Patent Publication Number: US-8117111-B2

Title: Trading of derivative secured index participation notes

Description:
CROSS REFERENCE TO RELATED APPLICATIONS 
     Pursuant to 35 USC §120, this application is a divisional application and claims the benefit of prior U.S. application Ser. No. 11/553,549, filed Oct. 27, 2006 now U.S. Pat. No. 7,827,094 which in turn claims the benefit of prior U.S. Provisional Application No. 60/794,481, filed Apr. 24, 2006. Each of these applications is incorporated by reference in its entirety. 
    
    
     BACKGROUND 
     Index funds allow an investor to invest in a single investment instrument that tracks the performance of a portfolio of investments. In general, an index fund issues shares that represent a fractional interest in a portfolio of investments, which are weighted similarly to those portfolio of investments as weighted for a published securities index, e.g., stock index, in order to mirror, track, or generally correspond to the price and/or yield performance of the stock index. 
     One example of an index fund is a Standard &amp; Poor&#39;s Depository Receipt (“SPDR”). An SPDR is a type of security known as a portfolio depository receipt (also known as an Exchange Traded Fund), which represents an undivided ownership interest in a portfolio of stocks held by the SPDR Trust. The SPDR Trust holds a portfolio of stocks that is intended to mirror, track, or generally correspond to the price and/or yield performance of the S&amp;P 500 Index. 
     Securities, like SPDRs, may trade on a stock exchange, a securities market or an electronic communication network. The price of such securities during intra-day trading is determined by supply and demand. In particular, depository receipts issued by the SPDR Trust may be generated or redeemed on any business day at the next calculated net asset value (NAV), but only in “creation units” of 50,000 SPDR shares. SPDR creation units are generated or redeemed through an in-kind transfer of the basket of stocks that correspond to the stocks listed in the S&amp;P 500 Index. Although the NAV of the SPDR Trust is only published at the close of every business day, the value of the corresponding S&amp;P 500 index is published continuously throughout each trading day and distributed electronically to brokers and dealers throughout the world. Similarly, a number corresponding to the intra-day value of each SPDR share, based on the most recently traded prices of the stocks of the S&amp;P 500 index in the current day&#39;s SPDR creation unit, is ordinarily published at 15 second intervals throughout the trading day. 
     Index futures contracts and index options provide other techniques for investors to invest, trade, or hedge based on the performance of an index. An index futures contract is a futures contract on a financial index such as the S&amp;P 500 index, whereas index options are instruments that give the holder the right to receive cash settlements based on changes in the underlying index on which the option is based. A call index option would ordinarily give a payout if the index rises above its strike price, whereas a put index option would give a payout if the index falls, below its strike price. 
     SUMMARY 
     According to an aspect of the present invention, a method of intra-day trading of Index Participation Notes includes accessing, using a computer system, a value of a creation unit based on cash and a value of an index futures contract or index. The method also includes trading the shares on a securities trading venue by buyers and sellers determining a price between buyers and sellers for the Index Participation Notes taking into consideration information about the price for the index futures contract or index. 
     Embodiments can include one or more of the following. 
     The Index Participation Notes can be backed by a long index futures contract. Accessing the price can include accessing a data feed that displays a current value for the underlying index futures contract. 
     The Index Participation Notes can be further backed by a defined amount of cash. 
     According to an aspect of the present invention, a computer implemented method of trading intra-day Index Participation Notes includes accessing a price for at least one of a long call index options contract, a short put index options contract, and an index. The method also includes trading the shares on a securities trading venue by determining a price between buyers and sellers for the Index Participation Notes taking into consideration information about the price for the at least one of the long call index options contract, the short put index options contract, or the index. 
     Embodiments can include one or more of the following. 
     The Index Participation Notes can be backed by a long call index options contract and a short put index options contract. The Index Participation Notes can be further backed by a defined amount of cash. 
     According to an aspect of the present invention, a computer implemented method includes listing an Index Participation Note on a security exchange, the Index Participation Note comprising a fractional share of a creation unit that includes a long index futures contract. 
     Embodiments can include one or more of the following. 
     The method can include trading the Index Participation Note on the security exchange. The method can include recording an initial mark price for the long index futures contract on the issue date of the futures contract and recording a contract multiplier for the long index futures contract. The method can also include calculating an amount of cash included in the creation unit on a date of generation of the creation unit. The method can also include calculating an amount of cash to add to the creation unit prior to registering the Index Participation Note, the amount of cash can be based on the initial mark price of the futures contract and the contract multiplier. 
     The method can also include liquidating the Index Participation Note on a expiration date of the long index futures contract. The method can also include disclosing the contents of the creation unit. Disclosing the contents of the creation unit can include disclosing the long index futures contracts included in the creation unit and disclosing a total value of cash included in the creation unit. Disclosing a total value of cash included in the creation unit can include calculating the total value of the cash based on changes in the mark price of the long index futures contract. Disclosing a total value of cash included in the creation unit can include calculating an accrued interest on the cash and adding the accrued interest to the total value of the cash included in the creation unit. 
     According to an aspect of the present invention, a computer implemented method includes listing an Index Participation Note on a securities exchange. The Index Participation Note includes a fractional share of a creation unit that includes a long call index options contract and a short put index options contract with the long call index options contract and the short index put options contract having the same initial strike price and the same expiration date. 
     Embodiments can include one or more of the following. 
     The method can also include actively trading the Index Participation Note on the security exchange. The creation unit can also include a predefined amount of cash on a date of generation of the creation unit. The method can also include calculating an amount of cash to include in the creation unit prior to registering the Index Participation Note, the amount of cash being based on the initial mark price of the futures contract and the contract multiplier. The method can also include liquidating the Index Participation Note on a expiration date of the long call and short put index options contracts. 
     According to an aspect of the present invention, a computer implemented method includes listing an Index Participation Note on a security exchange. The Index Participation Note includes a fractional share of a creation unit that includes a long put index options contract and a long index futures contract with the long, put index options contract and the long index futures contract each having the same initial mark price and expiration date. 
     Embodiments can include one or more of the following. 
     The method can also include actively trading the Index Participation Note on the security exchange. The method can also include disclosing long index futures contract included in the creation unit, disclosing the long put index options contract included in the creation unit, and disclosing a total value of cash included in the creation unit. 
     One or more aspects of the invention may include one or more of the following advantages. 
     The issuer holds derivative instruments and cash in a custody account and issues the tradable index shares representing a fractional interest in the value of the custody account. By securitizing tradable index shares with a derivative, several advantages are provided such as reducing transaction costs involved with purchasing and trading of the tradable index shares. 
     For tradable index shares securitized by a futures contract, since there is no trading of the index futures contract at investor level, the tradable index shares can be traded on a securities exchange or securities market. 
     In addition to reducing the transaction costs for the investors, the transaction costs can also be reduced for the issuer. Rather than purchasing each of the underlying products, e.g., securities that make up the index, the issuer needs only to purchase the derivate for the index. This reduces the number of transactions necessary to generate a creation unit. In addition custodial costs of keeping and tracking the shares are reduced for the custodian by merely having custody of the derivate. 
     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 
         FIG. 1A  is a block diagram of a computer system. 
         FIG. 1B  is a flow chart depicting issuance of Index Participation Notes. 
         FIG. 1C  is a block diagram depicting a data structure representation of an Index Participation Note. 
         FIG. 2  is a block diagram of a creation unit and multiple Index Participation Notes. 
         FIG. 3  is a block diagram depicting relationships among entities. 
         FIG. 4  is a chart of the value of an Index Participation Note relative to other investment vehicles. 
         FIG. 5  is a flow chart of a cash adjustment process for a creation unit. 
         FIG. 6  is a chart of changes in a mark price and related changes in the cash value of a creation unit. 
         FIG. 7  is a flow chart of a process for adjusting the cash amount included in a creation unit. 
         FIG. 8  is a flow chart of a settlement process. 
         FIG. 9  is a flow chart of a settlement process. 
         FIG. 10  is a flow chart of a redemption process for a creation unit of Index Participation Notes. 
         FIG. 11  is a block diagram depicting a creation unit. 
         FIG. 12  is a block diagram of a creation unit and multiple Index Participation Notes. 
         FIG. 13  is a block diagram of a creation unit and multiple Index Participation Notes. 
         FIG. 14  is a block diagram of a creation unit and multiple Index Participation Notes. 
         FIG. 15  is a block diagram depicting relationships among entities. 
         FIG. 16  is a flow chart of a settlement process. 
         FIG. 17A  is a diagram of changes in the value of an index versus time. 
         FIG. 17B  is a diagram of changes in the value of an index versus time. 
         FIG. 18A  is a diagram of changes in the value of an index versus time. 
         FIG. 18B  is a diagram of changes in the value of an index versus time. 
         FIG. 19  is a flow chart of an options strike price matching process. 
         FIG. 20  is a block diagram of long call and short put index options strike prices. 
         FIG. 21  is a flow chart of an options strike price matching process. 
         FIG. 22  is a block diagram of long call and short put index options strike prices. 
         FIG. 23  is a block diagram depicting a creation unit. 
         FIG. 24  is a block diagram of a creation unit and multiple Index Participation Notes. 
         FIG. 25  is a block diagram of a creation unit and multiple Index Participation Notes. 
         FIG. 26  is a block diagram of a creation unit and multiple Index Participation Notes. 
         FIG. 27A  is a diagram of changes in the value of an index versus time. 
         FIG. 27B  is a diagram of changes in the value of an index versus time. 
         FIG. 28  is a block diagram of a creation unit and multiple Index Participation Notes. 
         FIG. 29A  is a diagram of changes in the value of an index versus time. 
         FIG. 29B  is a diagram of changes in the value of an index versus time. 
         FIG. 30  is a block diagram of a creation unit and multiple Index Participation Notes. 
         FIG. 31  is a block diagram of a computer system. 
     
