Systems and methods for contingent obligation retainable deduction securities

• US 20050102206A1
• Filed: 11/07/2003
• Published: 05/12/2005
• Est. Priority Date: 11/07/2003
• Status: Abandoned Application

• Current Assignee: Morgan Stanley
• Original Assignee: Morgan Stanley
• Inventors: Woodruff, Kevin G., Savasoglu, Serkan, McMurtray, Nathan
• Application Number:
  US10/703,973
• Publication Number:
  US 20050102206A1
• Time in Patent Office: Days
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A convertible security may include a maturity component, a conversion component, and a contingent component. In general, the maturity component provides a maturity term of no more than five years. The conversion component provides terms and conditions for converting the convertible security for another asset. The contingent component provides one or more contingent payments upon the occurrence of one or more specified conditions. The contingent component is structured to ensure that the convertible security qualifies for treatment as a contingent payment debt instrument under the tax code, wherein the comparable yield of the convertible security is greater than applicable Federal rate (AFR) plus five percentage points.

Claims

1. A convertible security comprising:

a maturity component providing a maturity term of five years or less;

a conversion component providing terms and conditions for converting the convertible security for another asset; and

a contingent component providing one or more contingent payments triggered upon the occurrence of one or more specified conditions;

wherein the contingent component is structured to ensure that the convertible security qualifies for treatment as a contingent payment debt instrument under the tax code; and

wherein the comparable yield of the convertible security is greater than applicable Federal rate (AFR) plus five percentage points.

2. The convertible security of claim 1, wherein the contingent component provides a contingent payment if an average market price of the convertible security during a testing period is greater than a first threshold amount.

3. The convertible security of claim 2, wherein the first threshold amount is set such that there is a ten percent or greater probability that the average market price of the convertible security during the testing period will be above the first threshold amount.

4. The convertible security of claim 2, wherein the contingent component provides that if the average market price of the convertible security during the testing period is greater than the first threshold amount and the average market price of the convertible security during a measurement period is less than a second threshold amount, then contingent interest is paid as a certain percentage of the average market price of the convertible security during the measurement period.

5. The convertible security of claim 4, wherein the certain percentage is calculated such that the contingent interest is greater than a predetermined limit.

6. The convertible security of claim 2, wherein the contingent component provides that if the average market price of the convertible security during the testing period is greater than the first threshold amount and the average market price of the convertible security during the measurement period is greater than the second threshold amount, then a contingent payment is made equal to the certain percentage of the second threshold plus an additional percentage of the difference between the average market price of the convertible security during the measurement period and the second threshold amount.

7. The convertible component of claim 1, wherein the contingent component provides a testing period for evaluating whether a contingency is triggered.

8. The convertible component of claim 1, wherein the contingent component provides a measurement period for calculating the amount of contingent interest.

9. The convertible security of claim 8, wherein a contingent payment amount comprises a percentage of an average bond price of the convertible security during the measurement period.

10. The convertible security of claim 1, wherein a contingent payment amount is based on fixed values.

11. The convertible security of claim 1, wherein the final tax adjusted issue price is compared to a value of securities and/or cash delivered to convertible holders.

12. The convertible security of claim 11, wherein projected contingent payments are calculated based on one or more of forward prices and/or expected values of the contingent payments.

13. The convertible security of claim 1, further comprising a call component providing a call protection period.

14. The convertible security of claim 1, wherein the term is five years.

15. The convertible security of claim 1, further comprising a coupon component.

25. The method of claim 15, further comprising comparison of the final tax adjusted issue price to a value of securities and/or cash delivered to convertible holders.

16. A financial method comprising the step of:

issuing a convertible security to a holder, the convertible security including a maturity component providing a maturity term of five years or less, conversion component providing terms and conditions for converting the convertible security for another asset, and a contingent component providing one or more contingent payments triggered upon the occurrence of one or more specified conditions,

wherein the contingent component is structured to ensure that the convertible security qualifies for treatment as a contingent payment debt instrument under the tax code; and

wherein the comparable yield of the convertible security is greater than applicable Federal rate (AFR) plus five percentage points.

17. The method of claim 16, further comprising calculating an average market price of the convertible security during a testing period.

18. The method of claim 16, further comprising calculating an average market price of the convertible security for a measurement period.

19. The method of claim 18, further comprising comparing the average market price of the convertible security during the testing period to a first threshold amount.

20. The method of claim 19, further comprising making a contingent payment if the average market price of the convertible security during the testing period is greater than the first threshold amount.

21. The method of claim 19, wherein the first threshold amount is set so that there is more than a ten percent probability that the average market price of the convertible security during the testing period will be above the first threshold amount.

22. The method of claim 19, further comprising comparing the average market price of the convertible security during a measurement period to a second threshold amount.

23. The method of claim 22, further comprising making a contingent payment equal to a certain percentage of the average market price of the convertible security during the measurement period if the average market price of the convertible security over the testing period is greater than the first threshold amount and the average market price of the convertible security during the measurement period is less than a second threshold amount.

24. The method of claim 22, further comprising making a contingent payment equal to the certain percentage of the second threshold amount, plus an additional percentage of the difference between the average market price of the convertible security during a measurement period and the second threshold amount, if the average market price of the convertible security during the testing period is greater than the first threshold amount and the average market price of the convertible security over the measurement period is greater than the second threshold amount.

26. A computer system comprising:

an issuing agent for issuing a convertible security to a holder, the convertible security including a maturity component providing a maturity term of five years or less, a conversion component providing terms and conditions for converting the convertible security for another asset, and a contingent component providing contingent payments triggered upon the occurrence of one or more specified conditions, wherein the contingent component is structured to ensure that the convertible security qualifies for treatment as a contingent payment debt instrument under the tax code, and wherein the comparable yield of the convertible security is greater than applicable Federal rate (AFR) plus five percentage points.