WO2020250100A1 - Derivative contract and benchmark fixing rate regime - Google Patents

Abstract

A transparent transaction-based method to derive term rates for RFR as a replacement for the IBOR system, wherein there is daily benchmark fixings for tenors that are referenced by cash products, IRS and other off balance sheet or derivative products. Rates are created daily through a Dutch OIS auction process that is based on observable transactions at a specified time of day and all trades will be at the same price thus ensuring that derivatives that reference the term fixing of the auction will be fungible with those that reference the overnight fixings.

Description

Derivative Contract and Benchmark Fixing Rate Regime

CROSS-REFERENCE TO RELATED APPLICATIONS

[0001] This application claims priority to U.S. Provisional Application No. 62/859,467, entitled Derivative Contract and Benchmark Fixing Rate Regime, filed on June 10, 2019, naming Alaistair Kelvin Roberts Sharp as an inventor, the entire contents of that application being incorporated herein by reference in its entirety.

BACKGROUND

[0002] Risk Free Rates (RFR), sometimes referred to as Alternative Reference Rates (ARR), such as Sterling Overnight Index Average (SONIA), Secured Overnight Financing Rate (SOFR), Tokyo Overnight Average Rate (TONA), Swiss Average Rate Overnight (SARON) and Euro Short Term Rate (€STR), have been chosen to replace Interbank Offered Rates (IBOR) such as LIBOR, TIBOR and EURIBOR, due to the large volume of transactions in RFR compared with the low, and sometimes non-existent, volume of transactions in IBOR, which lead many participants to question the robustness and representativeness of these benchmarks. While there are large volumes of transactions underpinning the daily RFR fixing rate in these regimes, these transactions are only overnight transactions, in other words for a period that lasts only one business day.

[0003] In 2018, the Term SONIA Reference Rate Sub Working Group (TSRR SWG) published the results of their consultation on term reference rates for SONIA. Then in February 2019, the Working Group on Euro RFR (WG EUR RFR) published a corresponding paper regarding term reference rates for€STR. At around the same time, the Swiss National Working Group (NWG) concluded that SARON was not liquid enough to support any forward looking term rate and opted instead for a backward looking realized rate that referenced overnight rates from 5 business days prior for every day in the interest period.

[0004] In contrast, the Euro and Sterling groups concluded, based on responses from market participants, that forward looking term rates were possible, and that the best methodology for these term reference rates for RFR would be to use firm, dealable quotes to derive mid market rates for each tenor. This conclusion was due to the desire for a point in time fixing that was transparent, representative and could reasonably be expected to be achievable in all imaginable market conditions. The reason a point in time fixing rate is desirable is to minimize the slippage incurred when market participants hedge their RFR fixing risk with a regular RFR swap. This is because without a point in time fixing, it is impossible to know when to perform the hedge trade for any fixings and thus it is highly likely that any hedge undertaken will not be at the same market level as the fixing. However, this point in time requirement was judged to preclude basing the fixing on transactions due to liquidity concerns.

[0005] However the International Organization of Securities Commissions (IOSCO) recommended, in their Principles for Financial Benchmarks published in 2013, that all financial benchmarks should be based on transactions. This is clearly not present in the favored point in time methodologies recommended by the Euro and Sterling working groups, due to their conclusions that there was not enough liquidity in RFR markets to ensure that a transaction based methodology would produce a fixing rate every day. In fact they judged that even if the goal of a point in time fixing were sacrificed and an entire day’s transactions were surveyed, there might still not be enough liquidity to guarantee a fixing based on transactions.

BRIEF DESCRIPTION OF THE DRAWINGS

[0006] Embodiments are described below with reference to the attached drawings, in which:

[0007] FIG. l is a functional schematic of an exemplary embodiment;

[0008] FIGs. 2 and 3 present flowcharts for an exemplary method according to an exemplary embodiment; and

[0009] FIG. 4 is a schematic of a typical computer system that may be used according to the present invention.

DETAILED DESCRIPTION

[0050] With respect to the regimes detailed in the background section, it has been determined that longer term RFR rates can only be inferred from prices in the RFR swap market or by waiting until the end of the period for which a rate is desired by calculating a rate using all the overnight fixing rates within the period: typically this realized rate is calculated by either compounding all the overnight rates, or by using a simple weighted average of all the overnight rates, within the period. This is in contrast to IBOR rates, which are known from the outset and are typically for 3 or 6 months, though the full set of tenors runs from overnight to one year. A significant portion of end users in financial markets perceive this limitation as an impediment to adopting RFR as a replacement for IBOR as they desire term certainty at the outset of a period and would currently struggle to handle the risk management and the payment logistics of a rate that is only known definitively on the final day of the period. In addition, a great many of their IT systems, including those of the majority of the most important global banks, are not currently able to handle the full implication of a transition of existing IBOR deals, the so called legacy deals or Back Book, to realized rates. In the absence of a suitable solution to term fixings for RFR, end users of financial markets, and indeed sophisticated market intermediaries, will need to invest significant monies updating processes and IT systems in order to handle realized rates. In addition, there will need to be a fundamental conceptual revolution in the risk management of assets and liabilities as term certainty will not be achievable using fixing benchmarks. Therefore great efforts have been made, and continue to be made, to conceive a methodology for deriving term fixing rates for RFR, in order to satisfy this need for a term rate at the start of an interest period. Thus far these efforts have failed to satisfy many of the issues that have arisen.

[0051] The above noted 5 prior business day referencing condition results in participants being able to know the realized rate about a week before the end of the period, though only at the expense of applying overnight interest rates for the incorrect dates. As a further consequence of this referencing lag, standard RFR swaps are an imperfect hedge against these realized rates. And the issue of risk management remains, as the rate payable is not known at the outset of the period.

[0052] Due to various concerns detailed above, a model based approach, using transaction data from either Listed Derivatives on RFR or forward starting RFR derivatives, might be used to imply fixing rates. This is achieved by using a mathematical model that calculates the implied fixing rates for the desired term periods from these Listed Derivatives or forward starting RFR derivatives, as these transactions make up the majority of transactions in RFR markets, and Listed Derivatives on RFR, so called RFR interest rate futures’ contracts, are expected to one day be extremely liquid, even if they are not currently so. However, at present, this liquidity is universally considered to be insufficient to guarantee a representative fixing rate every day, especially when we consider the nascent RFR benchmarks such as SOFR and SARON. And even if this liquidity were to improve dramatically, to the point where there was enough transaction data to derive a fixing rate, there would be a risk that the model miscalculates the fixing rates such that they differ from the prevailing market rates due to singularities in the forward rates of RFR, which tend to gap higher or lower on the dates that central banks announce changes in monetary policy, and also over idiosyncratic periods, such as the end of a month, quarter or year. For example, in March 2019, a very publicized trade in a SOFR swap for the period covering the weekend of Friday 29 March 2019 until Monday 1 April traded in the market at a rate that was approximately 50 basis points higher than the prevailing SOFR fixing rate. To put this difference of 50 basis points into context, prices for RFR swaps are typically quoted no more than a few basis points wide, and prices of less than a basis point wide are the standard spread in developed RFR derivative markets. This difference of 50 basis points is thus extremely significant and is due to concerns related to funding idiosyncrasies over the end of the Japanese financial year. These singularities make it extremely challenging to design a model that is able to handle all conceivable idiosyncrasies, as well as any systemic changes, over time, to the way that a particular RFR yield curve is calculated. The consequence of this is the likelihood that, from time to time, the fixing rate derived from the model would be outside of the bid and offer rate in the RFR swap market. The more often this were to occur, the less effective a standard RFR derivative hedge would be at mitigating valuation changes in the financial instrument that referenced the term fixing benchmark, not to mention the reputational damage it would do to the credibility of the fixing benchmark. And the greater the slope of the yield curve or the greater the idiosyncrasies in the curve, the more likely the fixing will deviate from the correct mid market rate, thus at a time when interest rates are expected to be changing, the fixing would be more likely to be outside of the market bid and offer on standard RFR derivatives. It follows that the valuation on any derivatives which referenced this fixing benchmark would also not be well correlated with the underlying RFR derivatives and so a basis would ensue between them, which would lead to a fragmentation in liquidity between standard RFR derivatives that reference the overnight rate and those that referenced this fixing benchmark.

[0053] This fragmentation is undesirable as it draws liquidity away the standard RFR market in the shorter, sub one year, portion of the market and thus from the price discovery process that determines the fixing, making it harder to achieve a critical volume for deriving a representative fixing rate every day. In addition, it also fragments liquidity between standard RFR derivatives referencing the overnight RFR rates and those referencing the term fixings in all maturities of swaps, making prices wider across the entire interest rate curve. This fragmentation would tend to be more prevalent the more uncorrelated, and thus unsuitable, the two different types of derivatives were with respect to each other. Finally any derivative that referenced the above fixings would likely be traded by the very same trading divisions that were responsible for providing dealable quotes or transaction data used in determining the fixing rate daily, and thus there would be a conflict of interest that might both discourage these trading divisions, the so called market making desks, from participating in the fixing process, and erode end user’s confidence in the robustness and representativeness of the fixing.

