AU2007201985B2 - Method and system for offset matching - Google Patents

Abstract

Abstract of the Disclosure The trading of interest rate swaps or otherinterest rate derivatives gives rise to mismatch exposure. This can be offset by a series of FRA trades. Rather than 5 conducting a series of exposure neutral trades, FRAs can be bought or sold for the entire amount of a trader's reset exposure. To hedge the offset trades, a series of IMM FRA trades are conducted. The relative size of the IMM contracts will be determined by the distance in time from the IMM quarterly contract settlement date. A system is disclosed for performing offset trades and IMM 10 hedges. The embodiments allow for non-neutral trading and subsequent heging brings trading back to a neutral position. Trader A Trader B Trader C Matching Engine Trader D Trde- Offset Trades Trader E IMM Futures Market Figure 12

Description

AUSTRALIA PATENTS ACT 1990 COMPLETE SPECIFICATION NAME OF APPLICANT(S):: ICAP Management Services Limited ADDRESS FOR SERVICE: DAVIES COLLISON CAVE Patent Attorneys 1 Nicholson Street, Melbourne, 3000, Australia INVENTION TITLE: Method and system for offset matching The following statement is a full description of this invention, including the best method of performing it known to me/us: 5102 Field This invention relates to methods and systems for hedging positions arising from offset matches in trades such as interest rate swaps which give rise to an unpredictable risk over a 5 long period of time. Background In the interest swap markets, it is commonplace to hedge mismatches using a reset system 10 which reduces the outstanding fixing risk. Reset systems buy and sell FRAs (Forward Rate Agreements). Known reset systems include FRA-Cross operated by ICAP Europe plc. FRA-Cross offers traders the possibility of reducing floating rate mismatch risk arising from interest rate swaps and other trades. A further known system is Tifast, operated jointly by Tullet Liberty Securities and Chicago Mercantile Exchange. This 15 system offsets with daily expiring 3-month futures trades rather than FRAs. Whilst the known systems provide a degree of risk exposure management, we have appreciated that it is desirable to increase the amount of risk that can be offset through the reset process. Accordingly it is desired to provide a method and system to address this or 20 at least provide a useful alternative. Summary In accordance with the present invention there is provided a computer system for 25 electronically trading Forward Rate Agreements (FRAs), the computer system being configured to: store respective books of FRA positions for at least one tenor for each of a plurality of traders, the book of a first one of the traders having a respective initial net position for each tenor of the first trader's book; 30 execute unilateral FRA trades between the first trader and one or more other traders so that the net position of the first trader's book, for at least one tenor, is changed; - laand select and execute a plurality of International Money Market (IMM) FRA trades on behalf of the first trader, the selection being a function of the previously executed unilateral FRA trades and so as to offset at least some of the unilateral FRA trades thereby returning 5 the first trader's net position, for at least one tenor, back to or at least closer to its initial net position. The present invention also provides a computerised electronic trading method, executed by a computer system, comprising: 10 receiving and storing data representing a book of identified positions to be matched from each of a plurality of traders; unilaterally performing a set of first offset Forward Rate Agreement (FRA) trades to match the identified positions; and performing a series of hedge trades on the unilateral offset trades by performing at least 15 two corresponding International Money Market (IMM) FRA trades.. The present invention also provides a computerised reset matching method, executed by a computer system, comprising: receiving from traders, order sheet data identifying positions to be matched; 20 matching the positions at a match time by unilaterally performing an offset sale or purchase of a Forward Rate Agreement (FRA) corresponding to each position using a matching algorithm and subject to credit limits; and hedging the unilateral offset FRA trades by performing a series of two or more International Money Market (IMM) FRA trades. 25 The present invention also provides a computerised trading system, comprising: a matching engine for matching trade positions input from traders and unilaterally performing a set of first Forward Rate Agreement (FRA) offset trades to match the identified position, and performing a series of hedge trades on the offset trades by 30 performing a series of at least two corresponding International Money Market (IMM) FRA trades. -2- The present invention also provides a computerised trading system, comprising: a matching engine for matching trade positions received from traders at a match 5 time and unilaterally performing an offset Forward Rate Agreement (FRA) trade corresponding to each position, the matching being subject to credit limits, and for hedging the offset FRA trades by calculating and performing a series of at least two International Money Market (IMM) FRA trades, wherein the offset FRA trades are hedged by at least two IMM FRA trades to thereby substantially reduce curve risk. 10 Embodiments of the invention have the advantage that offset