    
    
     DESCRIPTION 
     Referring to  FIG. 1A , a computer system  10  includes software to assist with creation and issuance  12   a , administration  12   b , redemption  12   c  and trading  12   d  of Index Participation Notes. Although a single computer system  10  is shown, typically many such systems can be used and indeed each of the software processes can be performed on different computers, controlled by or managed by different entities that are involved in any of the aspects of the Index Participation Notes. 
     Referring to  FIG. 1B , an Index Participation Note issuer receives ( 14   a ) a derivative instrument and cash from an Index Participation Note requester and produces ( 14   b ) a creation unit based on the received derivative instrument and cash. The Index Participation Note issuer issues ( 14   c ) Index Participation Notes that are held by the Index Participation Note requestor or traded by investors ( 14   d ) over exchanges, securities markets, electronic communication networks (ECN&#39;S) and other trading venues. 
     The creation unit holds a derivative interest plus cash to secure the Index Participation Notes. The creation unit is provided to track an aspect of performance of a particular index or indexes of securities, several examples of which will be described below. Non-limiting examples of indexes include The Nasdaq-100® or The Standard &amp; Poor&#39;s 500 Index®, as well as any other index of underlying constituent instruments that have correspondingly traded derivative instruments regardless of asset class (e.g., equity, fixed income, currency, commodities, etc.). 
     The creation unit is held by the Index Participation Note issuer and includes combination of cash and derivative positions that backs the Index Participation Notes. The Index Participation Notes represent fractional interests in the creation unit. 
     Referring to  FIG. 1C , the computer system can include a computer readable medium  16  that stores a representation of the Index Participation Notes such as in a data structure, e.g.,  18  used with software that assists with creation and issuance, administration, redemption and trading of the Index Participation Notes. Other representations are possible including unstructured representation, a record and so forth. 
     An exemplary data structure  18  used to represent the Index Participation Notes can include a field that identifies the index  18   a , one or more fields that identify the derivative instrument securing the Index Participation Notes  18   b , a field indicating the settlement date of the derivative instrument  18   c , and a field storing the value of cash included in the creation unit  18   d . As described below, the field storing the value of the cash  18   d  is updated as the value of the Index Participation Notes changes. 
     As will be described below, various types of Index Participation Notes are possible. Therefore, fields can be included in the representation of the Index Participation Notes for identifying the types of notes and whether the notes roll over or are cashed out at maturity and so forth. 
     In one embodiment, the Index Participation Notes  22  are based on a derivative that is an index futures contract on the index which the Index Participation Note tracks. The Index Participation Note issuer may charge a fee which could be included at issuance, redemption, or during the interim between issuance and redemption of the Index Participation Notes  22 . If a fee is charged at issuance, the Index Participation Note issuer adds the fee to the price of the Index Participation Notes. On the other hand, if a fee is charged at redemption, the Index Participation Note issuer subtracts the fee from the determined total value of the investor&#39;s Index Participation Notes on the redemption note. 
     Creation of Index Participation Notes with Futures Positions 
     Referring to  FIG. 2 , one embodiment of the Index Participation Notes  22  represents a fractional interest in a creation unit  20  that includes both an index futures contract  24  and a defined amount of cash  26 . Each creation unit  20  is divided into a predefined number of Index Participation Notes  22 . For example, creation unit  20  can be partitioned into ‘N’ Index Participation Notes  22 , such that each Index Participation Note  22  represents a 1/N th  ownership interest in the index futures contract  24  and 1/N th  ownership interest in the cash  26  included in the creation unit  20 . 
     For example, in some embodiments, the value of the Index Participation Note  22  can be selected to be 1/10 of the value of the index. Because the index futures contracts often have a multiplier associated with them (e.g., the contract multiplier for the S&amp;P 500® index futures contract is 250), in order to have the value of the Index Participation Note be approximately equal to one-tenth of the value of the index, the creation unit can be divided into a number of Index Participation Notes equal to ten times the contract multiplier (e.g., 2500 for the S&amp;P 500® example above). Other partitions of the creation unit  20  into 10 other amounts of Index Participation Notes  22  are possible. The number of Index Participation Notes corresponding to a single creation unit can be dependent on the value of the creation unit  20 . For example, the number of Index Participation Notes can be such that the total value of the cash in the creation unit  20  divided by the number of Index Participation Notes is between $10 and $10,000. 
     The index futures contract  24  included in the creation unit  20  is a long index futures contract position. An index futures contract position is a futures contract based on an index. One exemplary type of index is a financial index such as the NASDAQ-100® or S&amp;P 500®. Another exemplary type of index is a commodities index. Index futures contracts are contractual agreements to make or receive cash payments that are economically equivalent to buying or selling a particular index-based financial instrument at a pre-determined price in the future. In the case of an index futures contract  18 , the predetermined price is the price of the index at a particular date specified by the index futures contract  24  (referred to as the settlement date). 
     The amount of cash  26  included in the creation unit  20  varies over time as the value (e.g., the mark price) of the index futures contract  24  changes. The computer executing the creation process (or another processing device) computes the initial amount of cash  26  to be placed in the creation unit, tracks changes in the value of the cash  20 , and provides up-to-date summaries of the value of the cash  26  included in the creation unit  20 . As index futures contracts are cash settled contracts (as opposed to commodity futures contracts which can be settled by delivery/acceptance of delivery of the underlying security or commodity), the index futures contract  24  settles by a cash amount which is economically equivalent to the value of the index on the maturity date of the contract times the contract multiplier that scales the size of the contract relative to the value of the index. Thus the computer calculates the value of the cash  26  on any particular date prior to settlement by multiplying the last futures-mark-price for index futures contract  24  by its contract multiplier established on the day of creation of the Index Participation Notes  22 . If the cash  26  is held in an interest bearing account, the computer also tracks the changes in the total value of the cash  26  in the creation unit  20  on any day after creation to reflect principal value (as described above) plus accrued interest. 
     Referring to  FIG. 3 , in order to facilitate creation of Index Participation Notes  22 , futures positions are established between a contra-party  31  and the Index Participation Note-requestor using a clearing house  30 . The Index Participation Note requestor establishes a long index futures contract position  24  while the contra-party  31  establishes a short index futures contract position  32 . Since the long and short positions are used to determine future credits/debits, no money (other than applicable fees) is exchanged between the clearing house  30  and the Index Participation Note requestor during formation of the long and short index futures contract positions  24  and  32 . Both the long and short index futures contract positions  24  and  32  are established based on a “mark price” for the index future on the day the contracts  24  and  32  are formed. Money is subsequently exchanged between the contra-party  31  and the Index Participation Note requestor based on differences between the mark price established on the day of issuance of the index futures contract and the current mark price for the index futures contract (as indicated by arrows  36  and described below in relation to  FIGS. 5 and 6 ). Any changes to the mark price (and therefore to the value of the cash  26  in creation unit  20 ) are tracked by the computer system such that an accurate value for the cash  26  can be known and reported. 
     After the futures positions  24  and  32  have been established between the contra-party  31  and the Index Participation Note requestor, the Index Participation Note requestor requests to generate a creation unit of Index Participation Notes with the Index Participation Note issue who produces a creation unit  20 . As described above, the creation unit  20  holds the index futures contract  24  and a predefined amount of cash  20 . The amount of cash  26  included in the creation unit  20  varies based on the market conditions at the time of formation of the creation unit  20 . In general, the amount of cash  26  in the creation unit equals the last futures “mark price” for the index future  24  multiplied by the contract multiplier for the futures contract. An example of the contents of an exemplary creation unit  20  is provided below. 
     In the following example, the Index Participation Notes  22  represent a fractional interest in a creation unit  20  based on the S&amp;P 500 Index®. At the time of establishment of the creation unit, the S&amp;P 500 Index® has the following market conditions:
 
Last S&amp;P 500 Futures-Mark-Price=1200
 
S&amp;P 500 Index Futures Multiplier=250
 
     Based on these market conditions, a creation unit  20  would include an S&amp;P 500 index futures contract long position and cash in an amount equal to the S&amp;P 500 index future contract&#39;s last “futures-mark-price” times the index&#39;s contract multiplier as they exist on the day of formation of the creation unit  20 . In this example, the mark price is $1200 and the contract multiplier for the S&amp;P 500 index future is 250. Thus, the creation unit  20  could be represented as follows:
 
One Creation Unit=1 Open Long Index Futures Contract Position+(Contract&#39;s Last Futures-Mark-Price)*(S&amp;P 500 Contract Multiplier)
 
     Thus, based on the exemplary market conditions described above, the creation unit would include:
 
One Creation Unit=1 Open Long Index Futures Contract Position+($1200)*(250)=1 Open Long Index Futures Contract Position+$300,000
 
