may include wireless transmitters, receivers, and / or transceivers (e.g, for Bluetooth, Wi-Fi, near-field communications, etc.). Wireline interface(s) may include wireline transmitters, receivers, and / or transceivers (e.g., Ethernet transceiver).

[0186] Processor 420 may include a general purpose processor, and / or special purpose processors (e.g., digital signal processors, graphics processing units (GPUs) such as a graphics processor 425, media processing processors, image processing processors, text processing processors, speech processing processors, etc.). Processor 420 may be configured to executeAtty. Docket: 24-1717-WO computer-readable instructions 435 that are contained in memory 430 and / or other instructions as described herein.

[0187] The operations include receiving, by a computer processor and from a plurality of clients, a plurality of fixed or fixated digital cash flows derived from an initial collection of derivative financial instruments. The operations further include determining, by the computer processor and based on a shared set of date-related attributes, a grouping of the plurality of fixed or fixated digital cash flows into one or more groups, wherein the grouping may be configured so that digital cash flows within a group are synchronized to comprise substantially uniform date and accrual period adjustments in response to a change in the shared attributes. The operations also include generating, by the computer processor and for a group of the one or more groups, a compression constraint set comprising: (a) an amount constraint configured so that a first sum of cash flow amounts within the group are substantially zero, and (b) a Theta constraint configured so that a second sum of Theta values for the cash flows within the group are within a threshold of zero. The operations further include determining, by the computer processor and for the group of the one or more groups, an optimized portfolio compression configured to optimally reduce gross notional for the digital cash flows subject to the compression constraint set. The operations additionally include executing, by the computer processor and based on the optimized portfolio compression, a compression transaction that replaces the initial collection of derivative financial instruments with a smaller collection of economically equivalent contracts, resulting in improved memory consumption by the digital central clearing platform while maintaining risk neutrality.

[0188] Memory 430 may include one or more non-transitory computer-readable storage media that may be read and / or accessed by processor 420. The one or more computer- readable storage media may include volatile and / or non-volatile storage components. In some examples, memory 430 may be implemented using a single physical device, while in other examples, memory 430 may be implemented using multiple physical devices.

[0189] Memory 430 may include computer-readable instructions 435 that, when executed by processor 420, enable computing device 400 to provide for some or all of the functionality of the computing devices and / or media content sharing platforms described herein.

[0190] Display interface 440 may be configured to send data to and / or receive data from external user input / output display devices 445 such as a touch screen, external monitors, and the like. Display interface 440 may also be configured to generate audio and / or video outputs.Atty. Docket: 24-1717-WOExample Methods of Operation

[0191] FIG. 5 is a flowchart of an example method 500 for improving memory consumption by a digital central clearing platform during multilateral portfolio compression, in accordance with example embodiments. Method 1100 may include various blocks or steps. The blocks or steps may be performed individually or in combination. The blocks or steps may be performed in any order and / or in series or in parallel. Further, blocks or steps may be omitted or added to method 500.

[0192] The blocks of method 500 may be performed by various elements of computing device 400 as illustrated and described in reference to FIG. 4.

[0193] Block 510 involves receiving, by a computer processor and from a plurality of clients, a plurality of fixed or fixated digital cash flows derived from an initial collection of derivative financial instruments.

[0194] Block 520 involves determining, by the computer processor and based on a shared set of date-related attributes, a grouping of the plurality of fixed or fixated digital cash flows into one or more groups, wherein the grouping may be configured so that digital cash flows within a group are synchronized to comprise substantially uniform date and accrual period adjustments in response to a change in the shared attributes.

[0195] Block 530 involves generating, by the computer processor and for a group of the one or more groups, a compression constraint set comprising: (a) an amount constraint configured so that a first sum of cash flow amounts within the group are substantially zero, and (b) a Theta constraint configured so that a second sum of Theta values for the cash flows within the group are within a threshold of zero.

[0196] Block 540 involves determining, by the computer processor and for the group of the one or more groups, an optimized portfolio compression configured to optimally reduce gross notional for the digital cash flows subject to the compression constraint set.

