SYSTEMS AND METHODS FOR TRADING ACTIVELY MANAGED FUNDS

• US 20080313100A1
• Filed: 08/25/2008
• Published: 12/18/2008
• Est. Priority Date: 03/27/2000
• Status: Active Grant

• Current Assignee: NYSE American LLC (Intercontinental Exchange, Inc.)
• Original Assignee: NYSE Amex LLC (Intercontinental Exchange, Inc.)
• Inventors: Alexander, Carol, Weber, Clifford J., Baker, Charles A., Norman, Terry, Gastineau, Gary L., Macqueen, Jason
• Granted Patent: US 7,822,678 B2
• Time in Patent Office: Days
• US Class Current: 705/36R
• 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
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

The invention provides systems and methods for intra-day trading of actively managed exchange traded funds (AMETFs). The invention provides creation and redemption structures for AMETF shares that allow arbitrage, intra-day value estimations for AMETF shares, and hedging portfolios for hedging risks associated with trading AMETF shares, all without requiring disclosure of the specific assets underlying the AMETF.

Claims

1. A method for creating a proxy portfolio for a fund without revealing the fund assets, comprising the steps of:

measuring an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities and each fund sensitivity coefficient indicates the exposure of the fund to one of the risk factors,

storing the fund sensitivity coefficients on computer readable media; and

using computer means to create a proxy portfolio from securities selected from a proxy universe of securities, wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund,

wherein the proxy portfolio does not reveal the fund assets.

2. A method for creating a hedging portfolio for a fund without revealing the fund assets, comprising the steps of:

measuring an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities and each fund sensitivity coefficient indicates the exposure of the fund to one of the risk factors;

storing the fund sensitivity coefficients on computer readable media;

using computer means to create a proxy portfolio from securities selected from a proxy universe of securities, wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund;

using computer means to create a hedging portfolio based on the proxy portfolio, wherein the hedging portfolio does not reveal the fund assets.

3. A method for creating a reduced risk hedging portfolio for a fund without revealing the fund assets, comprising the steps of:

measuring an exposure of the fund to a plurality of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities;

storing the fund sensitivity coefficients on computer readable media;

using computer means to measure an exposure of each security in a set of securities in a hedging universe to each of the risk factors; and

using computer means programmed with risk minimizer software to produce a reduced risk hedging portfolio with substantially the same returns and risk as the fund,

wherein the reduced risk hedging portfolio does not reveal the fund assets.

4. A system for creating a proxy portfolio for a fund comprising:

computer means programmed to measure an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities and each fund sensitivity coefficient indicates the exposure of the fund to one of the risk factors,

the computer means further programmed to create a proxy portfolio from securities selected from a proxy universe of securities, wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund and does not reveal the fund assets.

7. The system of claim 4, wherein the computer is further programmed with a graphical user interface, including a graphical dial, slide bar, or other graphical indicator for adjusting user inputs, wherein the user inputs are selected from the group consisting of the size of aggregation buckets, database minimum data density requirements, banding time, the number of returns used to build the model, the type of weighting, the percent variation used for eigenvalue and factor culling, and the total number of factors to be used in the model.

5. A system for creating a hedging portfolio for a fund comprising:

computer means programmed to measure an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities and each fund sensitivity coefficient indicates the exposure of the fund to one of the risk factors;

the computer means further programmed to create a proxy portfolio from securities selected from a proxy universe of securities, wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund; and

the computer means further programmed to create a hedging portfolio based on the proxy portfolio, wherein the hedging portfolio does not reveal the fund assets.

6. A system for creating a reduced risk hedging portfolio for a fund comprising:

computer means programmed to measure an exposure of the fund to a plurality of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities,

the computer means further programmed to measure an exposure of each security in a set of securities in a hedging universe to each of the risk factors; and

the computer means further programmed with risk minimizer software to produce a reduced risk hedging portfolio with substantially the same returns and risk as the fund, wherein the reduced risk hedging portfolio does not reveal the fund assets.

8. A data storage device storing software to create a proxy portfolio for a fund without revealing the fund assets, the software having instructions for causing computer means to execute the steps of:

measuring an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities and each fund sensitivity coefficient indicates the exposure of the fund to one of the risk factors,

creating a proxy portfolio from securities selected from a proxy universe of securities, wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund, and wherein the proxy portfolio does not reveal the fund assets.

9. A data storage device storing software to create a hedging portfolio for a fund without revealing the fund assets, the software having instructions for causing computer means to execute the steps of:

measuring an exposure of the fund to a plurality of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities,

measuring an exposure of each security in a set of securities in a hedging universe to each of the risk factors; and

producing a reduced risk hedging portfolio with substantially the same returns and risk as the fund, wherein the reduced risk hedging portfolio does not reveal the fund assets.

10. A method comprising using computer means to select a second set of securities that substantially tracks the returns of a first set of securities over the course of a trading day, wherein the second set of securities serves as a proxy for the first set of securities and market participants use the second set of securities to price the first set of securities without knowing the composition of the first set of securities, and wherein the second set of securities does not reveal the first set of securities.

