OTC FX Position Mapping to Futures Tenors

Solution Overview

Problem

Integrating Over-the-Counter (OTC) Foreign Exchange (FX) positions into a futures clearing house is cumbersome due to the need for defining numerous contracts based on varying maturity dates, leading to excessive processing and storage requirements.

Innovation Solution

A method and system that define a reduced set of tenors, map OTC positions into corresponding contracts, and re-map these contracts to account for calendar day changes, allowing for efficient conversion of OTC FX positions into standardized futures contracts processable at a clearing house.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Reliability

If a futures contract is defined for every business day over the next 3 to 5 years to integrate FX spot and forwards into a clearing house, then OTC positions can be cleared at the clearing house, but the processing and storage requirements become excessive

Engineering Contradiction:

Improveclearing capabilityVSAvoidcontract management complexity

Core Design Contradiction:

ReliabilityVSDevice complexity

Solution Approach 1:

The patent segments the continuous time horizon into discrete tenor buckets (e.g., T, T+1, T+2 for spot; 1mo, 2mo, 3mo, 6mo, 1y, 2y, 3y, 4y, 5y for forwards). Instead of creating a contract for every single business day, OTC positions are mapped to these segmented tenor categories, dramatically reducing the number of contracts required while maintaining comprehensive clearing coverage.

Inventive Principle:

Principle #1Segmentation

Solution Approach 2:

The patent creates a universal mapping framework that handles both FX spot and FX forwards through a common set of tenor-based contracts. The same clearing infrastructure and contract structure serve multiple purposes: clearing spot positions, clearing forward positions, and accommodating various maturities within each tenor category, eliminating the need for separate contract definitions for each position type.

Inventive Principle:

Principle #6Universality (Multi-functionality)

2Adaptability or versatility

If a futures contract is defined for every business day over the next 3 to 5 years to integrate FX spot and forwards into a clearing house, then all OTC positions can be cleared, but the number of contracts requiring definition and maintenance becomes unmanageable

Engineering Contradiction:

Improvecoverage of OTC positionsVSAvoidcontract definition and maintenance

Core Design Contradiction:

Adaptability or versatilityVSEase of operation

Solution Approach 1:

The patent segments the continuous time horizon into discrete tenor buckets (e.g., T, T+1, T+2 for spot; 1mo, 2mo, 3mo, 6mo, 1y, 2y, 3y, 4y, 5y for forwards). Instead of creating a contract for every single business day, OTC positions are mapped to these segmented tenor categories, dramatically reducing the number of contracts required while maintaining comprehensive clearing coverage.

Inventive Principle:

Principle #1Segmentation

Solution Approach 2:

The patent changes the parameter used for contract differentiation from specific calendar dates to relative time buckets (tenors). Instead of defining contracts by absolute dates that require daily updates, the system uses relative tenor parameters (T, T+1, T+2, 1mo, 2mo, etc.) that automatically adapt to new business days, simplifying maintenance while preserving full adaptability to various OTC position maturities.

Inventive Principle:

Principle #35Parameter changes

3Reliability

If OTC positions are mapped into contracts with fixed maturity dates, then clearing house requirements are met, but calendar day changes require re-mapping of positions

Engineering Contradiction:

Improveclearing house complianceVSAvoidre-mapping frequency

Core Design Contradiction:

ReliabilityVSLoss of time

Solution Approach 1:

The patent changes the parameter used for contract differentiation from specific calendar dates to relative time buckets (tenors). Instead of defining contracts by absolute dates that require daily updates, the system uses relative tenor parameters (T, T+1, T+2, 1mo, 2mo, etc.) that automatically adapt to new business days, simplifying maintenance while preserving full adaptability to various OTC position maturities.

Inventive Principle:

Principle #35Parameter changes

Solution Approach 2:

The patent implements a dynamic mapping system where the relationship between OTC positions and clearing contracts is continuously adjusted based on the passage of time. As each business day elapses, positions are automatically re-mapped to reflect the new tenor, ensuring ongoing compliance with clearing house requirements without manual intervention. This dynamic adjustment is inherent to the tenor-based approach rather than a separate corrective process.

Inventive Principle:

Principle #15Dynamics

Data Source

PatentUS8612337B1Mapping an over the counter trade into a clearing house

Publication Date: 2013.12.17 ICAP GLOBAL BROKING INC

AI summary

A method and system converts OTC positions into contracts clearable at a futures clearing house. Each OTC position has a maturity date. The method comprises: a) defining a plurality of tenors. The plurality of tenors is fewer in number than the OTC maturity dates of the OTC positions. The method also comprises: b) defining a contract, which is clearable at the clearing house, corresponding to each tenor defined in step a); c) mapping each OTC position, as it is executed, into one or more of the contracts, based on the maturity date of the OTC position; and d) between business days, re-mapping each contract mapped at step c) to account for the move of calendar day. The invention finds particular application as a method and system to convert OTC Foreign Exchange (FX) positions into futures contracts clearable at a futures clearing house. The OTC FX positions may include OTC FX spot positions and OTC FX forwards positions.