[0054] Some additional details of fragmentation issues are described below. Briefly, however, there are currently only limited solutions to these two main issues above. With regards to fragmentation, one might limit the use of the fixings to exclude their use from derivative contracts, which would certainly prevent fragmentation, but as there would then be no derivatives that reference the fixing rate, this could hardly be considered a satisfactory solution. Neither would using standard RFR derivatives be a satisfactory hedging solution if the fixing deviated from the mid-market rate in standard RFR derivatives, because they would not perfectly mitigate valuation changes in the instrument that referenced the term fixings. Thus the more the fixing deviated from this mid-market rate, the worse a standard RFR derivative swap would perform as a hedge. It is therefore desirable that we have, either derivatives that reference the fixing, or a fixing that is very close to the correct midmarket RFR swap rate, or ideally both. Because a model based approach cannot guarantee a fixing that is close to the correct mid-market rate, and any derivatives that referenced this model derived fixing would thus not be correlated with the standard RFR derivatives, fragmentation between the two types of RFR derivatives would result and therefore the model based approach should be excluded from fixing benchmarks.

[0055] The only way that the market has thus far conceived to satisfy that the fixing is close to the mid-market rate and thus that the performance of standard RFR derivative hedges are closely correlated with any derivative that references a term fixing, would be to have a point in time fixing. However, as has previously been mentioned, if this were to be based on transactions there would not be sufficient liquidity to guarantee a fixing rate every day and thus it is necessary to exclude this option, in stark contravention of one of the main IOSCO Principles for Financial Benchmarks. Additionally, legal risks associated with that fact that IBOR submissions are often based on expert judgement rather than transaction data is one of the main reasons why banks might well withdraw from submitting LIBOR fixing rates after the end of 2021. And given that one of the main reasons for transitioning away from IBOR benchmarks and choosing RFR benchmarks is precisely because IBOR is based less and less on transaction data while RFR is based on very healthy transaction data, it would not seem a sensible solution to opt for a non-transaction based term fixing benchmark if at all possible. If derivatives were to exist that referenced this term fixing, as is likely to be the case, given that end users have expressed a need for them, participants responsible for showing firm dealable quotes in the price discovery process for these fixings would have a conflict of interest as they would have both fixing exposure, from the derivative transactions with their customers that reference the fixing, and the ability to influence this fixing rate. As conflict of interest is the other principal reason why IBOR panel banks might withdraw from the submitting IBOR rates, introducing new conflicts of interest into a benchmark fixing process is unlikely to encourage banks to participate. The most obvious solution to this conflict of interest would be to exclude the use of the fixings from derivatives. This is only a suitable solution if standard RFR derivatives are able to satisfy the hedging needs of end users. And this would only be the case if the fixing were well correlated with the standard RFR market. This is obviously the purpose of the point in time fixing, but it certainly does not guarantee it. Assuming that it could be relied upon to be well correlated, end users would have to periodically rebalance their portfolio as the interest rate exposure on their cash instruments would periodically roll off for the term of the fixing that they reference, while the corresponding exposure on standard RFR derivatives would only roll off gradually as each overnight fixing occurred right up to the end date of the fixing on the cash instrument. They would therefore need to access liquidity from a market making bank and have to pay away a spread to hedge out this residual risk. This would further erode the hedge effectiveness of a standard realized rate RFR as there would be additional cost from this periodical re-hedging which would make the hedge even more uncorrelated to the underlying cash instrument. In order to minimize any such loses, end users would need to have very good access to tight liquidity from market making banks in order to minimize the amount of spread they would have to pay away to hedge themselves. And this just gets us back to the position we were in before with end users having exposure to realized rates, something they do not particularly want, nor something the majority of end users are able to handle currently from a risk management and payment logistics point of view.

[0056] So some other means must be employed to limit conflicts of interest as it would appear that derivatives referencing the fixing are a necessary part of the overall solution to transition to RFR. One such solution might be to limit the use of derivatives that reference the fixing to non-market making desks, in other words those divisions that are not active participants in making prices to the market, resulting in a separation of the fixing risk from the market making desk. In theory this seems like a reasonable solution, but in practice it does not guarantee that there are no conflicts of interest. And it should not be forgotten that banks currently do separate the division that determines IBOR fixings from division that market makes and trades IBOR derivatives in order to minimize any conflicts of interest, but are still concerned by the potential conflicts to such a degree that they might well decide to withdraw from submitting to LIBOR after 2021, as previously mentioned above. Therefore, it is far from clear that the above solution would improve their position with respect to conflicts of interest and thus their willingness to submit to the RFR fixing process. Furthermore, regardless of whether this conflict of interest issue were to be resolved to the satisfaction of those banks which might contribute to the RFR fixing, the non-trading desks would still assume similar basis risks and hedging costs described above for end users that hedged a term fixing cash instrument with a standard RFR derivative, and so would have to build in extra margin, in the form of wider prices for end users, when compared to pricing for IBOR derivatives. This is because these non-trading divisions would not be able to internalize the flow, which is to say, hold a large portfolio of deals which partially net off, thus only hedging the resulting macro risk, vastly reducing hedging costs, as this is the domain of a market making division. This points to systematically wider prices and lower liquidity for hedging cash products that reference a RFR term fixed rate compared to those that reference an IBOR term fixed rate.

[0057] Additionally, it is far from obvious that participants would be willing to provide firm dealable quotes for the fixing, as it isn’t clear what benefit would accrue to the specific individuals who would be providing these prices. For example they would be potentially exposing themselves to the legal sanctions as benchmark setters are liable personally and could be subject to criminal prosecution, fines and even a custodial sentence. In addition, there is a cost associated with the IT development work needed to provide these dealable quotes. And finally, participants would be giving away their pricing knowledge. All this for a benefit, in the form of term fixings for RFR, that would not accrue to these individuals and no guarantee of any deals to make the whole exercise worthwhile for the individuals providing the prices used in fixing calculations.

[0058] Also, regardless of how successful any of the above solutions are in handling the issues highlighted above, a significant portion of the Back Book of IBOR contracts are expected to transition to a realized RFR rate if or when IBOR ceases to exist, according to the opinion of the Financial Stability Board (FSB) Official Sector Steering Group (OSSG), which has recommended that the International Swaps and Derivatives Association (ISDA) implement fallback provisions for existing IBOR swaps which reference the overnight RFR in lieu of a term fixed RFR as they do not believe that a general solution exists for the floating rates on all IBOR contracts, for the same reasons given above. As such, the majority of institutions that currently use IBOR as a benchmark in financial contracts will likely need to implement changes in order to handle realized RFR rates. [0059] In greater detail, fragmentation occurs in financial markets when the values of separate derivative contracts are not entirely correlated with each other, and thus the contracts are not fungible. The more uncorrelated these valuations are, the more fragmentation occurs. And this is generally an undesirable state of affairs as it reduces the liquidity available for price discovery. Additionally, there is often a chicken and egg situation with respect to demand and supply: where there isn’t enough demand, supply does not show up and where there isn’t enough supply, demand doesn’t show up, so which comes first? Thus there has to be a critical mass of liquidity in order to have a functioning market and so fragmentation can reduce the likelihood that this critical mass threshold is achieved because the important factor is not the total liquidity in both markets but the liquidity in each individual market.

[0060] A certain degree of fragmentation always exists in derivative markets because there are some users, particularly end users, who desire very specific criteria for their contracts. For example, fragmentation can occur when there is a desire to transact in specific dates or to reference specific benchmarks or even to clear the deal at a specific Central Counterparty Clearing (CCP) institution. The last of these examples is particularly interesting, as two identical deals can, and do regularly, trade at different rates if they clear at different CCPs, particularly if there is a large imbalance between the net position of counterparties who clear at the two different CCPs. This is because interest rate (IR) markets are very complicated and pricing and valuation is not simply determined by interest rate expectations alone. There are a host of other factors that determine valuations and there are entire divisions dedicated to the more complex factors that affect portfolio valuation. These divisions are known as XVA divisions, with the XVA referring to a generic“x” value adjustment to a classic valuation.

[0061] Therefore there can never be a total absence of fragmentation as no deal is totally fungible with another as there are economic consequences for even two deals that appear to net off. Furthermore, whether an interest rate swap (IRS) references IBOR or an RFR fixing benchmark rate, there will be approximately 20-25% of the coupon periods within a calendar year which are slightly shorter than the standard period. In general these periods will be between 1 and 5 days shorter. This is because IRS only make payments on good business days but also try to maintain a standard roll date, for example the n^th day of month, in order to mimic underlying cash market transactions. Thus any payment date that falls due on a non business day would roll forward to the next business day, while the end date might not move forward. Therefore several coupon periods start later than this n^th day of the month but finish before a normal 1, 3 or 6 month period would, in order to maintain the rolls on the n^th day of the month. As these cash market transactions in general reference an unadjusted fixing rate, the convention for derivatives to pay an unadjusted rate, even though the“correct” rate for the shorter period would be slightly different to the fixing rate. This means that some deals, that reference the same fixing on a given date, are not perfectly fungible with each other, though they are treated as thus because the difference is not sufficient to concern most participants. This exists for current IBOR deals and will exist for future deals, such as those of the FairFix (TM) embodiments, described below. In this regard, some embodiments are described in terms of what is referred to herein as FairFix (TM). At least some embodiments of FairFix (TM) can satisfy a goal for financial markets to reduce fragmentation, where possible, to the same order of magnitude that exists currently due to the complex state of affairs alluded to above. In the context of FairFix (TM) referencing RFR swaps and regular overnight referencing RFR swaps, this means that it is desirable to set up a state of affairs where market makers of RFR swaps are prepared to price the two different types of derivatives off the same interest rate curve much as all 3 month IBOR IRS are priced off the same curve. Using the FairFix (TM) methodology would get us to this natural but insignificant level of fragmentation because participants are able to switch seamlessly between a term fixed rate and an overnight realized rate or vice versa, without any loss, barring a very small and insignificant commission to the auction provider.

