OTC Derivative Trading Hub

Calypso recently developed the Correlation “Hub” Service with a major interdealer-broker to allow them to generate more trade opportunities.  The Correlation “Hub” Service facilitates dealers’ trading in the illiquid credit correlation market by effectively finding bi-lateral and multi-lateral trading opportunities of bespoke CDO tranches while satisfying specific constraints.

The process involves regular runs (e.g. weekly) of the Correlation Service, scheduled on a specified day and time. The participating banks upload their objectives and constraints via input spreadsheets through the web-portal before the cut-off time. The broker then initiates the run and the Correlation Hub iterates through potential trades. Once the gain in utility for the participating banks starts to level off, the broker retrieves the results and communicates the suggested trades to the respective banks. The banks then go through the normal broking process to close the trades.

Calypso’s evolutionary computing based optimization platform can be applied where the OTC markets are illiquid and the risks in the dealers’ books are complex to manage. The platform can in those instances enhance liquidity in the market. Calypso is currently exploring which areas are best suited for this platform and is engaging with the market and potential partners to launch the next hub.