Hedging exchange traded mutual funds or other portfolio basket products

• US 7,099,838 B1
• Filed: 03/27/2000
• Issued: 08/29/2006
• Est. Priority Date: 03/27/2000
• Status: Expired due to Term

• Current Assignee: NYSE American LLC (Intercontinental Exchange, Inc.)
• Original Assignee: American Stock Exchange, LLC (Intercontinental Exchange, Inc.)
• Inventors: Gastineau, Gary L., Weber, Clifford
• Primary Examiner(s): Millin, Vincent
• Assistant Examiner(s): CHARLES, DEBRA F
• Application Number:
  US09/536,258
• Time in Patent Office: 2,346 Days
• Field of Search: 705/36, 705/1, 705/10, 705/35, 705/37, 395/187.01
• US Class Current: 705/35
• CPC Class Codes: G06Q 30/08 Auctions
• 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
• CPC Class Codes: Y10S 707/99932 Access augmentation or optimizing
• CPC Class Codes: Y10S 707/99933 Query processing, i.e. searching

Abstract

A system for determining a basket of financial instruments for hedging investment risk in actively managed exchange traded funds is described. The system uses a trusted computer system and includes a computer storage medium storing a computer program product. The product determines the basket of hedging instruments by extracting factor information from a portfolio of the actively managed exchange traded fund and determining factors that affect the price of the exchange traded fund. The program can select a portfolio of instruments with similar behavior with respect to the determined factors to produce a hedging portfolio that tracks the price of the exchange traded fund.

Claims

1. A method of hedging investment risk in an actively managed exchange traded fund, comprising;

receiving or determining factor information about the actively managed exchange traded fund holdings, wherein one or more computers programmed with factor analysis software determine the factor information, which measures sensitivities of the fund holdings to factors that affect the value of the fund holdings, and the factor information does not reveal the fund holdings; and

using one or more computers with the factor information as an input to select a portfolio of financial instruments to produce a hedging portfolio with substantially the same sensitivities to the factors that affect the value of the fund holdings,

wherein the specific securities in the actively managed exchange traded fund arc unknown to an entity who uses the hedging portfolio to hedge against an investment in the actively managed exchange traded fund.

2. The method of claim 1 wherein the hedging portfolio tracks the price of the fund.

3. The method of claim 1 further comprising:

using the hedging portfolio to hedge a position taken in the exchange traded find.

4. The method of claim 1 further comprising:

applying factor analysis to the portfolio of the exchange traded fund to determine the sensitivity of the fund to the factors.

5. The method of claim 3 wherein the applying step occurs in a trusted computer system.

6. The method of claim 1 wherein the factors include economic activity, inflation rates or other factors that are related to measures of economic activity.

7. The method of claim 1 further comprising:

selecting a group of securities, and

constructing the hedging portfolio based upon weightings and selections of securities from the group of securities.

8. A computer program product residing on a computer readable medium for hedging investment risk in actively managed exchange traded funds comprising instructions for causing a computer to:

receive or determine factor information about the actively managed exchange traded find holdings, wherein the factor information measures sensitivities of the fund to factors that affect the price of the fund holdings and the factor information does not reveal the fund holdings; and

select a portfolio of financial instruments to produce a hedging portfolio with substantially the same sensitivities to the factors that affect the value of the fund holdings, wherein the specific securities in the actively managed exchange traded fund are unknown to an entity who uses the hedging portfolio to hedge against an investment in the actively managed exchange traded fund.

9. The computer program product of claim 8 wherein the hedging portfolio tracks the price of the fund.

10. The computer program product of claim 8 further comprising instructions to:

use the hedging portfolio to hedge a position taken in the exchange traded find.

11. The computer program product of claim 8 further comprising instructions to:

apply factor analysis to the exchange traded fund to determine the sensitivity of the fund holdings to the factors.

12. The computer program product of claim 11 wherein the factor analysis is applied in a trusted computer system.

13. The computer program product of claim 8 wherein the factors include economic activity, inflation rates or other factors that are related to measures of economic activity.

14. The computer program product of claim 8 further comprising instructions to:

select a group of securities, and

construct the hedging portfolio based upon weightings of and selections from the group of securities.

15. A computer system for producing a hedging portfolio for hedging investment risk in actively managed exchange traded finds, comprising:

a trusted computer system; and

a computer storage medium storing a computer program product for determining the basket of instruments for hedging investment risk, comprising instructions for causing the computer to;

receive or determine factor information about the actively managed exchange traded fund holdings, wherein the factor information measures sensitivities of the fund holdings to factors that affect the price of the fund, and the factor information does not reveal the fund holdings; and

select a portfolio of financial instruments to produce a hedging portfolio with substantially the same sensitivities to the factors that affect the value of the fund, wherein the specific securities in the actively managed exchange traded fund are unknown to an entity who uses the hedging portfolio to hedge against an investment in the actively managed exchange traded fund.

16. The system of claim 15 wherein the computer program further comprises instructions to:

use the hedging portfolio to hedge a position taken in the exchange traded fund.

17. The system of claim 15 further comprising instructions to:

apply factor analysis to the exchange traded fund to determine the sensitivity of the fund holdings to the factors.

18. The system of claim 15 wherein the factors include economic activity, inflation rates or other factors that are related to measures of economic activity.

19. The system of claim 15 wherein the computer program further comprises instructions to:

select a group of securities, and

construct the hedging portfolio based upon weightings of and selections from the group of securities.

20. A method of calculating an intra-day value proxy for an actively managed exchange traded find, comprising:

producing a hedging portfolio to track an actively managed exchange traded fund by receiving or determining factor information about the fund holdings, wherein one or more computers programmed with factor analysis software determine the factor information, which measures sensitivities of the fund holdings to factors that affect the price of the fund, and the factor information does not reveal the fund holdings;

using one or more computers with the factor information as an input to select a portfolio of financial instruments to produce a hedging portfolio with substantially the same sensitivities to the factors that affect the value of the fund; and

applying current prices to the hedging portfolio to determine the intra-day value proxy value for the exchange traded fund.