Abstract:
Techniques for providing collateral and satisfying collateral requirements are disclosed. The techniques involve participation rights to allow a second party having commercial contracts with a first party to draw against assets of a legal trust whose assets are funded by investors, determining terms for issuance of the obligations, including a guarantee by the first party to redeem assets in the legal trust that are drawn by the second party and recording contracts formed with two or more independent contract providers that are jointly and severally liable for a negative difference between the value of assets the first party contributes to the legal trust and the value of the assets actually drawn by the second party.

Description:
BACKGROUND 
       [0001]    This disclosure relates to mechanisms for providing collateral and satisfying collateral requirements under various governmental regulations and business requirements. 
         [0002]    Financial institutions and related entities are typically regulated by governmental agencies to ensure that, among other things, the institutions and entities have sufficient capital, as well as sufficient collateral resources to support their investment activities. For example, certain types of United States (U.S.) insurance companies and reinsurance companies are required by the U.S. state insurance regulations to post a required amount of qualifying collateral in order to underwrite policies to their clients. Recently the United States has passed Public Law 111-203 Jul. 21, 2010 short title “Dodd-Frank Wall Street Reform and Consumer Protection Act.” In addition, a global standard on banking commonly known as the “Basel Accords” and in particular “Basel III” introduced among other things new regulatory requirements on banking liquidity and leverage. Large buyers of insurance and reinsurance policies may require that their insurance and reinsurance providers be credit-enhanced to alleviate risk-based capital charges, and/or individual insurance company and/or reinsurance company credit concentrations. Examples of collateral mechanisms for providing collateral and satisfying collateral requirements are also disclosed in my Issued U.S. Pat. No. 7,769,655 the contents of which are incorporated herein by reference in their entirety. 
       SUMMARY 
       [0003]    According to an aspect of the invention, a computer-implemented method includes recording receipt of a first request for obligations that grant to a first party a first participation right to allow a second party having commercial contracts with the first party to draw against assets of a legal trust, at least some of the assets in the legal trust being funded by investors, determining terms for issuance of the obligations, the terms including a guarantee by the first party to redeem assets in the legal trust that are drawn by the second party, recording, by the one or more computers, a first set of contracts formed with two or more independent contract providers unrelated to the first and second parties, the contract providers being jointly and severally liable for a negative difference between the value of assets the first party contributes to the legal trust and the value of the assets actually drawn by the second party, and recording, by the one or more computers, a transfer of the requested obligations to a collateral account that benefits the second party. 
         [0004]    According to an additional aspect of the invention, a computer program product tangibly embodied on a computer readable storage device includes instructions to record receipt of a first request for obligations that grant to a first party a first participation right to allow a second party having commercial contracts with the first party to draw against assets of a legal trust, at least some of the assets in the legal trust being funded by investors, receive terms for issuance of the obligations, the terms including a guarantee by the first party to redeem assets in the legal trust that are drawn by the second party, record a first set of contracts formed with two or more independent contract providers unrelated to the first and second parties, the contract providers being jointly and severally liable for a negative difference between the value of assets the first party contributes to the legal trust and the value of the assets actually drawn by the second party, and record a transfer of the requested obligations to a collateral account that benefits the second party. 
         [0005]    According to an additional aspect of the invention, a system includes one or more computer system, each system including a processor and memory coupled to the processor, and the computer system is configured to record receipt of a first request for obligations that grant to a first party a first participation right to allow a second party having commercial contracts with the first party to draw against assets of a legal trust, at least some of the assets in the legal trust being funded by investors, receive terms for issuance of the obligations, the terms including a guarantee by the first party to redeem assets in the legal trust that are drawn by the second party, record a first set of contracts formed with two or more independent contract providers unrelated to the first and second parties, the contract providers being jointly and severally liable for a negative difference between the value of assets the first party contributes to the legal trust and the value of the assets actually drawn by the second party, and record a transfer of the requested obligations to a collateral account that benefits the second party. 
         [0006]    Implementations may include one or more of the following features. 
         [0007]    The first set of contracts comprises wrap contracts. The risks associated with issuing the requested obligations are determined. The terms for issuance of the obligations are determined based on the determined risks. The contract providers comprise financial institutions including banks or insurance companies or reinsurance companies. The first set of contracts is structured as unconditional payment guarantees or total return swaps or other guaranty contracts. The first set of contracts is used exclusively for the obligations transferred based on the first request. 
         [0008]    Implementations can further involve recording by the one or more computers receipt of other requests for obligations that grant to the first party participation rights to allow other parties having commercial contracts with the first party to draw against the assets of the legal trust and recording, by the one or more computers, additional sets of contracts formed with the two or more independent contract providers and/or other independent contract providers, different sets of contracts including the first set of contracts being independent of each other, and each set of contracts being used for a respective request for obligations. 
         [0009]    Other implementations can further involve recording by the one or more computers receipt a second request for obligations that grant to a third party a second participation right to allow a fourth party having commercial contracts with the third party to draw against the assets of the legal trust, determining terms for issuance of the obligations, the terms including a guarantee by the third party to redeem assets in the legal trust that are drawn by the fourth party, recording, by the one or more computers, a second set of contracts formed with the two or more independent contract providers and/or other independent contract providers that are jointly and severally liable for a negative difference between the value of the assets the third party contributes to the legal trust and the value of assets actually drawn by the fourth party. 
