System and method for providing a trust associated with long positions in index futures

A system comprises a memory operable to store market data. The system further comprises a processor communicatively coupled to the memory and operable to buy a plurality of index futures. The plurality of index futures are held as long positions in a trust, and a particular index future is publicly traded on a commodity exchange. The processor is further operable to issue a plurality of trust receipts associated with the trust, wherein the plurality of trust receipts are publicly traded on at least one security exchange. The processor is further operable to post a margin with a futures commission merchant (FCM), wherein the margin is based at least in part on the plurality of index futures and the FCM makes at least one interest payment associated with the plurality of index futures.

TECHNICAL FIELD OF THE INVENTION

The present invention relates generally to electronic investing and more specifically to a system and method for providing a trust associated with long positions in index futures.

BACKGROUND OF THE INVENTION

In traditional investing systems, non-institutional customers have sometimes avoided buying futures contracts. These non-institutional customers fear that they could incur losses in excess of their initial margin due to the leverage associated with traditional futures contracts.

SUMMARY OF THE INVENTION

In accordance with the present invention, the disadvantages and problems associated with prior investing systems have been substantially reduced or eliminated.

In some embodiments, a system comprises a memory operable to store market data. The system further comprises a processor communicatively coupled to the memory and operable to buy a plurality of index futures. The plurality of index futures are held as long positions in a trust, and a particular index future is publicly traded on a commodity exchange. The processor is further operable to issue a plurality of trust receipts associated with the trust, wherein the plurality of trust receipts are publicly traded on at least one security exchange. The processor is further operable to post a margin with a futures commission merchant (FCM), wherein the margin is based at least in part on the plurality of index futures and the FCM makes at least one interest payment associated with the plurality of index futures.

In other embodiments, a method comprises buying a plurality of index futures, wherein the plurality of index futures are held as long positions in a trust and a particular index future is publicly traded on a commodity exchange. The method continues by issuing a plurality of trust receipts associated with the trust, wherein the plurality of trust receipts are publicly traded on at least one security exchange. The method concludes by posting a margin with a futures commission merchant (FCM), wherein the margin is based at least in part on the plurality of index futures and the FCM makes at least one interest payment associated with the plurality of index futures.

In yet other embodiments, a trust comprises a plurality of index futures, wherein substantially all net assets of the trust are invested in long positions in index futures. A particular index future is publicly traded on a commodity exchange, and the particular index future represents a futures contract on a particular index. The trust issues a plurality of trust receipts that are publicly traded on at least one security exchange. The trust posts a margin with a futures commission merchant (FCM), and the margin is based at least in part on the plurality of index futures. The FCM makes periodic interest payments associated with the plurality of index futures to the commodity exchange.

The invention has several important technical advantages. Various embodiments of the invention may have none, some, or all of these advantages. One advantage is that the investing system allows non-institutional customers to post (as margin) 100% of the market value of the index futures at the time of purchase. As a result, long positions in index futures may not be leveraged for non-institutional customers in the investing system. Accordingly, non-institutional customers may not be subject to margin calls or requirements to make additional payments during the life of their long positions in the index futures.

Another advantage is that the investing system may comprise a trust that tracks the performance of a target index by investing the trust's net assets in long positions in index futures. The trust may issue trust receipts that may be traded on a public exchange. Thus, investing system may allow investors to buy and sell receipts that are associated with a trust that tracks the performance of a target index and that are traded through broker-dealers that may be unable to process non-traditional futures contracts. Another advantage is that the expenses of the trust may be paid through the functionality of platform fees embedded in the non-traditional futures contracts.

Other advantages of the present invention will be readily apparent to one skilled in the art from the description and the appended claims.

DETAILED DESCRIPTION OF THE INVENTION

FIG. 1illustrates an investing system10, according to certain embodiments. Investing system10may comprise clients20, exchanges30, a trust server40, an index server50, futures commission merchants (FCMs)60, and authorized participants70communicatively coupled by a network80.

Investing system10is generally operable to maintain and operate a trust12that holds long positions in index futures14. In some embodiments, trust12may issue trust receipts16that represent ownership interests in the net assets of trust12. Trust receipts16associated with trust12may be traded on one or more exchanges30. In some embodiments, trust receipts16may be publicly traded like securities on a security exchange30a.

According to certain embodiments, index futures14represent futures contracts on a particular index, which may be referred to as target index18. Index futures14may be configured to track the performance of target index18. According to certain embodiments, target index18may represent one or more market indices22and/or financial indicators associated with securities, currencies, commodities, and/or any suitable type of investment instrument. In some embodiments, target index18may be and/or correspond to a total return index that represents the performance of a portfolio with notional exposure to both a market index22and an index of separately managed accounts (SMA index24). The notional exposure to the component indices (i.e., market index22and SMA index24) may be periodically rebalanced to maintain full exposure to each component index.

