System and method of implementing massive early terminations of long term financial contracts

A system for creating a proposal concerning OTC (Over the Counter) derivatives trade-related data regarding OTC derivative trades already entered into between financial parties, in order to reduce a number of outstanding OTC derivative trades or reduce a total outstanding notional amount of the outstanding OTC derivative trades, the system comprising:

• at least one processing apparatus and an optional central server connected to a network interconnecting the at least one processing apparatus and the optional central server,
• wherein the at least one processing apparatus, or the optional central server, is arranged to receive trade-related data, for transactions carried out between the financial parties, through the network, and
• wherein the at least one processing apparatus or the optional central server includes a processor operable arranged to generate the proposal according to parameters set respectively by the financial parties, the proposal including packages of:
• i. existing OTC transactions which, in combination, are acceptable to all involved parties, to terminate prior to their respective maturity dates;
• and
• ii. at least one newly suggested OTC transaction which is acceptable to all involved parties of the at least one newly suggested OTC transaction to enter into;
• such that a combination of the existing OTC transactions to be terminated early and the at least one newly suggested OTC transaction reduces the number of outstanding OTC trades between the financial parties or reduces the total outstanding notional amounts of the outstanding OTC trades.

A method of massive early unwind of OTC derivatives contracts in order to achieve an objective of significantly decreasing a number of overall outstanding OTC derivative transactions or a total outstanding notional amount of outstanding OTC derivative transactions between counter-parties with an aim of lowering gross and net credit exposure between the counterparties, lowering operational costs and/or risks and/or enhancing risk-control for each of the counterparties, the method comprising:

• collecting OTC derivative trade data originating from the counterparties;
• grouping together potential combinations of existing OTC transactions and optionally at least one newly suggested OTC transaction where the potential combinations have nominal or zero risk;
• calculating, by a processor, an aggregated value for each of the groups of transactions;
• and
• selecting for execution a group from the groups having the aggregated value best satisfying party-specified or pre-agreed tolerances for the early unwind where the unwind includes termination of existing trades and optionally creating at least one new trade in order to achieve the objective.

A system for creating proposals for prematurely terminating outstanding OTC (Over The Counter) derivative transactions between a plurality of parties comprising:

• a plurality of data input/output and processing stations for transmitting a transaction record of an OTC derivative transaction and operable by the parties, wherein the OTC derivative transaction is between two parties and is described by a plurality of transaction records including a transaction record from each of the plurality of parties to the OTC derivative transaction providing each party's record of the OTC derivative transaction, wherein the transaction record includes trade details identifying the OTC derivative transaction, wherein the trade details at least specify the two parties to the OTC derivative transaction, wherein the transaction record includes a designated maturity date of the OTC derivative transaction;
• a central processing station, wherein the plurality of data input/output and processing stations and the central processing station are for connecting to a communications network operatively interconnecting all of the stations;
• wherein the central processing station comprises:
• linking unit to link together two transaction records from two different parties relating to a same OTC derivative transaction, wherein the linking unit is arranged to use a plurality of items of the transaction record to determine records from different parties corresponding to the same OTC derivative transaction;
• and
• combining unit to combine together a plurality of linked transaction records to determine a premature termination proposal for terminating a plurality of linked OTC derivative transactions prior to their respective designated maturity dates, wherein the proposal is for premature termination at a date at which there is no prescribed value and no prescribed method of determining a value at which the termination should take place, and at which there is no obligation for the parties involved to make a premature termination,
• the central processing station being arranged to transmit the premature termination proposal to the data input/output and processing stations of the respective involved parties in the proposal.

A method of creating proposals for prematurely terminating outstanding OTC (Over The Counter) derivative transactions between a plurality of parties, the method comprising:

• transmitting transaction records of OTC derivative transactions by parties from at least one of a plurality data input/output and processing stations to a central processing station via a communications network operatively interconnecting all of the stations, wherein each of the OTC derivative transactions is between two parties and is described by a plurality of transaction records including a transaction record from each of the plurality of parties to the OTC derivative transaction providing each party's record of the OTC derivative transaction, wherein each of the transaction records includes trade details identifying the OTC derivative transaction, wherein the trade details at least specify two parties to the OTC derivative transaction, wherein the transaction records includes a designated maturity date of the OTC derivative transaction;
• linking together at the central station, by a processor of the central station, two transaction records received from two different parties relating to the same OTC derivative transaction, the linking step using a plurality of trade details for each record that uniquely identify the OTC derivative transaction of the record;
• combining together a plurality of linked transaction records to determine a premature termination proposal for prematurely terminating a plurality of linked OTC derivative transactions prior to their designated maturity dates, wherein the proposal is for premature termination at a date at which there is no prescribed value and no prescribed method of determining a value at which the termination should take place, and at which there is no obligation for the parties involved to make a premature termination;
• and
• transmitting the premature termination proposal to the data input/output and processing stations of the respective involved parties in the premature termination proposal.