         [0010]    The assets in the legal trust also comprise eligible assets obtained from the first party for use in redeeming the assets drawn by the second party. The eligible assets are obtained before the transfer of the requested obligations 
         [0011]    Qualifying collateral may include, for example, cash or securities listed by the Securities Valuation Office of the National Association of Insurance Commissioners (NAIC). Qualifying collateral can also be eligible assets (e.g., the qualifying assets) that are placed in a qualifying trust, Letters of Credit (LOCs) that are either issued or confirmed by banks domiciled in the U.S. or by U.S. branches of foreign banks that are approved by the NAIC in an acceptable form (e.g., clean, irrevocable, unconditional and etc.), or any other forms of security acceptable to the various state insurance commissioners. 
         [0012]    The details of one or more embodiments of the invention are set forth in the accompanying drawings and the description below. Other features, objects, and advantages of the invention will be apparent from the description and drawings, and from the claims. 
     
    
     
       DESCRIPTION OF DRAWINGS 
         [0013]      FIG. 1  is a block diagram of an arrangement for managing transactions among entity computer systems for providing and satisfying collateral requirements. 
           [0014]      FIG. 2  is a block diagram of an alternative arrangement for managing transactions among entity computer systems for providing and satisfying collateral requirements. 
           [0015]      FIG. 3  is a flow diagram. 
           [0016]      FIG. 4  is a block diagram of other aspects of transactions for providing and satisfying collateral requirements. 
           [0017]      FIG. 5  is a block diagram of a capital structure. 
           [0018]      FIG. 6  is a block diagram of platform for multiple clients. 
           [0019]      FIG. 7  is a block diagram of an exemplary computer system. 
       
    
    
     DETAILED DESCRIPTION 
       [0020]    The demand for entities to obtain collateral to provide statutory surplus relief and credit enhancement is growing rapidly. That is, demand in financial markets for collateral has increased because the needs for collateral have spread to additional counterparties involved in financial transactions. For example, the Dodd-Frank legislation in the United States and the global regulatory standard Basel III are expected to significantly expand the market requirements for posting collateral. Regulatory requirements to raise capital that business entities are required to satisfy include collateral requirements for underwriting insurance or reinsurance policies. Such insurance companies require the collateral either for credit requirements and/or regulatory requirements. Examples of business needs include credit enhancement for potential payment obligations. Ideally, a platform  10  as discussed below is structured to satisfy applicable regulatory requirements such as Basel III and Dodd-Frank. 
         [0021]    Referring to  FIG. 1 , platform  10  to provide collateral mechanisms to business entities that need collateral (to satisfy regulatory requirements and/or non-regulatory business needs) for trading is shown. The platform  10  includes a computer system  11  that communicates with other systems including a client system  12  associated with a client  12   a , a counterparty system  14  associated with a counterparty  14   a  and wrap provider systems  32  associated with wrap providers  32   a . In some cases, the wrap provider is a third party, whereas in other cases, under Dodd-Frank the wrap provider is the client. In either case there is a wrap provider and a wrap, but form of the wrap may differ. The platform  10  is operated by an intermediary  10   a  that receives a fee in exchange for arranging the provision of collateral. In general, the platform  10 , client system  12 , counterparty system  14  and wrap provider systems  32  are or involve corresponding computer systems and in some instances may involve manual operations. 
         [0022]    The platform  10  manages a trust that is shown in  FIG. 1  as a trust  26 . The trust is managed via a custodian/trustee  28 . In  FIG. 1  and in the remaining figures as appropriate, the trust or (trusts) are represented as a storage element in a database  13  (or the like). This representation can be considered as part of the platform  10 , in that the intermediary may possess a computer representation of and/or acknowledgement of the existence of the trust in order to facilitate transactions involving the trust through the custodian/trustee  28 . 
         [0023]    The trust  26  holds assets to support issuance of qualifying collateral. To trade with, e.g., to form a contract  16  with, a business counterparty  14   a , a business entity (client  12   a ) obtains collateral through the platform  10  by forming a Collateral Facility Agreement (CFA)  22  and one or more Collateral Transaction Agreements (CTAs)  24 . For purpose of the discussion, the business entity  12   a  and the client  12   a  of the platform  10  are used interchangeably. In particular, a counterparty system  14  sends a request  36  specifying the collateral needed for the trading to the platform  10  that issues collateral  18  at an amount, as requested or lower than requested, under the CFA  22  and the CTA  24  with the business entity  12   a . In an analogous manner, as a commitment agreement from a bank, a CFA includes the total amount of the commitment, the time during which the CFA can be drawn against, and the maximum length of a transaction. The CFA also provide such representations, warranties and covenants that apply to all CTAs. The issued collateral  18  is deposited into an account  20  that is provided for the transaction necessitating the collateral request to benefit the business counterparty  14   a . The collateral  18  can be, e.g., in the form of a collateral note referencing a portion of assets set aside in the trust  26  for the note, or in the form of assets moved from the trust  26 . The account  20  can be in the form of a trust that complies with regulatory requirements or non-regulatory business requirements. Once issued and deposited, the collateral  18  can be drawn unconditionally by a holder of the collateral or a beneficiary of the account  20 . 