In some embodiments, investing system10may pass interest payments26from entities that hold long positions in index futures14to entities that hold short positions in index futures14. This feature of investing system10may be referred to as “interest rate pass-through” (IRPT). In some embodiments, the IRPT feature of investing system10may allow index futures14to trade more closely with target index18than might be the case with traditional futures contracts. Investing system10is further operable to deduct platform fees25from IRPT payments26. By deducting platform fees25from IRPT payments26, investing system10may satisfy the expenses of trust12and fund alternative distribution channels such as, for example, trust receipts16.

As explained above, investing system10may comprise one or more clients20. Client20represents any suitable local or remote end-user device that may be used by investors28to access one or more elements of investing system10, such as exchanges30. In some embodiments, investor28may use client20to view information regarding target index18, to submit trading orders to exchanges30, to receive market data32, to buy or sell trust receipts16, to monitor the status of trust12, to receive trade confirmations, and/or to communicate with various components of investing system10. A particular client20may comprise a computer, workstation, telephone, Internet browser, electronic notebook, Personal Digital Assistant (PDA), pager, or any other suitable device (wireless, wireline, or otherwise), component, or element capable of receiving, processing, storing, and/or communicating information with other components of investing system10. Client20may also comprise any suitable user interface such as a display, microphone, keyboard, or any other appropriate terminal equipment according to particular configurations and arrangements. It will be understood that investing system10may comprise any number and combination of clients20.

Clients20may be used by investors28. The term “investor” is meant to broadly apply to any user of investing system10, whether that user is an individual, machine, money manager, agent, financial professional, legal entity, or any suitable user that is capable of buying, selling, and/or holding investment instruments in investing system10. In some embodiments, investors28may be broker-dealers who are not authorized participants70.

In some embodiments, client20may comprise a graphical user interface (GUI)34. GUI34is generally operable to tailor and filter data presented to investor28. GUI34may provide investor28with an efficient and user-friendly presentation of information regarding index futures14, indices, trust12, trading orders, market data32, and/or other suitable information. GUI34may comprise a plurality of displays having interactive fields, pull-down lists, and buttons operated by investor28. In one example, GUI34presents relevant market data32to investor28and conceals the remaining information to reduce visual clutter. Then, upon receiving a request from investor28, GUI34expands the visual representation of market data32to display account information, market information, and/or other suitable information. GUI34may include multiple levels of abstraction including groupings and boundaries. It should be understood that the term graphical user interface may be used in the singular or in the plural to describe one or more graphical user interfaces and each of the displays of a particular graphical user interface.

Investors28may use clients20to communicate with exchanges30. Exchange30is generally operable to receive and execute trading orders from investors28. Once a particular trading order is executed, exchange30is operable to generate and transmit a trade confirmation message to client20. Exchange30is further operable to transmit market data32to clients20, index server50, and/or other components of investing system10. Market data32may comprise information regarding trading activities in exchange30. In some embodiments, market data32may comprise information regarding best bid prices, best offer prices, trading volumes, volatility, and/or any other suitable information regarding trading activity in exchange30. According to certain embodiments, market data32comprises current and/or historical information regarding any suitable index, financial instrument, mutual fund, hedge fund, exchange traded fund (“ETF”), investment instrument, and/or any suitable number and combination of indicators regarding investing system10.

Exchanges30comprise all manner of order execution venues including market centers, Electronic Communication Networks (ECNs), Alternative Trading Systems (ATSs), and/or any other suitable market participants. Each exchange30may maintain a bid and offer price for at least one investment instrument by standing ready, willing, and able to buy or sell that investment instrument at publicly quoted prices, also referred to as exchange prices. Different exchanges30may provide different prices for particular investment instruments. For example, a particular exchange30may offer a particular bid price and/or offer price for a particular investment instrument, while another exchange30may offer a different bid price and/or offer price for the same investment instrument.

In some embodiments, exchanges30comprise one or more security exchanges30aand one or more commodity exchanges30b. In some embodiments, security exchange30arepresents an organization, venue, system, and/or market center in which securities, trust receipts16, and/or other suitable investment instruments are traded among investors28. Security exchange30amay facilitate the issuance and redemption of securities and the payment of income and dividends. Examples of security exchange30ainclude, but are not limited to, the New York Stock Exchange, the Hong Kong Stock Exchange, the Dublin Stock Exchange, the London Stock Exchange, the Luxembourg Stock Exchange, and the Frankfurt Stock Exchange.

Commodity exchange30brepresents an exchange30where commodities and derivative instruments are traded. In particular, commodity exchange30bmay facilitate the trading of agricultural products, oil products, metals, environmental instruments, and/or other suitable commodities. Commodity exchange30bmay facilitate the trading of contracts associated with commodities such as, for example, forwards, futures, options, spot prices, swaps, and/or any suitable derivative instrument. In some embodiments, commodity exchange30bmay facilitate the trading of index futures14, interest rates, and/or any suitable derivative instrument. Examples of commodity exchange30binclude, but are not limited to, the New York Mercantile Exchange, the Chicago Mercantile Exchange, the London Metals Exchange, and the Tokyo Commodity Exchange.

