Abstract:
An exchange traded collateral system including a memory and a processor, a program executing in the processer that performs the steps of creating an investment package, populating the investment package with investment units, determining the valuation of the investment package based on the investment units in the investment package, creating a collateral package, populating the collateral package with collateral units until the total value of the collateral units in the collateral package equals the value of the investment package, relating the investment package to the collateral package such that the collateral units in the collateral package are adjusted based on the value of the investment package.

Description:
RELATED APPLICATIONS 
       [0001]    This application claims the benefit of and the priority from U.S. provisional Application No. 62/011,715 filed Jun. 13, 2014 entitled EXCHANGE TRADED COLLATERAL SYSTEM AND METHODS OF PERFORMING THE SAME, which is incorporated in its entirety herein by reference. 
     
    
     BACKGROUND OF THE INVENTION 
       [0002]    Financial backing of investments and investment packages is becoming more and more of an issue in the investment community. As more investment packages are becoming subject to regulations requiring collateral backing of the investments in an investment package, a need exists for a mechanism to provide collateral to finance or underwrite investments. Current methods of providing backing do allow for flexibility in adjusting the value of the collateral in response to real time market trends. 
         [0003]    A need exists for a system that will allow for dynamic financial backing of investments that responds to market trends in real time. 
     
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
         [0004]    Details of the present invention, including non-limiting benefits and advantages, will become more readily apparent to those of ordinary skill in the relevant art after reviewing the following detailed description and accompanying drawings, wherein: 
           [0005]      FIG. 1  depicts a block diagram of an Exchange Traded Collateral System suitable for use with the methods and systems consistent with the present invention; 
           [0006]      FIG. 2  shows a more detailed depiction of a computer of  FIG. 1 ; 
           [0007]      FIG. 3  shows a more detailed depiction of additional computers of  FIG. 1 ; 
           [0008]      FIG. 4  depicts an illustrative example of the operation of the Exchange Traded Collateral System of  FIG. 1 ; 
           [0009]      FIG. 5  depicts a schematic representation of the collateral analysis unit adjusting the collateral in a collateral package based on a change to the value of the collateral in the collateral package; 
           [0010]      FIG. 6  depicts a schematic representation of the investment analysis unit requesting a modification of the collateral package based on a decrease in the value of the investment package; and 
           [0011]      FIG. 7  depicts a illustrative example of the operation of the Exchange Traded Collateral System. 
       
    
    