         [0024]    In such an arrangement, the intermediary  10   a  that operates the platform  10  and the trust  26  may be exposed to risks of losing assets without full recovery when the counterparty  14   a  draws the collateral  18 . The platform  10  implements several mechanisms to reduce its risks in losing the drawn assets without recovery. One such mechanism is a guarantee by the business entity  12   a , where the business entity guarantees to pay the drawn amount back to the trust  26 , e.g., under the CFA  22  and CTAs  24 , in exchange for the issuance and deposit of the requested collateral  18 . 
         [0025]    In addition, the platform  10  obtains available assets, e.g., eligible securities  34 , of the business entity (client)  12   a  (details discussed below) and holds such assets in the trust  26 . These assets can be provided to the counterparty  14   a  first when the counterparty  14   a  draws the collateral  18 . Alternatively, in some implementations, the platform  10  takes these available assets when the counterparty  14   a  draws assets from the trust and the business entity fails to pay the drawn amount. 
         [0026]    In another mechanism, the platform  10  receives wrap contracts  30  from one or more wrap contract providers  32   a  to effectively provide insurance to the assets in the trust  26 . As used herein, a wrap contract is a contract under which a party guarantees the obligations of another party. A wrap contract can take the form of a “Letter of Credit,” “Financial Guaranty Insurance” policy or a derivative instrument such as a “Total Return Swap” or “Credit Default Swap.” The wrap contracts are entered into between the intermediary and the wrap contract providers  32   a . The wrap contract providers  32   a  can be jointly and severally liable to make the trust  26  whole upon each collateral withdrawal. For example, when the business entity  12   a  fails to perform under the agreements and defaults on paying or reimbursing the drawn amount or when the business entity  12   a  fails to pay the drawn amount in full, the wrap contractors  32   a  pay the difference and make up any shortfall in the assets in the trust  26 . A set of wrap contracts are formed for each request or issuance of collateral  18 . Thus, when the entity draws on the collateral note and is made whole, a reimbursement obligation comes into existence that accrues to the trust, but which is taken on behalf of the payer. In other words, the trust assigns its right to any collection from the client to the payer that actual made the payment. 
         [0027]    The business entity  12   a  and the business counterparties  14   a  can be any financial entities, such as insurance companies, reinsurance companies, banks, and others. The contract  16  can be insurance contracts, reinsurance contracts, derivative contracts, and others. Although only one client  12   a  is shown in the figure, the platform  10  serves, e.g., simultaneously multiple clients (see  FIG. 6 ). 
         [0028]    The client  12   a  pays fees to the intermediary through the platform  10  for the collateral note issuance and for the deposits of collateral, based on the face amount of the collateral notes at a market rate for similar collateral arrangements (such as bank letters of credit at the margin). For example, comparable rates may range between 45 and 100 basis points per annum, depending on the client claims-paying ratings and the combined (i.e., default/subject business) risk analysis. 
         [0029]    The guarantee from the client to make a payment or to reimburse the trust  26  may be specified in the CTA  24 . The guaranty from the client is generally to make payment on the draw. Only if the client defaults on that payment obligation, and another party makes the payment, will there be a reimbursement obligation. In some implementations, the available assets from the client  12   a  are in the form of eligible securities owned by the client. The guaranty in the insurance context is typically an unfunded obligation from a parent or other highly rated member of the same affiliated group as the client. In the Dodd-Frank, situation the client itself may furnish assets so that the wrap provider assumes the risk that the client assets are insufficient in value to fund a draw on the collateral note. 
         [0030]    The platform  10 , e.g., through the trustee  28 , obtains an agreed or predetermined amount of eligible securities based on the requested collateral  18 . In some implementations, before entering into the CTA  24 , the trustee  28  obtains the eligible securities from custody accounts of the client  12   a  through an automatic process through the client system  12  and deposits the obtained eligible securities in to a series account (not shown) in the client&#39;s name in the trust  26 . The custodian enters into a custodian agreement with the client and under that agreement the custodian is authorized to take funds from their accounts and the funds in the Trust Account. Typically, that would not require authorization each time the custodian need securities. The series account and the assets therein are used only for the particular client  12   a  and no other clients of the platform. 
         [0031]    Other series accounts are established for other clients (see,  FIG. 6 ). The eligible securities are subject to a first priority lien held by the holder of collateral  18  so that the assets in the reference account  48  are drawn first before the other assets in the trust  26 . The first priority lien on the deposited eligible securities can only be released if alternative collateral arrangements are entered into and the collateral  18  is returned for cancellation. Alternatively, the eligible securities are deposits held by the platform  10 . When the client  12   a  defaults, the platform  10  uses the assets to pay and then causes a demand for payment to be sent to the client. Such eligible securities may be used by the platform  10  to reimburse the trust  26  before the wrap contracts  30  are enforced. When the collateral  18  is exhausted, e.g., used or returned to the trust  26 , the unused eligible securities in the client&#39;s series account are returned to the client, e.g., through transactions with the client system  12 . 