Clients20and exchanges30may be communicatively coupled to trust server40via network80. Trust server40is generally operable to manage trust12associated with index futures14. Index futures14refer to futures contracts on target index18. Accordingly, trust12may be configured to track the performance of target index18. In some embodiments, to track the performance of target index18, trust12may invest all or substantially all of its assets in long positions in index futures14that are associated with target index18. In market terminology, a trader who purchases a futures contract is “long” in the market, while a trader who sells a futures contract is “short” in the market. In holding long positions in index futures14, trust12seeks investment results that track the performance of target index18, less expenses and liabilities of trust12, if any.

According to certain embodiments, trust12may be considered a commodity pool under the Commodity Exchange Act and/or the applicable regulations of the Commodity Futures Trading Commission. In some embodiments, trust12may be established and operated as a grantor trust.

In some embodiments, target index18represents a measure of the market value and/or performance of one or more investment instruments such as, for example, equities, debt, currencies, commodities, stocks, bonds, futures contracts, derivatives, and/or any suitable trading product. In some embodiments, target index18may be any suitable market index22such as, for example, a commodities index, an equity index, a currency index, a bond index, and/or any suitable index. Target index18may represent a single market index22or a combination of multiple market indices22.

In some embodiments, target index18may be and/or correspond to a total return index that represents the performance of a portfolio with notional exposure to both a particular market index22and a particular SMA index24. The notional exposure to the component indices (i.e., market index22and SMA index24) may be periodically rebalanced to maintain full exposure to each component index. In other embodiments, target index18may be rebalanced to maintain partial exposure to market index22and/or SMA index24. In certain embodiments, target index18may not be rebalanced. According to certain embodiments, because all or substantially all of the assets of trust12are invested in long positions in index futures14associated with target index18, the performance of trust12may track the performance of target index18.

According to certain embodiments, target index18may be the PIMCO CommodityRealReturn DJ-AIGCI TRAKRS Index. In such embodiments, index futures14associated with target index18may be PIMCO CommodityRealReturn DJ-AIGCI TRACKRS.

In some embodiments, trust12may issue trust receipts16. Trust receipt16may refer to a share that represents a fractional undivided beneficial interest and ownership of the net assets of trust12. Trust receipts16associated with trust12may be traded on public exchange30by investors28and/or authorized participants70.

According to certain embodiments, trust server40may be operated and/or maintained by a trustee and/or sponsor of trust12. Trust server40may store a trust profile that comprises the current value of trust12and/or information regarding index futures14held by trust12. In some embodiments, trust server40is operable to receive, from authorized participants70and/or investors28, orders for trust receipts16associated with trust12. In response, trust server40may generate trust receipts16based at least in part on the value of the net assets of trust12. In particular, trust server40may determine a current price for each trust receipt16based at least in part on market data32and index futures14held by trust12. In some embodiments, trust server40may transmit trust receipts16to investors28, exchanges30, and/or authorized participants70. In return for trust receipts16, trust server40may receive from counterparties long positions in index futures14, cash15, a combination of index futures14and cash15, and/or other suitable consideration.

Trust server40may comprise any suitable combination of hardware and/or software implemented in one or more modules to provide the described functions and operations. In some embodiments, trust server40may comprise a general-purpose personal computer (PC), a Macintosh, a workstation, a Unix-based computer, a server computer, or any suitable processing device. In some embodiments, the functions and operations described above may be performed by a pool of multiple trust servers40. A particular trust server40may comprise a trust memory36and a trust processor38.

Trust memory36comprises any suitable arrangement of random access memory (RAM), read only memory (ROM), magnetic computer disk, CD-ROM, or other magnetic or optical storage media, or any other volatile or non-volatile memory devices that store one or more files, lists, tables, or other arrangements of information such as market data32. AlthoughFIG. 1illustrates trust memory36as internal to trust server40, it should be understood that trust memory36may be internal or external to trust server40, depending on particular implementations. Also, trust memory36may be separate from or integral to other memory devices to achieve any suitable arrangement of memory devices for use in investing system10.

Trust memory36is generally operable to store index futures14and trust logic42. Trust logic42generally comprises rules, algorithms, code, tables, and/or other suitable instructions for performing the described functions and operations.

Trust memory36is communicatively coupled to trust processor38. Trust processor38is generally operable to execute trust logic42stored in trust memory36to determine the net asset value of trust12, to process orders for trust receipts16, and to generate and transmit trust receipts16to exchanges30, investors28, and/or authorized participants70. Trust processor38may comprise any suitable combination of hardware and software implemented in one or more modules to provide the described function or operation.

