SYSTEM AND METHOD USING SECURITIES ISSUANCE FOR RISK TRANSFERENCE

• US 20090281960A1
• Filed: 05/08/2009
• Published: 11/12/2009
• Est. Priority Date: 05/09/2008
• Status: Abandoned Application

• Current Assignee: Karson Management (Bermuda) Ltd.
• Original Assignee: Karson Management (Bermuda) Ltd.
• Inventors: Hendrix, Derrell
• Application Number:
  US12/437,831
• Publication Number:
  US 20090281960A1
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 10/10 Office automation; Time management
• CPC Class Codes: G06Q 20/10 specially adapted for electronic funds transfer [EFT] systems; specially adapted for home banking systems
• CPC Class Codes: G06Q 20/102 Bill distribution or payments
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

Disclosed herein is a system and method for eliminating or transferring the non-economic risk of financial securities. The system and method serves to avoid non-economic losses in the first instance, and to counter the adverse capital impact of prior non-economic gap losses by providing capital relief consistent with a determined protected amount. An investor purchases from a financial institution a number of shares whose principal repayment at redemption is contingent upon the maturity proceeds of a designated fixed income securities (FIS) Portfolio. If the aggregate principal payment of the FIS Portfolio is less than a stipulated value, the shares are redeemed for less than the original purchase price. Otherwise the financial institution will repay the full principal amount of the shares at the stated redemption date. To secure the obligation to repay share principal, the financial institution pledges security that is invested in securities that are held in trust and margined periodically.

Claims

1. A method for implementing a share issuance program for quantifying and transferring non-economic risk between a first party and a second party, said method comprising:

receiving data representing an asset belonging to the first party, wherein the data includes a market value of the asset and principal payments of the asset;

receiving a redemption date for the program;

generating an economic value of the asset based on the data representing the asset;

calculating a protected value for the asset based on the economic value;

calculating a share value based on the market value and the protected value of the asset, wherein the first party issues shares under the program whose principal repayment upon redemption is contingent on aggregate principal payments (APP) of the asset, and where the second party agrees under the program to purchase the shares for the share value;

determining the APP of the asset as of the redemption date; and

calculating a share redemption value based on the APP, the share value, and the protected value, such that when the APP exceeds the protected value the share redemption value is equal to the share value, and when the APP is less than the protected value the share redemption value is reduced by the amount that the APP is less than the protected value up to an amount equal to the share value; and

indicating the share redemption value;

wherein at least one of the steps of generating the economic value, calculating the protected value;

calculating the share value;

determining the APP, and calculating the share redemption value is performed by a computer.

2. The method of claim 1 wherein calculating an economic value of the asset comprises:

performing a risk analysis based on the data representing the asset; and

determining the net present value of expected future principal payments according to the risk analysis.

3. The method of claim 1 wherein the second party is entitled under the program to receive a portion of any APP that exceeds the protected value (“

profit participation”

), and wherein the method further comprises the steps of;

calculating any profit participation due under the program; and

indicating the amount of profit participation due under the program.

4. The method of claim 1 wherein the data representing the asset further includes a maturity date of the asset, and wherein the redemption date for the program is the maturity date of the asset.

5. The method of claim 1 further comprising the step of calculating a share dividend value having a base component based on a major interest rate index, wherein the first party agrees under the program to periodically pay the second party the share dividend value.

6. The method of claim 5 wherein the share dividend value also has a bonus component that is a based on a risk assessment of the asset.

7. The method of claim 1 further comprising the step of determining a redemption premium for the early redemption of shares, wherein the first party is permitted under the program to redeem all or part of the shares prior to the redemption date by paying the second party the redemption premium.