         [0032]    Under certain CTAs  24 , the client  12   a  is obliged to margin the eligible securities daily based on securities valuations. If the market value of the deposited eligible securities falls below the required amount as a result of market price movements, additional eligible securities will be obtained from the client via the client system  12  by an automatic process such as sending a message to the computer  12  to cause a transfer of additional eligible securities from the client  12   a.    
         [0033]    The eligible securities can have various forms. For example, in the U.S., they can be fixed income securities that qualify for NY State Regulation  114  (a so called “114 Trust”) and U.S. equities that qualify as admitted assets for NY-domiciled insurance companies. In Europe, they can be fixed income securities denominated in U.S. dollars, Euros and/or British pound sterling (GBP) and rated A− or better, and equities traded on a major European exchange, e.g., Germany, the United Kingdom, or France. Other considerations such as ratings and trading characteristics can be used of course to designate securities as “eligible securities.” In other countries/regions similar, corresponding considerations could be used. 
         [0034]    The wrap contracts  30  fund at least any negative difference between the actual value of the eligible securities in the client&#39;s series account and the required value of the eligible securities (including any haircuts) for the collateral  18  to be issued to the client  12   a.    
         [0035]    The wrap providers  32   a  may be any financial institution including a bank, an insurance/reinsurance company and so forth that is rated A− or better by one or more nationally recognized statistical ratings organizations (NRSRO) such as Standard and Poor&#39;s, Moody&#39;s and Fitch issued from a branch in the U.S. (for U.S. collateral requirements) or in Germany, the United Kingdom, France and other European countries (for European collateral requirements) or that satisfies agreed minimum capital requirements. In other countries/regions, similar considerations would apply. The wraps contracts  30  can be structured as unconditional payment guarantees, total return swaps, or any other form of unconditional payment obligation deemed acceptable, e.g., by the appropriate governmental regulatory agencies such as the European Central Bank (ECB), the Federal Reserve Bank, the Office of the Comptroller of the Currency (OCC) and the National Associations of Insurance Commissions (NAIC) for European and US based collateral transactions. When multiple wrap providers  32   a  are used, the wrap providers have joint and several liability on their obligations under the wrap contracts  30 . 
         [0036]    Referring to  FIG. 2 , when a client  12   a  enters into a CTA  24  with the platform  10 , the client  12   a  has CTA rights  42  against the trust  26 , which requires the platform  10  to deposit the collateral  18  into the account  20  for a beneficiary  14   a  (or business counterparty of the client  12   a ). In exchange to the CTA rights  42 , the CTA  24  also requires the client  12   a  to provide a guarantee to the platform  10  that when the deposited collateral  18  is drawn from the trust  26  by the beneficiary  14   a , the client  12   a  pays the platform  10  the drawn amount in full. A special purpose entity  40  is organized either onshore or offshore to participate in specific transactions. 
         [0037]    In the example shown in the  FIG. 2 , the collateral  18  is a collateral note and no tangible assets are deposited in the account  20 . Corresponding to the issued collateral note, a reference account  48  is set in the trust  26  to hold an amount of assets that corresponds to the face value of the collateral note. Assets in the reference account  48  are frozen relative to the other assets in the trust  26  and are only usable for the corresponding collateral note. The reference account  48  is closed when the CTA  24  ends and unused assets in the account  48  are released to join the other assets in the trust  26  for use in other purposes, e.g., other collaterals issuance and deposits under other CTAs formed with the client  12   a . In some implementations, the client is required to pay commitment fees on the assets allocated in the reference account  48  before entering in to the CTA  24 , e.g., at a rate of 0.1% per annum and payable monthly in advance. 
         [0038]    In some implementations, the assets in the reference account  48  drawable by the beneficiary  14   a  have a rating of A− or better and include at least two types. The first type includes one or more unconditional payment obligations (UPO)  50 , e.g., in the form of a letter of credit, credit default swap, or a liquidity obligation issued by one or more UPO providers  54  rated A− or better. The second type includes eligible securities, e.g., marketable fixed-income securities rated A− or better, and/or listed equities, provided by one or more security providers. In some implementations, the UPO providers  54  include the client  12   a  and the UPO  50  is from the client&#39;s bank. The UPO providers  54  can also be independent third parties rated A− or better. The eligible securities  52  can be held in the trust  26  as security backing the UPO&#39;s obligations. As explained previously, part of the eligible securities may be obtained from the client  12   a  and held in the client&#39;s series account in the trust  26 . These and possibly other assets in the reference account  48  are margined daily to maintain an aggregate market value equal to the face value of the collateral note. In general wrap providers and UPO providers perform similar functions. 
         [0039]    Under the CTA  24 , the collateral note is an obligation of the trust  26  to pay a holder of the collateral note, i.e., the beneficiary  14   a , up to the face amount of the collateral on demand unconditionally. In certain agreements, the issued collateral note is irrevocable and is perpetual in maturity until surrendered or sold by the holder of the collateral note. 