[0062] It is briefly noted that the following teachings may become more apparent in view of the schematic in FIG. 1, which presents a functional schematic of the FairFix (TM) auction for a payer of a five-year RFR against the three-month FairFix (TM) rate.

[0063] Embodiments can address at least some of the challenges detailed above, such as by way of example only and not by way of limitation, eliminating one or more of such and/or providing an alternate arrangement to counter the presence of such. In this regard, there is an exemplary auction for RFR derivatives that utilizes a novel approach to attracting participants to the auction. In a conventional auction, participants are encouraged to take part by commercial considerations alone. At the outset an auction venue will need to spend money marketing their auction in order to encourage both the supply side and the demand side to participate. They might achieve this by offering discounts, paying sign-on bonuses or even providing the supply or demand themselves, at great expense by offering to buy or sell some or all, dependent on conditions, of the goods or services of the auction. Even after an auction is established, the auction venue will often need to employ some or all of these methods to maintain liquidity at the auction. This is due to the fact that demand and supply regularly tails off or becomes unbalanced and participants are not encouraged to participate in any commercial transaction, without a reasonable expectation that they might have a favorable transaction. A good example of this is evidenced by the way in which successful platforms, such as eBay and Uber, function, employing sign-on payments and regular discounts. In contrast, the FairFix (TM) auction has a unique mechanism that mandates exogenous demand, due to a virtuous feedback loop that guarantees the demand, which in turn encourages the supply side to take part and therefore diminishes the need for the auction to spend money encouraging participation.

[0064] Embodiments of the FairFix (TM) auction will produce an auction transacted rate that can be used as a benchmark fixing by derivatives that in turn also contains an obligation feature. This unique feature is a contractual obligation that one side of any such derivative contract submit their floating rate exposures to the auction, that is to say, their exposures to the fixing rate. Further, any party that acts on the supply side of the auction, in other words any party that submits a competitive bid or offer, must neutralize any net interest rate fixing exposures. If, for example, they have legacy IBOR derivatives that have transitioned from referencing IBOR to referencing the FairFix (TM) term fixing rate, they will be obligated to submit their net interest rate fixing exposure to the FairFix (TM) auction in order to neutralize this interest rate exposure and remove any conflicts of interest. These obligations also act to guarantee demand at the auction, and thus provide a reason for the supply side to participate. This ensures that price discovery for the benchmark rate is liquid, fair and impartial. The way in which participants can / must calculate their net position, in a specific period, is to calculate their net sensitivity to a 1 basis point move in the rate for that period. This is as per market conventions for calculating the risk exposure in a given period and is referred to as the DV01 position. They can / must then submit a notional volume in that period’s auction that has an equal and opposite DV01 position to a certain degree of accuracy that will be determined by the auction administrator. This thus neutralizes their exposure to the FAIRFIX (TM) rate as they no longer have any sensitivity to the level that the auction clears at. Thus, for example, if the 3 month auction is for a period of 91 days, but the position that needs to be hedged is for a 89 day 3m month coupon (due to roll conventions in the swap) then a fixing position of 100 million notional in the 89 day 3m month coupon of the swap would need to be hedged with a non-competitive submission for 3 month auction in a ratio of 89/91 or roughly 97.802 million (100*89/91=97.802). The specific rounding of this notional amount will be stipulated by the auction administrator in advance, after consultation with market participants. This above DV01 neutralization is a standard practice when hedging exposures in derivative markets but it is mentioned to distinguish it from the more crude method of matching off notional amounts, a practice that would leave small DVOl exposures when the day count of the swap coupon and that of the auction period do not match as in the example above (e.g. 89 day coupon period and 91 day auction period). This submission obligation also guarantees a transaction based fixing at a point in time, once there are any derivatives that reference the fixing benchmark, thus satisfying the IOSCO principle for financial benchmarks that requires financial benchmarks to be based on transaction data. This is in contrast to current solutions, which also fail to remove conflicts of interest and fragment liquidity, removing some of the liquidity required from the price discovery process of the fixing.

[0065] In greater detail, embodiments can include, instead of doing away with term fixings for RFR, as proposed by the Swiss NWG, or relying on dealable quotes alone to derive a point in time term fixing for RFR, and thus limiting the use of term fixings in financial markets, as proposed by TSRR SWG and WG EUR RFR, or indeed using a model based approach that some participants on the Alternative Reference Rates Committee (ARRC) are suggesting for SOFR, which would create a myriad of issues, term fixings for RFR are derived by using the FairFix (TM) methodology such as the exemplary embodiments disclosed herein. This methodology uniquely achieves a fixing that is derived from transactions, is fixed at a point in time, removes conflicts of interest from the trading divisions whose activities and prices will be involved in fixing them, has a virtuous feedback loop embedded into the derivatives which reference the fixings that enhances liquidity, and negates the issue of fragmentation due to the fungible nature of standard RFR derivatives and those that reference the FairFix (TM) fixings that are proposed herein.

[0066] In an exemplary embodiment, the market makers can be bifurcated into two or more groups. A first group agrees to submit competitive submissions, but does not agree to establish an unlimited or quasi-unlimited amounts of submissions (total value, etc.) A second group agrees to submit competitive submissions and also agrees to supply as many submissions as needed / as much value as needed, to ensure that the market is made. This said, in some embodiments, both groups can be considered as market makers, while the second group, which submits the competitive submissions in the quasi-unlimited manner, can be considered a subgroup of market makers. In some embodiments, this can be utilitarian with respect to increasing the overall liquidity of the market by accepting market makers who seek to limit the total amount of their submissions for certainty reasons but still seek to participate and otherwise assist in making the market. Indeed, in an exemplary embodiment, this group of market makers can alleviate some of the stress on the“unlimited” market makers. Put another way, even though the group of market makers agrees to make a market without limits on the total value of their submissions, the fact that there are these other limited market makers effectively reduce the overall unlimited amount, in the abstract.

[0067] Accordingly, in an exemplary embodiment, there is an auction that accepts competitive and non-competitive bids and offers, wherein all non-competitive bids and offers must be submitted in a manner that neutralizes any net interest rate fixing exposure to the resultant fixing rate, if submitted by a market maker, or without restriction, if submitted by a non market maker. In an exemplary embodiment, the auction is conducted such that a predetermined select group of market makers in the auction are forced to satisfy all the net non-competitive bids or offers (and another group, in some embodiments, are not so forced).

[0068] The FairFix (TM) auction can take place daily, or at preknown dates, or any date where there is transparency and a forecastable time associated with that date, the clearing price determined at a specific point in time. There can be auctions for several distinct tenors and currencies, dependent on end user demand. These tenors will likely include 3 months and 6 months as these are the most common IBOR term benchmarks, and the auction administrator will have the option to increase the scope of tenors covered if they judge that there is the requisite demand. There will be two distinct classes of orders that participants in the FairFix (TM) auction may submit: competitive and non-competitive. All such submissions are orders to transact a standard RFR swap. Due to current regulatory conditions, these transactions will be cleared at a pre-specified central counterparty clearing (CCP) institution, such as LCH, CME, Eurex, ICE Clear or the Japanese Clearing Commission (JSCC).

[0069] Non-competitive submissions will be orders to pay, or receive, a fixed rate on a standard RFR swap at the clearing rate for that auction, against receiving, or paying, the realized RFR rate over the period of the swap. This clearing rate will be known as the FairFix (TM) Auction Transacted Rate for that tenor. This transacted rate will also be the FairFix (TM) benchmark fixing rate. All non-competitive orders will be filled. Anyone is permitted to submit non-competitive submissions if the purpose is to neutralize their economic exposure to the FairFix (TM) rate. Otherwise only participants who are not market makers nor active in regular RFR trading of the relevant currency will be allowed to submit non competitive orders. This is to ensure that those with a direct influence on the short-term level of market rates for RFR derivatives have no net interest rate exposure to the FairFix (TM) fixing rate and thus no conflicts of interest in the price discovery process. This is uniquely possible using the FairFix (TM) methodology. For those orders submitted for the purpose of neutralizing derivative exposure to the fixing, a non-competitive order will be the means of doing so.

Competitive submissions will be orders to pay, or receive, a given fixed rate or better on a standard RFR swap, against receiving, or paying, the realized RFR rate for the period of the swap. This rate will be determined by the submitting party and will reflect their willingness to pay, or receive, at that rate. Parties who submit competitive submissions will be known as FairFix (TM) market makers. There will be no limit on the notional size of individual competitive orders nor the number of distinct price tiers that a market maker may submit, and it is in fact anticipated that market makers will submit multiple tiers of bids and offers at varying prices and amounts, dependent on prevailing market conditions and each market maker’s risk appetite at the time of the auction. There will also be no limit on the price levels submitted by market makers, save only that all rates will be rounded to a predetermined number of decimal places, for operational practicalities, and that they may not submit any bids at a higher price than their lowest offer, nor offers at a lower price than their highest bid. This would be construed as creating a false market as the market maker would thus be attempting to deal on their own competitive price and so is forbidden. In an exemplary embodiment, the submitter is submitting a competitive order, and the auction is such that there is no practical limit on the number of distinct price tiers that the submitter may submit such that liquidity is constrained. This addresses an embodiment where one limits the number of distinct price tiers a market maker could submit to say 10 Million (or even 1000) without restricting the auction in any practical way. Also, in an exemplary embodiment, one could limit the size of orders to 10 quadrillion or 100 trillion without constraining the auction. In some embodiments, by establishing an unlimited criteria, there is no limit to any participant to only a few orders and only a limited size, and the size can be as large or as small a part of the auction as is deemed utilitarian. Because the auction works equally well with one competitive order in sufficient size or 100 such competitive orders, some