Trust server40may be communicatively coupled to authorized participants70via network80. Authorized participant70represents an agent or intermediary that facilitates the buying and selling of trust receipts16and/or other suitable investment instruments. In some embodiments, authorized participants70may be authorized to purchase trust receipts16in bulk quantities from trust12and to sell individual trust receipts16to investors28in one or more security exchanges30a. In some embodiments, to qualify as an authorized participant70in investing system10, an individual or organization may be required to register as a Depository Trust Company participant (“DTC Participant”).

Investing system10may further comprise one or more FCMs60. FCM60represents an individual or organization that may accept orders to buy or sell futures or futures options and that may hold money or investment instruments of investors28in margin accounts54in accordance with the rules of one or more exchanges30. FCM60may maintain records of the positions, margin deposits, money balances, and completed transactions of one or more investors28. In some embodiments, FCM60may hold index futures14on behalf of the beneficial owner (e.g., investor28, trust12, etc.) of index futures14. In return for providing these services, FCM60may collect commissions and/or fees. In some embodiments, an individual or organization may be certified as an FCM60by the Commodities and Futures Trading Commission.

FCMs60and authorized participants70may be communicatively coupled to index server50via network80. Index server50is generally operable to determine the current value of target index18associated with index futures14. In some embodiments, index server50may determine the current value of target index18based at least in part on market data32from exchanges30. In other embodiments, index server50may determine the current value of target index18based at least in part on a master index44that represents the performance of full notional exposure to the total return of market index22and SMA index24. Index server50may transmit the determined values of target index18, master index44, SMA index24, and/or market index22to clients20and/or other components of investing system10.

Index server50may comprise any suitable combination of hardware and/or software implemented in one or more modules to provide the described functions and operations. In some embodiments, index server50may comprise a general-purpose personal computer (PC), a Macintosh, a workstation, a Unix-based computer, a server computer, or any suitable processing device. In some embodiments, the functions and operations described above may be performed by a pool of multiple index servers50. A particular index server50may comprise an index memory46and an index processor48.

Index memory46comprises any suitable arrangement of random access memory (RAM), read only memory (ROM), magnetic computer disk, CD-ROM, or other magnetic or optical storage media, or any other volatile or non-volatile memory devices that store one or more files, lists, tables, or other arrangements of information such as market data32. AlthoughFIG. 1illustrates index memory46as internal to index server50, it should be understood that index memory46may be internal or external to index server50, depending on particular implementations. Also, index memory46may be separate from or integral to other memory devices to achieve any suitable arrangement of memory devices for use in investing system10.

Index memory46is generally operable to store market data32and current and/or historic values of target index18, master index44, market index22, and/or SMA index24. Index memory46is further operable to store index logic52. Index logic52generally comprises rules, algorithms, code, tables, and/or other suitable instructions for performing the described functions and operations.

Index memory46is communicatively coupled to index processor48. Index processor48may comprise any suitable combination of hardware and software implemented in one or more modules to execute index logic52and to provide the described function or operation.

As explained above, clients20, exchanges30, trust server40, index server50, FCMs60, and authorized participants70may be communicatively coupled via one or more networks80. Network80may represent any number and combination of wireline and/or wireless networks suitable for data transmission. Network80may, for example, communicate internet protocol packets, frame relay frames, asynchronous transfer mode cells, and/or other suitable information between network addresses. Network80may include one or more intranets, local area networks, metropolitan area networks, wide area networks, cellular networks, all or a portion of the Internet, and/or any other communication system or systems at one or more locations.

It should be understood that the internal structure of investing system10and the servers, processors, and memory devices associated therewith is malleable and can be readily changed, modified, rearranged, or reconfigured to achieve the intended operations of investing system10.

In operation, investing system10is operable to manage a particular trust12that holds long positions in index futures14associated with target index18. In some embodiments, index futures14may be available from commodity exchange30b. Trust server40may command FCM60associated with trust12to establish long positions in one or more index futures14. In response, FCM60may buy and hold on behalf of trust12one or more index futures14. Trust server40may record the purchased index futures14in trust memory36. In some embodiments, as trust server40uses commodity exchange30bto establish long positions in index futures14, other investors28may use commodity exchange30bto establish short positions in index futures14.

According to certain embodiments, investing system10may require trust12to post a margin56for the purchased index futures14. Margin56may refer to cash15, short-term debt, securities, and/or other suitable investment instruments deposited with FCM60or other suitable entity as a provision against loss on transactions. In some embodiments, investing system10may require trust12to post as margin56an amount equal to 100% of the value of the purchased index futures14. To post the appropriate margin56, trust server40may deposit cash15, short-term debt, securities, and/or other suitable investment instruments in a margin account54maintained by FCM60.