A system for terminating massive numbers of outstanding derivative transactions between a plurality of parties, each transaction being described by a transaction record originating from at least one of the parties to the transaction, the transaction record including trade details identifying the transaction, the trade details at least specifying two parties to the transaction and a maturity date of the derivative transaction, the system being arranged to reduce an overall number of outstanding active transaction records between the parties and comprising:

• a plurality of data input/output and processing stations for transmitting a transaction record and operable by the parties;
• a central processing station for receiving transaction records originating from at least one of the parties, with each record relating to a unique transaction;
• wherein the stations are for connecting to a communications network operatively interconnecting all of the stations;
• wherein the central processing station comprises:
• a data store for storing the received transaction records;
• and
• combining unit to combine together a plurality of transaction records to determine an early termination proposal for terminating a plurality of the transactions prior to their respective maturity dates, wherein the central processing station is arranged to transmit the early termination proposal to the data input/output and processing stations, respectively, of the parties involved in the proposal for approval.

A method of terminating a massive number of outstanding derivative transactions between a plurality of parties, where each transaction is described by a transaction record provided by one of the parties to the transaction, the transaction record including trade details identifying the transaction, the trade details at least specifying two parties to the transaction and the maturity date of the derivative transaction, the method reducing an overall number of outstanding active transaction records between the parties and comprising:

• transmitting transaction records from data input/output and processing stations of the parties to a central processing station via a communications network operatively interconnecting all of the stations;
• receiving and storing at the central processing station the transaction records originating from at least one of the parties, with each record relating to a unique transaction;
• combining together, by a processor, a plurality of transaction records to determine an early termination proposal for terminating a plurality of linked transactions prior to their maturity dates;
• transmitting the early termination proposal to the data input/output and processing stations of the respective involved parties in the proposal for approval.

A computer implemented method of creating a proposal for prematurely terminating outstanding OTC (Over the Counter) derivative transactions before designated maturity dates of the derivative transactions, wherein each OTC derivative transaction is between two initial parties, the method comprising:

• each initial party assigning or novating at least one of a plurality of outstanding OTC derivative transactions to a third party, such that the third party becomes a respective counterparty to each of the initial parties for the at least one OTC derivative transaction;
• receiving, at a computer, from a plurality of transaction parties via a communications network, data describing a plurality of OTC derivative transaction records relating to the plurality of outstanding OTC derivative transactions;
• and
• generating, by a processor, using the received OTC derivative transactions, premature termination proposals consisting of packages of a plurality of OTC derivative transactions having designated maturity dates, wherein each of the proposals involves at least both the initial parties and the counterparty, and wherein the proposals are for premature termination of linked OTC derivative transactions of the packages according to parameters set by the respective parties involved.

A computer implemented method of creating a proposal for prematurely terminating outstanding OTC derivative transactions before designated maturity dates of the derivative transactions, wherein each OTC derivative transaction is between two initial parties, the method comprising:

• each initial party assigning or novating at least one of a plurality of outstanding OTC derivative transactions to a third party, such that the third party becomes a respective counter party to each of the initial parties for the at least one OTC derivative transactions;
• receiving, at a computer, from a plurality of transaction parties via a communications network, data describing a plurality of OTC derivative transaction records relating to the plurality of outstanding OTC derivative transactions;
• and
• generating, by a processor, using the received OTC derivative transactions, a plurality of bilateral premature termination proposals consisting of packages of a plurality of linked OTC derivative transactions having designated maturity dates, wherein at least one of the bilateral proposals involves at least one of the initial parties and the counterparty and a plurality of the bilateral proposals involves both the initial parties and the counterparty, and wherein the proposals are for premature termination of the linked OTC derivative transactions of the packages according to parameters set by the respectively involved parties.

A system for prematurely terminating outstanding OTC (over the counter) derivative transactions between a plurality of parties, the system comprising:

• a processing station including a processor and arranged to receive from a plurality of transaction parties via a communications network trade data describing a plurality of previously linked pairs of OTC derivation transaction records including details of designated maturity dates, mark-to-market values and/or risk characteristics indicated as Greeks, the processing station being arranged to enable each transaction party to set target values for one or more of the Greeks of any proposal for premature termination in such a way that existing exposures to one or more of the Greeks between involved parties can be reduced;
• wherein each of the transaction records in a linked pair describes a same OTC derivative transaction, wherein the processor of the processing station is operable for:
• establishing a first set of linked pairs of OTC derivative transaction records between a plurality of different transaction parties having different subjective valuations of a net present value of the same OTC derivative transaction, wherein each transaction party in the first set has both debts and claims towards other parties in the first set;
• determining, using the first set of linked pairs, a second set of linked pairs of OTC derivative transaction records involving at least three parties and corresponding, respectively, to a second set of OTC derivative transactions, wherein the second set of OTC derivative transactions has an aggregated value calculated by the processor to be substantially risk-neutral by being within party-specified tolerance limits on net present values, maturity dates and within the target values for the one or more Greeks, which are acceptable for executing a premature termination of the second set of OTC derivative transactions prior to their respective designated maturity dates, and is for a date at which there is no prescribed value and no prescribed method of determining a value at which the termination should take place, and at which there is no obligation for the involved parties to make a premature termination;
• wherein the determining furthering includes using the set target values for the one or more Greeks to reduce existing exposures to the one or more Greeks between the involved parties, and calculating a best premature termination proposal based on different criteria, where a minimal aggregated present value can be one of the different criteria;
• generating a package proposal comprising the second set of linked pairs of OTC derivative transactions, and the aggregated value for the second set of OTC derivative transactions;
• and
• providing the package proposal to the respective involved parties of the second set of OTC derivative transactions, whereafter the involved parties may agree to prematurely terminate the linked OTC derivative transactions of the package.