embodiments include limits and some do not and some can include very large limits. The combination of non-price sensitive“non-competitive orders” and price sensitive“competitive orders” ensures that a clearing price can always be achieved, because there is no limit on what rate the auction can clear and so supply and demand conditions ensure that the market clears at a given rate. This might sound concerning but when you look at current IBOR fixings you note that there is no limit on where they can fix (c.f. IBOR fixings from 2007 onwards in the Great Financial Crisis) and that fixing panel banks have been fined many billions of dollars for manipulating the IBOR rates. With FairFix (TM), only participants who have no net interest rate exposure to any fixing tenors, in the specific currency, at the auction, either due to an absence of any exposure, exposures which net off, or due to non-competitive orders that neutralize their interest rate exposure to the fix, will be permitted, by the terms of the auction, to submit competitive orders. This is to ensure that all conflicts of interest are removed from the auction process and only genuine supply and demand conditions determine the clearing rate of the auction. It is envisaged that institutions might choose to have market making divisions and non-market making divisions within an individual firm that are able to act independently of each other. That is to say, the non-market making divisions may have exposure to the fixing without impinging on the operations of the market making divisions as long as there is sufficient separation between the divisions. It is beyond the scope of this application to stipulate how banks might achieve this, though this is commonly achieved using Chinese Walls. Banks tend to have strong governance with respect to these issues, though if they were at all concerned, the FairFix (TM) Auction would obviously allow the non-market making divisions to remove all exposures by swapping any exposure to the FairFix (TM) Rate for the realized RFR rate. The only caveats to the zero interest rate exposure condition for market makers will be where there are exposures that cannot to be submitted to the auction or where the institution can demonstrate that the net exposure was either insignificant or unknown. This ensures that the legal onus on participants to submit their fixing exposures does not become egregious or overly burdensome. For example, as derivative deals can be for any length of time, they often have a coupon period, at the start or end of the contract, that does not correspond to one of the standard tenors for which term fixings exist, and this period is colloquially known as a stub. Any stub period that is of a length that does not correspond to one of the FairFix (TM) auctions obviously cannot be submitted to the FairFix (TM) auction, and market practice would be to calculate the fixing rate by interpolating between the rates for the shorter and longer tenors that are closest in duration to the stub period. If however, it is determined that any ad hoc dates can also be entered into the auction, as there is judged to be sufficient liquidity for non-standard tenors, then the auction administrator can oblige parties to start submitting their stub risks into future auctions. In practice, stubs are unlikely to be significant enough, as a proportion of total fixing notional amount on a given date, to constitute a significant conflict of interest, and it is not expected that this will be a practice that is employed in the near future. However, it is a feature that is available if judged necessary. Alternatively, if such a conflict were judged significant, the auction administrator could instead choose to oblige participants to submit notional amounts in a pro-rated combination of the tenors that are just longer and just shorter than the stub in question. For example if there were auctions for 1 month and 3 months but the stub was in 100 million notional for 2 months, and 2 months was exactly halfway between 1 month and 3 months, then the correct pro-rated notional amounts that would need to be submitted to the auctions would be the notional amounts that corresponded to 50% of the DV01 of the stub, in other words approximately 100 million notional in the 1 month auction and 33.3 million notional in the 3 month auction. And if the stub was in 100 million notional for 2 1/2 months, once again assuming perfect fractional intervals between 1 and 3 months, the amounts that were submitted would need to be the notional s that corresponded to 25% of the DV01 in the 1 month auction and 75% in the 3 month auction, in other words approximately 50 million in the 1 month auction and 50 million in the 3 month auction.

This interpolation mimics the interpolation of a stub rate and is designed to ensure that the DV01 exposure of the stub is matched off by the combination of DV01 exposures of the shorter and longer periods.

[0070] Market makers are of course permitted to voluntarily implement this practice, as this would satisfy the neutralization of interest rate exposure condition. In this way even stub interest rate exposures could be neutralized.

[0071] The clearing rate for the auction will be determined by netting off all non-competitive bids and offers to get a notional balance for either paying or receiving the auction transacted fixed rate. The clearing price will then be the rate at which the net notional amount of non competitive orders is matched by a sufficient notional amount of competitive orders. Thus if the net notional amount of non-competitive orders is to pay fixed in 5 billion, the clearing price will be the lowest rate at which there is 5 billion notional amounts available of competitive offers to satisfy this paying demand. All deals will be stuck at the same clearing rate, very much like the practice for US Treasury bond auctions. Thus all competitive offers below this clearing price will be filled at the higher clearing price. And all competitive offers at the clearing price will be allocated a prorated amount at this clearing price. Likewise if the net notional amount is to receive fixed in 4 billion then the clearing price will be the highest rate at which there is a 4 billion notional amount of competitive bids to satisfy this receiving demand. All competitive bids above the clearing price will be filled at this lower clearing price. And all competitive bids at the clearing price will be allocated a prorated amount at the clearing price. This type of auction is commonly known as a Dutch auction and it is chosen for two reasons. Firstly, it ensures aggressive competitive orders are not penalized as they deal at the best rate possible. This encourages the supply of competitive prices in the auction. And secondly, as there is only one traded price, which is also the fixing rate, participants are able to switch seamlessly from term fixed rates to realized overnight rates and vice versa.

[0072] In the event that there is not enough notional volume of competitive bids or offers to satisfy this net notional amount of non-competitive orders, the auction administrator will make requests to a select group of predetermined market makers, who will have pre committed to providing bids and offers to ensure the auctions have enough supply of liquidity to satisfy demand. In the event that the notional amount of non-competitive orders nets off to zero, the clearing price of the auction will be, in the first instance, the rate at which the maximum notional volume of competitive bids and offers match off: In other words, the single rate that maximizes the total volume transacted. If there are two rates that maximizes the total volume traded then the mean average of these two rates will be used. For example if the maximum possible notional volume were 2 billion at 1.925% or 1.93%, the clearing rate would be 1.9275%. If this average rate had more decimal places than the maximum stipulated by the auction, then the rate would be rounded to the maximum number of decimal places. In the second instance, if there is no matching rate, we would start by calculating a mid-market rate of the weighted average rounded to the predetermined number of decimal places, of a predetermined minimum and maximum threshold notional amount of competitive bids and offers. If, for example, 1 billion were chosen as the minimum threshold amount and 5 billion as the maximum threshold amount for both the bids and the offers, it would be necessary for there to be at least 1 billion notional in bids and in offers for this operation to determine the clearing rate. The weighted average of the bid would then be calculated by starting with the highest bid, and continuing lower until the maximum threshold of 5 billion was reached or until there were no further bids. Likewise the weighted average of the offer would then be calculated by starting with the lowest offer, and continuing higher until the maximum threshold of 5 billion was reached or until there were no further offers. The weighted average of these two rates would then be calculated to create a mid-market rate. This mid-market rate would then be used as the clearing rate, unless there were bids at a higher rate, or offers at a lower rate than the mid-market rate. In these cases, the highest bid or the lowest offer would be the clearing rate. In this way we would not have bids or offers that were better than the clearing rate. The clearing rate would thus be calculated as follows:

If Highest Bid<Mid-Market then Clearing Rate = Min(Mid-Market, Lowest Offer) If Lowest Offer>Mid-Market then Clearing Rate = Max (Mid-Market, Highest Bid) This rate would then be rounded to the predetermined number of decimal places if necessary. The minimum notional volume threshold condition, in the mid-market calculation, acts to ensure that there would be a sufficient volume of bids and offers to be representative. And the maximum threshold acts to ensure that off market bids and offers would not influence the weighted average once a predetermined maximum threshold is achieved. If the minimum volume threshold for bids and offers is not met, then a mid-market rate of external dealable quotes, taken from a predetermined combination of recognized trading venues will determine the mid-market rate that is used to calculate the clearing price, in the same way that it was calculated above:

If Highest Bid<Mid-Market then Clearing Rate = Min(Mid-Market, Lowest Offer)

If Lowest Offer>Mid-Market then Clearing Rate = Max (Mid-Market, Highest Bid)

[0073] In some exemplary embodiments, if this volume threshold is not met on the external trading venues, then the simple mean average of the best bid and best offer would be used to calculate the clearing price.

[0074] In some exemplary embodiments, if this still does not produce a rate then the previous day’s fixing rate will be used for that days fixing.

[0075] This mid-market rate would be very similar to that envisaged by current market thinking for term fixings in Europe. The difference though will be that participants in this case would be more willing to participate and give away their pricing knowhow, due to the promise of deals once there are derivatives which reference the fixing rate and the knowledge that there were currently no derivative exposures which might create a conflict of interest for them. Reliance on this external reference to mid-market rates is unlikely to be needed because the same price makers at these external venues would likely participate directly in the auction process due to the promise of deals. It however provides for the scenario where market makers have not yet on -boarded with the FairFix (TM) auction. Examples of the types of recognized trading venues whose quotes might be referenced are a Swap Execution Facility (SEF) in USA, and a Multilateral Trading Facility (MTF) or an Organized Trading Facility (OTF) in Europe.

