How it Works: Hedge Currencies
RESET Matching Process
Using a preset market curve RESET identify and execute offsetting deals between all counterparties to reduce your outstanding fixing risk.
RESET sends a Portfolio entry sheet (Excel-based) to your email address after we have set the interest rate curve. You have until the cut off time stated to fill in the sheet and return it by email to reset@reset.net.
You may enter as many portfolio entry sheets as you require.
There are 2 types of entry sheets: RESET Regular and RESET Freeform.
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RESET Regular
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Every RESET spreadsheet contains a section for you to enter your existing notional positions by tenor, thus indicating your trading interests.
The positions are entered as a plus or minus number. If you need to sell the FRA (receive fixed) to offset your reset risk enter a +ve number.
If you need to buy the FRA (pay fixed) to offset your reset risk enter a -ve number.
Curves
RESET takes great care to provide very accurate mid market consensus curves, incorporating all short end market sentiment and expectations such as Central Bank meeting dates and year-end turns. Numerous benchmark and market significant points on the short term curve are surveyed by RESET from a range of recognised market making banks and straight line interpolation is used to create values for each date.
RESET Freeform
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This is designed to make entry into the system as quick and easy as possible. All you need to do is enter your reset dates and amounts in any order, select your sign convention (the system will remember this for you after your first entry) and return the spreadsheet to us by email.
If you regularly enter the system the same way RESET Freeform will custom design a spreadsheet for you, with all your standard matching criteria and restrictions preset.
For more info, please mail us at specialist@reset.net or ask your relationship manager.
CREDIT LIMITS
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The Credit Limits page of the spreadsheet allows you to define the maximum desired exposure with any individual counterparty in a matching run. You simply enter the maximum gross notional amount of FRAs (or SPS) that you can trade with each counterparty for the purposes of each RESET run. On request, RESET can supply you with the same credit limits preset for the next run. You can then amend any recent changes.
MATCHING OPTIONS
You define the basic way positions are to be matched. These options allow you to offset long fixings and short fixings in equal notional amounts.
IMM Matching
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The IMM matching function improves your risk reduction in this situation. This enters all of your residual positions into a second matching loop and allows one sided matches to trade out against selected IMM dates. This creates extra liquidity and further reduces your outstanding fixing risk consolidating exposure onto the easily hedgeable IMM dates.
Cross Tenor Matching
By selecting to match across tenors you can reduce the basis risk in your portfolio and increase the chance of reducing your outstanding fixing risk since your 3mth fixings can be offset against your 6mth fixings as well as against each other.
DATE RESTRICTIONS
We give you the option to restrict matching over certain dates such as turns and central bank meeting dates.
The Special Dates Function allows you to further restrict matching over any date of your choosing.
Business Day Window
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It is also possible to select a maximum limit to the number of business days between offsetting trades.
If there is a specific date you do not wish to match over that is not listed, you can enter it in the special dates box.
WARNING: Restrictions by their nature affect the efficiency of the matching process. If you place a lot of restrictions you significantly reduce the amounts tradable.
RESULTS
Following every RESET run you will be sent a report outlining the details of every trade executed on your behalf. Any RESET Hedge trades done to minimise your curve risk are listed separately.
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Web Delivery |
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Results can be sent to you in an electronic format specifically designed to allow automatic upload into your system. We can customise the results format to your specifications. |
We are able to send your trades to you via the Swapswire system, either Double Sided (only with other Swapswire counterparties) or Single Sided (trades for all counterparties). |
It is also possible for you to view and download your results via the password protected MY RESET area on our website www.reset.net. We give you the option to restrict matching over certain dates such as turns and central bank meeting dates. |
RESET HEDGE
Why RESET Hedge?
As a result of the execution of trades to eliminate your fixing risk there will be a change in your curve Delta risk which can have unwanted P&L implications.
How does RESET Hedge reduce my curve risk?
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RESET runs an extra matching loop to reduce your outstanding curve risk by executing offsetting IMM FRA's. Our aim is to keep your positions below a reasonable amount in each contract.
The FRA's executed are runs over the IMM dates. They are executed at the same price that was set for the curve. RESET also rolls back your risk, if possible, into the first contract. This leaves you with a low risk Stub versus first future position. In the example you would buy March IMM FRA's and sell June, September and December FRA's.
How does RESET calculate the curve delta risk?
We calculate how many days in the FRA duration fall into each IMM contract bucket to produce 3 month futures equivalents positions for each trade executed. We then sum all of these changes to measure the aggregate curve change created.
What happens if a Net Delta Position is created because of the different day counts of each FRA?
If the position is significant then we will offset it during the RESET Hedge.This may occasionally result in you buying or selling unequal amounts in the final hedging process.
RESET Stub Management
What is RESET Stub Management?
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This allows you to enter the maximum Post Run Residual Stub position permissible for that run, enabling you to control your stub versus first future risk effectively.
Benefits of RESET Hedge and Stub Management functionality
- Hedge trades are free of charge, saving you the cost of rehedging your portfolio after the run
- Minimises any P&L effects caused by unexpected overnight moves after entering the system
- Allows you to enter large portfolios without the risk of arbritrage from intraday curve moves
- Ensures that you keep control of your stub position
ULTIMATCH: THE MOST EFFECTIVE MATCHING OPTION
A completely new perspective on RESET Matching that will greatly reduce your fixing risk in comparison with conventional switching.
Reset matching in the past has always been based around a switch process. You buy one date and sell another against it. Since the trades are co-dependent you cannot maximise the number of positions eliminated effectively. Many individual matches remain untraded when an equal and opposite offsetting match cannot be found.
ULTIMATCH allows unilateral matching on all possible dates.
There is no longer the necessity to buy and sell the same notional. All possible trades are executed, then the total equalising 3 month futures equivalent position is calculated and offset in the hedge process.
By using ULTIMATCH the effectiveness of the matching process is significantly improved removing more outstanding fixing risk.
How does the ULTIMATCH hedge function differ?
When entering using ULTIMATCH a net long or short delta position will be created. The hedge function will create an offsetting amount to neutralise the position within reasonable parameters. As with the normal hedge process, each contract period will be kept within a reasonable amount.
Does RESET Stub Management still work?
Yes. You can still limit the Stub versus futures risk using Stub Management functionality.
Can I still use other matching restrictions?
No. Since the matches are independent you are never in effect matching over a turn or a meeting date because no switch is taking place.
For more information, email reset@reset.net or call +65 6720 6392.
© RESET 2006 | Disclaimer of Warranties
