Systems and methods for implementing the structuring, pricing, quotation, and trading of SPOT synthetics (SPOTS), SPREAD instruments (SPRINTS), SPRINTS based on SPOTS, ratio derivatives (RADS), RADS based on SPOTS, and options based on these instruments

• US 8,046,286 B2
• Filed: 08/10/2009
• Issued: 10/25/2011
• Est. Priority Date: 02/16/2005
• Status: Active Grant

• Current Assignee: Cayuga Derivatives Incorporated, SRI Incorporated Prisma & Company Incorporated
• Original Assignee: Cayuga Derivatives Incorporated, SRI Incorporated Prisma & Company Incorporated
• Inventors: Sankaran, Srikanth, Chorna, Douglas T.
• Primary Examiner(s): Havan; Thu Thao
• Application Number:
  US12/538,295
• Publication Number:
  US 20090299894A1
• Time in Patent Office: 806 Days
• Field of Search: 705 36 R- 37
• US Class Current: 705/36.00R
• 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

An exchange-traded financial instrument having a price that tracks an underlying benchmark, the underlying benchmark being a security or commodity that is itself traded. A contract for the financial instrument between a buyer and seller is not contingent upon the delivery of the underlying benchmark. A net carrying charge (credit or debit), defined as the difference between the investment yield of the underlying benchmark and a cost of financing ownership of the underlying benchmark using the generally accepted industry standard financing rate for that benchmark, is credited or debited, accrued, or built into the price of the derivative for both buyer and seller of the financial instrument, typically nightly. In one embodiment, the underlying benchmark is a U.S. Treasury security, and preferably a specific U.S. Treasury security such as the on the run (OTR) 10 Year Treasury note. Other single contract spread and ratio instruments are also disclosed.

Claims

1. A financial instrument tradable between a buyer and a seller comprising:

a tradable tracking instrument that tracks an underlying benchmark with an identifiable value, the tradable tracking instrument undergoing change with each change of the underlying benchmark, the underlying benchmark being one of;

a debt;

equity;

commodity;

currency instrument;

index containing a debt, equity, currency, or commodity instrument;

derivative on a debt, equity, currency, or commodity instrument;

a United States Treasury security;

a treasury futures contract;

a specific United States Treasury bond; and

a specific United States Treasury note;

the tradable tracking instrument requiring clearing of the tradable tracking instrument between the buyer and seller through one of;

a commodities exchange;

securities exchange; and

an organization approved by the United States Government for clearing financial instruments;

wherein the clearing of the tradable tracking instrument is not contingent upon the delivery of the underlying benchmark, and

wherein the tradable tracking instrument ceases tracking upon final settlement.

2. The financial instrument of claim 1, wherein the financial instrument settled at a same price as the underlying benchmark on a predetermined date.

3. The financial instrument of claim 1, wherein the specific industry standard financing rate for the benchmark comprises one of a Treasury repo rate for Treasury securities, a broker loan rate for equities, and a gold lending rate for cash gold.

4. The financial instrument of claim 1, traded as an exchange-traded fund.

5. The financial instrument of claim 1, wherein one of a long contract holder and a short contract holder has the option of settling the contract via one of (a) cash settlement and (b) delivering or receiving delivery of the underlying benchmark.

6. The financial instrument of claim 1, wherein the underlying benchmark is replaced by a different benchmark at a predetermined time.

7. The financial instrument of claim 1, wherein the underlying benchmark is replaced by a different underlying benchmark upon an occurrence of an exogenous event.

8. The financial instrument of claim 1, further comprising a net carrying charge charged on one of a daily basis, weekly basis;

monthly basis;

quarterly basis;

semi-annual basis;

annual basis;

other periodical basis; and

at maturity.

9. The financial instrument of claim 8, wherein the net carrying charge is accrued.

10. The financial instrument of claim 8, wherein the net carrying charge is charged after a predetermined time period.

11. The financial instrument of claim 8, wherein the net carrying charge is calculated as a difference between an investment yield of the underlying benchmark and a specific industry standard financing rate assigned for the underlying benchmark.

12. The financial instrument of claim 1, further comprising a net carrying charge charged to one of the buyer and the seller if the identifiable value of the underlying benchmark has increased in value and to the other of the buyer and seller if the identifiable value of the underlying benchmark has decreased in value and the net carrying charge is credited to the other of the buyer and the seller.

13. The financial instrument of claim 8, wherein the net carrying charge is debited to one of the buyer and seller and credited to the other of the buyer and seller.

22. The financial instrument of claim 1, wherein a value of the financial instrument is based on the likelihood of the change in the underlying benchmark.

23. The financial instrument of claim 1, wherein a value of an exogenous event is based on the value of the change in the underlying benchmark.

14. An option on a financial instrument tradable between a buyer and a seller, the financial instrument comprising:

a tradable tracking instrument that tracks an underlying benchmark with an identifiable value, the underlying benchmark being one of;

a debt;

equity;

commodity;

currency instrument;

index containing a debt, equity, currency, or commodity instrument; and

derivative on a debt, equity, currency, or commodity instrument;

the tracking instrument requiring clearing of the tracking instrument between the buyer and seller through one of a commodities exchange, securities exchange, and an organization approved by the United States Government for clearing financial instruments;

wherein the clearing of the tracking instrument is not contingent upon the delivery of the underlying benchmark; and

the tracking of the tradable tracking instrument ceases upon final settlement.

15. A method of trading an option on a financial instrument between a buyer and a seller on at least one of a commodities exchange, securities exchange, electronic communication network (ECN), alternative trading system (ATS), and an organization approved by the United States Government for clearing financial instruments, the method comprising:

providing a tradable instrument that has a characteristic that tracks an underlying benchmark with an identifiable value;

clearing the tradable instrument wherein the clearing of the tradable instrument between the buyer and the seller is not contingent upon the delivery of the underlying benchmark, the underlying benchmark being one of;

a debt;

equity;

commodity;

currency instrument;

index containing a debt, equity, currency, or commodity instrument; and

derivative on a debt, equity, currency, or commodity instrument.

16. A financial instrument tradable between a buyer and a seller comprising:

a tradable futures instrument having a characteristic that tracks an underlying benchmark with an identifiable value, the underlying benchmark being at least one of;

a debt;

equity;

commodity;

currency instrument;

index containing a debt, equity, currency, or commodity instrument; and

derivative on a debt, equity, currency, or commodity instrument;

wherein a clearing of the tradable futures instrument between the buyer and seller is through at least one of a commodities exchange, securities exchange, and an organization approved by the United States Government for clearing financial instruments; and

wherein the clearing of the tradable futures instrument is not contingent upon the delivery of the underlying benchmark.

17. The futures instrument of claim 16 further comprising a final settlement procedure of the futures instrument that does not require the use of any conversion factor or coupon adjustment to determine a final settlement price.

18. The futures instrument of claim 16, wherein the underlying benchmark is an on the run (OTR) Untied States Treasury security.

19. The futures instrument of claim 16, wherein the underlying benchmark is a specific instrument issued by the Government of Canada.

20. The futures instrument of claim 16, wherein the underlying benchmark is a coupon bearing instrument issued or guaranteed by the United States of America.

21. The futures instrument of claim 16, wherein the underlying benchmark is a bond or note issued or guaranteed by the United States of America.