Systems, Methods, and Computer Program Products for Creation and Trading of Enhanced Bonds

• US 20110196806A1
• Filed: 07/19/2010
• Published: 08/11/2011
• Est. Priority Date: 02/09/2010
• Status: Abandoned Application

• Current Assignee: Ebond Advisors LLC
• Original Assignee: Ebond Advisors LLC
• Inventors: McQuown, John Andrew, MacWilliams, Richard K.
• Application Number:
  US12/839,218
• Publication Number:
  US 20110196806A1
• Time in Patent Office: Days
• US Class Current: 705/36.R
• 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 99/00 Subject matter not provided for in other groups of this subclass

Abstract

A system, method, and computer program product are provided for the creation of enhanced bonds. Enhanced bonds are backed by the security of a credit default swap contract without the need for separate purchase thereof. A bond dealer is able to exchange a traditional bond instrument, which has been issued in a manner that permits the exchange, for enhanced bonds by selling the credit default swap contract to an eBond LLC and tendering the exchangeable bonds for eBonds through the bond indenture trustee. The enhanced bond facilitator calculates the exchange rates for these instruments at the time of exchange based on several variables, including the cost of the underlying credit default swap contract for a desired level of protection.

Claims

1. A method comprising:

purchasing a credit default swap contract on an exchangeable bond;

instructing a trustee to exchange the exchangeable bond for an enhanced bond for delivery to an investor of the enhanced bond; and

delivering the credit default swap contract to an account held at a clearing member.

2. The method of claim 1, further comprising:

calculating, by one or more computing devices, a price and yield for the enhanced bond;

calculating, by the one or more computing devices, an original issue discount price and yield for the exchangeable bond based on the enhanced bond and a total cost of the credit default swap contract;

calculating, by the one or more computing devices, a rate of exchange based on receipt of the exchangeable bond and the credit default swap contract in exchange for tender of the enhanced bond; and

publishing the rate of exchange.

3. The method of claim 1, further comprising:

making a coupon payment on the credit default swap contract to the clearing member on behalf of the investor.

4. The method of claim 3, further comprising:

calculating minimum cash reserves; and

initiating a capital call on an issuer of the exchangeable bond subject to a determination that cash reserves are below the minimum cash reserves as a result of making the coupon payment.

5. The method of claim 4, wherein calculating the minimum cash reserves comprises calculating the minimum cash reserves based on the coupon payment on the credit default swap contract plus one-and-a-half coupons on the exchangeable bond.

6. The method of claim 1, further comprising:

receiving a payment for effectuating the exchange from the exchangeable bond to the enhanced bond.

7. An article of manufacture including a computer-readable storage medium having stored thereon computer-executable instructions, execution of which, by one or more computing devices, causes the computing devices to perform operations comprising:

purchasing a credit default swap contract on an exchangeable bond;

instructing a trustee to exchange the exchangeable bond for an enhanced bond for delivery to an investor of the enhanced bond; and

delivering the credit default swap contract to an account held at a clearing member.

8. The article of manufacture of claim 7, the operations further comprising:

calculating a price and yield for the enhanced bond;

calculating an original issue discount price and yield for the exchangeable bond based on the enhanced bond and a total cost of the credit default swap contract;

calculating a rate of exchange based on receipt of the exchangeable bond and the credit default swap contract in exchange for tender of the enhanced bond; and

publishing the rate of exchange.

9. The article of manufacture of claim 7, the operations further comprising:

making a coupon payment on the credit default swap contract to the clearing member on behalf of the investor.

10. The article of manufacture of claim 9, the operations further comprising:

calculating minimum cash reserves; and

initiating a capital call on an issuer of the exchangeable bond subject to a determination that cash reserves are below the minimum cash reserves as a result of making the coupon payment.

11. The article of manufacture of claim 9, wherein calculating the minimum cash reserves comprises calculating the minimum cash reserves based on the coupon payment on the credit default swap contract plus one-and-a-half coupons on the exchangeable bond.

12. The article of manufacture of claim 7, the operations further comprising:

receiving a payment for effectuating the exchange from the exchangeable bond to the enhanced bond.