According to certain embodiments, trust server40may configure trust12such that all or substantially all of the assets of trust12are invested in long positions in index futures14. In conjunction with buying index futures14on behalf of trust12, trust server40may generate a plurality of trust receipts16. Each trust receipt16may represent a fractional undivided beneficial interest in and ownership of the net assets of trust12. In some embodiments, trust server40may list the generated trust receipts16on one or more exchanges30. In particular, trust server40may list the generated trust receipts16on a security exchange30asuch as, for example, the New York Stock Exchange. Investors28may buy, sell, and trade trust receipts16listed on exchange30.

In some embodiments, index futures14may be associated with target index18. In some embodiments, investing system10may require FCMs60associated with investors28that hold long positions in index futures14to periodically (e.g., daily, weekly, etc.) make interest payments26to commodity exchange30b. Commodity exchange30bmay make period interest payments26to FCMs60associated with investors28that hold short positions in index futures14. This feature of periodically passing interest payments26between FCMs60may be referred to as interest rate pass-through (IRPT). Interest payments26that are passed between FCMs60according to this feature may be referred to as IRPT payments26.

In some embodiments, investing system10is operable to deduct platform fees25from IRPT payments26. Platform fees25may include, but are not limited to, licensing fees payable to index providers, estimated or actual custodial fees related to SMAs64, listing and/or development fees payable to commodity exchange30band/or the developer(s) of index futures14, costs pertaining to alternative distribution channels, and/or any suitable costs and/or fees. Investing system10may determine platform fees25as a predetermined percentage of IRPT payments26. In some embodiments, commodity exchange30bis operable to determine and deduct platform fees25from IRPT payments26received from FCMs60. In other embodiments, FCMs60may determine and deduct platform fees25prior to sending IRPT payments26to commodity exchange30b. By deducting platform fees25from IRPT payments26, investing system10may satisfy the expenses of trust12and/or fund alternative distribution channels such as, for example, trust receipts16.

FIG. 2illustrates a flow of operation for managing trust12in investing system10, according to certain embodiments. Commodity exchange30bis operable to list index futures14associated with target index18. The performance of index futures14generally tracks the performance of target index18. In some embodiments, target index18is equal to master index44minus fees and expenses such as, for example, license and/or development fees associated with various aspects of index futures14. Master index44may be a total return index that represents the performance of a portfolio with notional exposure to both market index22and SMA index24. In some embodiments, the respective values of target index18, master index44, market index22, and/or SMA index24may be determined by index server50based at least in part on market data32from commodity exchange30b, security exchange30a, over-the-counter pricing mechanisms, financial news services (e.g., Bloomberg L. P.), and/or any suitable data source. Index server50may transmit to trust server40the determined values of target index18, master index44, market index22, and/or SMA index24.

In some embodiments, investors28may sell (short) index futures14on commodity exchange30b. Investors28that sell index futures14on commodity exchange30bmay be associated with one or more FCMs60. The particular FCMs60associated with investors28that sell index futures14may be referred to as short-side FCMs60. As explained above, trust12and/or other investors28may buy (long) index futures14on commodity exchange30b. Trust12and investors28that buy index futures14on commodity exchange30bmay be associated with one or more FCMs60. The particular FCMs60associated with parties that establish long positions in index-futures may be referred to as long-side FCMs60.

In some embodiments, trust server40associated with trust12may be configured to invest all or substantially all of the net assets of trust12in long positions in index futures14. In conjunction with buying index futures14, trust12may be required to post margin56with the long-side FCM60. In some embodiments, trust12may be required, at the time of purchase, to post 100% of the market value of index futures14as margin56. In conjunction with buying index futures14on commodity exchange30b, trust server40may record in memory the current number and value of index futures14held by trust12.

According to certain embodiments, trust server40is operable to generate trust receipts16associated with trust12. Each trust receipt16may represent a fractional undivided beneficial interest in and ownership of the net assets of trust12. In some embodiments, trust server40may sell the generated trust receipts16to authorized participants70and/or investors28.

According to certain embodiments, authorized participant70represents an individual or organization that serves as an intermediary between trust12and security exchange30a. In some embodiments, trust12may transfer trust receipts16to authorized participant70in bulk quantities via the Depository Trust Company. In some embodiments, trust12may transfer trust receipts16to authorized participant70in bundles of 50,000 trust receipts16. In other embodiments, trust12may transfer trust receipts16to authorized participant70in bundles of 10,000 trust receipts16,100,000trust receipts16, and/or any suitable quantity. According to certain embodiments, the quantity of trust receipts16in a bundle may vary based at least in part on the type(s) of consideration provided by authorized participant70. In exchange for the bundles of trust receipts16, authorized participant70may transfer to trust12(long) index futures14, cash15, a combination of cash15and index futures14, and/or any suitable consideration.