trades can be performed which fully offset the traders' positions without the need for the offset trades to remain neutral, This is made possible by the use of FRA trades having a fixed settlement date, preferably IMM trades, which are used to hedge the net offset position. In most cases, two 15 IMM contracts will be traded, one for the contract before the offset date and one for the period after. The relative size of the two contracts will depend on the proximity of the 1MM contract date to the offset date. The IMM FRA market is extremely liquid making it an ideal vehicle for the hedge. Embodiments of the invention have the advantage that they enable traders to offset risk, for example generated from interest rate sway mismatches or 20 other mismatches, more completely that is possible with prior art methods and systems. Embodiments of the invention have the further advantage of allowing for non-neutral trading with subsequent hedging bringing trading back to a neutral position. Brief Description of the Drawings 25 Embodiments of the invention are herein described by way of example only, and with reference to the accompany drawings, in which: Figure 1 is a schematic view of an interest rate swap; 30 Figure 2 shows the schedule of payments for a 5 year interest rate swap; -3 - Figure 3 is a schematic view of a reverse direction interest rate swap to that of figure 1; Figure 4 illustrates the payment mismatch window for the interest rate swaps of figures 1 and 3; 5 Figure 5 shows the cash flows for traders A and B in the trades illustrated in figures 1 and 3; Figure 6 shows a reset ladder for a number of days; Figure 7 shows how the exposures of figure 5 may be hedged by offset trades; 10 Figure 8 shows yield curves over a 100 day period: Figure 9 shows how offset trades may be increased according to an embodiment of the present invention; Figure 10 shows how cash flows vary with time according to (a) prior art methods, and (b) an embodiment of the invention; 15 Figure 11 shows how the IMM trades required to hedge the net offset position are calculated; Figure 12 is a block diagram of a networked trading system suitable for embodying the invention; Figure 13 is an input form for a trader using the system and method 20 embodying the present invention; Figure 14 is a further input form for a trader using the system and method embodying the present invention ; Figure 15 shows credit limits for trades with third parties input by a trader to the system; 4 Figure 16 shows an example of 1 month LIBOR positions input by a trader; and Figure 17 is a flow chart illustrating steps followed in the execution of trades in a preferred embodiment of the invention; 5 Description of Preferred Embodiments In order to understand the invention it is useful to understand the nature of trading risk that can be generated by a trader's activities. One type of commonly traded derivative is the interest rate swap. A standard vanilla swap trades a fixed interest rate against a floating rate and is used to alter exposure to interest rate 10 fluctuations. Figure 1 shows an example of an interest rate swap in which party A agrees to pay party B periodic interest payments at a fixed rate of, say, 4.5% at regular intervals, for example every year, over an agreed period of time. In return, party B pays party A a floating interest rate which is determined with reference to an interest standard rate such as LIBOR (London InterBank Offered 15 Rate) for a sterling swap or EURIBOR (Euro Interbank Offered Rate) for a Euro denominated swap. Under the terms of the contract, A will pay B annually and B will pay A every six months throughout the lifetime of the contract. The value of B's payments to A will depend on the LIBOR, EURIBOR or other reference rate at the time the payment becomes due. There is no transfer of the underlying 20 capital on which the interest is payable. Figure 2 illustrates the flow of payments between the parties over the term of the contract. Time is shown as the horizontal axis and payments from A-B are shown extending vertically upwards every 12 months and payments from B-A extending vertically downwards every 6 months. The first floating rate payment 25 will be known when the deal is made, for example it will be calculated at the published 6m LIBOR or EURIBOR rate but the remaining repayments will not be known. In practice, these payments are determined by resetting or fixing the deal rate two days before the 6 month date or on the date depending on the denomination of the rate. 30 A trader will enter into many deals over a trading day and will have a large number of open deals at any one time. Consider the case where the two traders 5 A and B enter into an opposite deal to that of figure the next day, as illustrated in figure 3. Here, trader B pays a fixed rate to trader A and trader A pays a floating rate to trader B. The fixed interest rate may have changed since the previous day, say from 4.5% to 4.6%. In that case, each time a fixed rate payment is 5 made trader B pays out 0.1% more to trader A that he received on the corresponding trade on the previous day. Figure 4 shows how the payments on the two deals fall for the floating part of the deal. The traders can predict the amount they will make or lose on each leg of the deal. However, for the floating deals, the amount is less quantifiable. Although 10 the first amount is known (eg 6m LIBOR), the other 9 payments payable over the 5 years period of the deal are unquantifiable. Thus, there is a