8. A computer-readable medium for implementing a share issuance program for quantifying and transferring non-economic risk between a first party and a second party, the computer-readable medium bearing a computer program containing instructions which, when implemented by a computer, cause the computer to execute the steps of:

receiving data representing an asset belonging to the first party, wherein the data includes a market value of the asset and principal payments of the asset;

receiving a redemption date for the share issuance program;

generating an economic value of the asset based on the data representing the asset;

calculating a protected value for the asset based on the economic value;

calculating a share value based on the market value and the protected value of the asset, wherein the first party issues shares under the share issuance program whose principal repayment upon redemption is contingent on aggregate principal payments (APP) of the asset, and where the second party agrees under the share issuance program to purchase the shares for the share value;

determining the APP of the asset as of the redemption date; and

calculating a share redemption value based on the APP, the share value, and the protected value, such that when the APP exceeds the protected value the share redemption value is equal to the share value, and when the APP is less than the protected value the share redemption value is reduced by the amount that the APP is less than the protected value up to an amount equal to the share value; and

displaying the share redemption value.

9. The computer-readable medium of claim 8 wherein calculating an economic value of the asset comprises:

performing a risk analysis based on the data representing the asset; and

determining the net present value of expected future principal payments according to the risk analysis.

10. The computer-readable medium of claim 8 wherein the second party is entitled under the program to receive a portion of any APP that exceeds the protected value (“

profit participation”

), and wherein the computer program further contains instructions for;

calculating any profit participation due under the share issuance program; and

displaying the amount of profit participation due under the share issuance program.

11. The computer-readable medium of claim 8 wherein the data representing the asset further includes a maturity date of the asset, and wherein the redemption date for the share issuance program is the maturity date of the asset.

12. The computer-readable medium of claim 8 wherein the computer program further contains instructions for calculating a share dividend value having a base component based on a major interest rate index, wherein the first party agrees under the share issuance program to periodically pay the second party the share dividend value.

13. The computer-readable medium of claim 12 wherein the share dividend value also has a bonus component that is based on a risk assessment of the asset.

14. The computer-readable medium of claim 8 wherein the computer program further contains instructions for determining a redemption premium for the early redemption of shares, wherein the first party is permitted under the share issuance program to redeem all or part of the shares prior to the redemption date by paying the second party the redemption premium.

15. An apparatus for executing a share issuance program for quantifying and implementing the transfer of non-economic risk between a first party and a second party comprising:

a processor;

a display;

a memory coupled to the processor and containing instructions executable by the processor which, when implemented by the processor, cause the processor to execute the steps of;

receiving data representing an asset belonging to the first party, wherein the data includes a market value of the asset and principal payments of the asset;

receiving a redemption date for the program;

generating an economic value of the asset based on the data representing the asset;

calculating a protected value for the asset based on the economic value;

calculating a share value based on the market value and the protected value of the asset, wherein the first party issues shares under the program whose principal repayment upon redemption is contingent on aggregate principal payments (APP) of the asset, and where the second party agrees under the program to purchase the shares for the share value;

determining the APP of the asset as of the redemption date; and

calculating a share redemption value based on the APP, the share value, and the protected value, such that when the APP exceeds the protected value the share redemption value is equal to the share value, and when the APP is less than the protected value the share redemption value is reduced by the amount that the APP is less than the protected value up to an amount equal to the share value; and

displaying the share redemption value on the display.

16. The apparatus of claim 15 wherein calculating an economic value of the asset comprises:

performing a risk analysis based on the data representing the asset; and

determining the net present value of expected future principal payments according to the risk analysis.

17. The apparatus of claim 15 wherein the second party is entitled under the program to receive a portion of any APP that exceeds the protected value (“

profit participation”

), and wherein the memory further contains instructions for;

calculating any profit participation due under the program; and

indicating the amount of profit participation due under the program.

18. The apparatus of claim 15 wherein the data representing the asset further includes a maturity date of the asset, and wherein the redemption date for the program is the maturity date of the asset.

19. The apparatus of claim 15 wherein the memory further contains instructions for calculating a share dividend value having a base component based on a major interest rate index, wherein the first party agrees under the program to periodically pay the second party the share dividend value.

20. The apparatus of claim 19 wherein the share dividend value also has a bonus component that is based on a risk assessment of the asset.

21. The apparatus of claim 15 wherein the memory further contains instructions for determining a redemption premium for the early redemption of shares, wherein the first party is permitted under the program to redeem all or part of the shares prior to the redemption date by paying the second party the redemption premium.