     DETAILED DESCRIPTION OF THE INVENTION 
       [0012]    While various embodiments of the present invention are described herein, it will be apparent to those of skill in the art that many more embodiments and implementations are possible that are within the scope of this invention. Accordingly, the present invention is not to be restricted except in light of the attached claims and their equivalents. 
         [0013]    Described herein is a system for backing investment packages with collateral packages and adjusting the value of the collateral package based on the real time market value of the investment package. The system also centralizes available collateral to ensure that collateral us related to a single collateral package. 
         [0014]      FIG. 1  depicts a block diagram of an Exchange Traded Collateral System (“ETCS”)  100  suitable for use with the methods and systems consistent with the present invention. The ETCS  100  comprises a plurality of computers  102 ,  104 ,  106  and  108  connected via a network  110 . The network  110  is of a type that is suitable for connecting the computers for communication, such as a circuit-switched network or a packet switched network. Also, the network  110  may include a number of different networks, such as a local area network, a wide area network such as the Internet, telephone networks including telephone networks with dedicated communication links, connection-less network, and wireless networks. In the illustrative example shown in  FIG. 1 , the network  110  is the Internet. Each of the computers  102 ,  104 ,  106  and  108  shown in  FIG. 1  is connected to the network  110  via a suitable communication link, such as a dedicated communication line or a wireless communication link. 
         [0015]    In an illustrative example, computer  102  serves as an Investment Management Unit (“IMU”) that includes an investment analysis unit  112  and a collateral analysis unit  114 . The number of computers and the network configuration shown in  FIG. 1  are merely an illustrative example. One having skill in the art will appreciate that the ETCS  100  may include a different number of computers and networks. For example, computer  102  may include the investment analysis unit  112  and the collateral analysis unit  114  may reside on a different computer. 
         [0016]      FIG. 2  shows a more detailed depiction of the computer  102 . The computer  102  comprises a central processing unit (CPU)  202 , an input output ( 10 ) unit  204 , a display device  206  communicatively coupled to the IO Unit  204 , a secondary storage device  208 , and a memory  210 . The computer  202  may further comprise standard input devices such as a keyboard, a mouse, a digitizer, or a speech processing means (each not illustrated). 
         [0017]    The computer  102 ′s memory  210  includes a Graphical User Interface (“GUI”)  212  that is used to gather information from a user via the display device  206  and I/O unit  204  as described herein. The GUI  212  includes any user interface capable of being displayed on a display device  206  including, but not limited to, a web page, a display panel in an executable program, or any other interface capable of being displayed on a computer screen. The GUI  212  may also be stored in the secondary storage unit  208 . In one embodiment consistent with the present invention, the GUI  212  is displayed using commercially available hypertext markup language (“HTML”) viewing software such as, but not limited to, Microsoft Internet Explorer, Google Chrome or any other commercially available HTML viewing software. The secondary storage unit  208  may include an information storage unit  214 . The information storage unit may be a rational database such as, but not including Microsoft&#39;s SQL, Oracle or any other database. 
         [0018]      FIG. 3  shows a more detailed depiction of the computers  104 ,  106  and  108 . Each computer  104 ,  106  and  108  comprises a central processing unit (CPU)  302 , an input output (IO) unit  304 , a display device  306  communicatively coupled to the IO Unit  304 , a secondary storage device  308  and a memory  310 . Each computer  104 ,  106  and  108  may further comprise standard input devices such as a keyboard, a mouse, a digitizer, or a speech processing means (each not illustrated). 
         [0019]    Each computer  104 ,  106  and  108 &#39;s memory  310  includes a GUI  312  which is used to gather information from a user via the display device  306  and IO unit  304  as described herein. The GUI  312  includes any user interface capable of being displayed on a display device  306  including, but not limited to, a web page, a display panel in an executable program, or any other interface capable of being displayed on a computer screen. The GUI  312  may also be stored in the secondary storage unit  208 . In one embodiment consistent with the present invention, the GUI  312  is displayed using commercially available HTML viewing software such as, but not limited to, Microsoft Internet Explorer, Google Chrome or any other commercially available HTML viewing software. 
         [0020]      FIG. 4  depicts an illustrative example of the operation of the ETCS  100 . In step  402 , an investment package is created by the investment analysis unit  112 . The investment package may include, but is not limited to, a basis package such as a bond and corresponding derivative or futures hedge, off-setting equity, credit and bond derivative transactions, long short equity and derivative contracts, collateralized loan obligations, mortgages securities and their underlying derivative hedges, commodity contracts in both physical and derivative form, letters of credit for financing such commodity contracts, as well as, letters of credit for other financial transactions, or any other investment package. In step  404 , the value of the investment package is determined by the investment analysis unit  112 . The value of the investment package is based on the individual values of each investment included in the investment package. 
         [0021]    In step  406 , the amount of collateral required to back the investment package is determined using the value of the investment package. The amount of collateral required to back the investment package may be based on government regulations, rules and regulations established by the exchange where the investment package will be traded or by the entity establishing the investment package. In step  408 , a collateral package is created by the collateral analysis unit  114 . Collateral may be any form of real or intellectual property including, but not limited to, US Treasury bonds of different maturity, Japanese Government Bonds of different maturities, collateral worthy sovereign debt instruments, acceptable investment grade corporate credits with AA and above credit ratings, or any other form of collateral. Units of available collateral are stored in the information storage unit  214  along with information on the collateral such as its present market value, the owner of the collateral, the type of collateral, the collateral package the collateral is related to or any other information related to the collateral. 
         [0022]    In step  410 , the collateral analysis unit  114  identifies collateral units in the information storage unit  214  that may be used to populate the collateral package. In identifying potential collateral to add to the collateral package, the collateral analysis unit may select different collateral units based on predetermined rules concerning the grade and quality of the collateral, a projected value of the collateral over a predetermined period of time, a predetermined type of collateral or any other criteria. In step  412 , the collateral analysis unit  114  determines the value of the collateral package by determining the market value of each collateral unit in the collateral package. In one embodiment, the collateral analysis unit uses real time market data to determine the value of the collateral. In another embodiment, the collateral analysis unit  114  projects the future value of the collateral based on the historical value of the collateral or similar pieces of collateral. The collateral analysis unit  114  continues to add collateral to the collateral package until the total value of the collateral package is greater than or equal to the value of the investment package. In step  414 , the identified collateral is related to the collateral package in the information storage unit  214  by the collateral analysis unit  114 . In relating the collateral units to the collateral package, the collateral analysis unit  114  also prevents each collateral unit from being related to another collateral package. The collateral analysis unit  114  may mark collateral units related to a collateral package as “unavailable” in the information storage unit  214  to prevent the collateral from being allocated to a second collateral package. 