mismatch between the two deals which exists throughout the lifetime of the deal and which exposes the traders to risk. This mismatch arises through the time difference between the deals between the two parties. There would be no mismatch if the two deals had 15 been done on the same day. It would be possible for the traders to hedge out all the cash flows that are generated by these trades. This could be done by buying a series of FRAs (forward rate agreements) to hedge up each mismatch. However, the prices offered for FRA trades towards the end of the deal will be very poor and this is an 20 unattractive option to the trader. Systems exist which enable traders to hedge out their reset risk efficiently and cheaply. These systems buy and sell mismatches. One known system is FRA Cross which was operated by ICAP Europe Ltd. In this system every few weeks, a matching run is performed for each currency on the system. The frequency 25 depends on the currency of the FRA with US$ being matched every week, EUR, JPY and GBP every two weeks, and smaller currencies every three weeks. Positions are entered into the systems by traders manually or by pasting from spreadsheets. Figure 5 shows how the traders A and B would need to hedge out the two trades 30 discussed above using a reset system. Figure 5 shows the amounts of each trade to have been 100 million. On day 1, trader A is 100m long and on day 2 1 00m short. It is the other way round for trader B. Trader A thus needs to buy on 6 day 1 and sell on day 2 to hedge out his positions. As mentioned above, this can be done by buying a FRA for 100m on day 1 and selling it on day 2. The two deals described have been taken in isolation to explain the nature of the mismatch risk which arises, for example, from interest rate swap trades. As 5 traders execute many deals, they will expose themselves on a large number of deals and can construct a table of cash flows that will become due in the future. Figure 6 shows an example of such a table known as a reset ladder. The table shows the mismatch exposure for each tenor. In this example, only 3 month and 6 month tenors are shown populated but it can seen that in the 6 month column 10 the trader is 2 billion long on day 1; 600m long on day 2; 500m short on day 3; 700m short on day 4; and 400m long on day 5. Overall the trader is 1800m long over the 5 day period. Similarly, for the 3m tenor the trader is 1400m short over the 5 day period. Reset systems work by changing the individual exposure without changing the overall exposure. The intention is to balance, as far as 15 possible, the long and short positions on individual days by making long positions shorter and vice versa, without affecting the overall position. The reset system performs offsetting trades so reducing exposure to interest rate changes. An example of the trades that might be done is shown in figure 7. Here the offsets are calculated only for the 6m tenor. It must be remembered that the overall 20 exposure cannot be changed over the period. That period is not fixed and is, in practice, defined by the customer. Thus, in figure 7, an offset trade of -500m (a sell) is performed on day 1; a buy for 500m is performed on day 3, a buy for 300m on day 4 and a sell for 300 on day 5. The net offset over the 5 day period is zero and the balance is the same 1.8BN as before, but it can be seen from 25 figure 7 that the individual exposure on each day is less than, or equal to the exposure before the offset was applied. In the example given, the exposure on day 2 is the same but is significantly reduced on all other days. For any given movement in interest rate, the effect on the position is less than before the offset was applied. 30 The reset matching process operates on the basis of buying and selling FRAs. It is important that the offset process is kept neutral. In other words the traders buy and sell the same amounts. This is illustrated in figure 7 in which a FRA for 500m is sold on day 1 and bought on day 3 and a FRA for 300m is bought on day 7 4 and sold on day 5. It is also not guaranteed that all the reset trades, the trader seeks to make will be filled. However, the process of buying and selling FRAs can give rise to yield curve risk. Curve risk may be understood from figure 8 and is a particular problem when 5 FRAs are bought and sold a distance in time apart. The yield curve shows expectations of the interest rate, and thus the cost of borrowing, over time. In the example shown at figure 8, Y1 represents the curve published for Reset. Every date has a rate and the curve is fixed daily. By the next day the market has moved. Curve Y2 represents the market's new expectations. As can be seen, 10 the longer the term, the greater the disparity between curves Y1 and Y2 and so the greater the curve risk. In the figure 8 example there is a great disparity between the rates predicted by curves Y1 and Y2 at a distant time d100 which represent a considerable risk. The risk involved may be mitigated by buying International Monetary Market IMM 15 FRAs. This is a hedging process which cushions against risk. The FRAs are opposite to the underlying trade so that a buy trade is hedged by selling IMM FRAs and vice versa. IMM FRAs are a very liquid traded FRA product and are similar in risk profile to interest rate IMM futures that are an exchange-traded product and can be used to hedge against curve risk. Thus, a hedge is 20 performed which hedges the FRA trades against a series of IMM FRA contracts. IMM