Rehypothecated Collateral Exchange via Pre-Release Position Locking
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Solution Overview
Problem
Current systems for managing collateral in financial transactions, particularly in Tri-Party Repos, lack efficiency in allocating and tracking rehypothecated collateral, leading to complexities in releasing collateral positions and potential risks.
Innovation Solution
A computer-implemented system and method that automates the exchange and tracking of collateral within financial deals, allowing for the identification and release of rehypothecated collateral positions by crediting net free equity across multiple levels, ensuring efficient allocation and minimizing risks.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Productivity
If manual tracking and allocation of rehypothecated collateral is used, then system complexity is reduced, but operational efficiency and accuracy deteriorate
Solution Approach 1:
The patent introduces a Tri-Party agent as an intermediary system that automatically tracks and manages rehypothecated collateral across multiple deals. This intermediary maintains a database of collateral allocations and automatically identifies rehypothecated positions, eliminating the need for manual tracking while managing the complexity through centralized automation rather than distributed manual processes.
Solution Approach 2:
The system implements automated feedback mechanisms where the Tri-Party agent continuously monitors collateral allocations, detects rehypothecation events, and triggers appropriate actions. The system provides real-time feedback on collateral status to relevant parties, enabling efficient decision-making without manual intervention.
2Reliability
If automated tracking of rehypothecated collateral is implemented, then risk mitigation improves, but system complexity increases
Solution Approach 1:
The Tri-Party agent serves as a reliable intermediary that independently verifies and tracks collateral status, providing assurance to all parties involved. This centralized verification mechanism reduces risk by eliminating manual errors and providing a single source of truth for collateral allocation status.
Solution Approach 2:
The system performs preliminary tracking and validation of collateral allocations before issues arise. By continuously monitoring collateral status and identifying rehypothecated positions in advance, the system prevents potential problems rather than reacting to them, thereby improving reliability without requiring complex emergency response mechanisms.
3Loss of time
If manual release of collateral positions is used, then operational simplicity is maintained, but time consumption and inefficiency increase
Solution Approach 1:
The system enables self-service automated release of collateral positions. When release conditions are met, the Tri-Party agent automatically processes the release without requiring manual intervention. The system identifies eligible collateral, validates release conditions, and executes releases autonomously, dramatically reducing time consumption while maintaining operational simplicity through rule-based automation.
Solution Approach 2:
The system performs preliminary identification and validation of collateral ready for release before the actual release occurs. By pre-processing and flagging eligible collateral positions, the system minimizes the time required for actual release execution, as the preparatory work has already been completed automatically.
Data Source
AI summary
In certain embodiments, concurrency related to rehypothecated allocations may be facilitated via pre-release locking of associated positions. In some embodiments, a request to release a collateral allocation may be obtained, where the collateral allocation is associated with (i) a rehypothecated position and (ii) a cloned position on a leg downstream of the rehypothecated position, and the cloned position is derived from the rehypothecated position. Based on the release request, one or more legs related to the collateral allocation may be traversed to locate and lock one or more positions on such related legs (e.g., including the cloned position of the downstream leg). Prior to release of the rehypothecated position, the cloned position of the downstream leg may be locked based on the release request. The release of the rehypothecated position may be performed to fulfill the release request in response to the cloned position of the downstream leg being locked.