     Index Participation Notes  22  represent a proportional ownership stake in the creation unit  20 . Initially, the Index Participation Notes  22  are quoted to investors at a price that is based on the pro-rata cash amount and the net value of the index futures contract  24  versus its last mark price at the time of quotation of the Index Participation Notes  22  after accounting for expenses and fees. 
     Thus, the market price of the Index Participation Note  22  is initially related to the futures mark to market price of the index on the day of formation. For example, based on the exemplary market conditions for the S&amp;P 500 Index Participation Notes described above if each Index Participation Note  22  had a value of 1/10 of the futures price, the price of the Index Participation Note would be $120 (e.g., the last future mark price of $1200 divided by 10). Thus, there would be 2500 Index Participation Notes  22  generated based on the creation unit  20 . 
     After purchasing of the Index Participation Note  22  from the Index Participation Note issuer, the Index Participation Note  22  can be traded using an exchange, a securities market, an electronic communication network (ECN) and other trading venues. In order to facilitate open trading of the Index Participation Notes  22 , the Index Participation Notes  22  can be listed and traded like ordinary shares of stock or exchange traded funds (ETFs) on one or more securities exchanges, markets and/or through the matching facilities of one or more electronic communication networks (ECNS). Secondary market trading of Index Participation Notes  22  will be at prices governed by competitive supply and demand forces taking into consideration, among other factors, the values of the index futures contract  18 , cash  26  and value of the index that the Index Participation Notes  22  represent. Since the Index Participation Notes  22  would be registered and traded in a manner similar to traditional stocks on a national securities exchange, the Index Participation Notes  22  will be available to be traded and held through any ordinary stock brokerage account and handled by any one of the Registered Representatives in the United States today. 
     As described above, the Index Participation Note issuer holds the futures contract  24  and cash in a custody account and issues Index Participation Notes  22  representing a fractional interest in the value of the custody account. Since the futures contract  24  is held by the Index Participation Note issuer in a custody account (as opposed to being held by the investors), the ownership of the futures contract  24  does not change as the Index Participation Notes  22  are traded. This provides various advantages such as, for example, reducing transaction costs involved with purchasing and trading the Index Participation Notes  22 . In addition, since there is no trading of the index futures contract  24  at the Index Participation Note investor level (e.g., by Index Participation Note investors), the Index Participation Notes  22  can be traded on a securities exchange. 
     In addition to reducing the transaction costs for the investors, the transaction costs can also be reduced for the Index Participation Note issuer and thus to IP note holders. For example, rather than purchasing each of the underlying securities that make up the index, the Index Participation Note issuer needs only to purchase the index futures contract  24  for the index. By reducing the number of transactions necessary to generate a creation unit  20  (e.g., a single transaction to purchase the index futures contract  24  versus multiple transactions to purchase each of the securities in the index), the transaction costs for the Index Participation Note issuer are reduced. 
     Referring to  FIG. 4 , in an illustrative non-limiting example, the value of an index fund (represented by line  70 ) closely tracks the value of the stocks included in the index fund (represented by line  72 ) because the index fund is comprised of a basket of stocks which track, resemble or replicate the stocks underlying the index. It is believed that the intra-day and day-to-day market value of Index Participation Notes  22  will in general closely track the pro-rata value per note outstanding of the Index Participation Note custody account which holds the index futures contract  24  and cash  26  held by the Index Participation Note issuer. 
     Put another way, the value of the Index Participation Notes  22  (represented by line  76 ) is expected to track the price of the index futures contracts (represented by line  74 ). The tracking between the value of the Index Participation Notes  22  and the value of the index futures contract  24  is based on the inclusion of both the index futures contract  24  and the cash  26  in each creation unit  20  for the Index Participation Notes  22 . Since the cash  26  included in the creation units  20  varies based on the performance of the index futures contract  18 , the value of the creation unit  20  (and therefore the value of the Index Participation Note  22 ) will vary based on the performance of the index futures contract  18 . 
     On the issue date of the Index Participation Notes  22  (indicated by arrow  84 ), the value of the index and the value of the Index Participation Notes  22  will, in general, be different. The value of the index will be equal to the value of the underlying stocks included in the index (indicated by spot value  80 ), whereas the value of the index futures contract may diverge. 
     As stated above the value of the Index Participation Notes  22  will track the value of the index futures contract  18 . However, because the theoretical value of an index futures contract  24  includes two components, namely “spot value” plus “carry value,” initially, the index futures contract  18 , and therefore the Index Participation Notes  22 , will closely track movements of the index but will diverge in absolute value to the extent of the carry value. The spot value of the index futures contract is the cash price required to acquire the underlying stocks and the carry value of the index futures contract is the expected cost to hold an ownership interest in the underlying stocks until the settlement date  86 . The spot value for the index futures contract will closely track the value of the index while the carry value will vary based on interest rates reflecting the purchase price of the underlying index stocks and the dividend yield on the index stocks held through settlement date. As the settlement date nears, the carry value for the index futures contract  24  approaches zero such that the value of the Index Participation Note  22  converges to the value of the underlying index as the index futures contract which itself converges to the underlying index. 
     With this arrangement the Index Participation Note  22  backed by the long index futures contract and the long cash position is economically equivalent to being long the basket of stocks included in the index. More particularly, since the Index Participation Notes  22  correspond in value to long positions in both cash  26  and the index futures contract  18 , held in the Index Participation Note issuer&#39;s custody account, the value of the Index Participation Notes  22  on the settlement date  86  will converge to the value of the underlying index. Accordingly, as shown in  FIG. 4 , the value of the Index Participation Notes  22  (represented by line  76 ) and the value of the index (represented by line  70 ) converge to the same price  78  on the settlement date  86 . Thus, the position claimed by the Index Participation Notes  22  (i.e., long cash and long an index futures contract) has the same economic value as owning the underlying stocks on the settlement date  86 . 
     Referring to  FIG. 5 , a process  100  for adjusting the amount of cash  26  in the creation unit  20  based on the performance of the index futures contract  24  is shown. As described above, the intrinsic day-to-day value of the Index Participation Note  22  will vary based on the price performance of the index futures contract  24 . 
     The creation unit  20  is initially established to include the index futures contract  24  and an amount of cash  26 . A computer system stores the contents of the creation unit  20 , e.g., the index futures contract  24  and the amount of cash  26  and records the fractional interest represented by each of the Index Participation Notes  22 . On the date of formation of the index futures contract  24  a strike price (also referred to as the initial mark price) is established ( 102 ). Since the mark price is used subsequently to determine adjustments in the cash  26 , the computer stores the mark price. 
     The initial mark price for the index futures contract is subsequently updated at predetermined time intervals (e.g., the close of each daily trading session). After the mark price has been updated, the computer stores the new mark price and compares the new mark price to the previous mark price ( 104 ) to determine if there has been a change. If there is a difference between the current and previous mark prices, the accounts of the long position holder and short position holder of the futures contracts are adjusted based on the difference ( 106 ). 
     Since the Index Participation Note issuer holds a long index futures contract  24 , if the mark price increases, the difference between the two mark prices (e.g., a positive value) will be credited to the Index Participation Note issuer&#39;s account at the clearing house  30  and the difference between the two mark prices will be debited from the account of the contra-party  31  that holds the short index futures contract position. In contrast, if the mark price decreases, the difference between the two mark prices will be debited from the Index Participation Note issuer&#39;s account and the difference between the two mark prices will be credited to the account of the contra-party  31 . 
     The intrinsic value of the Index Participation Note  22  will increase when the mark price for the index futures contract  24  rises and will decrease when the mark price for the index futures contract  24  falls. All changes in the value of creation unit  20  (e.g., changes in the value of the cash  20 ) are tracked by the computer system. 
     After the accounts of the Index Participation Note issuer and the contra-party  31  have been adjusted or if no adjustment is needed, the computer system determines if the current date is equal to the settlement date for the index futures contract  24  ( 110 ). If the date is not the settlement date, the determination of change in mark price and adjustment of the accounts is repeated. If the date is the settlement date, the positions of the Index Participation Note holders are settled based on the change in value of the Index Participation Note  22  ( 112 ). 
     Referring to  FIG. 6 , exemplary adjustments to the contents of a creation unit  20  (represented in column  126 ) based on the changes in the mark price (shown in columns  122  and  124 ) for the underlying index futures contract  24  are shown. On the date of issue of the index futures contract  18 , an initial mark price is established. As shown in row  128 , on the date of issue (T), the mark price  122  for the index futures contract is $100. In this example, the index multiplier for the index future is assumed to be one-hundred for ease of explanation. As such, the contents of the creation unit  20  upon establishment include the index futures contract  24  and the defined cash  26  amount that equals the index futures contracts&#39; strike price multiplied by the contract multiplier. As shown in row  130 , on the day following the date of issue (T+1), the mark price  122  for the index futures contract has increased to $101. Thus, the change in the mark price  124  is +1 and the amount of cash in the creation unit  20  increases by $100 to $10,100. As shown in row  132 , on the following day (T+2), the mark price for the index futures contract has decreased to $98. Thus, the change in the mark price  124  is −3 and the amount of cash in the creation unit  20  decreases by $300 to $9,800. Such adjustments continue until the date of settlement of the index futures contract  18 . 
     Referring now to  FIG. 7 , the contents of the creation unit, and thus the value of each Index Participation Note, are adjusted based on accrued interest on the cash  26  held in the creation unit  20 . For example, the cash  26  included in the creation unit  20  could be held in treasurer&#39;s notes or an interest bearing account or other type of interest bearing instrument including the clearing member&#39;s interest bearing account at the clearing house. The interest earned is credited to the value of the creation unit  20 . If the cash  26  is held in an interest bearing account, the value of the cash  26  increases over time. In order to accurately assess the value of the Index Participation Notes  22 , a computer maintains an accurate representation of the value of the index futures contract  24  and the value of the cash  26  (including both adjustments based on the performance of the futures contract and based on the accrued interest). 
     A computer implemented process  140  for reporting the current value of a creation unit  20  includes using a computer system to determine adjustments to the cash  26  based on the accrued interest since the previous reporting period, for example, the accrued interest since the previous day ( 142 ). The computer system also determines adjustments to the cash  26  based on differences between the current mark price and the previous mark price ( 144 ). After determining both the adjustment to the cash  26  based on the performance and the interest, the computer system provides the necessary information for the Index Participation Note issuer to publish the contents of the creation unit  20  to reflect the current value of the cash  26  included in the creation unit  20  ( 144 ). 
