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 20060265301A1
• Filed: 02/15/2006
• Published: 11/23/2006
• Est. Priority Date: 02/16/2005
• Status: Active Grant

• Current Assignee: Cayuga Derivatives Incorporated, Dev Capital Ventures, LLC
• Original Assignee: Cayuga Derivatives Incorporated, Sri, Inc.
• Inventors: Sankaran, Srikanth, Chorna, Douglas T.
• Granted Patent: US 7,711,632 B2
• Time in Patent Office: Days
• US Class Current: 705/35
• 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

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, comprising:

a contract whose price tracks an underlying benchmark, the underlying benchmark being at least one of a security, commodity, currency, index, and derivative that has an identifiable price,

wherein a clearing of the contract between a buyer and seller of the financial instrument is not contingent upon the delivery of the underlying benchmark,

wherein a net carrying charge is calculated as a difference between an investment yield of the underlying benchmark and a specific industry standard financing rate appropriate for the underlying benchmark, and

wherein the net carrying charge is credited to or debited from a buyer and seller of the financial instrument.

2. The financial instrument of claim 1, wherein the financial instrument comprises a tradable contract.

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

4. The financial instrument of claim 1, wherein the financial instrument is exchanged for the underlying benchmark.

5. The financial instrument of claim 1, wherein the net carrying charge is credited or debited daily, or accrued.

6. The financial instrument of claim 1, wherein the generally accepted 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, or the generally accepted industry standard financing rate for the underlying benchmark.

7. The financial instrument of claim 1, wherein the net carrying charge is respectively credited and debited after a predetermined time period.

8. The financial instrument of claim 1, wherein the underlying benchmark is a U.S. Treasury security.

9. The financial instrument of claim 8, wherein the underlying benchmark is a specific U.S. Treasury security.

10. The financial instrument of claim 8, wherein the underlying benchmark is a specific Treasury security that has already been auctioned by the U.S. Treasury.

11. The financial instrument of claim 8, wherein the underlying benchmark is an on the run (OTR) Treasury security.

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

13. An option based on the financial instrument as recited in claim 1.

14. The financial instrument of claim 1, wherein at least 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.

15. The financial instrument of claim 1, wherein the underlying benchmark comprises a cash instrument.

16. The financial instrument of claim 1, wherein the underlying benchmark is a first benchmark, and the first benchmark is replaced by a second benchmark at a predetermined time.

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

18. The financial instrument of claim 1, wherein a basis risk of the financial instrument is less that a basis risk of a financial instrument that is priced off of an undeterminable one of a basket of underlying benchmarks.

19. A financial instrument, comprising:

a contract whose price tracks an underlying benchmark, the underlying benchmark being at least one of a security, commodity, currency, index, and derivative that has an identifiable price,

wherein a clearing of the contract between a buyer and seller of the financial instrument is not contingent upon the delivery of the underlying benchmark,

wherein a net carrying charge is calculated as a difference between an investment yield of the underlying benchmark and a specific industry standard financing rate appropriate for the underlying benchmark, and

wherein the net carrying charge is built into the price of the financial instrument for both buyer and seller of the financial instrument.

20. A method for trading on a securities and commodities exchange, ECN, ATS, or over the counter, comprising:

identifying an underlying benchmark security or commodity;

pricing a financial instrument to track a price of the underlying benchmark;

offering the financial instrument for trade on a securities and commodities exchange, ECN, ATS, or over the counter;

clearing a trade for the financial instrument,

wherein the step of clearing comprises crediting or debiting both long and short position accounts a net carrying charge associated with holding an equivalent position of the underlying benchmark cash market instrument, and

wherein the underlying benchmark is a specific financial instrument that has already been auctioned by the U.S. Treasury.

21. The method of claim 20, wherein the underlying benchmark comprises at least one of an on the run (OTR) U.S. Treasury, and a specific Treasury security different from the OTR U.S. Treasury.

22. The method of claim 20, further comprising offering options based on the financial instrument.

23. The method of claim 20, further comprising crediting and debiting the net carrying charge after a predetermined period of time.

24. The method of claim 20, further comprising settling the financial instrument as between investors at a same price as the underlying benchmark on a predetermined date.

25. The method of claim 20, further comprising exchanging the financial instrument for the underlying benchmark.

26. The method of claim 20, wherein the net carrying charge is calculated as a difference between an investment yield of the underlying benchmark and a specific generally accepted industry standard financing rate appropriate for the underlying benchmark.

27. A spread financial instrument, comprising:

a single contract that is based on a differential between a first instrument and a second instrument, wherein a clearing of the contract is not contingent upon the buying or selling of either the first or the second instrument by a buyer of the contract.

28. The spread financial instrument of claim 27, wherein at least one of the first and second instruments is a contract whose price tracks an underlying benchmark, the underlying benchmark being at least one of a security, commodity, currency, index, and derivative that has an identifiable price, and the differential is based on price.

29. The spread financial instrument of claim 27, wherein at least one of the first and second instruments is another spread financial instrument.

30. The spread financial instrument of claim 27, wherein the differential is based on respective yields of the first and second instruments.

31. The spread financial instrument of claim 30, wherein a price of the spread financial instrument is determined, at least in part, by a price value of one basis point of one of the first and second instruments.

32. The spread financial instrument of claim 27, wherein the differential is based on accumulated cash flows of the first and second instruments.

33. The spread financial instrument of claim 27, wherein the differential is based on a total return, including price appreciation or depreciation and interest income, of the first and second instruments.

34. The spread financial instrument of claim 27, wherein at least one of the first and second instruments is replaced upon the occurrence of a predetermined exogenous event.

35. The spread financial instrument of claim 27, employed as a credit derivatives.

36. The spread financial instrument of claim 27, employed as a mortgage derivative.

37. An option based on the spread financial instrument of claim 27.

38. A ratio financial instrument, comprising:

a single contract that is based on a ratio between a first instrument and a second instrument, wherein a clearing of the contract is not contingent upon the buying or selling of either the first or the second instrument by a buyer of the contract.

39. The ratio financial instrument of claim 38, wherein at least one of the first and second instruments is a contract whose price tracks an underlying benchmark, the underlying benchmark being at least one of a security, commodity, currency, index, and derivative that has an identifiable price.

40. The ratio financial instrument of claim 38, wherein at least one of the first and second instruments is spread financial instrument.

41. The ratio financial instrument of claim 38, wherein at least one of the first and second instruments is another ratio financial instrument.

42. The ratio financial instrument of claim 38 wherein at least one of the first and second instruments is one of a security, commodity, derivative and an index.

43. An option based on the ratio financial instrument of claim 38.