         [0040]    Under some CTAs  24 , the collateral notes have a one-year maturity and an interest coupon equal to six (6) months LIBOR flat once delivered to a holder or sold to third parties, where LIBOR is the rate banks in London charge each other for overnight loans (London Inter-Bank Offered Rate) and flat means that the rate is neither discounted nor marked up from the base LIBOR rate, but is in fact the rate. While LIBOR is mentioned herein, any generally accepted reference interest rate can be used in substitution for LIBOR. The collateral notes are rated A− or better by at least one nationally recognized statistical rating organization based on the quality of assets held in trust  26  and the reference account  48 . The collateral notes are freely marketable if drawn by beneficiaries, such as the counterparty  14   a.    
         [0041]    In addition to directly drawing assets from the trust  26  based on the collateral note, the beneficiary, e.g., the counterparty  14   a , of the account  20  can also hold the collateral note as an investment, sell the collateral note in capital markets, or exchange the collateral note for cash and/or securities of the trust  26  in an amount equal to the collateral note&#39;s pro-rata share of the market value of the trust  26  at the time of exchange. A beneficiary may also request the trustee  28  ( FIG. 1 ) to sell or redeem the collateral note on its behalf, and deposit the redeemed assets, e.g., in cash form or securities directly into the beneficiary&#39;s account  20 . Generally, such transactions with the collateral notes by the beneficiary are referred to as note conversions. 
         [0042]    Some types of note conversions, such as withdrawal, would trigger the reimbursement requirement of the client  12   a  for the full converted amount. If a client fails to re-pay the drawn amount according to the terms specified in the CTA  24 , under subrogation terms, the platform may have a security interest in the client&#39;s cash flows related to the contract  16 , other cash flows or assets of the client  12   a  that are documented for the collateral issuance/deposition, and/or the assets/securities deposited in the trust  26  prior to the collateral issuance/deposition. In some implementations, the client  12   a  is allowed to pay the withdrawn amount over a period of time, e.g., one year, with payment of interest over the period. This interest rate may be as high as prime and an additional margin amount. 
         [0043]    Referring to  FIG. 3 , a process  100  executed using the platform  10  is shown. The client through client system  12  and intermediary operating the platform  10  enter into a CTA  24 . Initially, the counterparty  14   a  and/or the client  12   a  assess the amount of collateral needed to be acquired from the platform  10  for the intended trading. The counterparty  14   a  and/or the client  12   a  submit the request  36  to the platform  10 , e.g., to meet the initial margin requirement. Upon receiving 102 the request, the platform  10  identifies  104  the underlying trading, which may involve derivative contracts, reinsurance treaties, etc. The platform  10  may also identify the parties of the trading, e.g., particularly the party (obligor, typically the client  12   a ) who will be obliged to pay (e.g., reimburses) the trust  26  when the other party draws assets of the trust  26 . Eligible securities  34  are obtained  106  from the client  12   a . The platform  10  analyzes  108  the risks associated with the underlying trading, e.g., by modeling  110  the risks. The risks include, for example, a probability of the beneficiary drawing against the assets in the trust  26 , a probability of the obligor defaulting on the reimbursement, and others. 
         [0044]    Based on the assessed risks, the intermediary operating the platform  10  determines and negotiates  112  terms of the CTA with the client. The terms can include the amount of collateral  18  to be provided, the fees that the client  12   a  pays to the intermediary through the platform  10 , the reimbursement guarantee  44  by the client, the form of payment for the fee and/or the reimbursement guarantee, etc. The intermediary operating the platform  10  also determines and negotiates  114  terms of wrap contracts  30  with one or more wrap providers for the particular collateral  18  to be deposited. After the parties agree upon the terms of the CTA and the terms of the wrap contracts, the platform  10  records a deposit  116  of the collateral  18  into the account  20  for the counterparty  14   a . In some implementations, the platform  10  generates the account  20  before making the deposit. The platform  10  also forms  118  the reference account  48  in the trust  26  for the collateral  18  to be deposited or deposited. 
         [0045]    The fees to be collected by the intermediary operating the platform  10  for issuance of collateral  18  to the client  12   a  are in the range of market rates for similar collateral arrangements, such as bank LOCs, for comparably rated clients, taking into account the tenor of the desired collateral. In some implementations, the fees are calculated as a percentage of the face value of the collateral per year, and are payable in advance on a net present value basis. The fees are paid in advance on a net present value basis calculated for collateral issuance/deposition. Sometimes the fees are set at a discount rate and or based on another methodology mutually agreed upon. 
         [0046]    The fees to be paid by the intermediary operating the platform  10  to the wrap providers  32   a  are determined based on the combination of risk based capital charges and desired return on equity. These transactions tend to be one of a kind transactions and finding established market rates for similar transactions would be difficult. However, because the banks are in essence giving a guarantee, one guide that can be used is the cost of a credit default swap on that client that would provide a similar guarantee. While this may be an imperfect measure because the described arrangement in general will carry a much lower risk of default than a general CDS is meant to cover, it is nonetheless one measure by which banks can base fees. The model for use in analyzing risks associated with the underlying trading is in some implementations a stochastic model. In the example of reinsurance businesses, a stochastic model measures the combined risk of, e.g., a reinsurance claim, a client/obligor default and the likelihood and amount of any recovery under other security arrangements. The model will also take into account macro-economic factors such as Gross Domestic Product and Interest Rates. The model is also used to estimate the probability distribution of possible losses to be undertaken by the platform  10  and the trust  26 . Information related to the assessed losses and risks for issuing collateral in response to a request can be used to determine the type of assets to be placed in the reference account  48 . 