     The value of the creation unit  20  on any given day is primarily the value of the cash  26  included in the creation unit. The relative proportion of value of the index futures contract  24  to the cash  26  included in the creation unit  20  is low. The majority of the value of the creation unit  20  is cash  26  because the index futures contract  24  simply adjusts the total amount of cash  26  by incremental amounts on a day-to-day basis. Thus, the value of the index futures contract  24  in the creation unit  20  is effectively converted to a cash amount (e.g., the adjustment based on the mark price) each day. Since the value of the creation unit  20  and, thus, the Index Participation Notes  22 , is primarily based on the cash  26  included in the creation unit  20 , and a financial claim on cash is a security and not a commodity, the Index Participation Notes  22  are securities that can be traded on a securities market. 
     Redemption/Settlement of Index Participation Notes 
     As described above, the Index Participation Notes  22  are based on a creation unit  20  that includes an index futures contract  24  and a defined amount of cash  20 . The index futures contract  24  has a settlement date that is set and known at the date of issuance of the index futures contract  18 . Since the Index Participation Notes  22  are based on the index futures contract  18 , in some embodiments, the Index Participation Notes  22  also have a fixed term. 
     Referring to  FIG. 8 , in one embodiment, the Index Participation Notes  22  have a fixed term, e.g., a settlement/liquidation date that coincides with a settlement/liquidation date underlying the futures contract  18 . A process  150  for settlement of fixed term Index Participation Notes  22  includes determining, typically by the Index Participation Note issuer, the final value for the Index Participation Notes  22  on or after the settlement of the index futures contract  24  ( 152 ). 
     A computer system calculates the final value of the Index Participation Notes  22  based on the mark price for the futures contract  24  on the settlement date and any interest accrued on the cash  26  in the creation unit  20 . As such, the final value calculated by the computer system reflects any changes in the mark price between issuance and redemption of the futures contract  18   c  and reflects the interest gained on the cash  20 . 
     The Index Participation Note issuer determines the number of Index Participation Notes  22  held by a particular investor on the settlement date ( 154 ). The Index Participation Note issuer uses the computer system to determine the value of the Index Participation Notes  22  by multiplying the number of Index Participation Notes  22  held by the investor by the determined value for the Index Participation Notes  22  ( 156 ). 
     The Index Participation Note issuer may charge a fee for redemption of the Index Participation Notes  22 . If a fee is charged for redemption, the computer system subtracts the fee from the determined total value of the investor&#39;s Index Participation Notes ( 158 ). The Index Participation Note issuer transfers the value of the investor&#39;s Index Participation Notes less any fees to the investor ( 160 ). 
     Referring to  FIG. 9 , another embodiment, of the Index Participation Note  22  is one in which the term of the Index Participation Note  22  is variable. For a variable term Index Participation Note  22 , the holders of the Index Participation Notes  22  may exercise a periodic, e.g., quarterly cash-out feature. Any remaining, non-exercised Index Participation Notes  22  would be subject to automatic roll-forward of expiring futures contracts. With this roll-forwarding the Index Participation Note-issuer generates a new creation unit of future-dated futures contracts. The Index Participation Note issuer rolls-forward the interest of the non-exercising Index Participation Note holders by issuing new Index Participation Notes to them based on the new creation unit. The Index Participation Note issuer uses a computer system to track the contents of the creation unit  20  before and after the Index Participation Notes  22  are rolled-forward. 
     Referring now to  FIG. 9 , a process  190  for settlement of variable term Index Participation Notes  22  is shown. On the settlement date for the index futures contract  18 , the Index Participation Note issuer uses a computer to determine the value of each Index Participation Note  22  ( 196 ). The Index Participation Note issuer determines, based on rules, a new, one or more future-dated index futures contracts to include in a new creation unit based on the index ( 198 ) and goes into the market to secure those contacts following non-discretionally execution. 
     For example, the initial index futures contracts included in the creation unit  20  could be 2006 S&amp;P 500® index futures contracts with a settlement date of December 2006. On the settlement date, the 2006 futures contract is settled and a new index futures contract with a settlement date 1 year later (e.g., a 2007 S&amp;P 500® index futures contract) is purchased. 
     After the futures contract for the new creation unit is determined, the Index Participation Note issuer uses a computer to calculate the initial price for the Index Participation Notes based on the creation unit  20  that includes the new index futures contract ( 200 ). This price could be greater than, equal to, or less than the value of the Index Participation Notes on the settlement date. 
     For Index Participation Notes  22  having a variable term, the holder of the Index Participation Note can decide whether to hold the Index Participation Note (and thus receive interest in the new creation unit) or to liquidate the Index Participation Note for cash. The Index Participation Note issuer determines if the note holder has exercised the cash-out option for the Index Participation Note  22  ( 202 ). 
     If the Index Participation Note holder has exercised the cash out option or the Index Participation Notes  22  are fixed term, the Index Participation Note issuer uses a computer to calculate the payment due to the holder of the Index Participation Notes  22 . The computer multiplies the number of Index Participation Notes  22  by the determined value for the Index Participation Notes ( 210 ) and subtracts any fees associated with redemption of the Index Participation Notes  22  ( 212 ). The Index Participation Note issuer transfers the calculated settlement value to the Index Participation Note holder in exchange for or otherwise extinguishing the Index Participation Notes  22  ( 214 ). 
     If the Index Participation Note holder has not exercised the cash-out option and the Index Participation Notes are all variable term, the Index Participation Note issuer uses a computer system to calculate a total value of the Index Participation Notes  22  held by the investor ( 204 ). The computer system determines the number of the new Index Participation Notes that correspond to the total value of the old Index Participation Notes based on the issue price for Index Participation Notes  22  based on the new creation unit ( 206 ) and the Index Participation Note issuer issues the new Index Participation Notes  22  to the note holder. 
     The computer system also determines if a cash settlement is necessary to account for differences in the value of the Index Participation Notes originally held by the investor and the newly issued Index Participation Notes. If such a settlement is due, the Index Participation Note issuer provides the cash settlement, e.g., for an odd lot amount if applicable, to the Index Participation Note holder ( 208 ). 
     Referring to  FIG. 10 , in some embodiments, an Index Participation Note holder may be able to redeem Index Participation Notes  22  from the Index Participation Note issuer prior to the settlement date based on a process  170  for redeeming creation unit-size aggregations of Index Participation Notes  22  by request of an Index Participation Note holder. If the Index Participation Note issuer allows redemption of creation unit-size aggregations of Index Participation Notes  22 , the Index Participation Note issuer determines if the Index Participation Note holder owns a creation unit-size aggregation of Index Participation Notes ( 172 ). 
     If the Index Participation Note holder does not own a creation unit-size aggregation of Index Participation Notes, the Index Participation Notes  22  may be traded on an exchange, market or other trading venue. When the Index Participation Note holder owns less than a creation unit-size aggregation of Index Participation Notes, the Index Participation Note holder can not redeem the Index Participation Notes  22  prior to the settlement date of the futures contract  18 . 
     If the Index Participation Note holder does own a creation unit-size aggregation of Index Participation Notes, the Index Participation Note issuer receives a redemption request from the Index Participation Note holder ( 176 ). The Index Participation Note issuer uses a computer system to calculate the current pro-rata cash value for a creation unit of Index Participation Notes ( 178 ). The cash value includes the total value of the cash  26  in the creation unit  20 . 
     The Index Participation Note issuer may charge a fee for redemption of the Index Participation Notes  22  prior to the settlement date. If such a fee is charged, the computer system subtracts the fee associated with the redemption from the total cash value of the creation unit ( 180 ). Since the settlement date of the futures contract has not yet arrived, the Index Participation Note issuer transfers the futures contract  24  in the creation unit  20  ( 182 ) and transfers the cash value less any fees ( 184 ) to the Index Participation Note holder in exchange for the Index Participation Notes  22 . 
     Creation Unit Including Multiple Index Futures Contracts 
     While the creation unit  20  in the embodiments described above has been described as including a single index futures contract  24  and a defined amount of cash  20 , other arrangements are possible. For example, the creation unit  20  could include a blend of multiple, different index futures contracts. 
     Referring to  FIG. 11 , in one particular example, the creation unit  20  includes weighted amounts of each of the S&amp;P 500 index futures, the Nasdaq 100 index futures, and the Dow Jones Industrial Average (DJIA) futures. As shown in  FIG. 11 , the creation unit  20  includes one S&amp;P 500 long index futures contract  220 , one Nasdaq 100 long index futures contract  222 , and one Dow Jones Industrial Average (DJIA) long index futures contract  224 . The creation unit also includes a predetermined amount of cash  226 . Upon formation of the creation unit  20 , the value of the cash  226  would be a sum of the initial mark price for the S&amp;P 500 long index futures contract  220 , the initial mark price for Nasdaq 100 long index futures contract  222 , and the initial mark price for Dow Jones Industrial Average (DJIA) long index futures contract  224 . Upon settlement, the value of the creation unit  20  will converge to the sum of the value of the S&amp;P 500, Nasdaq 100, and DJIA, after accounting for index multipliers in the creation unit and accrued interest on the cash held in the creation unit. 
     Index Participation Notes based on a blend of different index futures could also be based on particular regions (e.g., Europe, Asia, South America) or on particular types of indexes (e.g., indexes devoted to sectors, or indexes that have different weightings such as capitalization weighted stock indexes, price weighted stock indexes equal weighted stock indexes, and so forth). 
     Magnified Index Participation Note 
     Referring to  FIG. 12 , an alternative embodiment of a creation unit  244  includes multiple index futures contracts (e.g., long index futures contract  240  and long index futures contract  242 ) based on the same index. The amount of cash is equal to the mark price of a single futures contract. For example, if long index futures contracts  240  and  242  each have a mark price of $1500, upon generation of the creation unit  244  the amount of cash  242  would be $1500. Including multiple index futures contracts  240  and  242  in the creation unit  244  increases the leverage of the Index Participation Note  246  by magnifying the position taken by the long index futures contract. For example, with the single index futures contract embodiment described above, the resulting creation unit is based on a single futures contract and the mark price of the single contract and when the value of the index futures increases by 1% the value of the Index Participation Notes  22  increases by 1%. Whereas, when the creation unit  244  includes two long index futures contracts  240  and  242  and the cash  242  in the creation unit  244  is equal to the mark price of one of the two index futures contracts, when the value of the index futures increases by 1% the value of the Index Participation Notes  246  increases by about 2% (correspondingly when the value falls by 1% for the futures contract the value falls by about 2% for the Index Participation Note  246 ). Thus, the number of long futures contracts included in the creation unit  244  serves as a multiplier to the gains/losses incurred by the magnified Index Participation Notes  246 . 
     The number of index futures contracts in the creation unit  244  for the magnified Index Participation Notes  246  can vary. For example, the Index Participation Note issuer could issue magnified Index Participation Notes  246  with between two and ten index futures contracts included in the creation unit  244 . If the creation unit  244  includes ten long index futures contracts, a one percent increase in the value of the futures contract would generate a corresponding ten percent increase in the value of the magnified Index Participation Notes  246 . 
     Creation and Redemption Arbitrage 
