Patent ID: 8639610

Claim:
A computer-implemented method for mitigating counterparty credit risk exposure in a trade of a financial instrument between a pledgor and a secured party, the method comprising: establishing a custodian computer system comprising a processor, a network connection to the processor, and a memory coupled to the processor and containing a database therein; receiving, over the network connection, a collateral payment from the pledgor and electronically posting the collateral payment in a custody account maintained in the database; establishing a control agreement between the pledgor and the secured party and storing information relating to the control agreement in the database via the processor, wherein the control agreement establishes logical rules entered into the custodian computer system via the processor that give control of the collateral in the custody account to: (1) the pledgor if the secured party defaults on obligations related to the trade of the financial instrument or (2) the secured party if the pledgor defaults on obligations related to the trade of the financial instrument, wherein the database contains one or more holding periods for different obligation default conditions that are agreed to between the pledgor and the secured party in the control agreement; determining the existence of one of the different obligation default conditions resulting from default by one of the pledgor and the secured party; responsive to having determined that an obligation default condition has occurred, waiting for a period of time at least equal to a holding period associated with the determined obligation default condition; and upon expiration of the period of time, transferring collateral in the custody account to a non-defaulting party via the custodian computer system and the network connection.