contracts are FRAs which have a settlement date that corresponds to the standard settlement day for futures traded at the IMM, which in the case of 3 month contracts is on the third Wednesday of March, June, September and December. The IMM trades required are calculated by the system provider 25 based on generated curve risk and that risk is then offset with a series of IMM trades. The IMM trades always match the amount bought with the amount sold. Taking the earlier example, if d 1 were, say, 3 1't May, it falls between the March and the June contract dates and two IMM contracts will be bought, one expiring in March and the other in June. The amount of each contract in relation to the 30 overall amount to be hedged may be proportionate simply to the distance to the two contract dates. The purpose of the hedge trades is to remove risk. Going back to the offset calculation shown in figure 7, at d 1 the offset hedge is a sell trade for 500. The 8 IMM trades which hedge that trade will be buy trades. Similarly, the IMM hedges at d 3 and d 4 will be sells and at d 5 a buy. The IMM hedges thus protect the trader by eliminating curve risk and insulate against the effect of interest rate changes. By providing a series of hedges, the 5 trader is protected by a movement in interest rates between the setting of the RESET curve and the delivery of the trades back to the trader the next day. By trading out of the fixing positions the trader is protecting himself from the movement of short term rates. In the examples given, the offset hedging applied adhered strictly to the principle 10 that the trader's balance over the period selected must be exactly the same after the offset hedging had been applied. Thus, in the figure 7 example the balance must remain at 1.8Bn. We have appreciated that the entire book may be traded provided that it is rebalanced via hedging. Thus, as shown in figure 9, the offset trades are opposite and equal to the mismatch positions leaving the offset 15 unbalanced at - 1.8Bn. The ensuing hedge trades neutralise that imbalance. As in the yield curve example, these trades are conveniently hedged by a mixture of IMM trades calculated according to the proximity of the next IMM contract date. The effect of this additional hedge is to bring the position back to zero or near zero, so maintaining the requirement that the trader's position must be squared. 20 This approach has the advantage that more risk is removed from the trading book. In the figure 7 example, only 1.6Bn was hedged, whereas in the figure 9 example, 4.2Bn can be hedged. It should be noted that the 1.6Bn is given only as an example and that up to 2.4 Bn could have been offset. That amount is calculated as twice the smaller of the buy and sell positions, as the trader's 25 position must be squared. The total short position is 1.2 Bn, which can be offset but the long position that can be offset is also 1.2 Bn (although the total long position is 3Bn) making a total of 2.4 Bn. This approach of unilaterally offsetting the positions has the effect of pushing all the reset risk onto the IMM dates. Graphically, this change in risk is illustrated in 30 figure 10. Figure 10(a) shows the risk position against time descending. There are many instances in which the trader has a positive or negative exposure. The method described with respect to figure 9 is shown in figure 10(b). All the risk 9 has been removed and moved onto the IMM dates where it is hedged in the futures market which has the advantage of being highly liquid. The embodiment described with respect to figures 9 and 10 significantly improves the effectiveness of the matching process removing more outstanding fixing risk. 5 After trading, net long and short positions are created when positions are entered and the hedge function creates an offsetting amount to neutralise the position within reasonable parameters. The manner in which the required IMM hedge trades are calculated may be better understood from the following worked example and figure 11. Here, the 10 date is notionally 14 December and the trader has identified the need for 2 three month FRAs. The first is a buy for 500M with a contract date 14 Feb to 14 May, and the second is a sell with a contract date from 5 May to 6 August. The buy trade is indicated by a + symbol and the sell trade by a - symbol in figure 11. For the first trade, the next IMM settlement date is 21 March which is 35 days away. 15 The fraction of the FRA period which falls within the 20 December IMM period is therefore 35/91 x 500 = 192M. For these purposes, the total period is always treated as 91 days regardless of the actual length of time which differs slightly in some periods. The fraction of the March contract is the time between March 21 and May 14 = 54 days/91 days x 500 = 296M. 20 Thus, to hedge the 500 Buy FRA there must be a Dec IMM sell for 192 Million and a March IMM sell for 296 Million. It will be noted that the total of the IMM trades is 498 M which is not exactly equal to the amount of the FRA being hedged. To hedge the second FRA will require March and June IMM FRAs to be bought. 