Conversion and liquidation of defaulted positions

A method of liquidating defaulted positions associated with centrally cleared illiquid financial product, the method comprising:

• identifying, by a program logic executable by a processor, a defaulted position associated with a centrally cleared financial product offered by a clearing counterparty;
• identifying, by the processor, at least one non-defaulting party, wherein the non-defaulting party holds at least one position determined to be similar to the defaulted position;
• calculating, by the processor, a net present value differential between the defaulted position and a standard position;
• establishing, by the processor, an auction for the at least one non-defaulting party based on the value differential and the standard position to a party, wherein the value differential and the standard position represent a converted position;
• and
• settling, by the processor, the converted position upon acceptance of an offer by the at least one non-defaulting party.

A default position auction system for auctioning defaulted positions associated with illiquid financial instruments, the system comprising:

• a processor in communication with a computer readable medium, the computer readable medium storing instructions executable by the processor, the instructions configured to:
• clear transactions associated with illiquid financial products, wherein at least one of the transactions results in an open position associated with the illiquid financial product held by a party to the transaction;
• determine a performance bond requirement associated with the open position;
• calculate a default position according to a failure of the party to comply with the performance bond requirement;
• convert the defaulted position to a financial equivalent position having a converted term;
• establish an auction for the converted defaulted position in an open market for a financial instrument having the converted term, the converted defaulted position being offered in an electronic trading system.