In some embodiments, trust server40may store a configurable limit associated with the number of bundles of trust receipts16that authorized participant70may buy in exchange for cash15. For example, trust server40may store a configurable limit that a particular authorized participant70may not buy less than two bundles of trust receipts16in exchange for cash15. Accordingly, trust server40may allow authorized participant70to buy less than two bundles of trust receipts16in exchange for index futures14but may prevent authorized participant70from buying less than two bundles of trust receipts16in exchange for cash15. Although the foregoing example illustrates a configurable limit of two bundles, it should be understood that the configurable limit may be any suitable number.

In conjunction with buying bundles of trust receipts16from trust12, authorized participant70may sell one or more trust receipts16on security exchange30ato investors28. In some embodiments, trust receipts16may be exchanged for cash15, index futures14, and/or any suitable consideration. Thus, investors28, authorized participants70, and/or trust12may trade trust receipts16associated with trust12on a public security exchange30a. In some embodiments, investing system10may cause FCMs60associated with investors28that hold long positions in index futures14to periodically (e.g., daily, weekly, etc.) make IRPT payments26to commodity exchange30b, which may make periodic IRPT payments26to FCMs60associated with investors28that hold short positions in index futures14.

According to certain embodiments, trust12may be configured as a fixed investment trust12or as a variable investment trust12. In certain embodiments where trust12is structured as a fixed investment trust12, the composition of the portfolio of trust12, per trust receipt16, may remain unchanged. In certain embodiments where trust12is structured as a variable investment trust12, the composition of the portfolio of trust12, per trust receipt16, may be permitted to change.

In some embodiments, trust12may hold more than one type of futures contract. For example, half of the net assets of trust12may be invested in a first type of futures contract and half of the net assets of trust12may be invested in a second type of futures contract. In this example, trust receipt16associated with trust12may represent a pro rata ownership interest in both the first type and the second type of futures contract held by trust12. Although the foregoing example describes a trust12that holds two types of futures contracts, it should be understood that trust12may hold any number and combination of different types of futures contracts. It should be understood that the different types of futures contracts may be held by trust12according to any suitable proportions.

FIG. 3illustrates a flow of operation for the interest rate pass-through (IRPT) feature of investing system10, according to certain embodiments. The parties in investing system10may be classified as institutional customers58or non-institutional customers62. In some embodiments, institutional customer58may be (1) a “qualified institutional buyer” (QIB) as defined in Rule144A under the Securities Act of 1933 or (2) exchange members registered with a regulatory commission as a floor broker or floor trader. In some embodiments, a corporation may be considered an institutional customer58if the corporation in the aggregate owns and invests on a discretionary basis at least $100million in securities of issuers that are not affiliated with the purchaser. According to certain embodiments, institutional customer58may be a pension fund, insurance company, bank, or other qualifying individual or organization.

Non-institutional customer62may be an individual or organization that does not qualify as an institutional customer58. In some embodiments, trust12may be considered a non-institutional customer62. Various investors28, authorized participants70, and FCMs60may qualify as institutional customers58while other investors28and authorized participants70may qualify as non-institutional customers62.

In some embodiments, institutional customer58may elect to be treated as a non-institutional customer62for purposes of buying and/or selling index futures14in investing system10. Such an institutional customer58may be referred to as an electing institutional customer58.

In some embodiments, institutional customers58may be subject to different margin requirements than non-institutional customers62. For example, institutional customer58on the long or short side of a transaction for index futures14may be subject to a margin requirement of 5%-10% of the purchase price of the transacted index futures14. Non-institutional customer62on the long side of a transaction for index futures14may be subject to a margin requirement of 100% of the purchase price of the transacted index futures14. A non-institutional customer62on the short side of a transaction for index futures14may be subject to a margin requirement of 50% of the purchase price of the transacted index futures14.

According to the foregoing example, institutional customer58, having posted a smaller initial margin amount, is subject to daily variation margin account requirements as the value of index future14changes over time. Non-institutional customer62on the long side, however, is free from these daily variation margin account requirements. It should be understood that the margin requirement for an institutional customer58on the long side may be the same as or different from the margin requirement for an institutional customer62on the short side.

In some embodiments, exchange30and/or FCMs60determine one or more daily settlement prices associated with index futures14. In conjunction with the determination of the daily settlement price, each long-side FCM60pays to commodity exchange30bdaily IRPT payments26. Commodity exchange30bpasses the received IRPT payments26to short-side FCMs60. In some embodiments, commodity exchange30bdetermines the amount of a particular IRPT payment26based at least in part on a daily rate of interest as well as the number of positions multiplied by the settlement value of index futures14. In some embodiments, the daily rate of interest may correspond to the Federal Funds Effective Rate. For example, the daily rate of interest may be the Federal Funds Effective Rate minus 1.00%. In some embodiments, commodity exchange30bcomprises a clearing house that determines, receives, allocates, and routes IRPT payments26.