25 The amount of the March IMM required is 46 days (the time between 5 May and 20 June)/91 days x 500 = 252 M Buy. Similarly the amount of June is 47/91 x 500 = 258 M Buy. Here, the total about bought is 510M. Thus there is a requirement to sell 192 Dec, to sell 296 Mar, to buy 252 Mar, and to buy 258 Jun. Thus, the net requirement is Sell 192 Dec, Sell 44 Mar and Buy 30 258 Jun. Over the period there is a net buy of 22M. Prior Reset matching would require that the buy and sell amounts were equal so that the amount of the buy 10 could only be 236M. Thus, the embodiment described allows a further 22M of risk to be hedged. The system described is implemented as a computerised system with traders communicating 5 with a central system via a telecommunications network such as the Internet or a dedicated network. In one embodiment the positions are emailed or faxed by traders to the central system. The central system as shown in figure 12 receives credit limits from traders for trades with various counterparties with whom they may trade on the system. The central system matches submitted orders in accordance with these credit limits in a known manner. Figures 13-16 show 10 examples of how traders enter data into the system. At figure 13 a trader identified as trader A at bank XYZ submits parameters which will govem the manner in which his trades will be handled by the system. This form gives the trader the opportunity to select the unilateral matching facility described with reference to figures 9 and 10 by selecting the "Ultimatch" option. Alternatively, the trader can select bilateral matching in a manner conducted by known systems, 15 Figure 14 shows a range of further parameters which will restrict the trades that the system will perform, including dates on which the trader does not wish reset matching to occur, which may coincide with days on which a change in interest rates is likely. 20 Figure 15 shows a spreadsheet allowing the trader to enter credit limits for each possible counterparty with which they might be matched by the system. If the trader does not enter a credit limit for a particular counterparty they will not be eligible for matching with that counterparty. Figure 16 shows, for lm tenor sterling positions, a spreadsheet which enables the trader to 25 enter their positions for each business day of the next three months. The position is shown in the right hand column as a number of E M with a positive entry indicating a requirement to sell a Im FRA and a negative entry indicating a need to buy a one month FRA on a particular day. Once the run has been completed and the matches made, the system will retum to the trader a notification of all the trades made, for which the trader will be charged a brokerage fee, together 30 with details of the counterparty with whom they have - 11 been matched. The trader is also notified of hedge trades which have been conducted on their behalf by the system. Thus, the trader receives a listing of the IMM trades against which their offset trades have been hedged. The manner in which the system operates may be further understood from figure 5 16. At step 100, traders identify positions that they need to trade out. The traders complete, at step 102, a portfolio entry sheet as shown in figure 15 which has been sent to them electronically, for example to their e-mail address, by the system. The trader has until a stated cut-off time to submit the form to the system. The system receives the position from at step 104 and at step 106 filters 10 the position according to constraints entered by the trader such as parties to whom they do not extend credit and days on which they do not wish to trade, as shown in figures 14 and 15. At step 108 the system matches buy and sell positions for the FRA that is being traded. As part of this step, the system matches unilaterally, that is, as described above, all possible trades are executed 15 regardless of maintaining a neutral position. Next, at step 110, the system calculates, for the net offset position, the IMM trade or trades that are required to hedge the trade. These hedge trades are executed at step 112 and at step 114 the offset trades and the hedge trades are reported back to the trader. Thus the system described enables traders to reduce mismatch risk by buying or 20 selling FRAs unilaterally for the entire amount of their exposure. These FRAs are then hedged by purchasing two or more IMM FRAs. The result is a synthetic future which hedges the mismatch risk. The embodiment described may be modified in many ways without departing from the invention which is defined in the following claims. For example, the 25 embodiment may be used with instruments other than the vanilla interest rate swaps described. The embodiment is suitable not only for use with other types of interest rate swaps such as floating - floating swaps or any other instrument the trading of which gives rise to a mismatch resulting in an exposure risk to the trader. The system is suitable for use with any instrument with which reset is 30 used, for example, but not limited to, FRA trading and interest rate options trading. 12 Throughout this specification and the claims which follow, unless the context requires otherwise, the word "comprise", and variations such as "comprises" or "comprising", will be understood to imply the inclusion of a stated integer or step or group of integers or steps but not the exclusion of any other integer or step or group of integers or steps. The reference in this specification to any prior publication (or information derived from it), or to any matter which is known, is not, and should not be taken as an acknowledgment or admission or any form of suggestion that that prior publication (or information derived from it) or known matter forms part of the common general knowledge in the field of endeavour to which this specification relates. 13