13. A system comprising:

a memory configured to store modules comprising;

a purchasing module configured to purchase a credit default swap contract on an exchangeable bond,

an instructing module configured to instruct a trustee to exchange the exchangeable bond for an enhanced bond for delivery to an investor of the enhanced bond, and

a delivering module configured to deliver the credit default swap contract to an account held at a clearing member; and

one or more processors configured to process the modules.

14. The system of claim 13, further comprising:

a first calculating module configured to calculate a price and yield for the enhanced bond;

a second calculating module configured to calculate an original issue discount price and yield for the exchangeable bond based on the enhanced bond and a total cost of the credit default swap contract;

a third calculating module configured to calculate a rate of exchange based on receipt of the exchangeable bond and the credit default swap contract in exchange for tender of the enhanced bond; and

a publishing module configured to publish the rate of exchange.

15. The system of claim 13, further comprising:

a coupon payment module configured to make a coupon payment on the credit default swap contract to the clearing member on behalf of the investor.

16. The system of claim 15, further comprising:

a fourth calculating module configured to calculate minimum cash reserves; and

a capital call module configured to initiate a capital call on an issuer of the exchangeable bond subject to a determination that cash reserves are below the minimum cash reserves as a result of making the coupon payment.

17. The system of claim 16, wherein the fourth calculating module is further configured to calculate the minimum cash reserves based on the coupon payment on the credit default swap contract plus one-and-a-half coupons on the exchangeable bond.

18. The system of claim 13, further comprising:

a receiving module configured to receive a payment for effectuating the exchange from the exchangeable bond to the enhanced bond.

19. A method comprising:

acquiring an original issue discount exchangeable bond;

receiving payment from an investor for an enhanced bond based on the exchangeable bond;

requesting exchange of the exchangeable bond to the enhanced bond, the enhanced bond backed by a credit default swap contract; and

delivering the enhanced bond to the investor.

20. The method of claim 19, wherein acquiring the exchangeable bond comprises:

acquiring the exchangeable bond from a bond issuer based on a rate of exchange, the rate of exchange having been calculated based on receipt of the exchangeable bond and the credit default swap contract in exchange for tender of the enhanced bond.

21. The method of claim 19, further comprising:

making a payment for effectuating the exchange from the exchangeable bond to the enhanced bond.

22. The method of claim 19, further comprising:

tendering the exchangeable bond to a trustee; and

receiving the enhanced bond from the trustee.

23. An article of manufacture including a computer-readable storage medium having stored thereon computer-executable instructions, execution of which, by one or more computing devices, causes the computing devices to perform operations comprising:

acquiring an original issue discount exchangeable bond;

receiving payment from an investor for an enhanced bond based on the exchangeable bond;

requesting exchange of the exchangeable bond to the enhanced bond, the enhanced bond backed by a credit default swap contract; and

delivering the enhanced bond to the investor.

24. The article of manufacture of claim 23, wherein acquiring the exchangeable bond comprises:

acquiring the exchangeable bond from a bond issuer based on a rate of exchange, the rate of exchange having been calculated based on receipt of the exchangeable bond and the credit default swap contract in exchange for tender of the enhanced bond.

25. The article of manufacture of claim 23, the operations further comprising:

making a payment for effectuating the exchange from the exchangeable bond to the enhanced bond.

26. The article of manufacture of claim 23, the operations further comprising:

tendering the exchangeable bond to a trustee; and

receiving the enhanced bond from the trustee.

27. A system comprising:

a memory configured to store modules comprising;

an acquiring module configured to acquire an original issue discount exchangeable bond,

a receiving module configured to receive payment from an investor for an enhanced bond based on the exchangeable bond,

a requesting module configured to request exchange of the exchangeable bond to the enhanced bond, the enhanced bond backed by a credit default swap contract, and

a delivering module configured to deliver the enhanced bond to the investor; and

one or more processors configured to process the modules.

28. The system of claim 27, wherein the acquiring module is further configured to acquire the exchangeable bond from a bond issuer based on a rate of exchange, the rate of exchange having been calculated based on receipt of the exchangeable bond and the credit default swap contract in exchange for tender of the enhanced bond.

29. The system of claim 27, further comprising:

a payment module configured to make a payment for effectuating the exchange from the exchangeable bond to the enhanced bond.

30. The system of claim 27, further comprising:

a tendering module configured to tender the exchangeable bond to a trustee; and

an enhanced bond receiving module configured to receive the enhanced bond from the trustee.