Method and system for creating and trading corporate debt security derivative investment instruments

• US 20060253359A1
• Filed: 04/21/2006
• Published: 11/09/2006
• Est. Priority Date: 05/04/2005
• Status: Active Grant

• Current Assignee: Cboe Exchange, Inc. (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: O'Callahan, Dennis M.
• Granted Patent: US 8,027,904 B2
• 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 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method of creating and trading corporate debt security derivative investment instruments on an exchange, as well as a trading facility for trading such derivatives, is disclosed. Corporate debt security derivative investment instruments are created by identifying a credit rating service that includes a plurality of risk categories. Unique monetary values are mapped to risk categories and an entity rated by the credit rating service is identified. A corporate debt security derivative investment instrument is then created whose value is determined at least in part by the monetary value to which the risk category associated with the rated entity is mapped.

Claims

1. A method of creating derivative investment instruments based on a corporate debt security, the method comprising:

identifying a credit rating service having a credit rating scheme that includes a plurality of risk categories, wherein the credit rating service rates an entity'"'"'s credit worthiness by associating an appropriate one of said plurality of risk categories with the entity;

mapping the risk categories to monetary values;

identifying an entity which is rated by the credit rating service; and

creating a corporate debt security derivative investment instrument whose value is determined at least in part by the monetary value to which the risk category associated with the rated entity is mapped.

2. The method according to claim 1, wherein the corporate debt security derivative investment instrument comprises a corporate debt security call option.

3. The method according to claim 1 wherein the corporate debt security derivative investment instrument comprises a corporate debt security put option.

4. The method according to claim 1 wherein the credit rating service comprises one of:

Moody'"'"'s Investor Services;

Standard and Poor'"'"'s;

or Fitch'"'"'s ratings.

5. The method according to claim 1 further comprising listing the corporate debt security derivative investment instrument on an exchange.

6. The method according to claim 5 further comprising accepting orders from investors to take positions in corporate debt security derivative investment instruments, and executing orders by matching corresponding orders to take opposite sides in corporate debt security derivative investment instruments.

7. A computer-readable memory containing processor executable program instructions for creating a derivative investment instrument based on a corporate bond according to the following steps:

identifying a corporate bond as an underlying security for the derivative investment instrument;

associating the underlying security with an exercise price, wherein the exercise price is listed on an exchange; and

generating a corporate bond security derivative investment instrument whose value is determined at least in part by the exercise price to which the underlying security is associated.

8. The computer-readable memory containing processor executable program instructions according to claim 7, wherein the derivative investment instrument comprises a corporate bond call option.

9. The computer-readable memory containing processor executable program instructions according to claim 7, wherein the derivative investment instrument comprises a corporate bond put option.

10. The computer-readable memory containing processor executable program instructions according to claim 7 further comprising listing the derivative investment instrument on an exchange.

11. The computer-readable memory containing processor executable program instructions according to claim 10 further comprising accepting orders from investors to take positions in corporate bond derivative investment instruments, and executing orders by matching corresponding orders to take opposite sides in corporate bond derivative investment instruments.

12. A computer-readable memory containing processor executable program instructions for selecting a corporate bond for use in a derivative investment instrument based thereon according to the following steps:

identifying at least one eligible corporate bond in accordance with predefined listing standards;

sorting the at least one eligible corporate bond based on a rating and a maturity;

aggregating trade information for the at least one eligible corporate bond; and

ranking the at least one eligible corporate bond based on the trade information.

13. A system for creating and trading corporate bond security derivative investment instruments on an exchange comprising:

a corporate bond security derivative definition module for defining a corporate bond security derivative investment instrument;

a pricing data accumulation and dissemination module for receiving price data based on executed trades of said corporate bond security derivative investment instruments, and disseminating said pricing data to investors;

a credit rating monitoring module for monitoring the credit rating of an entity; and

a settlement calculation module for calculating a settlement amount based at least in part on a monetary value to which the current credit rating of the entity is mapped.