[0197] Block 550 involves executing, by the computer processor and based on the optimized portfolio compression, a compression transaction that replaces the initial collection of derivative financial instruments with a smaller collection of economically equivalent contracts, resulting in improved memory consumption by the digital central clearing platform while maintaining risk neutrality.

[0198] Some embodiments involve, prior to the determining of the optimized portfolio compression, adding at least one of a Zero-Coupon Swap (ZCS) or a synthetic IRS contract toAtty. Docket: 24-1717-WO the plurality of fixed or fixated digital cash flows to function as a clearing agent for the group, wherein the clearing agent has known cash flow amounts and a defined Theta value.

[0199] Some embodiments involve generating the synthetic IRS contract by reducing a notional amount of an initial IRS contract while simultaneously scaling up an associated fixed rate or an associated spread to maintain a substantially equivalent present value of cash flows for the initial IRS contract.

[0200] In some embodiments, the ZCS may be a Zero-Coupon Known- Amount (KA) Swap having a fixed cash flow amount that may be predetermined and independent of the passage of time or fluctuating market variables, thereby having a Theta value of zero.

[0201] In some embodiments, the ZCS may be an accrual -based ZCS, and the defined Theta value may be non-zero and may be adjusted by manipulating one or more of the accrual start date, notional size, fixed rate, or day count convention.

[0202] Some embodiments involve determining a first risk management parameter indicative of a minimum number of business days between an accrual end date and a potential Theta jump date for a cash flow to be eligible for the grouping. Such embodiments involve determining a second risk management parameter indicative of a maximum time horizon for a cash flow to be eligible for the grouping.

[0203] In some embodiments, the grouping excludes cash flows that have an accrual end date within the number of business days defined by the first risk management parameter of the potential Theta jump date.

[0204] In some embodiments, the Theta jump date for the cash flow may be identified based on a sensitivity discontinuity in a day count convention.

[0205] In some embodiments, the day count convention comprises a ratio of 30 to 360 near month-ends.

[0206] In some embodiments, an accrual business day convention may be Following and an adjusted end date for the cash flow may be the same as an unadjusted end date for the cash flow. Such embodiments involve bypassing a backward search for the potential Theta jump date.

[0207] In some embodiments, an accrual business day convention may be Following and an adjusted end date for the cash flow may be different from an unadjusted end date for the cash flow. Such embodiments involve terminating a backward search for the potential Theta jump date upon hitting a weekend day.

[0208] In some embodiments, the determining of the grouping comprises grouping a cash flow having a Modified Following business day convention with a cash flow having aAtty. Docket: 24-1717-WOFollowing business day convention by using a month-end-safety-days parameter to ensure that a potential holiday adjustment is not likely to cause a Modified Following date to cross a month-end.

[0209] Some embodiments involve applying the Theta constraint to cash flows associated with a grouping that may be based on accrual -related properties.

[0210] Some embodiments involve determining that a Theta for cash flows paying on a given payment date may be substantially zero. The determining of the grouping, for a secondary payment date constraint, may be based on a payment date property that may be independent of an accrual-related property.

[0211] Some embodiments involve, upon a determination that a given IRS contract has an ongoing fixed floating cash flow and additional unfixed cash flows, the determining of the grouping involves splitting the IRS contract into a synthetic ZCS representing the ongoing fixed floating cash flow, and grouping the synthetic ZCS with other similar fixed cash flows for Theta constraint application.

[0212] In some embodiments, the Theta constraint may be configured to limit a risk exposure of the digital central clearing platform to changes in cash flow amount resulting from a holiday calendar change that alters an accrual period length.

[0213] In some embodiments, the plurality of fixed or fixated cash flows comprises fixed cash flows from multiple initial derivative financial instruments having different reference indices.

[0214] In some embodiments, the plurality of fixed or fixated cash flows comprises cash flows from multiple initial derivative financial instruments having different cash flow lengths.

[0215] In some embodiments, the determining of the optimized portfolio compression comprises maximizing a reduction in the gross notional while simultaneously minimizing an introduction of new gross notional from newly added clearing agents.