         [0023]    In step  416 , the term of the investment package is determined by the investment analysis unit  112 . The collateral analysis unit  114  sets the term of the collateral package in the information storage unit  214  based on the term of the investment package. When the term of the collateral package expires, each collateral unit in the collateral package is made available for incorporation into other collateral packages, or reverts back to the collateral holder. 
         [0024]    In step  418 , the collateral package is related to the investment package in the information storage unit  214 . By relating the collateral package to the investment package, the value of the collateral package and investment package are logically related such that a change in the value of one of the packages effects the value of the other package. In step  420 , the investment analysis unit  112  transfers the investment and collateral packages to a clearing house with the collateral package being used to fund the investment package or an exchange traded package securing the investment package. The investment package may be an exchange traded package cleared by an exchange and or clearing house and financed or swapped for an exchange traded collateral package for which the collateral owner is paid a premium. 
         [0025]      FIG. 5  depicts a schematic representation of the collateral analysis unit  114  adjusting the collateral in a collateral package based on a change in the value of the collateral in the collateral package. In step  502 , the collateral analysis unit  114  continuously determines the value of the collateral package. In step  504 , the collateral analysis unit  114  determines if the value of the collateral package has increased or decreased from the initial value of the collateral package. In step  506 , if the value of the collateral in the collateral package has decreased, the collateral analysis unit  114  determines the amount the collateral has decreased from its initial value. In step  508 , the collateral analysis unit  114  identifies additional collateral units in the information storage unit  214  that can be added to the collateral package to bring the value of the collateral package to its initial value. In step  510 , the collateral analysis unit  114  relates the identified additional collateral with the collateral package. When the additional collateral is related to the collateral package, the additional collateral become unavailable for relation to other collateral packages. The additional collateral may be marked as “unavailable” in the information storage unit  214  by the collateral analysis unit  114 . In step  512 , the additional collateral is transferred to the collateral package. In step  514 , the collateral analysis unit  114  notifies the clearing entity posting the investment package of the change in the collateral package. 
         [0026]    In step  516 , if the value of the collateral has increased, the collateral analysis unit  114  determines the amount the collateral has increased. In step  518 , the collateral analysis unit  114  identifies collateral in the collateral package that can be removed from the collateral package without causing the value of the collateral package to drop below the initial value. The collateral analysis unit  114 , may identify additional collateral that was added to the collateral package due to a drop in the value of the collateral package. In step  520 , the collateral analysis unit  114  removes any additional collateral units from the collateral package based on the analysis performed in step  518 . 
         [0027]      FIG. 6  depicts a schematic representation of the investment analysis unit  112  requesting a modification of the collateral package based on a decrease in the value of the investment package. In step  602 , the investment analysis unit  112  continuously determines the value of the investment package. In step  604 , the investment analysis unit  112  determines if the investment package value has decreased below the initial value of the investment package. In step  606 , if the investment package value has dropped below the initial value, the investment analysis unit  112  determines the amount the investment package value has decreased from the initial value. In step  608 , the investment analysis unit  112  changes the amount of collateral required to fund the investment package based on the amount the investment package has reduced in value. In step  610 , the collateral analysis unit  114  identifies additional collateral to add to the collateral package to bring the value of the collateral package to the new value provided by the investment analysis unit  112 . 
         [0028]    In step  612 , the collateral analysis unit  114  transfers the additional collateral into the collateral package. When the additional collateral is assigned to the collateral package, the addition collateral is marked as “unavailable” in the information storage unit  214  by the collateral analysis unit  114 . In step  614 , the collateral analysis unit  114  notifies the clearing entity of the change in the collateral package. 
         [0029]      FIG. 7  depicts a illustrative example of the operation of the ETCS  100 . The investment analysis unit  112  creates a basis package  702  and populates the basis package  702  with bonds and derivatives  704 . The investment analysis unit  112  valuates the basis package  702  based on the current market value of the bonds and derivatives in the basis package.  702 . The investment analysis unit  112  creates an exchange traded package  706  with a clearing house  708  to fund the basis package  702 . 
         [0030]    After the basis package  702  is valuated and the exchange traded package  706  is created, the collateral analysis unit  114  identifies collateral  710  that can be used to fund the basis package  702  in exchange for a portion or all of the exchange traded package  706 . The collateral analysis unit  114  then transfers the collateral  710  to the collateral holding unit  712 . The transfer of collateral  710  into the collateral holding unit  712  may include the legal transfer of ownership from the collateral owner to a third party. When the value of the collateral  710  in the collateral holding unit  712  is equal to the value of the basis package and/or a set percentage of the basis package which meets the agreed financing, leverage and regulatory guidelines of the counterparties involved  702 , the collateral analysis unit  114  transfers the collateral  710  in the collateral holding unit  712  to the clearing house  708  as a collateral package  714  in exchange for the exchange traded package  706  for a term, i.e. period of time defined in the exchange traded package  706 . 
         [0031]    During the term, the owner of the basis package pays a premium to the owners of the collateral  710  in the collateral package  714 . If the value of the exchange traded package  708  drops below the initial value of the exchange traded package  708 , the contents of the exchange traded package  708  and collateral package  714  may be adjusted by adding investments to the basis package or collateral to the collateral package compensate for the deamination in value of the exchange traded package  708 . If the value of the collateral  710  in the collateral package  714  drops below its initial value, additional collateral  710  may be added to the collateral package  714  to increase the value of the collateral package. 
         [0032]    In the present disclosure, the words “a” or “an” are to be taken to include both the singular and the plural. Conversely, any reference to plural items shall, where appropriate, include the singular. 
         [0033]    It should be understood that various changes and modifications to the presently preferred embodiments disclosed herein will be apparent to those skilled in the art. Such changes and modifications can be made without departing from the spirit and scope of the present disclosure and without diminishing its intended advantages. It is therefore intended that such changes and modifications be covered by the appended claims.