Method and system for creating and trading corporate debt security derivative investment instruments

• US 8,027,904 B2
• Filed: 04/21/2006
• Issued: 09/27/2011
• Est. Priority Date: 05/04/2005
• Status: Active Grant

• Current Assignee: Cboe Exchange, Inc. (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: O'Callahan, Dennis M.
• Primary Examiner(s): Patel; Jagdish N
• Assistant Examiner(s): POE, KEVIN T
• Application Number:
  US11/409,381
• Publication Number:
  US 20060253359A1
• Time in Patent Office: 1,985 Days
• Field of Search: 705/35, 705/37
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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

Abstract

A method of creating and trading corporate debt security derivative investment instruments on an exchange, as well as a trading facility for trading such derivatives, is disclosed. Corporate debt security derivative investment instruments are created by identifying a credit rating service that includes a plurality of risk categories. Unique monetary values are mapped to risk categories and an entity rated by the credit rating service is identified. A corporate debt security derivative investment instrument is then created whose value is determined at least in part by the monetary value to which the risk category associated with the rated entity is mapped.

Claims

1. A computer executable method of creating and trading derivative investment instruments based on a corporate debt security, the method comprising:

identifying a credit rating service having a credit rating scheme that includes a plurality of risk categories using a corporate debt security derivative definition module on an exchange processor, wherein the credit rating service rates an entity'"'"'s credit worthiness by associating an appropriate one of said plurality of risk categories with the entity;

the processor mapping the risk categories to unique prices;

the processor identifying a particular entity which is rated by the credit rating service;

creating a corporate debt security derivative investment instrument with the processor, wherein a value of the corporate debt security derivative investment instrument is determined at least in part by the unique price to which the risk category associated with the particular entity is mapped;

transmitting pricing information with a pricing data accumulation and dissemination module on the processor to create a market for the corporate debt security derivative investment instrument; and

determining, with a settlement module on the processor, appropriate settlement amounts for an executed trade of the corporate debt security derivative investment instrument based on information received at the processor from the credit rating service, wherein the settlement amounts are transmitted to a clearing entity.

2. The method according to claim 1, wherein the corporate debt security derivative investment instrument comprises a corporate debt security call option.

3. The method according to claim 1 wherein the corporate debt security derivative investment instrument comprises a corporate debt security put option.

4. The method according to claim 1 wherein the credit rating service comprises one of:

Moody'"'"'s Investor Services;

Standard and Poor'"'"'s;

or Fitch'"'"'s ratings.

5. The method according to claim 1 wherein transmitting pricing information further comprising listing the corporate debt security derivative investment instrument on an exchange.

6. The method according to claim 5 further comprising accepting orders from investors to take positions in corporate debt security derivative investment instruments, and executing orders by matching corresponding orders to take opposite sides in corporate debt security derivative investment instruments.

7. A system for creating and trading corporate bond security derivative investment instruments on an exchange comprising:

a processor having a corporate bond security derivative definition module for defining a corporate bond security derivative investment instrument, wherein the corporate bond security derivative definition module is configured to generate a corporate bond security derivative investment instrument by identifying a credit rating service that rates the entity'"'"'s credit worthiness by associating an appropriate one of said plurality of risk categories with the entity, mapping the risk categories to unique prices and determining a value for the corporate bond security derivative at least in part by the unique price to which the risk category associated with the entity is mapped;

the processor having a pricing data accumulation and dissemination module for receiving price data based on executed trades of said corporate bond security derivative investment instruments, and disseminating said pricing data to investors, wherein the corporate bond security derivative investment instrument is made publicly available for trading on an exchange to create a market for the corporate bond security derivative investment instrument;

the processor further having a credit rating monitoring module for monitoring the credit rating of an entity; and

a settlement calculation module on the processor in communication with the credit rating monitoring module for calculating a settlement amount based at least in part on a unique price to which the current credit rating of the entity is mapped.