Swap Netting Using a Quantum Annealer

By Gili Rosenberg, Clemens Adolphs, Andrew Milne, & Andrew Lee

Swap trades that are cleared through a clearing house may be netted against each other. By doing this, the clearing house reduces its risk exposure, and the counterparties regain the use of capital that was previously tied up in margin accounts. The simplest form of netting is to cancel trades that offset each other exactly. However, it is also possible to net trades, or chains of trades, that sum to a very small residual. The ability to find new nettable combinations can lead to new capital efficiencies. The 1QBit swap netting solution makes use of a quantum annealer to identify such combinations and presents them as a netting proposal. The candidate swaps are chosen based on an incompatibility function, which incorporates differences in economic terms in a flexible way.