[0216] In some embodiments, the Theta constraint may be configured so that the second sum may be zero.

[0217] In some embodiments, the date-related attributes comprise one or more of a trade end date, a roll date, a holiday calendar, an accrual business day convention, or a day count convention.

[0218] In some embodiments, the plurality of fixed or fixated cash flows are held in a portfolio by a single client or institution, and wherein the portfolio compression may be performed unilaterally on the portfolio.Atty. Docket: 24-1717-WO

[0219] In some embodiments, the compression transaction results in a reduced set of derivative contracts that represents the same risk profile using fewer data objects than the original plurality of fixed or fixated digital cash flows.

[0220] In some embodiments, the reduction in the number of data objects results in a corresponding reduction in storage volume needed to persist a risk profile for a given portfolio on a computer-readable storage medium.

[0221] In some embodiments, the reduction in the number of data objects results in a corresponding reduction in network bandwidth usage needed to transmit a risk profile for a given portfolio between a client and a compression service vendor.

[0222] In some embodiments, the reduced set of derivative contracts results in a lower consumption of computational power to calculate risk numbers selected from one or more of an Initial Margin (IM) or an XVA.

[0223] In some embodiments, the reduced set of derivative contracts results in a lower consumption of computational power to produce transaction data selected from one or more of a cash flow data or risk vectors.

[0224] In some embodiments, the determining of the optimized portfolio compression comprises maximizing a reduction in gross notional for the plurality of fixed or fixated cash flows, thereby reducing a data footprint of a risk profile of the portfolio while maintaining a net risk position.

[0225] In some embodiments, the derivative financial instruments include one or more of Interest Rate Swap (IRS) contracts, fixed-rate bonds, credit default swaps (CDS) contracts, or foreign exchange (FX) derivatives with fixed notional flows.

[0226] In some embodiments, the digital central clearing platform may be a central counterparty platform (CCP).

[0227] While numerous advantages and benefits have been described, either expressly or implicitly, in this disclosure, some additional advantages include increased reduction of gross notional in risk-free netting, coupon blending, and multilateral compression, resulting in increased efficiency and revenue. In addition, another benefit may be a reduction in the number of data objects at the CCP and the clients, which results in reduction in the used data storage to represent the objects and reduce computational cost of various calculations performed by the objects. Furthermore, a reduced number of objects at the CCP and the clients reduces used bandwidth when data may be sent to vendors / other entities’ platform from the CCP’s platform and the clients’ platform for various services, for example data sent for multilateral compression. With less data objects between the CCP and the clients there is reducedAtty. Docket: 24-1717-WO operational processes needed and reduced operational cost, due to the lower number of cash flow objects in need of processing.

[0228] While the disclosed embodiments are discussed in relation to IRS contracts or trades, it will be appreciated that aspects of the disclosure may be applicable to other bilateral contracts, or other multilateral relationships. For instance, the disclosed methods and systems may also be useful in connection with other types of swap trades, including, for instance, those involving cash flows, such as basis swaps, constant maturity swaps, and cross-currency swaps. The disclosed methods and systems may be used in connection with any other market now available or later developed.

[0229] In some cases, the compression provided by the disclosed methods and systems may be initiated and others may be implemented automatically. For example, the disclosed methods and systems may be configured to automatically process a set of data objects upon the detection of a trigger event or condition, such as a set of data objects exceeding a data size threshold. Alternatively, or additionally, the disclosed methods and systems may be configured to automatically evaluate sets of data objects for compression, e.g., on a periodic or regular basis.

[0230] The present disclosure is not to be limited in terms of the particular embodiments described in this application, which are intended as illustrations of various aspects. Many modifications and variations may be made without departing from its spirit and scope, as will be apparent to those skilled in the art. Functionally equivalent methods and apparatuses within the scope of the disclosure, in addition to those enumerated herein, will be apparent to those skilled in the art from the foregoing descriptions. Such modifications and variations are intended to fall within the scope of the appended claims.