         [0047]    The model combines an analysis of collateral depositions with an analysis of the asset portfolio in the trust  26 . Each collateral deposit is modeled independently to analyze the combined risk of losses relating to the underlying contracts  16  (e.g., insurance and performance guarantees) and the migration/default risk of the respective client  12   a , and net of recoveries. A differentiated risk class of contingent (i.e., insurance-linked) credit risk is assessed to serves as the basis for rating and pricing the collateral deposit. Through such an integrated modeling approach, funding is made available from sophisticated investors seeking greater transparency to support rigorous risk/return assessment. 
         [0048]    An accurate estimate of risk associated with collateral transactions enables the platform  10  to develop a capacity for a long-term source of such collateral. It also allows the platform  10  to provide and maintain a large, sustainable investment class for investors. As discussed further below (see, e.g.,  FIGS. 4 and 5 ), some of the assets to be placed in the reference account  48  are financed by third-party investors. These investments are categorized into tranches based on the risks. Although only one model is discussed, multiple models can be used in combination for the described processes. 
         [0049]    The process  100  may vary based on the particular types of trading involved. For example, in some implementations, the process  100  only considers the underlying business, e.g., insurance/reinsurance business, conditions of the client  12   a  and/or cash flows, e.g., future interest payments, for which the platform  10  can obtain a security interest. 
         [0050]    Referring to  FIG. 4 , in addition to the UPO  50  (unconditional payment obligation) and the eligible securities  52 , the trust  26  can also be financed by third-party investors  60  and/or loans  62  from one or more banks  64   a  through, e.g., bank systems  64 . The third-party investors  60  can provide cash  66  to the trust  26  in exchange for a finance note  68  issued by the platform  10 . The investors  60  collect investment returns based on the note  68  from the total returns of the platform  10 , e.g., fees collected from the client  12   a.    
         [0051]    The platform  10  issues the finance-note  68  based on its underlying business asset portfolio, related cash flows, and the features of the collateral notes to be issued. The finance-note  68  can be very highly rated (Standard &amp; Poor&#39;s&#39; rating) or equivalently-rated notes (e.g. Fitch or Moody&#39;s). Furthermore, the cash investment  70  in the trust  26  can be used to acquire one or more loan-notes  72  from the banks  64   a  that are secured by a portfolio of financial assets, e.g., bank loans and loan portfolio  62 . From the loan-notes  72 , the trust  26  is further financed by portfolio cash flows  76 . In particular, the banks  64   a  and the platform  10  can enter into a Financing Facility Agreement (FFA)  90  and one or more underlying Financing Transaction Agreements (FTA)  92  with detailed terms for the banks&#39; investment in the trust  26 . 
         [0052]    Thus, the transaction has a bank make a loan to its client, and that client posts securities issued by an unrelated company to secure the client&#39;s obligation to the bank. The bank is prohibited from transferring those securities. However, if the bank had a collateral note backed by those securities, the bank could raise cash against the collateral note. For example, under the FTA  92 , the banks  64   a  may have FTA rights  94 , such as in the trust  26 , where in  FIG. 4 , KS(n)  78  is the contracting party with the bank as the special purpose vehicle (SPV) organized for the transaction. In some implementations, the platform  10  forms an additional trust (not shown here, see  FIG. 6 ) to issue the finance-notes  68  to the investors  60  and to receive the portfolio cash flows  76  from the loan portfolio  62 . In other implementations, the platform  10  handles the financing-related activities, and the cash  66  and/or the cash flows  76  are directly received by the trust  26 . 
         [0053]    Referring to  FIG. 5 , a capital structure  200  can be established for the platform  10  to raise assets/cash from the third-party investors  60  ( FIG. 4 ) for the trust  26 . For example, to raise $10 billion, three tranches of debt, senior debt  220 , subordinated debt  218 , and junior debt  202 , are issued into the capital markets  214 ,  216  available to the investors  60   a ,  60   b ,  60   c . Investors  60   c  of the junior debt  202  bear the highest risk and enjoy the highest interest rate. In particular, when the counterparty  14   a  ( FIG. 1 ) draws assets from the trust  26  based on the collateral  18 , assets raised from the junior debt  202  would be subject to the withdrawal before the other two tranches of debts. Furthermore, when the client  12   a  and the wrap providers  32   a  fund the trust for the withdrawal, and the assets raised from the junior debt  202  will be used to satisfy the demand, only when the wrap provider has defaulted on its obligation. Accordingly, the junior debt  202  bears higher risks of possible failure to reimburse the trust  26  than the other two tranches of debts. Among the entire assets raised from the investors  60 , the junior debt  202  may constitute at least 3% (up to a maximum of $300 million when the total assets to be raised are $10 billion). 