     In some embodiments, issuance and subsequent trading of the Index Participation Notes  22  may result in the Index Participation Notes (e.g., Index Participation Notes  22 ) trading at a slight premium or discount to the futures contracts. When the Index Participation Notes  22  are trading at a slight premium or discount, an arbitrageur could use the situation to arbitrage based on the premium or discount. 
     If the Index Participation Notes  22  are trading at a premium to the futures contracts  18 , the arbitrageur can make money using a creation arbitrage scenario. For example, if Index Participation Notes with a 2006 settlement date are trading at a premium to the index futures with the same settlement date an arbitrage scenario exists. The arbitrageur sells one creation unit worth of 2006 Index Participation Notes at the premium price on a stock exchange and buys one futures contract at the discount price to lock in the price differential. The arbitrageur requests a creation of one creation unit of newly-issued 2006 Index Participation Notes from the Index Participation Note-issuer and delivers out (via clearing house transfer) an open futures position plus cash to the Index Participation Note-issuer. The arbitrageur receives one creation unit of 2006 Index Participation Notes from the Index Participation Note-issuer to cover the sale on the stock exchange on T+3 settlement and also receives more than enough proceeds from the sale of the Index Participation Notes on T+3 settlement to cover the cash delivery to the Index Participation Note issuer for the creation with the excess cash proceeds corresponding to the arbitrages profit from the creation transaction. Thus, as shown above, if the Index Participation Notes are trading at a premium to the futures contracts, the arbitrageur can make money off the difference in price. 
     Conversely, if the Index Participation Notes are trading at a discount to the futures contracts, the arbitrageur can make money using a redemption arbitrage scenario. For example, if Index Participation Notes with a 2006 settlement date are trading at a discount to the index futures with the same settlement date, an arbitrage scenario exists. The arbitrageur buys one creation unit of the 2006 Index Participation Notes at the discount price on the stock exchange and sells one futures contract at the premium price to lock in differential. The arbitrageur requests redemption of one creation unit of the 2006 Index Participation Notes from Index Participation Note-issuer and receives in (via a clearing house transfer) an open long futures position plus more than enough cash from the Index Participation Note-issuer to cover the purchase of the Index Participation Notes, with the excess cash corresponding to the arbitrage profit from the redemption transaction. The arbitrager delivers one creation unit of 2006 Index Participation Notes to the Index Participation Note-issuer to effect the in-kind redemption of the Index Participation Notes. 
     Creation Unit Including Short Index Futures Contracts (Bear Index Participation Note) 
     Referring to  FIG. 13 , while in the examples described above the creation unit (e.g., creation unit  20  or creation unit  244 ) included long index futures contract(s) in some embodiments a creation unit  234  can include a short index futures contract  230 . In order to form the creation unit  234 , the Index Participation Note issuer accepts a short index futures contract plus cash from an Index Participation Note creator in exchange for the issuance of Bear Index Participation Notes. The credit to the futures clearing margin account on a short index futures position corresponds to the original futures mark price minus the spot price (e.g., the index value) at maturity of the short index futures contract. Such Index Participation Notes issued based on a creation unit  234 , (a short futures contract) are referred to herein as “bear” Index Participation Notes  236  because their performance will have an inverse relationship to the performance of the index. Thus, if the index decreases below its initial mark price the value of the bear Index Participation Notes  236  increases because short futures positions are credited with cash as the futures mark goes down and if the index increases the value of the bear Index Participation Notes  236  decreases because short futures positions are debited as the futures mark goes up. 
     The creation unit  234  also includes a pre-defined amount of cash  232 . Since the price of the index futures contract  230  and the cash  232  are guaranteed to converge to the index value on the final settlement date of the futures contract  230 , the cash value  232  included in the creation unit  234  upon generation of the bear Index Participation Notes  236  can be calculated by a computer system to account for the inverse relation between the index value and the Index Participation Note value. 
     Balanced-Asset Futures Based Index Participation Notes 
     In some embodiments, investment instruments other than index based futures contracts can be included in a creation unit and used to generate Index Participation Notes. For example, a creation unit could blend futures contracts for diversified asset exposure in pre-determined, weighted amounts between stocks, bonds, currencies, and/or other assets underlying futures contracts, provided such futures contrasts are cash settled in the manner previously described. 
     Index Options-Based Index Participation Notes 
     Referring to  FIG. 14 , an alternative embodiment of Index Participation Notes  314  has an Index Participation Note issuer issuing Index Participation Notes  314  that are backed by a call and put option positions on a particular index of securities. The Index Participation Notes  314  are tradable index shares that are backed by a fractional interest in a long call index option position  316 , a short put index options position  318 , and a defined amount of cash  320  all of which are included in a creation unit  312 . 
     Each creation unit  312  is divided into multiple Index Participation Notes  314 . For example, creation unit  312  can be partitioned into 100 Index Participation Notes  314 , such that each Index Participation Note  314  represents a 1/100th ownership interest in the index long call and short put options positions  316  and  318  and a 1/100th ownership interest in the cash  320  included in the creation unit  312 . Other partitions of the creation unit  312  into other amounts of Index Participation Notes  22  are possible. In some embodiments, each creation unit is divided into from about 100 to about 10,000 Index Participation Notes  22 . 
     Index options contracts such as the long call index option position  316  and the short put index option position  318  are call/put options based on a stock market index such as the S&amp;P 500® or the Nasdaq 100®, which may be European exercised (i.e., exercised on expiration) or American exercised (i.e., exercisable on or before the expiration date). In contrast to stock options, index options do not require the writer of a call option to actually deliver shares of the stocks included in the index upon exercise of the option or the put writer to actually purchase the shares of stock included in the index upon exercise of the option. Rather, the index options are based on a cash settlement procedure. The payoff that would be due if the option were exercised is calculated and, upon exercise of an option, the option writer pays the calculated amount to the holder of the option. 
     The long call index option position  316  included in the creation unit  312  gives the holder of the position (e.g., the note issuer  310 ) the economic benefit of the amount by which the index value exceeds the strike price on the option expiration date. Thus, if the index increases in value above the strike price, the Index Participation Note increases in value. On the other hand, the short, put index option position  318  gives the holder of the short position the economic benefit of the amount by which the index value falls short of the strike price on the option expiration date. Thus, if the index decreases in value, the Index Participation Note  310  decreases in value. 
     A computer system calculates the amount of cash  320  included in the creation unit  312 . In general, the amount of cash  320  equals the option strike price times a contract multiplier. If the cash  320  is held in an interest bearing account, the computer system calculates the total value of the cash  320  in the creation unit  312  on any day after creation to reflect principal value plus accrued interest. 
     Referring to  FIG. 15 , in order to facilitate creation of Index Participation Notes  314 , long call and short put options positions  316  and  318  are established by an investor seeking to generate Index Participation Notes and transferred with a requisite cash amount via a clearing house  330  to the Index Participation Note issuer  310  in exchange for the newly issued Index Participation Notes. The Index Participation Note issuer  310  receives, the long call options positions  316  and the short put index options positions  318  plus cash through accounts at the clearing house  330 . Thus, the Index Participation Note issuer  310  will have an increase in value in the options and cash positions if the index rises in value and will have a decrease in value if the index decreased in value by the expiration date. 
     Both the long call and short put index options positions  316  and  318  are established based on the same “strike price” for the options contracts. On the expiration date for the options contracts, if the value of the index is greater than the strike price, money is transferred from the clearing house  330  to the Index Participation Note issuer  310  (as indicated by arrows  336  and described below in relation to  FIGS. 16-18 ). Conversely, on the expiration date for the options contracts, if the value of the index is less than the strike price, money is transferred from the Index Participation Note issuer  310  to the clearing house  330 . 
     After the options positions  316 ,  318 ,  332 , and  334  and cash have been delivered via the clearing house  330  to the Index Participation Note issuer  310 , the Index Participation Note issuer  310  produces a creation unit  312 . As described above, the creation unit  312  holds a long, call and a short put index options positions  316  and  318  and a predefined amount of cash  320 . The amount of cash  320  included in the creation unit  312  equals the strike price for the options contracts  316  and  318  multiplied by a contract multiplier (if applicable). For example, if the strike price for the long call index option position  316  is $1000 and the strike price for the short put index options contract  318  is $1000 upon formation the creation unit would include $1000 multiplied by the contract multiplier (if any) for the options contracts. 
     Initially, upon the first generation of particular Index Participation Notes, the Index Participation Notes are valued based on the cash amount related to the pro-rata cash  320  in the creation unit  312  and the market price of the options contracts  316  and  318  at the time of first generation of the Index Participation Notes  314  after accounting for expenses and fees. Thus, the cost of the Index Participation Note  314  is initially based on the strike price of the options contracts  316  and  318  for the index on the day of formation of the creation unit  312 . If additional Index Participation Notes  314  are issued to investors  322  after the initial creation unit, a computer system calculates the amount of cash necessary to form a creation unit  312 . The amount of cash will include any accrued interest such that the formation of the additional Index Participation Notes  314  does not dilute the value of the previously offered Index Participation Notes  314 . 
     After issuance of the Index Participation Note  314  by the Index Participation Note issuer  310 , the Index Participation Note  314  can be traded on an exchange, market, electronic communication network (ECN) and other trading venues. In order to facilitate open trading of the Index Participation Notes  314 , the Index Participation Notes  314  can be listed and traded like ordinary shares of stock or exchange traded funds (ETFs) on one or more national securities exchanges and/or through the trading facilities of one or more electronic communication networks (ECNS). 
     Secondary market trading of Index Participation Notes  314  will be at prices governed by competitive supply and demand forces taking into consideration the values of the index options contracts, cash, and value of the index that the Index Participation Notes  314  represent. Since the Index Participation Notes  314  are traded in a manner similar to traditional stocks on a national securities exchange, the Index Participation Notes  314  will be available to be traded and held through any ordinary stock brokerage account and handled by any one of the Registered Representatives in the United States today. 
     Since the creation unit  312  includes a long call option  316 , a short put option  318 , and a defined amount of cash  320  corresponding to the strike price of the options, the value of the Index Participation Note  314  converges to the value of the underlying index on the expiration date of the index options contracts  316  and  318 . With this arrangement the investment position represented by the Index Participation Note  314  is economically equivalent to being long on the basket of stocks included in the index regardless of whether the index increases or decreases in value. In order for the value of the Index Participation Notes  314  to converge to the index on the settlement date, the strike price of the long call option  316  and the short put option  318  must be the same. 
     For an index call option, the payoff to a holder of an index call option is: 
                                                V−S   if V &gt; s           0   if V = S           0   if V &lt; S                        
where V is the value of the index at expiration of the index call option and S is the strike price for the index call option.
 