Claims

Atty. Docket: 24-1717-WOCLAIMSWhat is claimed is:

1. A computer-implemented method for improving memory consumption by a digital central clearing platform during multilateral portfolio compression, the method comprising: receiving, by a computer processor and from a plurality of clients, a plurality of fixed or fixated digital cash flows derived from an initial collection of derivative financial instruments; determining, by the computer processor and based on a shared set of date-related attributes, a grouping of the plurality of fixed or fixated digital cash flows into one or more groups, wherein the grouping is configured so that digital cash flows within a group are synchronized to comprise substantially uniform date and accrual period adjustments in response to a change in the shared attributes; generating, by the computer processor and for a group of the one or more groups, a compression constraint set comprising: (a) an amount constraint configured so that a first sum of cash flow amounts within the group are substantially zero, and (b) a Theta constraint configured so that a second sum of Theta values for the cash flows within the group are within a threshold of zero; determining, by the computer processor and for the group of the one or more groups, an optimized portfolio compression configured to optimally reduce gross notional for the digital cash flows subject to the compression constraint set; and executing, by the computer processor and based on the optimized portfolio compression, a compression transaction that replaces the initial collection of derivative financial instruments with a smaller collection of economically equivalent contracts, resulting in improved memory consumption by the digital central clearing platform while maintaining risk neutrality.

2. The method of claim 1, further comprising: prior to the determining of the optimized portfolio compression, adding at least one of a Zero-Coupon Swap (ZCS) or a synthetic IRS contract to the plurality of fixed or fixated digital cash flows to function as a clearing agent for the group, wherein the clearing agent has known cash flow amounts and a defined Theta value.Atty. Docket: 24-1717-WO3. The method of claim 2, further comprising: generating the synthetic IRS contract by reducing a notional amount of an initial IRS contract while simultaneously scaling up an associated fixed rate or an associated spread to maintain a substantially equivalent present value of cash flows for the initial IRS contract.

4. The method of claim 2, wherein the ZCS is a Zero-Coupon Known- Amount (KA) Swap having a fixed cash flow amount that is predetermined and independent of the passage of time or fluctuating market variables, thereby having a Theta value of zero.

5. The method of claim 2, wherein the ZCS is an accrual-based ZCS, and the defined Theta value is non-zero and is adjusted by manipulating one or more of the accrual start date, notional size, fixed rate, or day count convention.

6. The method of claim 1, further comprising: determining a first risk management parameter indicative of a minimum number of business days between an accrual end date and a potential Theta jump date for a cash flow to be eligible for the grouping; and determining a second risk management parameter indicative of a maximum time horizon for a cash flow to be eligible for the grouping.

7. The method of claim 6, wherein the grouping excludes cash flows that have an accrual end date within the number of business days defined by the first risk management parameter of the potential Theta jump date.

8. The method of claim 6, wherein the Theta jump date for the cash flow is identified based on a sensitivity discontinuity in a day count convention.

9. The method of claim 8, wherein the day count convention comprises a ratio of 30 to 360 near month-ends.

10. The method of claim 6, wherein an accrual business day convention is Following and an adjusted end date for the cash flow is the same as an unadjusted end date for the cash flow, further comprising: bypassing a backward search for the potential Theta jump date.Atty. Docket: 24-1717-WO11. The method of claim 6, wherein an accrual business day convention is Following and an adjusted end date for the cash flow is different from an unadjusted end date for the cash flow, further comprising: terminating a backward search for the potential Theta jump date upon hitting a weekend day.

12. The method of claim 1, wherein the determining of the grouping comprises grouping a cash flow having a modified Following business day convention with a cash flow having a Following business day convention by using a month-end-safety-days parameter to ensure that a potential holiday adjustment is not likely to cause a modified Following date to cross a month- end.

13. The method of claim 1, further comprising: applying the Theta constraint to cash flows associated with a grouping that is based on accrual-related properties.

14. The method of claim 1, further comprising: determining that a Theta for cash flows paying on a given payment date is substantially zero, and wherein the determining of the grouping, for a secondary payment date constraint is based on a payment date property that is independent of an accrual-related property.