         [0054]    The junior debt  202  can further include two sub-tranches, class A junior debt  204 A and class B junior debt  204 B, each bearing different level of risks and having different interest rates. A detailed description of the two classes  204 A,  204 B is provided in U.S. Pat. No. 7,769,655, the entire content of which is incorporated herein by reference. Furthermore, due to the high risks the junior debt  202  bears, the platform  10  may also form insurance agreement(s)  206  with one or more independent insurers  208  to ensure the junior debt  202 . The insurers  208  are highly rated. In some implementations, the insurers  208  are similar to or the same as the wrap providers  32   a  ( FIG. 1 ) and provide similar services to the platform  10  to the wrap providers  32   a . In the example shown in  FIG. 5 , the insurers  208  provide first layer  222  and an excess layer  224  of insurance, the details of which are discussed in U.S. Pat. No. 7,769,655. The insurers  208  can be paid with premiums (the premiums) earned from issuing the collateral  18  by the platform  10 . 
         [0055]    The subordinated debt  218  bears less risk than the junior debt  202  and more risks than the senior debt  220 . In particular, assets raised from the subordinated debt  218  are drawn after the assets raised by the junior debt  202  and before the assets raised by the senior debt  220 . Also, when the client  12   a  and/or the wrap providers  32   a  reimburse the withdrawn asset, the drawn assets raised from the subordinated debt  218  are reimbursed after the drawn assets raised from the senior debt  220  and before the drawn assets raised from the junior debt. Although not shown in  FIG. 5 , the assets raised from the subordinated debt  218  and the senior debt  220  can also be insured, e.g., using the wrap contracts  30  formed with the wrap providers  32   a  ( FIG. 1 ). As an example, among the $10 billion assets raised through the capital structure  200 , between 4% and 7% (up to a maximum of $700 million at closing) are from the subordinated debt  218 , and up to 93% (up to a maximum of $9.3 billion) are from the senior debt  220 . In some implementations, the subordinated debt  218  is rated A and can be issued with a coupon of six-month London Interbank Offered Rate (LIBOR) plus a spread of, for example, between 1.00% and 1.50%, have a final maturity of 20 years, and may be callable in years 10 and 15. The senior debt  220  is rated highly in accordance with the then current NRSRO guidelines and issued in a range of maturities appropriate to an asset and liability management criteria. 
         [0056]    Assets, e.g., cash or other proceeds, raised from the debt issuance to the third-party investors  60  can be used to acquire loan portfolio  62  ( FIG. 4 ) or acquire securities to be placed in the trust  26  and managed as an asset portfolio. The investment guidelines of the asset portfolio comply with desired investment limitations, e.g., the New York State Insurance Regulation  114 , and include securities listed by the Securities Valuation Office of the NAIC. In general, these limitations require that all securities within the asset portfolio bear a minimum rating of A− or equivalent. Investment guidelines are subject to pre-approval by junior debt investors, and stipulate concentration limits by issuer, type and sector, and duration limits on a percentage composition and/or nominal value basis. An investment objective of the asset portfolio emphasizes yield over liquidity considerations, and is managed by one or more third party investment managers to optimize the trade-offs between yield, liquidity and complexity within its quality and qualification guidelines. 
         [0057]    Referring to  FIG. 6 , a platform  300 , having features similar or the same as those discussed for the platform  10  of  FIGS. 1-5 , provides multiple clients  302   a ,  302   b , . . . ,  302   n  with collateral  304   a ,  304   b , . . . ,  304   n  to enable the clients  302   a ,  302   b , . . . ,  302   n  to trade with respective counterparties  306   a ,  306   b , . . . ,  306   n . (n represents any positive integer number of clients, counterparties, etc.) In  FIG. 6 , the platform  300  is represented as a phantom box that interacts with other features involved in  FIG. 6  in a generally similar manner as discussed above for  FIGS. 1-5  except that it would involve multiple entities. 
         [0058]    In particular, the platform  300  interacts with a collateral trust  308  and a finance trust  310 . The collateral trust  308  has features similar to those of the trust  26  ( FIGS. 1-5 ) and holds assets that support the collateral  304   a - 304   e . The assets in the collateral trust  308  include eligible securities  314   a ,  314   b  . . .  314   n  collected from respective clients  302   a - 302   n  and placed in respective series accounts  312   a ,  312   b  . . .  312   n . Each series account  312   a - 312   n  holds only those eligible securities of a corresponding client and supports only those collaterals to be issued for the corresponding client in one or more collateral request. In addition, the assets in the collateral trust  308  also include investments collected by the finance trust  310 . Examples of the investment collected from third-party investors  316  and other investment providers  318  are as discussed previously in  FIGS. 4 and 5 . 
         [0059]    The collateral  304   a - 304   n  issued for clients  302   a - 302   n , e.g., in the form of cashless collateral notes under CTAs as described previously, are deposited into respective accounts  320   a ,  320   b  . . .  320   n  to benefit the respective counterparties  306   a - 306   n . The counterparties  306   a - 306   n  each becomes a holder of the deposited collateral note and can convert the collateral note at any time. The clients  302   a - 302   n  each has the obligation for reimbursing the collateral trust  308  for the amount converted by their respective counterparties. The investors  316 , the other providers  318 , and the collateral trust  308  bear the possible losses of assets, e.g., when the clients fail to reimburse the trust  308  in full. 
