Abstract:
A method of determining an interest rate to be applied against a debit amount in a collateralized lending transaction. The method includes identifying a plurality of assets to be used as collateral, grouping the assets by class, and assigning an interest rate to each class of assets. The method also includes allocating the debit amount to each of the asset classes based on market values of the assets, calculating a blended interest rate based on the allocated debit amounts, and applying the blended interest rate to the debit amount to determine the accrual amount due on the debit amount.

Description:
BACKGROUND 
     In transactions in which money is lent to a borrower, the borrower often desires to have the loan collateralized so that the borrower can borrow the money on better terms. In such a case, the borrower pledges an asset as security to the lender such that, if the borrower defaults, the lender may take possession of the asset to satisfy any unpaid loan amounts. Various financial services entities often offer debit or margin financing to its customers and the customers often use various securities as collateral for the financing. 
     In such cases, the financial services entity determines an interest rate to apply to the borrowed money (i.e., the debit amount). The interest rate may be based on the type of collateral (usually securities) that is offered as security by the borrower. Oftentimes the collateral offered by the borrower varies in nature and quality and the interest rate that is set by the financial services entity may have little or no correlation with the types of collateral that are being offered. 
     SUMMARY 
     In various embodiments, the present invention is directed to a method of determining an interest rate to be applied against a debit amount in a collateralized lending transaction. The method includes identifying a plurality of assets to be used as collateral, grouping the assets by class, and assigning an interest rate to each class of assets. The method also includes allocating the debit amount to each of the asset classes based on market values of the assets, calculating a blended interest rate based on the allocated debit amounts, and applying the blended interest rate to the debit amount to determine the accrual amount due on the debit amount. 
     In various embodiments, the present invention is directed to a computer system. The computer system includes a processor and a storage medium in communication with the processor, the storage medium having stored thereon instructions which, when executed by the processor, cause the processor to: 
     group a plurality of assets to be used as collateral by class; 
     assign an interest rate to each class of assets; 
     allocate a debit amount to each of the asset classes based on market values of the assets; 
     calculate a blended interest rate based on the allocated debit amounts; and 
     apply the blended interest rate to the debit amount to determine the accrual amount due on the debit amount. 
     In various embodiments, the present invention is directed to an apparatus for determining an interest rate to be applied against a debit amount in a collateralized lending transaction. The apparatus includes means for identifying a plurality of assets to be used as collateral, means for grouping the assets by class, and means for assigning an interest rate to each class of assets. The apparatus also includes means for allocating the debit amount to each of the asset classes based on market values of the assets, means for calculating a blended interest rate based on the allocated debit amounts, and means for applying the blended interest rate to the debit amount to determine the accrual amount due on the debit amount. 
     In various embodiments, the present invention is directed to a computer readable medium having stored thereon instructions which, when executed by a processor, cause the processor to: 
     group a plurality of assets to be used as collateral by class; 
     assign an interest rate to each class of assets; 
     allocate a debit amount to each of the asset classes based on market values of the assets; 
     calculate a blended interest rate based on the allocated debit amounts; and 
     apply the blended interest rate to the debit amount to determine the accrual amount due on the debit amount. 
    
    
     
       BRIEF DESCRIPTION OF THE FIGURES 
         FIGS. 1A and 1B  illustrate an embodiment of a process for determining a financing rate for a collateralized lending transaction; 
         FIG. 2  illustrates an embodiment of a rate calculation report that may be used to show how a blended rate is arrived at; 
         FIG. 3  illustrates an embodiment of a report of a debit rate forecast; 
         FIG. 4  illustrates an embodiment of a financing position detail report; and 
         FIG. 5  illustrates a schematic diagram of examples of system and computer-readable medium embodiments provided in accordance with the present invention. 
     
    
    