Because trust12may be a non-institutional customer62holding long positions in index futures14, investing system10may not require trust12to make IRPT payments26. The reason is that, as a non-institutional customer62, trust12may have posted (with long-side FCM60) 100% of the purchase price of index futures14held by trust12. Accordingly, long-side FCM60associated with trust12may be responsible for making daily IRPT payments26.

In some embodiments, a non-institutional customer62that holds long positions in index futures14would not be assessed an IRPT payment26because the non-institutional customer62already posted with long-side FCM60100% of the purchase price of the transacted index futures14. An institutional customer may be assessed an IRPT payment26because the institutional customer may have posted 5%-10% of the purchase price of the transacted index futures14. Similarly, non-institutional customers62holding short positions may not receive IRPT payments26, but institutional customers58holding short positions may receive IRPT payments26.

Investing system10may deduct platform fees25from IRPT payments26. Platform fees25may include, but are not limited to, licensing fees payable to index providers, estimated or actual custodial fees related to SMAs64, listing and/or development fees payable to commodity exchange30band/or the developer(s) of index futures14, costs pertaining to alternative distribution channels, and/or any suitable costs and/or fees. Investing system10may determine platform fees25as a predetermined percentage of IRPT payments26. In some embodiments, commodity exchange30bis operable to determine and deduct platform fees25from IRPT payments26received from FCMs60. In other embodiments, FCMs60may determine and deduct platform fees25prior to sending IRPT payments26to commodity exchange30b. By deducting platform fees25from IRPT payments26, investing system10may satisfy the expenses of trust12and/or fund alternative distribution channels such as, for example, trust receipts16.

In operation, a particular non-institutional customer62may buy (long) index futures14and post with long-side FCM60a margin56of 100% of the purchase price of the received index futures14. A particular institutional customer may buy (long) index futures14and post with long-side FCM60a margin56of 5%-10% of the purchase price of the received index futures14. The long-side FCM60may post with commodity exchange30b(e.g., via a clearing house associated with commodity exchange30b) a margin56of 5%-10% of the purchase price of index futures14received by the long-side FCM60.

The clearing house associated with exchange30may determine an IRPT payment26based at least in part on the number of positions and the settlement value of index futures14. The long-side FCM60may then pay the determined IRPT payment26to the clearing house associated with commodity exchange30b. The clearing house and/or commodity exchange30bmay then determine and deduct platform fees25from the IRPT payments26received from the long-side FCM(s)60. The clearing house may then transmit IRPT payment26to one or more short-side FCMs60. The one or more short-side FCMs60may transmit at least a portion of the received IRPT payment26to institutional customers58holding short positions in index futures14.

Although the foregoing example illustrates particular percentages for the margin requirements of institutional and non-institutional customers62, it should be understood that any suitable number and combination of margin percentages may be used.

FIG. 4illustrates an example structure of target index18associated with index futures14, according to certain embodiments. In some embodiments, index futures14held by trust12represent futures contracts on target index18. According to certain embodiments, index futures14are configured to track the performance of target index18. Target index18may be predicated on master index44, which may be predicated on market index22and SMA index24. Index server50is operable to determine the current values of SMA index24, market index22, master index44, and/or target index18.

According to certain embodiments, SMA index24is a measure of the performance of a plurality of separately managed accounts (SMAs)64. The term “separately managed account” refers to an account of investment instruments that are managed by a financial professional on behalf of an account owner. A SMA64may be distinguished from a mutual fund in that an investor28in a mutual fund does not own the investment instruments that underlie the mutual fund. In contrast, an owner of a particular SMA64owns the investment instruments that underlie the particular SMA64. Because the owner of SMA64actually owns the investment instruments that underlie SMA64, the owner may have more control over which investment instruments are held in SMA64. Thus, in some embodiments, SMA64provides owner with a greater opportunity for customization than a mutual fund.

In some embodiments, index server50may periodically determine the value of each SMA64associated with SMA index24. The value of SMA64may be determined by calculating the total value of investment instruments in SMA64, less liabilities attributable to SMA64and after deduction of the management fees. According to certain embodiments, index server50is operable to value each SMA64as of the close of trading on each business day.

Index server50may determine the value of SMA index24based at least in part on the respective value of each SMA64associated with SMA index24. Index server50may determine the value of SMA index24as the weighted average of the values of each SMA64that is associated with SMA index24. In some embodiments, index server50may determine the value of SMA index24according to the following formula, which may be stored in index memory46:

SMA⁢⁢index⁢⁢24=∑i=1n⁢SMA⁢⁢Account⁢⁢Valuei*SMA⁢⁢Weighti∑i=1n⁢SMA⁢⁢Weighti
In the foregoing formula, SMA Account Value refers to the current value of a respective SMA64and SMA Weight refers to a weight associated with the respective SMA64. Thus, SMA index24may represent a weighted average of each SMA64that is associated with SMA index24.

