SYSTEMS AND METHODS FOR TRADING ACTIVELY MANAGED FUNDS

• US 20150310555A1
• Filed: 07/01/2015
• Published: 10/29/2015
• Est. Priority Date: 03/27/2000
• Status: Abandoned Application

• Current Assignee: NYSE American LLC (Intercontinental Exchange, Inc.)
• Original Assignee: NYSE American LLC (Intercontinental Exchange, Inc.)
• Inventors: Weber, Clifford J., Alexander, Carol, Baker, Charles A., Gastineau, Gary L., Norman, Terry, Macqueen, Jason
• Application Number:
  US14/788,931
• Publication Number:
  US 20150310555A1
• Time in Patent Office: Days
• US Class Current: 1/1
• 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 executed by a computer system to calculate an estimated value for a traded fund without publicly disclosing the assets of the traded fund, where the computer system includes one or more computers programmed to calculate an estimated value of the traded fund, the method comprising:

determining, by a computer system, a set of risk factors from a risk factor model;

receiving or calculating by the computer system a set of traded fund sensitivity coefficients, wherein each traded fund sensitivity coefficient specifies an exposure of a traded fund to one of the risk factors in the set of risk factors;

calculating by the computer system weights of securities to create a proxy portfolio that does not reveal the assets of the traded fund and has sensitivity coefficients that are substantially equal to the sensitivity coefficients of the traded fund;

calculating by the computer system the estimated value for the traded fund based on the value of the proxy portfolio where the identities of the assets of the traded fund are not disclosed to an investor who trades shares of the traded fund on a secondary market, and the assets of the traded fund are not publicly disclosed on a daily basis; and

publishing the estimated value of the traded fund periodically throughout a trading day.

2. A computer-implemented method, comprising:

operating a computer system to determine a set of risk factors from a risk factor model,

receiving, by a computer system, 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 a fund to one of the risk factors,

creating, by a computer system, a proxy portfolio having sensitivity coefficients that are substantially equal to the sensitivity coefficients of the fund, where the proxy portfolio does not reveal the fund assets,

calculating, by a computer system, an estimated value for the fund based on the value of the proxy portfolio, wherein the calculating the estimated value is repeated periodically throughout a trading period, and

publishing, by a computer system, the estimated value for the fund periodically throughout the trading period for use by at least a first entity to trade shares of the fund on a secondary market, wherein the estimated value is published without disclosing the fund assets.

3. The method of claim 2, further comprising:

creating a hedging portfolio, wherein the hedging portfolio has sensitivity coefficients that are substantially equal to the sensitivity coefficients of the fund.

4. The method of claim 2, wherein at least one risk factor is selected from the group of risk factors consisting of:

changes in default premiums, interest rate changes, changes in inflation rates, changes in long term economic growth, market risk as measured by a benchmark index, changes in debt term structure, risk premium, firm size effects, leverage, and book-to-market equity.

5. The method of claim 2, wherein the risk factor model is at least one of (i) a statistical risk factor model, (ii) a principal components analysis, and (iii) an economic risk factor model.

6. The method of claim 2, further comprising:

selecting securities for a proxy universe, wherein the step of creating a proxy portfolio involves calculating weights of securities in the proxy universe.

7. The method of claim 2, wherein the risk factors are calculated by orthogonalizing a correlation matrix of returns functions of the securities in the proxy universe.

8. The method of claim 4, wherein the specifying the exposure of the fund to the set of risk factors includes a linear least squares regression.

9. The method of claim 5, further comprising:

sorting the securities in the proxy universe into a plurality of groups,

creating a correlation matrix of returns functions of the securities in each group of securities, thereby creating a correlation matrix for each group,

orthogonalizing the correlation matrix for each group to produce a first set of eigenvalues and corresponding eigenvectors for each group,

arranging the first set of eigenvalues for each group in descending order,

eliminating a number of the smallest eigenvalues from the first set of eigenvalues and their corresponding eigenvectors from each group according to predetermined elimination criteria

to produce a reduced set of principal components for each group,

creating a correlation matrix between all of the principal components in the reduced set of principal components for each group,

orthogonalizing the correlation matrix between all of the principal components in the reduced set of principal components for each group to produce a second set of eigenvalues and

corresponding eigenvectors for all reduced groups, and

eliminating a number of the smallest eigenvalues and their corresponding eigenvectors from the second set of eigenvalues and corresponding eigenvectors to produce a set of risk factors.

10. A method executed by a computer system to determine an estimated value of a traded fund whose assets are not publicly disclosed on a daily basis, where the computer system includes one or more computers and is programmed to determine an estimated value of the traded fund, the method comprising:

determining, by the computer system, a set of risk factors form a risk factor model;

determining by the computer system a set of traded fund sensitivity coefficients, wherein each traded fund sensitivity coefficient specifies the exposure of a traded fund to one of the risk factors in the set of risk factors;

storing the traded fund sensitivity coefficients on computer readable media;

creating by the computer system a proxy portfolio that does not reveal the assets of the traded fund and has sensitivity coefficients that are substantially equal to the sensitivity coefficients of the traded fund;

calculating by the computer system the estimated value of the traded fund based on the value of the proxy portfolio, where the identities of the assets of the traded fund are not publicly disclosed on a daily basis to an investor who trades shares of the traded fund on a secondary market; and

publicly disclosing the estimated value of the traded fund periodically throughout a trading day.