[0076] This clearing rate will be known as the FairFix (TM) Auction Transacted Rate, regardless of whether there are any actual deals transacted, and will be published as that day’s FairFix (TM) benchmark rate. This ensures that before any FairFix (TM) derivatives are written or before any legacy deals transition to the FairFix (TM) rate, and thus before any deals are submitted to the FairFix (TM) auction, there will still be a FairFix (TM) rate set daily using dealable quotes from current market liquidity, in the same way that is currently envisaged for fixings, and end users will be able to use these fixings a benchmark rate in financial contracts on cash products. Unlike for current fixing proposals though, market makers will be encouraged to submit dealable quotes to the price discovery process of the fixing due to the promise of future deals once derivatives are written referencing this benchmark, or existing legacy deals migrate to referencing this benchmark. Because, in this example, there would be no derivatives that reference the benchmark, the market makers would have no conflict of interest. And when there were derivatives that reference the benchmark, market makers will be able, and in fact obliged, to neutralize their exposures so they would be free of the conflicts of interest present in current plans for fixing benchmarks.

[0077] Thus end users will be able to reference the FairFix (TM) rate in derivative contracts. The terms of use of the FairFix (TM) rate will stipulate that it may be used to reference derivative contracts but that these derivatives must contain a novel feature embedded into the contract. This feature will be that these FairFix (TM) derivatives have a contractual obligation that one party to the contract must, where possible, on a best efforts basis, submit all fixings on their side of the contract to each auction that corresponds to the fixings on the contract. Thus in the instance of a fixed rate swap, the party that acts as the sell-side institution, in other words the client facing institution, will be obligated to submit the fixing exposure from the floating rate side of the swap: that is to say, from the side that references the FairFix (TM) rate. For basis swaps, whether single currency or cross currency, both sides of the swap reference a floating rate and thus the sell-side institution would be obliged to submit both the paying and receiving legs of the swap as they both reference a FairFix (TM) rate.

[0078] The unique aspect of this methodology is that once there are derivatives written against the fixing, the net interest of end user demand will be reflected instantly into the price discovery process, by means of the single sided submission obligation of FairFix (TM) derivatives on the sell-side party to the swap, liquidity in price discovery will increase and the fixing will be determined by genuine supply and demand considerations and thus be completely fair and representative in a way that is barely imaginable within the confines of how financial markets currently function. In addition, as the sell-side institution is obligated to swap its exposure to the fixing for the realized RFR rate, and so de facto ends up with the same exposure as if they had transacted a standard realized rate RFR swap, creating exactly the conditions that financial markets are striving to achieve currently: Remember current deliberations are considering how to limit the use of term fixings in derivative markets because of concerns about conflicts of interest. Market making divisions will have demand for prices in standard RFR swaps in all the tenors that end users wish to reference as a benchmark in their financial derivative contracts, thus encouraging these market makers to provide liquidity to the FairFix (TM) auction, and creating the requisite transactions to satisfy the IOSCO principle requiring financial benchmarks to be based on transactions. And therefore end users end up with a representative and robust benchmark.

[0079] There is a subset of IBOR derivatives that cannot, by design, function with realized rates as the payment date is stipulated in the contract to be the start date of the period. For example, currently Caps, Floors and FRAs will all need to be changed into slightly different contracts, and LIBOR in Arrears swaps will need to be cancelled entirely, as they all rely on a reference rate that is known at the start date of a period. This would not be necessary if they were to reference the FairFix (TM) fixing.

[0080] Furthermore, if all existing IBOR deals, the so called legacy deals or Back Book, transition to referencing the FairFix (TM) rate, with or without a credit spread adjustment to reflect the difference in price levels between IBOR rates and RFR rates, market making participants will be able to submit their net exposures to the FairFix (TM) auction in order to neutralize their exposure to the fixing. This would allow the existing IBOR contracts of end users to remain referencing a term fixed rate while active market participants would be able to, and in fact obliged to, neutralize their exposure to the FairFix (TM) rate. This would create instant demand liquidity in the form of non-competitive submissions at the FairFix (TM) auction, and thus encourage the supply side to provide competitive submissions. Most importantly though, it would allow end users the ability to remain operating as they do now, without any need for them to change their risk management, IT systems nor payment logistics. There would also be no need for financial markets to amend existing IBOR contract payment dates or create inventive, but ultimately incorrect realized RFR rates, in order to handle the payment logistics of a contract that requires payments to be made on the end date of a period. This is because“late” payments of realized RFR rates are a feature of regular RFR swaps and so the realized rate issue is transferred from interactions with end users onto active market participants who are already able to handle, and already do handle, realized overnight rates. It should be noted that SOFR swaps make payment two business days after the end date of the swap and€STR swaps, when they start trading, will make payment one business day after the end date of the swap. This is because that is the period of time delay that the market has decided is necessary to allow all sophisticated swap market participants the requisite time to make payments on the realized RFR rate. The FairFix (TM) methodology would remove this payment delay issue from the non-fmancial markets world, almost as if they had taken the blue pill made famous by the 1999 film the Matrix, while financial markets swallowed the red pill and dealt with the cash flow issues created by payment date discrepancies between FairFix (TM) fixings, which would pay on either the start or end date of the contract, and standard RFR swaps, which would pay on the date currently stipulated by swap market conventions. And thus, the single most important issue with IBOR transition is solved and the world can go on largely as it did before, blissfully unconcerned by what is taking place in“the Matrix” of FairFix (TM) auction transactions.

[0081] In view of the above, there can be a solution to the fundamental issues with the move to overnight RFR benchmarks. Such issues can include deriving a term rate from the realized rate of all the overnight fixings within the period, which only produces term certainty at the end of the period, often too late to allow payments to be made on the end date of the period. In fact SOFR swaps make payment 2 days after the end of the period in the swaps market, which is an indication of the minimum delay sophisticated banks and other swap market participants need in order to ensure payments can be made correctly. So, leaving aside end users current desire to know the rate they are paying at the start of the period, the best they can ever hope for is to be able to make payments 2 days after the end of a deal. And this is a problem because in the normal course of business we are used to repaying the interest and the principal on the maturity date of the deal. So using an ex-post RFR rate for loans would result in interest being paid two days after the principal was returned.

[0082] The teachings herein avoid or otherwise mitigate the“need” for the sometimes illusory solution of fudging things, and agreeing to apply the overnight rate from two days prior. This was and is not a panacea, because, while this would give you a rate with two days’ notice to make payments, it would not be the correct rate. Neither would a rate, where you applied the correct reference rates but just ignored the last couple of overnight fixings and simply repeated the third last fixing three times be correct either. And if we look at the complexities of applying either methodology to legacy IBOR deals, where we have periods that are up to 5 days shorter than the correct IBOR period, you might need to have a 7-day delay or lock in. So we would then either need to impose this longer delay or lock in on all new deals, or have legacy deals and new deals calculating their realized rate on separate methodologies. Or if it were possible, we might be able to break current IBOR swap terms, which stipulate that all periods pay the unadjusted IBOR rate corresponding to the full IBOR term even if they are 1, 2, 3, 4 or 5 days shorter than the IBOR period for that start date due to roll conventions, and simply calculate a realized rate for the actual period. But in upward sloping yield curves, as most are normally, this would mean that there would be a systemic bias in favor of lenders as this would produce rates slightly lower. Granted this amount would be small, but it would be real. But then we would also have the confusion that on any given date, the 3 month realized rate would have a variety of options as there might be several different possible 3 month periods depending on the roll dates of the deal. And all this is presuming that it is even possible to easily change the terms of all deals to respect this slightly incorrect calculation methodology.

[0083] Also, FairFix (TM) is not simply a manner of handling the payment dates to accommodate these calculation issues. Indeed, such is not simple at all. Far from it, it is a legal minefield, where holdouts and litigation would be rife. And, in fact, simply changing dates is no way to resolve the issue, unless one accepts that loans now pay back interest late. Conversely, if there is an ex-ante term rate available, such can alleviate the aforementioned issues.

[0084] Embodiments of FairFix (TM) can take away the burden of delayed term certainty, and thus delayed payments, from the legacy portfolio of legal contracts, that are near impossible to amend in a coordinated fashion, and the burden imposed by the normal practice of paying interest on the maturity date of a loan. And FairFix (TM) can move the issue into the interest rate swap market where payment mismatches are part of everyday life. Where systems are already set up to risk manage, value and make payments on RFR swaps. So almost no fundamental changes need to be made to accommodate the process, and multiple billions of dollars will be saved.

[0085] And thus, by way of example, farmers in Wisconsin will be able look at the FairFix (TM) rate daily and know what they are going to have to pay for their tractor loan for the next 3 months, secure in the knowledge that it will be genuine supply and demand conditions that determine their rate. And the banks will rejoice, because for the first time ever in short term interest rate (STIR) markets they will be a steady supply of non-price sensitive demand from end users, via the single sided submission obligation on FAIRFIX (TM) derivatives, in the nascent RFR markets, encouraging market makers to provide greater and greater liquidity to support this demand.

[0086] Embodiments of FairFix (TM) can provide for a transparent transaction-based means to derive term rates for RFR as a replacement for the old IBOR system. As with LIBOR, in some embodiments, there will be daily benchmark fixings for tenors such as lm, 3m, 6m and ly that can be referenced by cash products, Interest Rate Swaps (IRS) and other off balance sheet (OBS) or derivative products. In some embodiments, for each tenor, the FairFix (TM) will be created daily through a Dutch OIS auction process i.e. FairFix (TM) will be implemented in some embodiments based on observable transactions at a specified time of day and all trades will be at the same price thus ensuring that derivatives that reference the FairFix (TM) term fixing will be fungible with those that reference the overnight fixings. Some embodiments of the FairFix (TM) methodology can provide utilitarian value in that the auction process will be designed to hedge market makers out of their FairFix (TM) exposures thus removing conflicts of interest in the price discovery process. Accordingly, all parties can participate in the daily auctions safe in the knowledge that none will face potential conflicts of interest.