According to certain embodiments, index server50is further operable to periodically (e.g., daily, weekly, monthly, etc.) determine the current value of market index22. Market index22is a measure of the market value and/or performance of the particular investment instruments that underlie market index22. Market index22may be predicated on any suitable investment instruments such as, for example, equities, debt, currencies, commodities, stocks, bonds, treasuries, futures contracts, derivatives, and/or any suitable trading product. In some embodiments, market index22may represent an equities index such as, for example, the Dow Jones Industrial Average, the German DAX, the British FTSE 100, the S&P 500 Total Return Index, and/or other suitable equities index. In other embodiments, market index22may represent a commodities index such as, for example, the Dow Jones-AIG Commodity Index, the S&P Commodity Index, and/or other suitable commodities index. In other embodiments, market index22may represent a bond index such as, for example, the Dow Jones Corporate Bond Index, the Lehman Aggregate Bond Index, and/or any suitable bond index. In other embodiments, market index22may represent one or more currencies such as, for example, the E.U. Euro, the Swiss franc, the British pound, the Japanese yen, and/or suitable combination of currencies and/or currency indices. In yet other embodiments, market index22may represent one or more hedge fund indices such as, for example, the HFRI Fund Weighted Composite Index, the CSFB Credit Suisse/Tremont Hedge Fund Index, the FTSE Hedge Index, the Dow Jones Hedge Fund Index, the Eurekahedge Hedge Fund Index, and/or any suitable hedge fund index. Index server50is operable to determine the current value of market index22based at least in part on market data32from exchanges30.

Index server50is operable to determine the current value of master index44based at least in part on the determined value of market index22and the determined value of SMA index24. Master index44may be configured to represent the performance of full notional exposure to both the total return of market index22and SMA index24. Market index22and SMA index24may be referred to as component indices of master index44. In calculating master index44, index server50may proportion market index22and SMA index24according to a particular weighting scheme. Index server50may periodically rebalance the allocation of market index22and SMA index24such that the notional exposure to the total return of the market index22approximately equals the notional exposure to SMA index24. In some embodiments, the rebalancing is based at least in part on reallocating assumed gains or losses attributed to one component index, accumulated since the last rebalancing, to the other component index.

Index server50may calculate the current value of target index18based at least in part on the determined value of master index44. In some embodiments, the current value of target index18equals the current value of master index44minus index expenses. Index expenses may comprise fees due to exchanges30and regulatory services such as, for example, the National Futures Association. Index expenses may further comprise custodial fees for SMAs64associated with SMA index24. In some embodiments, index expenses comprise licensing fees associated with one or more indices.

FIG. 5illustrates a flowchart for managing trust12, according to certain embodiments. The method begins at step402when trust server40receives from authorized participant70an order for one or more bundles of trust receipts16. At step404, trust server40determines whether the order is in exchange for only cash15. If trust server40determines at step404that the order is in exchange for only cash15, then at step406trust server40receives the cash15from the authorized participant70. At step408, trust server40may use the received cash15to buy (long) one or more index futures14associated with target index18. In some embodiments, index futures14are publicly traded on one or more commodity exchanges30b. The price of index future14may be based at least in part on the current value of target index18.

In conjunction with buying one or more index futures14, trust server40may, at step410, post margin56with FCM60associated with trust12. According to certain requirements, trust12associated with trust server40may be considered a non-institutional customer62. Accordingly, trust12may be required to post as margin56an amount equal to 100% of the value of the purchased index futures14. To post the appropriate margin56, trust server40may deposit cash15, short-term debt, securities, and/or other suitable investment instruments in margin account54maintained by FCM60.

If trust server40determines at step404that the order is in exchange for consideration other than or in addition to cash15(e.g., index futures14), then at step412trust server40receives index futures14(or a combination of index futures14and cash15) from authorized participant70. At step414, trust server40transfers the received index futures14to FCM60associated with trust12. The method then proceeds to step410where trust server40posts margin56with FCM60associated with trust12. At step416, trust server40generates and issues to authorized participant70one or more bundles of trust receipts16associated with trust12. At step418, authorized participants70, trust12, and/or investors28may buy, sell, and trade trust receipts16on one or more public security exchanges30a. In some embodiments, investing system10may repeat one or more of steps402-418any suitable number of times prior to executing step420.

At step420, investing system10may cause long-side FCM60associated with trust12to make IRPT payment26to commodity exchange30b. According to certain embodiments, long-side FCM60may make IRPT payments26to commodity exchange30bperiodically and/or independently of the rate at which trades are executed at step418. At step422, commodity exchange30bmay deduct platform fees25from IRPT payment26received from long-side FCM60. At step422, commodity exchange30bmay transmit IRPT payment26to (1) FCMs60holding short positions in index futures14on behalf of non-institutional customers62and electing institutional customers58and (2) institutional customers58holding short positions in index futures14. The method then ends.