     DESCRIPTION 
     Various embodiments of the present invention may be employed to provide a borrower with an optimized rate in a collateralized transaction. In various embodiments, an analysis is performed so that the highest quality collateral (i.e., the collateral that results in the cheapest debit rate) is considered first, followed by collateral of declining quality to yield a blended debit rate. The collateral may consist of, for example, assets (e.g., securities) in which the borrower has a long position. 
       FIGS. 1A and 1B  illustrate an embodiment of a process for determining a financing rate for a collateralized lending transaction. At step  10  the collateral (e.g., collateral in which the borrower has a long position) of the borrower is sorted by settlement currency and asset type and at step  12  an initial asset class designation is assigned based on the security type of each collateral asset. In various embodiments, the settlement currency of the collateral may be standardized such that all of the collateral values are in one currency such as, for example, the U.S. dollar or the Euro. The classes may be, for example, treasuries, agencies, sovereign debt, equity, convertible preferred, non-investment/investment grade corporate debt, non-investment/investment grade convertible debt, mortgage-backed debt, asset-backed bonds debt, distressed debt, etc. 
     At step  14 , the collateral assets are priced, taking into account application of conversion currencies, multipliers, factors, etc. At step  16 , the collateral assets are rated for investment grade status when applicable. 
     At step  18 , the value of the collateral assets may be discounted based on, for example, a borrower-specific table. The discount may reflect, for example, the amount of the collateral that was not purchased on margin. At step  20 , interest rates are assigned to each asset class and at step  22  one or more of the rates assigned to the asset classes may be overridden based on, for example, a predetermined agreement with the borrower that various rates would be overridden on, for example, a CUSIP-level basis because an asset is, for example, deemed to be trading “special.” At step  24 , the list of collateral is initially prioritized by asset class such that, for example, the highest quality collateral is listed first in the collateral list. 
     At step  26  in  FIG. 1B  debit values are determined for each collateral asset class. At step  28 , the debit amount is allocated against the market values of each collateral asset class. At step  30 , accruals are calculated for the collateral and the collateral may be re-prioritized. At step  32 , collateral pricing and prioritization may be repeated if desired. At step  34  a blended interest rate is calculated. At step  36 , the blended rate is applied to the debit amount for the borrower. 
       FIG. 2  illustrates an embodiment of a rate calculation report that may be used to show how a blended rate is arrived at. As can be seen in  FIG. 2 , a borrower&#39;s (i.e., client&#39;s) asset classes are listed in an asset class column  50 . Each asset class has a priority as illustrated in a priority column  52 . The marginable long market value (LMV) of the collateral is listed for each asset class in column  54 . The marginable LMV represents the LMV of the collateral less any amount, or percentage of the collateral, that cannot be used to collateralize the debit. 
     In the example illustrated in  FIG. 2 , the total debit value in the transaction is $36,205,570. An actual debit column  56  shows the allocation of the debit value among the asset classes, with the highest priority (i.e., easiest to finance) collateral being matched with a debit amount equal to the LMV of the collateral in the asset class and with each successive lower priority asset class receiving a share of the debit value up to the marginable LMV until the debit value is exhausted. 
     A rate column  58  illustrates the debit rate that is applied to each asset class, with higher priority asset classes receiving a lower, or more favorable, rate. An accrual column  60  illustrates the daily accrual for each asset class. The blended rate for the illustration in  FIG. 2  is 3.0955 which results in an accrual of $3113.17. If such an analysis were not done and the highest rate of 3.3500 were used in the transaction, the accrual would be 3369.13. Thus, the borrower realizes a savings when the methods of the various embodiments of the present invention are used. 
       FIG. 3  illustrates an embodiment of a report of a debit rate forecast that may be generated for a borrower so that the borrower can ascertain what a likely rate will be given the borrower&#39;s present collateral position. A CUSIP column  61  and a description column  62  describe each collateral asset by CUSIP number and name. An LMV column  64  illustrates the value of each asset and a margin requirement column  66  illustrates the amount of the asset that was not bought on margin. A marginable LMV column  68  illustrates the value of the asset after the margin requirement is subtracted from the LMV and a margin percentage column  70  illustrates what fraction the margin requirement is of the LMV. 
     A cumulative column  72  illustrates a running total of the collateral for all classes and a priority class column  74  identifies the priority class of each asset. A rate column illustrates what rate is in place for each class (i.e., fed+a fixed value). An effective rate column  78  illustrates the effective debit rate for each asset. 
       FIG. 4  illustrates an embodiment of a report of a financing position detail report. The report illustrated in  FIG. 4 , including the columns therein, is similar to the report illustrate in  FIG. 3 , but is a daily summary rather than a projection. The report illustrated in  FIG. 4  may be generated for a borrower so that the borrower can ascertain what the rate was on a daily basis given the borrower&#39;s collateral position that day. 
       FIG. 5  illustrates a schematic diagram of examples of system and computer-readable medium embodiments provided in accordance with the present invention. As shown, a financial services entity  302  may communicate and/or exchange data with an investor  306 . In various aspects, the financial services entity  302  may be operatively associated with one or more communications devices  310  such as, for example and without limitation, a computer system  310 A, a personal digital assistant  310 B, a fax machine  310 C, and/or a telephone  310 D (e.g., a wireline telephone, a wireless telephone, a pager, and the like), and/or other like communication devices. The communication devices  310  permit the financial services entity  302  and the investor  306  to communicate between/among each other through one or more communication media  312 , such as by employing electronic mail communicated through one or more computer systems, for example. The communication media  312  may include, for example and without limitation, wireline communication means such as a wireline server  312 A, a wireless data network  312 B, and/or a connection through a networked medium or media  312 C (e.g., the Internet, an extranet, an intranet, a wide area network (WAN), and/or a local area network (LAN)). 