     For a put index option, the payoff to a holder of the put index option is: 
                                                0   if V &gt; s           0   if V = S           S−V   if V &lt; S                        
where V is the value of the index at expiration of the option and S is the strike price for the option. Since the Index Participation Note issuer  314  is short the put option, the Index Participation Note issuer  314  will be liable for payment of S-V should the value of the index be less than the strike price on settlement date. Thus, the net gains/losses credited to or debited against the cash value of the creation unit are as follows:
 
     
       
         
           
               
               
               
             
               
                   
                   
               
             
            
               
                   
                 +(V−S) 
                 if V &gt; s 
               
               
                   
                 0 
                 if V = S 
               
               
                   
                 −(S−V) 
                 if V &lt; S. 
               
               
                   
                   
               
            
           
         
       
     
     Since the creation unit  312  includes cash equal to the strike price ‘S’, the value of the creation unit converges to the value of the index ‘V.’ That is, regardless of whether ‘V’ is greater than ‘S,’ equal to ‘S’ or less than ‘S’ on expiration date, the value of the account holding the long call, short put, and cash equal to the strike price equals ‘V’ value of the index. 
     Referring to  FIG. 16 , a process  340  for issuing and redeeming Index Participation Notes based on options contracts is shown. The Index Participation Note issuer  310  receives a long index call option having a particular strike price, referred to herein as strike price ‘S’ ( 342 ) and receives a short index put option having the same strike price ‘S’ ( 344 ). The Index Participation Note issuer  310  also receives an amount of cash equal to the strike price ‘S’ in the creation unit  312  ( 346 ). Since the strike prices ‘S’ of the long call and short put options positions are the same and the creation unit  312  includes cash  320  equal to the strike price ‘S’, the value of the creation unit  312  converges to the value of the index on the date of expiration after accounting for the index multiplier. 
     As the value of the creation unit converges to the index, on the expiration date, the Index Participation Note issuer  310  uses a computer system to administer, monitor, and reconcile cash flows depending on whether the index price is greater than, equal to, or less than the strike price ‘S’ ( 348 ). For example, if the index value is greater than the strike price on expiration date, the Index Participation Note issuer exercises the call option ( 350 ) and the put option ( 352 ) is not exercised. Conversely, if the index value is less than the strike price ‘S’ on expiration date, the put option is exercised by its holder ( 354 ) against the Index Participation Note issuer  310  while the call option ( 356 ) is not exercised. The computer system adjusts the amount of cash included in the creation unit  312  based on the exercised options and exercised settlement values. Examples are presented below in relation to  FIGS. 17A ,  17 B,  18 A, and  18 B. 
       FIGS. 17A and 17B  depict examples of the convergence of the value of the creation unit  312  and the index after accounting for the index multiplier when the strike price for the options contracts  316  and  318  is the same as the value of the index on the date of generation of the creation unit  312 . 
     Referring to  FIG. 17A , an example is depicted in which the strike price  364   a  is equal to the value of the index on the issue date  366 . In this example, the value of the index (represented by line  367 ) rises between the issue date  366  and the expiration date  368 . At the expiration date  368 , the value of the index is greater than the strike price of the options contract. Thus, the call option has a payout  370   a  of the index value minus the strike price and the put option expires worthless (i.e., has a value of $0). Therefore, the sum of the cash  320  in the creation unit  312  (e.g., the strike price plus the payout  370   a  from the call option) converges to the value of the index upon settlement. 
     Referring to  FIG. 17B , the strike price  364   b  is equal to the value of the index on the issue date  366 . In this example the value of the index (represented by line  367 ) decreases between the issue date  366  and the settlement date  368 . At the settlement date  368 , the strike price  364   b  of the options contracts is greater than the value of the index  362   b . Thus, the call option expires worthless (i.e., has a value of $0), and since the Index Participation Note issuer  310  holds a short put option  318 , the Index Participation Note issuer  310  pays the buyer of the option a payout  370   b  equal to the strike price minus the index value. The sum of the cash  320  in the creation unit  312  (e.g., the strike price minus the payout  370   b  paid from the put option) converges to the value of the index on the settlement date  368 . 
       FIGS. 18A and 18B  depict examples of the convergence of the value of the creation unit  312  and the index when the strike price for the options contracts  316  and  318  is different from the value of the index on the date of generation of the creation unit  312  are shown. 
     Referring to  FIG. 18A , in this example the strike price  384   a  is different from the value of the index  386   a  on the issue date  366 . In this example the value of the index (represented by line  367 ) rises between the issue date  366  and the settlement date  368 . At the settlement date  368 , the strike price  384   a  of the options contracts is less than the value of the index  382   a . Thus, the put option expires worthless and has a value of $0 (and thus the Index Participation Note issuer  310  as the seller of the put option does not owe any money to the buyer) and the call option has a payout  388   a  of the index value minus the strike price. Thus, the sum of the cash  320  in the creation unit  312  (e.g., the strike price plus the profit  388   a  from the call option) is the value of the index  382   a.    
     Referring to  FIG. 18B , in this example the strike price  384   b  is different from the value of the index  386   b  on the issue date  366 . In this example the value of the index (represented by line  367 ) decreases between the issue date  366  and the settlement date  368 . At the settlement date  368 , the strike price of the options contracts is greater than the value of the index  382   b . Thus, the call option expires worthless and has a payout of $0. Since the Index Participation Note issuer  310  is short the put option, the Index Participation Note issuer pays the buyer of the option a payout  388   b  equal to the strike price  384   b  minus the index value  382   b . Thus, again, the sum of the cash  320  in the creation unit (e.g., the strike price minus the payout  388   b  paid from the put option) converges to the value of the index  382   b  on the settlement date  368 . 
     As shown in the examples above, in order for the value of the options  316  and  318  and the cash  320  included in creation unit  312  to converge to the value of the index on the expiration date the options have the same strike price and the amount of cash  320  included in the creation unit  312  is equal to that strike price. However, at any given time there are multiple options available on the market with the same expiration date but different strike prices. 
     Referring to  FIG. 19 , a process  390  for obtaining long call index option contracts  316  and short put index options contracts  318  having the same strike price and settlement date is shown. The Index Participation Note issuer  310  uses a computer to obtain a list of available strike prices for call index options  316  having a particular settlement date ( 392 ) and to obtain a list of available strike prices for put index options  318  having the same settlement date ( 394 ). The computer system determines if any of the strike prices for a long call option contract and a short put option contract are the same ( 396 ). If at least some matching strike prices are located, the computer system instructs the Index Participation Note issuer  310  to accept one or more of the matching pairs of long call and short put index options having the same strike price and the same expiration date in the creation unit in exchange for newly issued Index Participation Notes ( 398 ). 
     Referring to  FIG. 20 , an exemplary listing of strike prices for long call and short put index options is shown. The long call options (shown in column  400 ) include long call index options having strike prices of $800, $880, $1000, $1020, $1060, and $1200. The short put index options (shown in column  402 ) include short put index options having strike prices of $750, $800, $1000, $1020, $1150, and $1200. In order to determine the matching pairs of index options, the computer system obtains both of these lists. After analyzing the strike prices, the computer system would determine that matching pairs exist at the strike prices of $800, $1000, $1020, and $1200 (as indicated by arrows  404 ,  406 ,  408 , and  410 , respectively). The Index Participation Note issuer  310  receives one or more long call and short put index options pairs having the same strike price and expiration date to provide a creation unit basis for issuance of Index Participation Notes  314 . 
     Referring to  FIG. 21 , a process  420  for obtaining long call index option contracts and short put index options contracts having strike prices equal to the index value at the issue date and having the same settlement date is shown. The Index Participation Note issuer  310  uses a computer system to obtain a list of available strike prices for long call index options having a particular expiration date ( 422 ) and to obtain a list of available strike prices for short put index options having the same expiration date ( 424 ). The computer system determines if any of the strike prices for the long call and short put options contracts are the same as (or within a certain percentage of) the current value of the index ( 426 ). If one or more matching pairs of long call and short put options having a strike price equal to (or about the same as) the index value are located, the computer system instructs the Index Participation Note issuer  310  to accept at least one of the matching pair(s) of long call and short put index options ( 432 ). If such matching pairs are not located, the Index Participation Note issuer  310  announces that it will accept delivery of long call and short put options at a strike price equal to the current index value ( 428 ). The index note issuer  310  purchases one or more matching pairs of the long call and short put options ( 430 ). 
     Referring to  FIG. 22 , an exemplary listing of strike prices for long call and short put index options is shown. The long call options (shown in column  434 ) include long call index options having strike prices of $800, $880, $1000, $1020, $1060, and $1200. The short put index options (shown in column  436 ) include short put index options having strike prices of $750, $800, $1000, $1020, $1150, and $1200. If the current index value was $1000, the computer system analyzes the lists  434  and  436  and determines that a matching pair of long call and short put index options exist at a strike price equal to the value of the index, namely a strike price of $1000 (as indicated by arrow  438 ). The Index Participation Note issuer  310  purchases the long call and short put index options having the same strike price. 
     While in the examples described above the long call and short put options included in the creation unit  310  had the same strike price, in some embodiments the long call and short put options included in the creation unit  310  can have different strike prices. In such embodiments, the value of the Index Participation Notes issued based on the creation unit does not necessarily converge to the value of the index on settlement date. In order to guarantee the index value to the holders of the Index Participation Notes, the Index Participation Note issuer  310  uses a computer system to calculate a valuation to determine what amount of cash to include in the creation unit after accounting the difference in value due to differences in strike prices. In order to calculate the valuation, the computer system would determine the amount by which the value of the creation unit would exceed or fall short of the value of the index on expiration date. The computer system would also adjust the cash amount corresponding to strike price and index multiplier to offset the excess value or the shortfall in value in order to ensure the Index Participation Note converges in value with the Index. 
     While in the examples described above the long call and short put options included in the creation unit  310  had the same expiration date, in some embodiments the long call and short put options included in the creation unit  310  can have different expiration dates. In such embodiments, the value of the Index Participation Notes issued based on the creation unit does not necessarily converge to the value of the index on settlement date. In order to guarantee the index value to the holders of the Index Participation Notes, the Index Participation Note issuer  310  uses a computer system to calculate a valuation to determine what amount of cash to include in the creation unit after accounting the difference in value due to differences in expiration dates. In order to calculate the valuation, the computer system would determine the amount by which the value of the creation unit would exceed or fall short of the value of the index on expiration date. The computer system would also adjust the cash amount corresponding to strike price and index multiplier to offset the excess value or the shortfall in value in order to ensure the Index Participation Note converges in value with the Index. 
