Interest Rate Swap

Interest Rate Swaps

Problem: Large volumes of daily contracts need to be easily organized and searchable.

Solution: Offer pertinent information in initial visual presentation that can be sorted, searched and conveniently actionable.

Insight: With large amounts of fixed-float interest rate swaps daily, the user needs to easily sort and search trades that need attention. There is limited time to address non-matching trades that may need further negotiation with a counterparty before the end of the day when the trade is cancelled. Quick access to information to trades that need review are important. Following trades that advance to the clearing house where potential issues could require further attention would also need to be available. Easily searching for specific trades or a group of trades is important. Sortable attributes a click away as well as pertinent information immediately visible on the main page. An ability to quickly review and resubmit non-matching attributes. These would be helpful tools to make the process easier and more efficient.

Research

What is a ‘Fixed-For-Floating Swap’
A fixed-for-floating swap is a contractual arrangement between two parties in which one party swaps the interest cash flows of fixed rate loan(s), with those of floating rate loan(s) held by another party. The principal of the underlying loans is not exchanged.

Example of a Fixed for Floating Swap
Suppose Company X carries a $100 million loan at a fixed rate of 6.5%. Company X expects that the general direction of interest rates over the near or intermediate term is down. Company Y, carrying a $100 million loan at LIBOR + 3.50% (floating rate loan), has an opposite view; it believes interest rates are on the rise. Company X and Company Y wish to swap. With the fixed-for-floating swap Company X will pay the floating rate, and thus benefit if in fact interest rates drop, and Company Y will assume payments for the fixed rate loan. Company Y will stand to benefit if interest rates rise. – Investopedia

Interview Notes:

User: Middle/back office personnel at large financial institutions

  • As a user, I receive large volumes of fixed-float interest rate swaps every day. Majority of the trades are confirmed successfully. Small set of the trades may require my review. I want to have the ability to view all my trades in GUI, while having the ability to find specific trades quickly.
  • The counterparty and I verbally agreed to trade IRS swap over the phone. Each party enters their side of trade in GUI. If both sides submit correct trade attributes, the two sides match and trade is considered confirmed. If one or more attributes does not match, both parties must review the trade. During the review process, one or both parties can edit and re-submit the trade for matching. Once a trade is matched, it is sent to clearing house for post trade processing. If the trade is cleared successfully, the two parties officially enter into the swap contract. If the trade fails clearing, they have to work directly with clearing house and sort out issues.
  • If parties don’t action on unmatched trade, the trade will remain unmatched until end of day platform shutdown, trade status become cancelled. In reality, parties likely to call each other intra day to sort out unmatched trades.
  • If there are issues with clearing, we show trade with errors to indicate this
  • Users can find trades using unique trade ID, or they might want to enter a set of terms. E.g. effective date = today and fixed rate = 1.5 and notional = 5 million
User Journey

User Journey

Desktop Wireframes

This single screen allows the user to view the many contracts that are received in a day with an ability to sort by many of its attributes and search for more specific terms. Line highlights for easy identification including contract that need immediate review in red, contracts that have been confirmed and passed to the clearing house but need further action to complete in yellow and cancelled trades where an agreement was not able to be met before the deadline from the day before for reference in black.

Additionally, there is an ability to click the job number of a contract that is in need of a review to reveal a popup window which displays only the fields that do not match the counterparty’s input which is what puts that contract in jeopardy. After coordinating with the counterparty and adjusting those fields in the pop up window the user can resubmit the contract without leaving the screen. Further review is still possible on the full details page if needed at any time.

This allows the user to sort, search, identify, edit and resubmit contracts from one screen. Saving time and quickly identifying trades is essential with the volume of trades received daily that will cancel by the end of the day.

Default Screen
Default page: The main screen will display trades by Trade ID and the order that they were received by default. Red highlighted trades are in need or review. Yellow highlighted trades have errors with the clearing house and black highlights are cancelled trades from the previous day that will be available for viewing for one more day.
Sortable Attributes
Sortable Attributes: Clicking on the header of each column will sort the list prioritizing that column. Toggle the carrot that appears next to the column header to change the ascending to descending order of the column.
Search Results
Search results: Search terms will sort trades based on search results. Here you see “0.5 and notional” being searched, resulting in all trades with the rate of 0.5 and notional to sort to the top of the list.
Unmatched Attribute Popup
Unmatched attribute popup: Roll over line item to reveal a pop up window displaying only the attributes that are not matching counterparty or clearing house. Opportunity to edit and resubmit trade for matching in this window. There is no pup up window for confirmed trades.
Details Screen
Trade details: Clicking on the Trade ID will bring the user to the full page of attributes for that trade. Edit and resubmittal is also possible here for trades that are under review.

Conclusion

Interest Rate Swap

Quickly sort, search, edit and resubmit contracts from a single screen allows user to address issues quickly and easily when time is of the essence with hundreds of contracts a day to sort through.