     In addition, the financial services entity  302  (as well as the investor  306 ) may be operatively associated with one or more data processing/storage devices such as data processing/storage devices  314 , for example. The financial services entity  302  may be operatively associated with one or more transaction computer systems  314 A, for example, and/or one or more data storage media  314 B configured to receive, store, analyze and/or otherwise process data and other information in association with communications that occur between/among the financial services entity  302  and the investor  306 . In various aspects, the financial services entity  302  may be operatively associated, for example, with one or more accounting computer systems  314 C and/or one or more tax computer systems  314 D. The accounting/tax computer systems  314 C,  314 D may be configured for receiving, storing, and/or processing accounting/tax data, among other types of data, associated with one or more aspects of hedging securities, for example, of the present invention. 
     In various aspects, the investor  306  may be operatively associated with one or more computer systems  306 A and/or one or more data storage media  306 B. It can be appreciated that one or more of the computer systems  306 A,  314 A,  314 C,  314 D and/or one or more of the data storage media  306 B,  314 B may be employed to communicate, store, analyze, and/or otherwise process data related to financial transactions occurring between/among the financial services entity  302  and the investor  306 . It can be understood that one or more steps of the methods described herein may be performed using, for example, any of the computer systems  310 ,  306 A, and  314 A. Also, in various embodiments of the present invention, market data may be input and stored on, for example, any of the data storage media  306 B,  314 B and/or on a storage medium or media on the computer system  310 A. 
     The term “computer-readable medium” is defined herein as understood by those skilled in the art. It can be appreciated, for example, that method steps described herein may be performed, in certain embodiments, using instructions stored on a computer-readable medium or media that direct a computer system to perform the method steps. A computer-readable medium can include, for example and without limitation, memory devices such as diskettes, compact discs of both read-only and writeable varieties, digital versatile discs (DVD), optical disk drives, and hard disk drives. A computer-readable medium can also include memory storage that can be physical, virtual, permanent, temporary, semi-permanent and/or semi-temporary. A computer-readable medium can further include one or more data signals transmitted on one or more carrier waves. 
     As used herein, a “computer” or “computer system” may be, for example and without limitation, either alone or in combination, a personal computer (PC), server-based computer, main frame, microcomputer, minicomputer, laptop, personal data assistant (PDA), cellular phone, pager, processor, including wireless and/or wireline varieties thereof, and/or any other computerized device capable of configuration for processing data for either standalone application or over a networked medium or media. Computers and computer systems disclosed herein can include memory for storing certain software applications used in obtaining, processing, storing and/or communicating data. It can be appreciated that such memory can be internal or external, remote or local, with respect to its operatively associated computer or computer system. The memory can also include any means for storing software, including a hard disk, an optical disk, floppy disk, ROM (read only memory), RAM (random access memory), PROM (programmable ROM), EEPROM (extended erasable PROM), and other suitable computer-readable media. 
     It is to be understood that the figures and descriptions of embodiments of the present invention have been simplified to illustrate elements that are relevant for a clear understanding of the present invention, while eliminating, for purposes of clarity, other elements. Those of ordinary skill in the art will recognize, however, that these and other elements may be desirable for practice of various aspects of the present embodiments. However, because such elements are well known in the art, and because they do not facilitate a better understanding of the present invention, a discussion of such elements is not provided herein. It can be appreciated that, in some embodiments of the present methods and systems disclosed herein, a single component can be replaced by multiple components, and multiple components replaced by a single component, to perform a given function or functions. Except where such substitution would not be operative to practice the present methods and systems, such substitution is within the scope of the present invention. Examples presented herein, including operational examples, are intended to illustrate potential implementations of the present method and system embodiments. It can be appreciated that such examples are intended primarily for purposes of illustration. No particular aspect or aspects of the example method, product, computer-readable media, and/or system embodiments described herein are intended to limit the scope of the present invention. 
     It should be appreciated that figures presented herein are intended for illustrative purposes and are not intended as construction drawings. Omitted details and modifications or alternative embodiments are within the purview of persons of ordinary skill in the art. Furthermore, whereas particular embodiments of the invention have been described herein for the purpose of illustrating the invention and not for the purpose of limiting the same, it will be appreciated by those of ordinary skill in the art that numerous variations of the details, materials and arrangement of parts/elements/steps/functions may be made within the principle and scope of the invention without departing from the invention as described in the appended claims.