     Redemption/Settlement of IP notes 
     Similar to the situation described above in relation to the Index Participation Notes  22  issued based on a creation unit  20  that includes an index futures contract  24  and a defined amount of cash  20 , Index Participation Notes  314  based on long call/short put index options  316  and  318  and cash  320  can have either a fixed term or a variable term. 
     For Index Participation Notes  314  having a fixed term, the term coincides with the specific monthly or quarterly settlement date of the corresponding index options contracts that are used in the creation unit  312 . On the settlement date the Index Participation Notes  314  are liquidated and a pro-rata share of cash is distributed to holders of the Index Participation Notes  314 . 
     For Index Participation Notes  314  having a variable term, holders may exercise a cash-out, e.g., on a quarterly basis. If the holder of the Index Participation Notes  314  elects not to cash-out the Index Participation Notes, the Index Participation Notes  314  are automatically rolled forward into new Index Participation Notes. The new Index Participation Notes are issued through rule-driven market execution by the Index Participation Note-issuer  310 . The notes approximately correspond in underlying notional value to the remaining aggregate cash from the liquidated Index Participation Notes held by Index Participation Note-issuer. 
     In some embodiments, an Index Participation Note holder may redeem Index Participation Notes  314  from the Index Participation Note issuer  310  prior to the settlement date. 
     If the Index Participation Note holder does not own a creation unit-size aggregation of Index Participation Notes, redemption is not feasible. In such a situation, the Index Participation Note holder can trade, i.e. sell, the Index Participation Notes  314  on an exchange, market or other trading venue obtain a current value for the Index Participation Notes  314  prior to the settlement date. 
     On the other hand, if the Index Participation Note holder owns a creation unit-size aggregation of Index Participation Notes and requests to redeem the Index Participation Notes  314  prior to settlement of the options contracts, the Index Participation Note issuer  310  uses a computer to calculate the cash value for the creation unit of Index Participation Notes  314 . Since the settlement date of the long call and short put options contracts  316  and  318  has not yet arrived, the Index Participation Note issuer  310  transfers the long call and short put options contracts  316  and  318  in the creation unit  312  and the requisite cash value  320  after accounting for any fees to the Index Participation Note holder in exchange for the Index Participation Notes  314 . 
     Creation Unit Including Multiple Long Call and Short Put Index Options 
     While the creation unit  312  in the embodiments described above has been described as including a long call index option and a short put index option based on a single index, other arrangements are possible. For example, the creation unit  312  could include a blend of options contracts for multiple different indexes. 
     In one particular example, as shown in  FIG. 23 , the creation unit  312  could include weighted amounts of each of the S&amp;P 500 index, the Nasdaq 100 index, and the Dow Jones Industrial Average (DJIA). The creation unit  312  includes an S&amp;P 500 long call index option  440 , an S&amp;P 500 short put index option  442 , a Nasdaq 100 long call index option  444 , a Nasdaq 100 short put index option  446 , a Dow Jones Industrial Average (DJIA) long call index option  448 , and a DJIA short put index option  450 . The creation unit  312  also includes a defined amount of cash  452 . Upon formation of the creation unit  312 , the value of the cash  452  would be a sum of the strike prices for the S&amp;P 500 options, the Nasdaq 100 options, and the DJIA options after applying the respective index multipliers. 
     Index Participation Notes based on a blend of different index options could also be based on particular regions (e.g., Europe, Asia, South America) or on particular types of indexes (e.g., indexes devoted to sectors, or indexes that have different weightings such as capitalization weighted stock indexes, price weighted stock indexes equal weighted stock indexes, and so forth). 
     Creation Unit Including Multiple Index Options Contracts (Magnified IP Note) 
     Referring to  FIG. 24 , in some embodiments, a creation unit  470  can include multiple long, call and multiple short, put index options contracts based on the same index and the same strike price and expiration month. In the example shown in  FIG. 24 , the creation unit  470  includes two long call index options contracts  460  and  462  and two short put index options contracts  464  and  466 . The creation unit  470  also includes a defined amount of cash  468  equal to the strike price of one of the options contracts multiplied by the contract multiplier. 
     For example, if the options contracts  460 ,  462 ,  464 , and  466  each have a strike price of $1500, $1500 multiplied by the index multiplier would be included as the cash  468  in the creation unit  470 . These multiple index options contracts  460 ,  462 ,  464 , and  466  increase the leverage of the Index Participation Note by magnifying the position taken by the options contracts. 
     When the creation unit  470  includes two long call index options contracts  460  and  462  (in contrast to one as described above) and the cash  468  in the creation unit  470  is the strike price of a single one of the contracts, for each 1% by which the value of the index increases above the strike price by expiration date, the value of the Index Participation Notes  246  increases by about 2%. Similarly, when the creation unit includes two short put index options contracts  464  and  466  (in contrast to one as described above) and the cash  468  in the creation unit  470  is the strike price of a single one of the contracts, for each 1% by which the value of the index decreases below the strike price by expiration date, the value of the magnified Index Participation Notes  472  decreases by about 2%. Thus, the number of long call and short put index options contracts included in the creation unit  470  serves as a multiplier to the gains/losses incurred by the magnified Index Participation Note  472 . 
     The number of index options contracts in the creation unit  470  for the magnified Index Participation Notes  472  can vary. For example, the Index Participation Note issuer  310  could issue magnified Index Participation Notes  472  with between two and twenty long call and short put index options contracts included in the creation unit  470 . By way of illustration, if the creation unit  470  includes ten long call and short put options contracts, a one percent increase in the value of the index above strike price on expiration date would generate a corresponding ten percent increase (approximately) in the value of the creation unit  470  above the strike price on which the magnified Index Participation Notes  472  are based on expiration date. 
     While in the above example, the magnified Index Participation Note provides a multiply enlarged return based on a change in the value of the index, in some embodiments a magnified Index Participation Note provides a multiply enlarged return if the opposite of the movement of the value of the index. For example, for each 1% by which the value of the index decreases below the strike price by expiration date, the value of the Index Participation Notes increases by about 2%. Similarly, in some embodiments, for each 1% by which the value of the index decreases below the strike price by expiration date, the value of the magnified Index Participation Notes increases by about 2%. Thus, the number of short call and long put index options contracts included in the creation unit serves as a multiplier to the gains/losses incurred by the magnified Index Participation Note. 
     The number of index options contracts in the creation unit for the magnified bear Index Participation Notes can vary. For example, the Index Participation Note issuer  310  could issue magnified bear Index Participation Notes  472  with between two and twenty long put and short call index options contracts included in the creation unit  470 . 
     Creation and Redemption Arbitrage 
     In some embodiments, issuance and subsequent trading of the Index Participation Notes  314  may result in the Index Participation Notes trading at a slight premium or discount to the options contracts. When the Index Participation Notes are trading at a slight premium or discount, an arbitrageur could use the situation to arbitrage based on the premium or discount. 
     If the Index Participation Notes are trading at above the value corresponding to the current 2006 Index call options premium minus the current 2006 Index put options premium plus the cash amount equal to the options contract strike price times the contract multiplier, an opportunity for creation unit arbitrage exists. In this situation, the arbitrageur would sell one creation unit worth of 2006 Index Participation Notes at the premium price on the exchange, market or other trading venue and buy one 2006 index call option contract, and sell one 2006 index put option contract to lock in the differential in the values of the Index Participation Notes and the value of the creation unit composed of the long 2006 Index call options and short 2006 Index put options. 
     The arbitrageur would request the creation of one creation unit of newly-issued 2006 Index Participation Notes from the Index Participation Note-Issuer. The arbitrageur would deliver out (via clearing house transfer) open index options positions plus cash equal to strike price plus accrued interest to the Index Participation Note-Issuer on an appropriate settlement timeline and receive one creation unit of 2006 Index Participation Notes from Index Participation Note-Issuer to cover the sale on the exchange, market, etc on settlement. The arbitrageur also receives more than enough cash proceeds from the sale of Index Participation Notes to meet its cash delivery requirements, with the excess proceeds representing arbitrage profit from the creation transaction. 
     Conversely, if the Index Participation Notes are trading below the value equal to the current 2006 Index call options premium minus the current Index put options premium plus the cash amount equal to the options contract strike price times a contract multiplier, an opportunity for redemption arbitrage exists. In this situation the arbitrageur buys a creation unit aggregation of Index Participation Notes at the discount price on the exchange or market or other trading venue, sells one index call option contract, and buys one index put option contract to lock in the differential in the value between the current creation unit composed of the 2006 Index call options minus the current 2006 Index put options and the value of the Index Participation Notes. 
     The arbitrageur requests redemption of the creation unit aggregation of just-purchased Index Participation Notes from Index Participation Note-Issuer. The arbitrageur delivers out (via clearing house transfer) a creation unit of Index Participation Notes to the Index Participation Note-Issuer and as redemption proceeds receives one long call index option plus 1 short put index option position plus cash corresponding to the strike price (after applying the index multiplier) plus accrued interest from the Index Participation Note-Issuer to cover settlement of the options trades and Index Participation Note on appropriate settlement timeline and with net excess cash representing arbitrage profit from the redemption transaction. 
     Creation Unit Including Long Put Index Options and Short Call Index Options Contracts (Bear IP Note) 
     Referring to  FIG. 25 , while in some of the examples described above the creation unit (e.g., creation unit  312 ) included long call/short put index options contracts, in some embodiments, e.g., a “bear” embodiment a creation unit  486  can include a short call index option  482  and a long put index option  480  having the same strike price and expiration date. The performance of these so called “bear” Index Participation Notes  488  based on creation unit  486  will have an inverse relationship to the performance of the index. Thus, if the index decreases, the value of the bear Index Participation Notes  488  will increase, and if the index increases the value of the bear Index Participation Notes  488  will decrease. 
     The creation unit  486  also includes a defined amount of cash  484 . As the value of the creation unit converges to the index, on the expiration date, the Index Participation Note issuer  310  uses a computer system to administer, monitor, and reconcile cash flows depending on whether the index price is greater than, equal to, or less than the strike price. For example, if the index value is greater than the strike price on expiration date, the Index Participation Note issuer exercises the put option and the call option is not exercised. Conversely, if the index value is greater than the strike price on expiration date, the call option is exercised by its holder while the put option is not exercised. The computer system adjusts the amount of cash included in the creation unit based on the exercised options and exercised settlement values. 
     Balanced-Asset Options Based IP Notes 