[0087] In some embodiments, end users can transact any interest rate swap (IRS), FRA, interest rate (IR) option or indeed any IR derivative product that they could in the past with LIBOR based products, but now with the knowledge that the fixings will be transparent, transaction-based and fair. The fixings, thus created, can be submitted, due to the single sided submission criteria, to that date’s FairFix (TM) auction as ‘non-competitive’ submissions by the sell-side party to the derivative contract. Any market makers participating in the competitive side of the auction must submit their net FairFix (TM) fixings exposure to the auction in the form of a‘non-competitive’ submission, such that they have zero net exposure to the fixings and so no conflict of interest. All of these non-competitive submissions are netted off to create a net paying or receiving interest in the auction. The competitive side of the auction process for each tenor consists of market makers showing bids and offers to take on part or all of the resultant interest rate risk in the form of an overnight index swap (OIS): In other words, a regular RFR swap. If, for example in the 3m FairFix (TM) auction, the total non-competitive submissions netted off to create a paying interest, then the FairFix (TM) fixing rate would be the lowest rate at which this paying interest could be filled from the competitive offers submitted to the auction. This is an example of a Dutch Auction which ensures the best possible price for successful competitive submissions, thus encouraging more aggressive competitive submissions and therefore better liquidity in the price discovery process. The fixing rate thus created would be applied to the IRS, FRA, IR option etc. as it would have in the past with LIBOR based products.

[0088] Market makers can make prices in any IRS, FRA, IR option etc. that reference the FairFix (TM) benchmarks in the same way that they could in the past with LIBOR, but with the knowledge that their fixings risk will be swapped in the auction for the realized rate thus swapping their exposure to the FairFix (TM) RFR rate for the realized overnight RFR rates. Thus from a pricing perspective the 5y FairFix (TM) swap price will be the roughly the same as the regular 5y RFR swap price. This reduces fragmentation in liquidity as a FairFix (TM) IRS becomes fungible with a regular RFR swap, which ensures better liquidity and therefore tighter pricing in RFR swap markets. If a market maker wishes to take part in the daily FairFix (TM) auction, they must first submit their FairFix (TM) fixings as‘non-competitive’ submissions. This ensures that they have no conflict of interest in the auction process. As with everybody else, their FairFix (TM) fixings will fix at the auction traded price from the competitive auction. The competitive auction then is a distinct process, a chance to submit bids and offers at rates and notional amounts that the market maker would be happy to trade a regular RFR swap as this in indeed the transaction that results from a submission to the FairFix (TM) auction.

[0089] An aim of FairFix (TM) is to create a trustworthy benchmark rate. Another aim / application could be their use in helping to determine legacy interest rates that reference IBOR rates, if banks cease submitting rates to them after 2021. IBOR rates, the rates at which banks lend to each other, are essentially composed of 2 elements: interest rate risk and counterparty credit risk. FairFix (TM) captures the interest rate risk. The counterparty risk for each of the old IBOR submitting banks could be compiled for example from the ICE Bank Yield Index. A credit spread, from OIS to that bank’s IBOR rate, could then be generated and normalized against historical data. The requirement for this to be a point in time derivation of the credit spread is much lower and several days, if not weeks or months, data can be used to derive the credit spread. Adding the FairFix (TM) interest rate to the credit spread would create a synthetic IBOR rate. Both parts of the‘new IBOR’ would be transparent and transaction-based, making it a significant improvement on the current state of play, where the interest rate and credit spread are intertwined in one rate and thus constrain how far back in time you can reference data without making the rate unrepresentative of what the current rate actually is.

[0090] FIGs. 2 and 3 collectively present an exemplary flowchart for an exemplary method, method 100, according to an exemplary embodiment for an exemplary auction. Method 100 includes method action 110, which includes providing access to RFR swap submitters to an RFR swap auction, wherein all non-competitive submissions are to be filled. Method action 100 also includes method action 115, which includes receiving a plurality of orders from the submitters to transact a standard RFR swap, and method action 120, which includes determining whether respective received orders constitute a competitive or a non-competitive submission. Method 100 also includes method action 125, which includes identifying market makers from the submitters of the received orders, who are submitters of competitive order, and method action 130, which includes identifying a specific select group of these market makers who have pre-committed to providing bids and offers sufficient to ensure the auction has enough supply of liquidity to satisfy demand.

[0091] As seen, there is also method action 135, which includes identifying a net notional balance for paying and/or receiving a transacted fixed rate for the auction by netting off all identified non-competitive bids and offers. Method 100 also includes method action 140, which includes establishing a clearing price as a rate at which the identified net notional amount of non-competitive orders is matched by a sufficient notional amount of competitive order. Method 100 also includes, as seen in FIG. 3, method action 145, which includes arranging transactions such that all non-competitive submissions are filled at the identified clearing price. There is also method action 150, which includes arranging transactions so that all of the competitive offers below the clearing price are filled at the clearing price, and method action 155, which includes arranging transactions so that at least some of the competitive offers at the clearing price are filled at the clearing price if a remainder is present after the non-competitive bids are filled.

[0092] Method 100 also includes method action 160, which includes arranging transactions so that at least some of the competitive bids at the clearing price are filled at the clearing price if a remainder is present after the non-competitive offers are filled, and method action 165, which includes arranging transactions so that all of the competitive bids above the clearing price are filled at the clearing price. In this exemplary embodiment, in the event that there is initially not enough notional volume of competitive submissions to fill all of the non competitive submissions, making a request to the identified select group of market makers participating in the action to force these market makers to provide bids and/or offers to obtain a sufficient supply of liquidity to fill all of the non-competitive submissions.

[0093] Some embodiments include executing one or more or all of the actions and auctions that are respectively and discreetly held one every day that the New York Stock Exchange and/or London stock exchange and/or Sydney stock exchange and/or the Chicago options exchange is open for business. In an exemplary embodiment, the teachings detailed herein are executed for at least 60, 65, 70, 75, 80, 85, 90, 95, 96, 97, 98, 99 or 100% of the days that the aforementioned exchanges are open. In an exemplary embodiment, one or more or all of the actions and/or features disclosed herein are executed each of those days without exception. In an exemplary embodiment, the teachings detailed herein are part of a regular market/regular exchange for the derivatives disclosed herein and thus the parties to the exchange understand the rules and understand the bases for the decisions and prices, etc., and thus have predictability.

[0094] Embodiments detailed above, in at least some instances, have focused on the orchestration of the auction, on the one hand, and the participation in the auction, on the other hand, and the combination thereof. Some embodiments are also directed to not participating in the auction, but utilizing the auction for business purposes. In this regard, in at least some exemplary embodiments, the actors are not participating in the auction, what they utilize the auction as a benchmark or the like or as a gauge to measure valuation with respect to certain financial products.

[0095] In an exemplary embodiment, there is a method, comprising, referencing results of an RFR swap auction where all non-competitive orders were filled (e.g., in some embodiments, any auction that meets someone more or all of the teachings detailed herein and/or variations thereof - at least some exemplary embodiments include referencing an auction that utilizes any one or more of the method actions detailed herein - accordingly, any method disclosed herein of an auction or related to an auction also corresponds to a disclosure of referencing the results of that auction). Consistent with the teachings detailed herein, in an exemplary embodiment the auction is a recurring auction with respective clearing prices determined at respective specific points in time, and the submitter(s) submitting orders to the action least one of acts as a market maker to the auction, thereby at least in part ensuring that all non competitive orders are filled, while also having non-competitive orders in the auction during the time of being a market maker, thereby eliminating conflict of interest, submits its net fixings exposure to the auction in the form of one or more non-competitive submissions, such that they have zero net exposure to the fixings, submits all competitive orders while neutralizing any net interest rate fixing exposure, or submits non-competitive orders with no restriction if the submitter is not a participant or market maker involved in price discovery in the underlying RFR market.

[0096] In an exemplary embodiment of this method, the method further includes the action of applying the reference results to at least one of a financial contract, wherein the action of applying includes determining the valuation of the contract based on the results, or a valuation mode.

[0097] In an exemplary embodiment of this method, the financial contract is an interest rate payable to a holder of a note. In an exemplary embodiment of this method, the method further comprises using the financial contract to discount a present value of a future payment. In an exemplary embodiment of this method, the valuation model discounts future cash flow to present value. In an exemplary embodiment of this method, the valuation model discounts future cash flow. Accordingly, in view of the above, the auctions according to the teachings detailed herein can be executed entirely in London or Paris or New York or Sydney or Tokyo or Berlin or Singapore, etc., and the actors according to the above methods who are referencing the results of the auction can be located in a completely different location, such as a completely different country. All that is needed is to obtain access to the results of the auction, and utilize the results of the auction for further efforts. Thus, in at least some exemplary embodiments, there methods where there is no active participation in the auction, but the utilitarian value of the auction is utilized in any event.

[0098] Accordingly, any disclosure herein of an auction corresponds to a disclosure of a method that references that auction and/or any one or more of the method actions associated with that auction, and applying the reference results in a utilitarian manner, such as by way of example, applying the results to at least one of a financial contract, wherein the action of applying includes determining the valuation of the contract based on the results, or a valuation mode.