Claims (20)

1. A computer system for electronically trading Forward Rate Agreements (FRAs), the computer system being configured to: 5 store respective books of FRA positions for at least one tenor for each of a plurality of traders, the book of a first one of the traders having a respective initial net position for each tenor of the first trader's book; execute unilateral FRA trades between the first trader and one or more other traders so that the net position of the first trader's book, for at least one tenor, is changed; 10 and select and execute a plurality of International Money Market (IMM) FRA trades on behalf of the first trader, the selection being a function of the previously executed unilateral FRA trades and so as to offset at least some of the unilateral FRA trades thereby returning the first trader's net position, for at least one tenor, back to or at least closer to its initial net 15 position.

2. The computer system of claim 1, wherein the computer system stores information concerning limitations under which one or more of the traders are willing to execute a trade and wherein the computer system uses the stored information to select which 20 unilateral trades to execute.

3. The computer system of claim 2, wherein at least one of the limitations is the amount of credit the first trader grants to other traders and/or the amount of credit other traders grant to the first trader. 25

4. The computer system of claim 1, wherein the computer system selects, for each unilateral FRA trade, the quantity of two or more IMM FRA trades required to offset the FRA trade and executes the required IMM FRA trades as a function of such selection. 30 5. The computer system of claim 4, wherein the amount of IMM FRA trades required to offset each respective unilateral FRA trade is selected as a function of the date overlap - 14 - between the contract dates of the respective unilateral FRA trade and the respective contract dates of the corresponding two or more IMM FRA trades required to offset the respective FRA trade.

5

6. The computer system of any one of the preceding claims, wherein at least one of the IMM FRA trades is used to at least partially offset two or more of the unilateral FRA trades.

7. The computer system of claim 1, wherein the computer system executes one or 10 more unilateral FRA trades for each of two or more tenors of the first trader's book.

8. The computer system of claim 1, wherein the computer system executes one or more unilateral FRA trades for all tenors of the first trader's book. 15

9. The computer system of claim 1, wherein the computer system selects and executes a plurality of IMM FRA trades on behalf of the first trader so as to offset most of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position. 20

10. The computer system of claim 1, wherein the computer system selects and executes a plurality of IMM FRA trades on behalf of the first trader so as to offset all of the unilateral FRA trades for at least one tenor and return the first trader's net position for those tenors back to or at least closer to their initial net position. 25

11. A computer system as claimed in any one of the preceding claims, wherein the computer system provides an interface for the traders to submit information concerning the respective books of FRA positions for at least one tenor.

12. A computer system as claimed in any one of the preceding claims, wherein the 30 computer system generates a report showing the trades made on behalf of the first trader. - 15 -

13. The computer system of claim 12, wherein the computer system sends the report to the first trader.

14. The computer system as claimed in any one of the preceding claims, wherein the 5 computer system both selects and executes the one or more unilateral FRA trades.

15. A computerised electronic trading method, executed by a computer system, comprising: receiving and storing data representing a book of identified positions to be matched 10 from each of a plurality of traders; unilaterally performing a set of first offset Forward Rate Agreement (FRA) trades to match the identified positions; and performing a series of hedge trades on the unilateral offset trades by performing at least two corresponding International Money Market (IMM) FRA trades. 15

16. A computerised method according to claim 15, wherein hedge trades comprises two IMM FRA trades each IMM FRA trade has a different settlement date.

17. A computerised reset matching method, executed by a computer system 20 comprising: receiving from traders, order sheet data identifying positions to be matched; matching the positions at a match time by unilaterally performing an offset sale or purchase of a Forward Rate Agreement (FRA) corresponding to each position using a matching algorithm and subject to credit limits; and 25 hedging the unilateral offset FRA trades by performing a series of two or more International Money Market (IMM) FRA trades.

18. A computerised trading system, comprising: a matching engine for matching trade positions input from traders and unilaterally 30 performing a set of first Forward Rate Agreement (FRA) offset trades to match the identified position, and performing a series of hedge trades on the offset trades by -16- performing a series of at least two corresponding International Money Market (IMM) FRA trades.

19. A computerised trading system, comprising: 5 a matching engine for matching trade positions received from traders at a match time and unilaterally performing an offset Forward Rate Agreement (FRA) trade corresponding to each position, the matching being subject to credit limits, and for hedging the offset FRA trades by calculating and performing a series of at least two International Money Market (IMM) FRA trades, wherein the offset FRA trades are hedged by at least 10 two IMM FRA trades to thereby substantially reduce curve risk.

20. A computerized trading system or method substantially as hereinbefore described with reference to the accompanying drawings. - 17-