15. The method of claim 1, further comprising: upon a determination that a given IRS contract has an ongoing fixed floating cash flow and additional unfixed cash flows, the determining of the grouping comprises: splitting the IRS contract into a synthetic ZCS representing the ongoing fixed floating cash flow, and grouping the synthetic ZCS with other similar fixed cash flows for Theta constraint application.

16. The method of claim 1, wherein the Theta constraint is configured to limit a risk exposure of the digital central clearing platform to changes in cash flow amount resulting from a holiday calendar change that alters an accrual period length.Atty. Docket: 24-1717-WO17. The method of claim 1, wherein the plurality of fixed or fixated cash flows comprises fixed cash flows from multiple initial derivative financial instruments having different reference indices.

18. The method of claim 1, wherein the plurality of fixed or fixated cash flows comprises cash flows from multiple initial derivative financial instruments having different cash flow lengths.

19. The method of claim 1, wherein the determining of the optimized portfolio compression comprises maximizing a reduction in the gross notional while simultaneously minimizing an introduction of new gross notional from newly added clearing agents.

20. The method of claim 1, wherein the Theta constraint is configured so that the second sum is zero.

21. The method of claim 1, wherein the date-related attributes comprise one or more of a trade end date, a roll date, a holiday calendar, an accrual business day convention, or a day count convention.

22. The method of claim 1, wherein the plurality of fixed or fixated cash flows are held in a portfolio by a single client or institution, and wherein the portfolio compression is performed unilaterally on the portfolio.

23. The method of claim 1, wherein the compression transaction results in a reduced set of derivative contracts that represents the same risk profile using fewer data objects than the original plurality of fixed or fixated digital cash flows.

24. The method of claim 23, wherein the reduction in the number of data objects results in a corresponding reduction in storage volume needed to persist a risk profile for a given portfolio on a computer-readable storage medium.Atty. Docket: 24-1717-WO25. The method of claim 23, wherein the reduction in the number of data objects results in a corresponding reduction in network bandwidth usage needed to transmit a risk profile for a given portfolio between a client and a compression service vendor.

26. The method of claim 23, wherein the reduced set of derivative contracts results in a lower consumption of computational power to calculate risk numbers selected from one or more of an Initial Margin (IM) or an XVA.

27. The method of claim 23, wherein the reduced set of derivative contracts results in a lower consumption of computational power to produce transaction data selected from one or more of a cash flow data or risk vectors.

28. The method of claim 1, wherein the determining of the optimized portfolio compression comprises maximizing a reduction in gross notional for the plurality of fixed or fixated cash flows, thereby reducing a data footprint of a risk profile of the portfolio while maintaining a net risk position.

29. The method of claim 1, wherein the derivative financial instruments comprise one or more of Interest Rate Swap (IRS) contracts, fixed-rate bonds, credit default swaps (CDS) contracts, or foreign exchange (FX) derivatives with fixed notional flows.

30. The method of claim 1, wherein the digital central clearing platform is a central counterparty platform (CCP).

31. A computing device for improving memory consumption by a digital central clearing platform during multilateral portfolio compression, comprising: one or more processors; and data storage, wherein the data storage has stored thereon computer-executable instructions that, when executed by the one or more processors, cause the computing device to perform steps in accordance with the computer-implemented method of any one of claims 1- 30.

32. A computer program for improving memory consumption by a digital central clearing platform during multilateral portfolio compression comprising instructions that, when executedAtty. Docket: 24-1717-WO by a computer, cause the computer to perform steps in accordance with the computer- implemented method of any one of claims 1-30.

33. An article of manufacture for improving memory consumption by a digital central clearing platform during multilateral portfolio compression comprising one or more non- transitory computer readable media having computer-readable instructions stored thereon that, when executed by one or more processors of a computing device, cause the computing device to perform steps in accordance with the computer-implemented method of any one of claims 1-30.

34. A system for improving memory consumption by a digital central clearing platform during multilateral portfolio compression, comprising instructions that, when executed by a computer, cause the computer to perform steps in accordance with the computer-implemented method of any one of claims 1-30.

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