[0099] FIG. 4 shows a diagram showing the components of a general purpose electronic network 10, such as a computer network. The computer network can be a public network, such as the Internet. As shown in FIG. 4, there can also be a computer system 12 including a central processing unit (CPU) 14 connected to a system memory 18. The system memory 18 typically contains an operating system 16, a BIOS driver 22, and application programs 20. In addition, the computer system 12 contains input devices 24 such as a mouse or a keyboard 32, and output devices such as a printer 30 and a display monitor 28, The computer system generally includes a communications interface 26, such as an ethernet card, or a WI-FI sub system, to communicate to the electronic network 10. Other computer systems 13 and 13 A also connect to the electronic network 10 which can be implemented as a Wide Area Network (WAN) or as an internetwork such as the Internet. In some embodiments, the above can be a typical computer system connected to an electronic network. It is noted that many other similar configurations exist, and embodiments can include all of these configurations being used to execute the methods of embodiments herein. Furthermore, it is noted that some embodiments include programming and/or configuring a computer system and/or establishing one or more portals to access the network 10 to implement one or more or all of the method actions disclosed herein. Indeed, in an exemplary embodiment, there includes providing a computer readable data storage system with program code recorded thereon for implementing one or more of the method actions herein. [ooioo] In one embodiment that utilizes a computer system, there is logic to determine the fixing rates and/or the prices disclosed herein. Some embodiments include providing computer readable data storage devices with program code recorded thereon for implementing one or more or all of the method steps described herein.

[ooioi] In an exemplary embodiment, there is a computer system that is configured to enable submitters to submit offers and/or data that is needed to execute one or more or all of the method actions detailed herein. In an exemplary embodiment, this can be achieved via accessing the World Wide Web utilizing a secure and/or encrypted link that is in communication with a server that is configured to execute one or more of the method actions detailed herein and/or to enable one or more the method actions detailed herein.

[00102] In an exemplary embodiment, there can be a server that is configured to execute one or more the method actions detailed herein and/or receive information / input from submitters / participants so as to implement the auctions. In an exemplary embodiment, the server is also configured to provide output to the submitters / participants so as to provide them data that is utilitarian with respect to implementing one or more the method actions detailed herein.

[00103] In one embodiment that utilizes a computer system, there is logic to analyze any of the input detailed herein or other types of input that is utilitarian for executing the actions detailed herein so as to achieve any one or more or all of the features of the teachings detailed herein, which logic can, in some embodiments, provide such achievement in real time or near real time. In an exemplary embodiment, there is a computer system that is configured to manipulate the data received and generate exogenous demand by guaranteeing the demand resulting in a virtuous feedback loop, which virtuous feedback loop can guarantee the demand, which in turn encourages the supply side to take part and therefore diminishes the need for the auction to spend money encouraging participation.

[00104] In an exemplary embodiment, a computer system is configured to obtain data indicative of a combination of non-price-sensitive noncompetitive orders and price-sensitive competitive orders and develop a clearing price or otherwise identify clearing price and advertise such to the participants in the auction. In an exemplary embodiment, the computer system is configured to always develop a clearing price during all auctions providing there is at least one or two or three or four or five or six or seven or eight or nine or 10 or more submitters. In an exemplary embodiment, a computer system is configured to ensure that only participants who have no net interest rate exposure to any fixing tenors in a specific currency are permitted to submit competitive orders. In an exemplary embodiment, the computer system can analyze data and determine such.

[00105] In an exemplary embodiment, the computer system can be configured to address the scenario where there are exposures that cannot be submitted to the auction or where the institution can demonstrate that the net exposure was either insignificant or unknown, and thus implement one or more of the teachings detailed herein. Further, in an exemplary embodiment, the system can be configured to identify whether the institution has sufficiently demonstrated that the net exposure was insignificant. Further, the system can be configured to determine whether or not there is sufficient liquidity for nonstandard tenors, and if not, forced parties to start submitting stub risks into future auctions.

[00106] In an exemplary embodiment, the computer systems can be configured to evaluate whether a conflict is significant and take action accordingly, such as obliging participants to submit notional amounts into a prorated combination of the tenors that are just longer and just shorter than the stub in question.

[00107] In an exemplary embodiment, the computer systems can be configured to develop or otherwise identify and present a single traded price which is the fixing price. In an exemplary embodiment, the computer systems are configured so as to enable participants to switch seamlessly from term fixed rates to realized overnight rates and vice versa.

[00108] In an exemplary embodiment, the computer systems can be configured to determine whether or not there is sufficient notional volume of competitive bids or offers. In an exemplary embodiment, the computer system can be configured, in the event that there is not enough, to make request to the predetermined market makers and/or otherwise force the predetermined market makers to provide bids or otherwise provide the bids to the participants in the auctions. In this regard, in an exemplary embodiment, the computer system can be configured so as to have those bids in place but not present them until the need arises. In an exemplary embodiment, the computer system can be configured to control the auction such that the notional amount of noncompetitive orders nets off to zero. In an exemplary embodiment, the computer system can be configured to control the auction so as to achieve any of the aforementioned fixings detailed herein.

[00109] In at least some exemplary embodiments, the computer system includes logic to implement the one or more midmarket rate teachings detailed herein.

[ooiio] In at least some exemplary embodiments, computer systems can be configured to ensure that there is sufficient volume of bids and offers to be representative based on the data received from the parti cipants/submitters. [ooiii] In an exemplary embodiment, the computer system can be configured so as to receive input indicative of one or more the participants agreeing to be contractually bound or otherwise obligated to the rules of the auction. In an exemplary embodiment, the computer system can be configured so as to receive monies and/or hold the monies in escrow, or otherwise communicate with banks to achieve such, so as to ensure that the rules of the auction are implemented in a utilitarian manner.

[00112] Thus, any disclosure of any method action herein or any functionality of a device and/or system corresponds to a disclosure of a non-transitory computer-readable medium having recorded thereon, a computer program for executing that method action or that functionality, etc., and a computer device or the like configured to execute such, which computer has access to that medium. Accordingly, an exemplary embodiment includes a non-transitory computer-readable media having recorded thereon, a computer program for executing at least a portion of the auction actives detailed herein.

[00113] Embodiments can include program products on computer-readable media and carriers for carrying or having computer-executable instructions or data structures stored thereon. Such computer-readable media can be any available media which can be accessed by a general purpose or special purpose computer. By way of example, such computer-readable media can comprise RAM, ROM, EPROM, EEPROM, CD-ROM or other optical disk storage, magnetic disk storage or other magnetic storage devices, or any other medium which can be used to carry or store desired program code in the form of computer-executable instructions or data structures and which can be accessed by a general purpose or special purpose computer. When information is transferred or provided over a network or another communications connection (either hardwired, wireless, or a combination of hardwired or wireless) to a computer, the computer properly views the connection as a computer-readable medium. Thus, any such a connection is properly termed a computer-readable medium. Combinations of the above should also be included within the scope of computer-readable media. Computer-executable instructions comprise, for example, instructions and data which cause a general purpose computer, special purpose computer, or special purpose processing device to perform a certain function or group of functions.

[00114] Some embodiments are described in the general context of method steps which may be implemented in one embodiment by a program product including computer-executable instructions, such as program modules, executed by computers in networked environments. Generally, program modules include routines, programs, objects, components, data structures, etc. that perform particular tasks or implement particular abstract data types. Computer-executable instructions, associated data structures, and program modules represent examples of program code for executing steps of the methods disclosed herein. The particular sequence of such executable instructions or associated data structures represent examples of corresponding acts for implementing the functions described in such steps.

[00115] Some embodiments are suitable for being operated in a networked environment using logical connections to one or more remote computers having processors. Logical connections may include a local area network (LAN) and a wide area network (WAN) that are presented here by way of example and not limitation. Such networking environments are commonplace in office-wide or enterprise- wide computer networks, intranets and the Internet. Those skilled in the art will appreciate that such network computing environments will typically encompass many types of computer system configurations, including personal computers, hand-held devices, multi-processor systems, microprocessor-based or programmable consumer electronics, network PCs, minicomputers, mainframe computers, and the like. Some embodiments may also be practiced in distributed computing environments where tasks are performed by local and remote processing devices that are linked (either by hardwired links, wireless links, or by a combination of hardwired or wireless links) through a communications network. In a distributed computing environment, program modules may be located in both local and remote memory storage devices.

[00116] It should be noted that although the flow charts provided herein show a specific order of method steps, it is understood that the order of these steps may differ from what is depicted. Also, two or more steps may be performed concurrently or with partial concurrence. Such variation will depend on the software and hardware systems chosen and on designer choice. It is understood that all such variations can be implemented in some embodiments. Likewise, software and web implementations of at least some embodiments can be accomplished with standard programming, techniques with rule based logic and other logic to accomplish the various database searching steps, correlation steps, comparison steps and decision steps. It should also be noted that the word“component” as used herein and in the claims is intended to encompass implementations using one or more lines of software code, and/or hardware implementations, and/or equipment for receiving manual inputs.

[00117] In an exemplary embodiment, there is a processor or a group of processors or a computer chip or a group of computer ships that include there on programming or otherwise have access to programming to implement one or more or all of the methods detailed herein. In an exemplary embodiment, the computer systems detailed herein can be a personal computer or any other personal computing device that can enable the teachings detailed herein. In an exemplary embodiment, a trained neural network can be utilized to implement some of the teachings detailed herein. All the above said, in some other embodiments, the teachings detailed herein can be implemented via a traditional route of pit offerings, etc. Moreover, in an exemplary embodiment, participants could participate in a teleconference of the like. Any arrangement that can enable the teachings detailed herein can be utilized at least some exemplary embodiments.

[00118] Any one or more of the teachings detailed herein can be combined with any other one or more of the teachings detailed herein providing that is such can have utilitarian results and the art enables such. Also, any one or more of the teachings detailed herein can be excluded from combination with any one or more of the teachings detailed herein providing that such can have utilitarian results and the art enable such.

