Interest Rate Arbitrage Trading System

We have just added more participants in one of our trading system. The latest one is the proprietary credits desk of Bank Mandiri, the largest bank in Indonesia. We’re still doing some tweaking on our data bridge to make a smooth data exchange between our side and theirs. Our IT people is now installing the bridge in our branch offices to smooth the hedging procedure.

The system is based on some arbitrage approach. All i can say now is it generally exploits interest rate difference between different market levels. Some mild optimization practices have been employed to maximize the profit margin per trade, which now is reaching a 10 basis point.

We are currently running this system for Bank Eksekutif, Bank Bukopin, Bank Muamalat, and several high net worth individuals. An average of 10% to 11% annual yield (nett, after tax) have been delivered to our clients. A maximum of 2%-3.5% drawdown is the level of anticipated short term negative cash flow. It’s not really a draw down because it’s actually in the form of an open trades. We’ve also been considering that forming some offshore business unit where tax regulation is better might increase the efficiency of it. Singapore or Cyprus or Hongkong, perhaps.

We’re now preparing to tap Bank BNI’46 into the system. They have a very deep pool of liquidity which will add more robustness.

Good luck to us! 🙂

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