         [0060]    To reduce the risk of losses, in addition to the series accounts  312   a - 312   n , for each incidence of collateral issuance and deposition, the platform  300  forms a set of wrap contracts  324  with two or more wrap providers  322   a ,  322   b  . . .  322   m  (where m represents any integer number of wrap providers.) Under the wrap contracts  324 , the wrap providers  322   a - 322   m  have joint and several liabilities to make the collateral trust  308  full after asset withdrawals, e.g., by paying the trust  308  the negative difference between the eligible securities held in the series accounts  312   a - 312   n  and the withdrawal amount of assets. 
         [0061]    One or more parts of the platforms  10  and  300  are machine-based, e.g., established on processors. The processes involving the platforms  10  and  300 , such as establishing the trusts  26 ,  308 ,  310 , collecting eligible securities from the clients, creating series accounts for the clients, modeling risks, issuing and depositing collateral, and others can include computer programs stored and executed by a machine. The platform  300  can be accessible through a network, e.g., the Internet. 
         [0062]    Processors suitable for the execution of a computer program include, by way of example, both general and special purpose microprocessors, and any one or more processors of any kind of digital computer. Generally, a processor will receive instructions and data from a read only memory or a random access memory or both. The essential elements of a computer are a processor for executing instructions and one or more memory devices for storing instructions and data. Generally, a computer will also include, or be operatively coupled to receive data from or transfer data to, or both, one or more mass storage devices for storing data, e.g., magnetic, magneto optical disks, or optical disks. Information carriers suitable for embodying computer program instructions and data include all forms of non-volatile memory, including by way of example semiconductor memory devices, e.g., EPROM, EEPROM, and flash memory devices; magnetic disks, e.g., internal hard disks or removable disks; magneto optical disks; and CD ROM and DVD-ROM disks. The processor and the memory can be supplemented by, or incorporated in special purpose logic circuitry. 
         [0063]      FIG. 7  is a schematic diagram of an example computer system  350 . The system  350  can be used for practicing operations of the platform  10 ,  300  described above. For example, one or more parts of the platform  10 ,  300  can reside and be executed on the computer system  350 . The system  350  can include a processor device  325 , a memory  354 , a storage device  356 , and input/output interfaces  358  interconnected via a bus  360 . The processor  352  is capable of processing instructions within the system  350 . These instructions can implement one or more aspects of the systems, components and techniques described above. In some implementations, the processor  352  is a single-threaded processor. In other implementations, the processor  352  is a multi-threaded processor. The processor  352  can include multiple processing cores and is capable of processing instructions stored in the memory  354  or on the storage device  354  to display graphical information for a user interface on output monitor device  362 . 
         [0064]    The computer system  350  can be connected to a network  366 , e.g., the Internet, through a network interface controller  368 . Other systems, such as the client systems, the counterparty systems, the bank systems, etc. discussed above can also be connected to the same network or a different network that can communicate with the network. 
         [0065]    The memory  354  is a computer readable medium such as volatile or non-volatile that stores information within the system  350 . The memory  354  can store processes related to the functionality of the valuation system or valuation platform, for example. The storage device  356  is capable of providing persistent storage for the system  350 . The storage device  356  can include a floppy disk device, a hard disk device, an optical disk device, or a tape device, or other suitable persistent storage mediums. The storage device  356  can store the various databases described above. The input/output device  358  provides input/output operations for the system  350 . The input/output device  358  can include a keyboard, a pointing device, and a display unit for displaying graphical user interfaces. 
         [0066]    An exemplary view of a computer system is shown in  FIG. 7 , and is but one example. In general, embodiments of the subject matter and the functional operations described in this specification can be implemented in digital electronic circuitry, or in computer software, firmware, or hardware. Embodiments of the subject matter described in this specification can be implemented as one or more computer program products, i.e., one or more modules of computer program instructions encoded on a computer readable medium for execution by, or to control the operation of, data processing apparatus. The computer readable medium is a machine-readable storage device. The invention can be embodied in and/or or used with various apparatus, devices, and machines for processing data, including by way of example a programmable processor, a computer, or multiple processors or computers. 
         [0067]    A computer program (also known as a program, software, software application, script, or code) can be written in any form of programming language, including compiled or interpreted languages, and it can be deployed in any form, including as a standalone program or as a module, component, subroutine, or other unit suitable for use in a computing environment. 
         [0068]    Embodiments of the invention can be implemented in a computing system that includes a back end component, e.g., as a data server, or that includes a middleware component, e.g., an application server, or that includes a front end component, e.g., a client computer having a graphical user interface or a web browser through which a user can interact with an implementation of the invention, or any combination of one or more such back end, middleware, or front end components. The components of the system can be interconnected by any form or medium of digital data communication, e.g., a communication network. Examples of communication networks include a local area network (“LAN”) and a wide area network (“WAN”), e.g., the Internet. 
         [0069]    The computing system can include clients and servers. A client and server are generally remote from each other and typically interact through a communication network. The relationship of client and server arises by virtue of computer programs running on the respective computers and having a client-server relationship to each other. 
         [0070]    Other embodiments are within the scope of the following claims.