11. The method of claim 10, wherein the computer uses a Monte Carlo method to select the second set of securities.

12. The method of claim 10, wherein the computer uses a risk factor method to select the second set of securities.

13. The method of claim 12, wherein the risk factor method is an economic risk factor method.

14. The method of claim 12, wherein the risk factor method is a statistical risk factor method.

15. A method comprising using computer means to select a second set of securities that substantially tracks the returns of a first set of securities over the course of a trading day, wherein market participants use the second set of securities to hedge a position in the first set of securities without knowing the composition of the first set of securities, and wherein the second set of securities does not reveal the first set of securities.

16. The method of claim 15, wherein the computer uses a Monte Carlo method to select the second set of securities.

17. The method of claim 15, wherein the computer uses a risk factor method to select the second set of securities.

18. The method of claim 17, wherein the risk factor method is an economic risk factor method.

19. The method of claim 17, wherein the risk factor method is a statistical risk factor method.

20. The method of claim 15, wherein the second set of securities is a hedging portfolio derived from a proxy portfolio generated by a computer means to substantially track the returns of the first set of securities.

21. An option or derivative instrument based on an exchange traded fund whose assets are not publicly disclosed on a daily basis, wherein an estimated value of the fund is calculated by:

determining a set of risk factors from a risk factor model;

determining a set of fund sensitivity coefficients and storing the set of fund sensitivity coefficients on computer readable media, wherein each fund sensitivity coefficient specifies the exposure of the fund to one of the risk factors;

storing the fund sensitivity coefficients on computer readable media;

using computer means to create a proxy portfolio having substantially the same sensitivity coefficients as the fund; and

calculating the estimated value of the fund based on the value of the proxy portfolio, wherein the proxy portfolio does not reveal the fund assets.

22. A method for creating a proxy portfolio for a fund without revealing the fund assets, comprising the steps of:

measuring an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities and each fund sensitivity coefficient indicates the exposure of the fund to one of the risk factors,

creating a proxy portfolio from securities selected from a proxy universe of securities, wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund, and

disclosing the proxy portfolio to an entity without knowledge of the fund assets,

wherein the proxy portfolio does not reveal the fund assets.

23. A method for creating a hedging portfolio for a fund without revealing the fund assets, comprising the steps of:

measuring an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities and each fund sensitivity coefficient indicates the exposure of the fund to one of the risk factors;

creating a proxy portfolio from securities selected from a proxy universe of securities,

wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund;

creating a hedging portfolio based on the proxy portfolio, and

disclosing the hedging portfolio to an entity without knowledge of the fund assets,

wherein the hedging portfolio does not reveal the fund assets.

24. A method for creating a reduced risk hedging portfolio for a fund without revealing the fund assets, comprising the steps of:

measuring an exposure of the fund to a plurality of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of securities;

measuring an exposure of each security in a set of securities in a hedging universe to each of the risk factors; and

generating a reduced risk hedging portfolio with substantially the same returns and risk as the fund, and

disclosing the reduced risk hedging portfolio to an entity without knowledge of the fund assets,

wherein the reduced risk hedging portfolio does not reveal the fund assets.

25. A method comprising selecting a second set of securities that substantially tracks the returns of a first set of securities over the course of a trading day, wherein the second set of securities serves as a proxy for the first set of securities and market participants use the second set of securities to price the first set of securities without knowing the composition of the first set of securities, and wherein the second set of securities does not reveal the first set of securities.

26. The method of claim 25, wherein the step of selecting the second set of securities comprises using a risk factor method.

27. The method of claim 26, wherein the risk factor method is an economic risk factor method.

28. The method of claim 26, wherein the risk factor method is a statistical risk factor method.

29. A method comprising selecting a second set of securities that substantially tracks the returns of a first set of securities over the course of a trading day, wherein market participants use the second set of securities to hedge a position in the first set of securities without knowing the composition of the first set of securities, and wherein the second set of securities does not reveal the first set of securities.

30. The method of claim 29, wherein the computer uses a risk factor method to select the second set of securities.

31. The method of claim 30, wherein the risk factor method is an economic risk factor method.

32. The method of claim 30, wherein the risk factor method is a statistical risk factor method.

33. The method of claim 29, wherein the second set of securities is a hedging portfolio derived from a proxy portfolio generated by a computer means to substantially track the returns of the first set of securities.

34. A method for determining a hedging portfolio for an actively managed exchange traded fund without revealing the find assets comprising:

providing a creation basket for the actively managed exchange traded fund;

determining a set of risk factors from a risk factor model;

determining or receiving a set of fund sensitivity coefficients, wherein each fund sensitivity coefficient specifies the exposure of the fund to one of the risk factors; and

creating a supplemental portfolio,

wherein the hedging portfolio comprises the sum of the supplemental portfolio and the creation basket of securities, the hedging portfolio has the same sensitivities to the set of risk factors as the fund, and the hedging portfolio does not reveal the find assets.

35. The method of claim 34, wherein the creation basket comprises shares of one or more exchange traded funds.