[00119] While various embodiments of the present invention have been described above, it should be understood that they have been presented by way of example only, and not limitation. It will be apparent to persons skilled in the relevant art that various changes in form and detail can be made therein without departing from the spirit and scope of the invention.

Claims

What is claimed is:

1. A method, comprising:

providing access to RFR swap submitters to an RFR swap auction, wherein all non competitive submissions are to be filled;

receiving a plurality of orders from the submitters to transact a standard RFR swap; determining whether respective received orders constitute a competitive or a non competitive submission;

identifying market makers from the submitters of the received orders, who are submitters of competitive orders;

identifying a specific select group of these market makers who have pre-committed to providing bids and offers sufficient to ensure the auction has enough supply of liquidity to satisfy demand;

identifying a net notional balance for paying and/or receiving a transacted fixed rate for the auction by netting off all identified non-competitive bids and offers;

establishing a clearing price as a rate at which the identified net notional amount of non-competitive orders is matched by a sufficient notional amount of competitive orders; arranging transactions such that all non-competitive submissions are filled at the identified clearing price;

arranging transactions so that all of the competitive offers below the clearing price are filled at the clearing price;

arranging transactions so that at least some of the competitive offers at the clearing price are filled at the clearing price if a remainder is present after the non-competitive bids are filled;

arranging transactions so that at least some of the competitive bids at the clearing price are filled at the clearing price if a remainder is present after the non-competitive offers are filled; and

arranging transactions so that all of the competitive bids above the clearing price are filled at the clearing price, wherein

in the event that there is initially not enough notional volume of competitive submissions to fill all of the non-competitive submissions, making a request to the identified select group of market makers participating in the action to force these market makers to provide bids and/or offers to obtain a sufficient supply of liquidity to fill all of the non competitive submissions.

2. The method of claim 1, further comprising: publishing the clearing price regardless of whether there are any actual deals transacted.

3. The method of claim 1, wherein: in the event that the notional amount of non-competitive orders nets off to zero, the clearing price is the rate at which maximum notional volume of competitive bids and offers match off.

4. The method of claim 2, wherein: in an event that there are a plurality of rates that maximizes the total volume traded, a mean average of these plurality of rates is used as the clearing price.

5. A method, comprising: repeating the actions of claim 2 daily on a business day basis such that there is a respective daily clearing price set for each day that is based on dealable quotes from respective current market liquidity.

6. The method of claim 1, wherein: in the event that there is initially no matching rate, a mid-market rate of a weighted average of a predetermined minimum and maximum threshold notional amount of competitive bids and offers is calculated and used as the clearance price.

7. The method of claim 1, wherein: the market makers are bound to single-sided obligation on all derivatives, thereby presenting fixing exposure to the auction. 8 The method of claim 1, wherein:

in the event that there is initially no matching rate, a mid-market rate of a weighted average of a predetermined minimum and maximum threshold notional amount of competitive bids and offers is calculated, unless there exist bids at a higher rate or offers at a lower rate than the calculated mid-market rate, in which case a highest bid or a lowest offer would be used as the clearing price.

9. The method of claim 1, wherein:

the method is executed without conflicts of interest.

10 The method of claim 1, wherein:

the auction is executed under rules such that there always results, when the auction takes place, a virtuous feedback loop that results in a mandated exogenous non-price sensitive demand.

11. A method, comprising:

obtaining access to an RFR swap auction where all non-competitive orders will be filled; and

submitting an order into the auction to transact a standard RFR swap, wherein the auction is a recurring auction with respective clearing prices determined at respective specific points in time; and

the submitter submitting the order at least one of:

acts as a market maker to the auction, thereby at least in part ensuring that all non-competitive orders are filled, while also having non-competitive orders in the auction during the time of being a market maker, thereby eliminating conflict of interest;

submits its net fixings exposure to the auction in the form of one or more non competitive submissions, such that they have zero net exposure to the fixings;

submits all competitive orders while neutralizing any net interest rate fixing exposure; or submits non-competitive orders with no restriction if the submitter is not a participant or market maker involved in price discovery in the underlying RFR market.

12. The method of claim 11, wherein:

the action of submitting the competitive orders while neutralizing any net interest rate fixing exposure is executed, and such is done by submitting a non-competitive order.

13. The method of claim 11, wherein:

a fixing rate is established via a Dutch auction process based on observable transactions at respective specified times for cases where there is a net balance of non competitive orders

14. The method of claim 11, wherein:

a fixing rate is set before and/or during the action, and the submitter is neutralizing economic exposure to the fixing rate, and is thus permitted to submit a non-competitive order, and the submitted order is a non-competitive order.

15. The method of claim 11, wherein:

the submitter is submitting a competitive order, and the auction is such that there is no practical limit on the number of distinct price tiers that the submitter may submit such that liquidity is constrained.

16. The method of claim 11, wherein:

the submitter is submitting a competitive order, and there are also non-competitive orders present in the market submitted by submitters other than the submitter.

17. The method of claim 11, wherein:

rules of the auction hedge market makers out of their exposures thus removing conflicts of interest in the price discovery process.

18. The method of claim 11, wherein:

the auction is a business-day daily recurring auction. 21 A method, comprising:

establishing a consistent critical mass of liquidity in an RFR swap auction, including: granting market makers access to the auction;

granting non-market makers access to the auction; and

enabling the market makers to price a first derivative corresponding to a term fixing RFR swap and a second derivative corresponding to an overnight fixing RFR swap on the same interest rate curve.

22. The method of claim 21, wherein:

the market makers are under an obligation to reduce net exposure towards zero via non-competitive orders in order to be permitted to submit competitive orders.

23. The method of claim 21, wherein:

the participants in the auction are able to switch seamlessly between a term fixed rate and an overnight realized rate or vice versa, without any loss, barring a very small and insignificant commission to the auction provider.

24. The method of claim 21, wherein:

the market makers participating in the competitive side of the auction must submit their net fixing exposure to the auction in the form of a non-competitive submission, such that they have zero net exposure to the fixings and so no conflict of interest.

25. The method of claim 24 further comprising:

netting off the non-competitive submissions submitted by all participants, thereby creating a net paying or receiving interest in the auction.

26. The method of claim 21, wherein the competitive side of the auction process for each tenor requires the market makers to present bids and/or offers to take on part or all of the resultant interest rate risk in the form of an overnight index swap, and the fixing rate of the derivatives is the lowest rate at which the paying interest can be filled from the competitive offers submitted to the auction or the highest rate at which the receiving interest rate can be filled from competitive bids.

27. The method of claim 21, wherein the swap prices for the derivatives will be effectively the same as a regular RFR swap price.

28. The method of claim 21, wherein the term fixing rate of the market makers is swapped in the auction for the realized rate.

29. The method of claim 21, wherein:

the auction is executed such that there is no conflict of interest by competitive bid or offer submitters and there is effectively no fragmentation of liquidity.

31. A method, compri sing :

conducting an RFR swap auction in a short term interest rate market under rules such that there will be a steady supply of non-price sensitive demand derived from end users, via a single sided submission obligation on derivatives that reference the fixing rate produced by the auction.

32. The method of claim 31, wherein:

the auction is executed under rules that create a feedback loop that creates the demand.

33. The method of claim 31, wherein:

the auction is executed such that there is a known transacted rate that corresponds to a benchmark fixing that can be used by derivatives, combined with a contractual obligation that one side of any such derivative contract submit their floating rate exposures to the action.

34. The method of claim 31, wherein:

the auction accepts competitive and non-competitive bids and offers, wherein all non competitive bids and offers must be submitted in a manner that neutralizes any net interest rate fixing exposure to the resultant fixing rate, if submitted by a market maker, or without restriction, if submitted by a non market maker.

35. The method of claim 34 wherein:

the auction is conducted such that a predetermined select group of market makers in the auction are forced to satisfy all the net non-competitive bids or offers.

36. The method of claim 31, wherein:

the auction is part of a series of auctions that are executed on a business-day daily basis, and, at a set predetermined time for each respective auction, a clearance price is set and known.

38. The method of claim 31, wherein:

the auction accepts competitive and non-competitive bids, wherein competitive bids or competitive offers can only be submitted if also accompanied by non-competitive bids or non-competitive offers that neutralize interest rate exposure to the resultant fixing rate if any such exposure exists.

41. A method, compri sing :

referencing results of an RFR swap auction where all non-competitive orders were filled, wherein

the auction is a recurring auction with respective clearing prices determined at respective specific points in time,

and the submitted s) submitting orders to the action least one of:

acts as a market maker to the auction, thereby at least in part ensuring that all non-competitive orders are filled, while also having non-competitive orders in the auction during the time of being a market maker, thereby eliminating conflict of interest;

submits its net fixings exposure to the auction in the form of one or more non-competitive submissions, such that they have zero net exposure to the fixings; or

submits all competitive orders while neutralizing any net interest rate fixing exposure; or

submits non-competitive orders with no restriction if the submitter is not a participant or market maker involved in price discovery in the underlying RFR market; and

applying the reference results to at least one of:

a financial contract, wherein the action of applying includes determining the valuation of the contract based on the results; or

a valuation mode.

42. The method of claim 41, wherein the financial contract is an interest rate payable to a holder of a note.

43. The method of claim 41, further comprising using the financial contract to discount a present value of a future payment.

44. The method of claim 41, wherein the valuation model discounts future cash flow to present value.

45. The method of claim 41, wherein the valuation model discounts future cash flow.

46. The method of claim 41, wherein the valuation model projects a future cash flow.