Systems and methods for implementing the structuring, pricing, quotation, and trading of financial instruments

• US 7,711,632 B2
• Filed: 02/15/2006
• Issued: 05/04/2010
• Est. Priority Date: 02/16/2005
• Status: Expired due to Fees

• Current Assignee: Cayuga Derivatives Incorporated, Dev Capital Ventures, LLC
• Original Assignee: Cayuga Derivatives Incorporated, Sri, Inc.
• Inventors: Sankaran, Srikanth, Chorna, Douglas T.
• Primary Examiner(s): Havan; Thu Thao
• Application Number:
  US11/353,977
• Publication Number:
  US 20060265301A1
• Time in Patent Office: 1,539 Days
• Field of Search: 705 37- 38
• 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

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 spread financial instrument tradable between a buyer and a seller comprising:

a tradable contract that tracks the differential between a characteristic of a first underlying instrument and a different characteristic of a second underlying instrument, wherein a clearing of the contract 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 contract is not contingent upon a delivery of the two or more underlying instruments.

2. The spread financial instrument of claim 1, wherein the execution of a trade the spread financial instrument does not result in positions in more than one instrument.

3. The spread financial instrument of claim 1, wherein at least one of the underlying instruments differs in a characteristic that affects valuation other than geographic location.

4. The spread financial instrument of claim 1, wherein at least one of the underlying instruments is a contract whose price tracks an underlying benchmark having an identifiable price, the underlying benchmark being at least one of a security, commodity, currency, index, derivative and hypothetical instrument, and the differential is based at least in part on price.

5. The spread financial instrument of claim 1, wherein at least one of the underlying instruments is an other spread financial instrument.

6. The spread financial instrument of claim 1, further comprising a price that is determined, at least in part, by a price value of one basis point of one of the underlying instruments.

7. The spread financial instrument of claim 1, wherein each of the underlying instruments has an accumulated cash flow, the differential being based on the accumulated cash flows of the underlying instruments.

8. The spread financial instrument of claim 1, wherein each of the underlying instruments has a total return, the differential being based on the total returns of the underlying instruments.

9. The spread financial instrument of claim 1, wherein at least one of the underlying instruments is replaced by an other instrument upon the occurrence of a predetermined exogenous event.

10. The spread financial instrument of claim 1, employed as a credit derivative.

11. The spread financial instrument of claim 1, employed as a mortgage derivative.

12. The spread financial instrument of claim 1 wherein each of the underlying instruments has a price, the differential being based on a formula that includes the ratio of the prices of the underlying instruments.

13. The spread financial instrument of claim 1 wherein the characteristic of the two or more underlying instruments is based on the prices of the underlying instruments.

14. The spread financial instrument of claim 1 wherein one of the two or more underlying instruments is an equity security and an other of the two or more underlying instruments is also an equity security.

15. The spread financial instrument of claim 1 wherein one of the two or more underlying instruments is an equity security and an other of the two or more underlying instruments is an index of equity securities.

16. The spread financial instrument of claim 1 wherein one of the two or more underlying instruments is an equity security and an other of the two or more underlying instruments is a debt instrument.

17. The spread financial instrument of claim 1 wherein one of the two or more underlying instruments has a constant value.

18. An option that is based on a spread financial instrument tradable between a buyer and a seller, the spread financial instrument comprising:

a tradable contract that tracks the differential between a characteristic of a first underlying instrument and a different characteristic of a second underlying instrument, wherein a clearing of the contract 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 contract is not contingent upon a delivery of the two or more underlying instruments.

19. The spread financial instrument of claim 18 wherein the characteristic of any of the underlying instruments includes the prices of the underlying instruments.

20. The spread financial instrument of claim 18 that is exercisable on an occurrence of an exogenous event.

21. The option of claim 20 wherein the exogenous event includes at least one of the following:

a) bankruptcy;

b) credit downgrade;

c) restructuring of debt;

d) recall of a loan;

e) acceleration of a loan;

f) price of some specified financial instrument reaching a target level;

g) change of political party in control; and

h) change in control of party controlling either or both Houses of Congress.

22. A ratio financial instrument tradable between a buyer and a seller, comprising:

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

23. The ratio financial instrument of claim 22, wherein at least one of the first and second financial instruments is a contract whose price tracks an underlying benchmark having an identifiable price, the underlying benchmark being at least one of a debt, equity, commodity, or currency instrument, index containing a debt, equity, currency, or commodity instrument, and derivative on a debt, equity, currency, or commodity instrument.

24. The ratio financial instrument of claim 22, wherein at least one of the first and second financial instruments is a spread financial instrument.

25. The ratio financial instrument of claim 22, wherein at least one of the first and second financial instruments is an other ratio financial instrument.

26. The ratio financial instrument of claim 22, wherein at least one of the first and second financial instruments is one of a security, commodity, derivative, or an index.

27. An option that is exercisable on the occurrence of an exogenous event and is based on a ratio financial instrument tradable between a buyer and a seller, the ratio financial instrument comprising:

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

28. The spread financial instrument of claim 27 wherein the characteristic of the first instrument and the second instrument is based on the price of each of the first instrument and the second instrument.

29. The option of claim 27 wherein the exogenous event includes at least one of the following:

a) bankruptcy;

b) credit downgrade;

c) restructuring of debt;

d) recall of a loan;

e) acceleration of a loan;

f) price of some specified financial instrument reaching a target level;

g) change of political party in control; and

h) change in control of party controlling either or both Houses of Congress.