     In some embodiments, investment instruments other than index based options contracts can be included in a creation unit and used to generate Index Participation Notes. For example, a creation unit could blend options contracts for diversified asset exposure in pre-determined, weighted amounts between stocks, bonds, currencies, commodities and/or other assets underlying options contracts. In general, the creation unit could include any cash-settled options contract, whether involving financial options contracts or non-financial options contracts, and whether index-based or not. 
     Upside Participation/Downside Protection Index Participation Notes 
     Referring to  FIG. 26 , in some embodiments the Index Participation Notes are upside participation/downside protection Index Participation Notes  498  that provide gains in the index should the value of the index increase and provide protection of the initial investment should the value of the index decrease. Such upside participation/downside protection Index Participation Notes  498  are based on a creation unit  496  that could include a long put index option position  490  or long index futures option position to provide protection when the underlying index falls in value and a long index futures contract  492  to provide gains when the underlying index rises in value. The long put index option (or futures option)  490  will have a strike price corresponding to the value of the underlying stocks index below which the investor wishes to be protected against adverse price movements. The creation unit  496  also includes a defined amount of cash  494  corresponding to the mark price (and accrued interest) for the index futures contracts. 
     Referring to  FIG. 27A and 27B , examples of the value of the creation unit  496  versus the performance of the index (indicated by line  505 ), for upside participation/downside protection Index Participation Notes  496  based on a creation unit  496  that includes a long put index option  490  (or long put index futures option) and a long index futures contract  492  is shown. In this example, the strike price  502   a  for the long put index option  490  is the same as the mark price  502   a  for the long index futures contract  492  on the date of generation of the creation unit  496 . 
     In the example shown in  FIG. 27A , the value of the index (represented by line  505 ) rises between the issue date  504  and the settlement date  506 . At the settlement date  506 , the strike price of the options contracts  502   a  is less than the value of the index  500   a . Thus, the put option expires worthless (i.e. has a profit of $0). However, since the mark price for the long index futures  502   a  is less than the value of the index  500   a , a profit  508  is gained from the long index futures contract  492 . Thus, the sum of the cash  494  in the creation unit  496  (e.g., the strike price plus the profit  508  from the futures contract) is equal to the value of the index  500   a.    
     In the example shown in  FIG. 27B , the value of the index (represented by line  505 ) falls between the issue date  504  and the settlement date  506 . At the settlement date  506 , the strike price  500   b  of the options contract is greater than the value of the index  502   b . As such, the long put option  490  has a payout  510  of the strike price minus the index value. The futures contract has a loss equal to the strike price minus the index value. Thus, the sum of the profit from the long put option  490  and the loss from the long futures  492  is approximately zero and the value of the Index Participation Note on settlement date is equal to the strike price. As such, the upside participation/downside protection Index Participation Note  498  is shown to protect the investment of the note holder from the decrease in the value of the index below the strike price. 
     Upside Participation/Downside Protection Index Participation Notes 
     Referring to  FIG. 28 , in some embodiments, Index Participation Notes  546  are based on a creation unit  544  that includes a long call index options contract  540  to provide the upside gains. The creation unit  544  also includes a defined amount of cash  542  equal to the strike price for the long call index options contract. 
     Referring to  FIG. 29A and 29B , examples of the value of the creation unit  544  versus the performance of the index (indicated by line  552 ), for upside participation Index Participation Notes  546  based on a creation unit  544  that includes a long call index option  540  (or futures option) and cash  542  is shown. 
     In the example shown in  FIG. 29A , the value of the index (represented by line  552 ) rises between the issue date  554  and the settlement date  556 . At the settlement date  556 , the strike price of the options contracts  550   a  is less than the value of the index  548   a . Thus, the long call index option or futures option has a payout of the difference between the index  548   a  and the strike price  550   a  (represented by arrow  558 ). 
     In the example shown in  FIG. 29B , the value of the index (represented by line  552 ) falls between the issue date  554  and the option expiration date  556 . At the expiration date  556 , the strike price  550   b  of the long call options contract is greater than the value of the index  502   b . As such, the long call index option expires worthless. Thus, at the settlement date  556 , the Index Participation Note has a value equal to the pro-rata share of the cash  542  included in creation unit  544  which corresponds to the strike price. The value of the Index Participation Note is not further reduced by the decrease in the value of the index, thereby providing downside protection. 
     Buy/Write Index Participation Note 
     Referring to  FIG. 30 , in some embodiments the Index Participation Notes are buy/write Index Participation Notes  570  that provide an economic cash benefit when the underlying index increases in value but not above the strike price from the issue date to the settlement date (e.g., when the market is ‘flat’). Such buy/write Index Participation Notes  570  are based on a creation unit  568  that includes a long index futures contract  562  and an amount of cash  566  equal to the mark price for the long index futures contract  562 . The combination of the long index futures contract  562  and the cash  566  provides for a return corresponding to the index return (as described above). The creation unit also includes a short call index options contract  564  or short call index futures option with same strike price. When the Index Participation Note issuer writes the short call index options contract  564 , the note issuer receives the options premium or proceeds from the sale to the party that purchases the long position. Thus, an economic cash benefit is made from writing the short call index options contract  564 . 
     Buy/write Index Participation Notes  570  provide an economic cash benefit if the index increases in value up to but not above the strike price of the options or futures options. If the index increases in value above the strike price, the gains from the long index futures contract  562  and the loss from the short call options contract  564  offset each other such that there are no gains or losses for increases in index value above the strike price. If the index decreases in value, the value of the buy/write Index Participation Notes  570  tracks the index value. 
     While in the example of a buy/write Index Participation Notes  570  described above, the creation unit included a long index futures contract  562  and a defined amount of cash  566 , other positions equivalent in value to a long stock position could be substituted for the long index futures contract  562  and defined amount of cash  566 . For example, the creation unit could include a long call index options contract, a short put index options contract with a strike price different from the strike price of the short index call option or short index call futures option, and an amount of cash equal to the strike price of the options contracts. 
     Distributions 
     As described above, the cash included in a creation unit (e.g., cash  26  in creation unit  20 , cash  320  in creation unit  312 ) for the Index Participation Notes is invested in interest bearing investments. For example, the cash can be held in U.S. Treasury bills or notes that guarantee a fixed return over a predefined period of time. The net profit of interest gained on the cash is periodically distributed to the holders of the index participation, e.g., quarterly, semi-annually, or annually. In some embodiments, the yield on cash held in U.S. Treasury bills in Issuer&#39;s Custody Account can accrue and is distributed to Index Participation Note holders on final redemption, expiration, or settlement of the Index Participation Note in lieu of quarterly stock dividends. 
     The system and methods described herein can be implemented in digital electronic circuitry, or in computer hardware, firmware, software, or in combinations thereof. For example, calculations of the cash value for a creation unit, the formation of a creation unit, the settlement processes for Index Participation Notes, etc. can occur in systems  511  as shown in  FIG. 31 . Generation of creation units can be implemented using any technique. Also, data structures used to represent contents of the creation units and interest participation notes can be stored in memory and in persistence storage. The Index Participation Notes can be represented by certificates or preferably as book entries in the records of an administrator or broker/dealer or clearing house or transfer agent or registrar either as manual entries or preferably as data structures in an administrator or a broker/dealer&#39;s computer systems. 
     Apparatus of the invention can be implemented in a computer program product tangibly embodied in a machine-readable storage device for execution by a programmable processor and method actions can be performed by a programmable processor executing a program of instructions to perform functions of the invention by operating on input data and generating output. The invention can be implemented advantageously in one or more computer programs that are executable on a programmable system including at least one programmable processor coupled to receive data and instructions from, and to transmit data and instructions to, a data storage system, at least one input device, and at least one output device. Each computer program can be implemented in a high-level procedural or object oriented programming language, or in assembly or machine language if desired, and in any case, the language can be a compiled or interpreted language. Suitable processors include, by way of example, both general and special purpose microprocessors. Generally, a processor will receive instructions and data from a read-only memory and/or a random access memory. Generally, a computer will include one or more mass storage devices for storing data files, such devices include magnetic disks, such as internal hard disks and removable disks magneto-optical disks and optical disks. Storage devices suitable for tangibly embodying computer program instructions and data include all forms of non-volatile memory, including, by way of example, semiconductor memory devices, such as EPROM, EEPROM, and flash memory devices; magnetic disks such as, internal hard disks and removable disks; magneto-optical disks; and CD_ROM disks. Any of the foregoing can be supplemented by, or incorporated in, ASICs (application-specific integrated circuits). 
     An example of one such type of computer is shown in  FIG. 31 , which shows a block diagram of a programmable processing system (system)  511  suitable for implementing or performing the apparatus or methods described herein. The system  511  includes a processor  520 , a random access memory (RAM)  521 , a program memory  522  (for example, a writeable read-only memory (ROM) such as a flash ROM), a hard drive controller  523 , and an input/output (I/O) controller  524  coupled by a processor (CPU) bus  525 . The system  511  can be preprogrammed, in ROM, for example, or it can be programmed (and reprogrammed) by loading a program from another source (for example, from a floppy disk, a CD-ROM, or another computer). 
     The hard drive controller  523  is coupled to a hard disk  130  suitable for storing executable computer programs, including programs embodying the present invention, and data including storage. The I/O controller  524  is coupled by an I/O bus  526  to an I/O interface  527 . The I/O interface  527  receives and transmits data in analog or digital form over communication links such as a serial link, local area network, wireless link, and parallel link. 
     While embodiments have been described above in which a creation unit includes a long put index option position, in some embodiments, a long index futures option position can be substituted for the long put index option position in a creation unit. 
     While embodiments have been described above in which a creation unit includes a short put index option position, in some embodiments, a short put index futures option position can be substituted for the short put index option position in a creation unit. 
     While embodiments have been described above in which a creation unit includes a long call index option position, in some embodiments, a long call index futures option position can be substituted for the long call index option position in a creation unit. 
     While embodiments have been described above in which a creation unit includes a short call index option position, in some embodiments, a short call index futures option position can be substituted for the short call index option position in a creation unit. 
     Particular embodiments have been described; however other embodiments are within the scope of the following claims.