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WO2009085043A1 - Procédé et système pour une offre initiale interactive d'instruments financiers à classes multiples - Google Patents

Procédé et système pour une offre initiale interactive d'instruments financiers à classes multiples Download PDF

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Publication number
WO2009085043A1
WO2009085043A1 PCT/US2007/088959 US2007088959W WO2009085043A1 WO 2009085043 A1 WO2009085043 A1 WO 2009085043A1 US 2007088959 W US2007088959 W US 2007088959W WO 2009085043 A1 WO2009085043 A1 WO 2009085043A1
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classes
instrument
collateral
return
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Srikanth Sankaran
Douglas T. Chorna
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    • G—PHYSICS
    • G06—COMPUTING OR CALCULATING; COUNTING
    • G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
    • G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
    • G06Q40/06—Asset management; Financial planning or analysis

Definitions

  • the present invention is directed to financial services and more particularly to an electronic and financial method and system for initial offerings of multi-class securities or other financial instruments.
  • the present invention is also directed to a method of reducing or even eliminating risk to investors in multi-class instruments.
  • An embedded option is an option that is attached to the security.
  • the embedded option may, for example, impact the principal payment, interest payment or both.
  • these debt instruments are collateralized with U. S. government securities, agency securities or agency guaranteed pass through mortgages, i.e., a collateral pool.
  • the cash flow from this collateral pool is allocated to the different classes of the multi-class instrument according to a predetermined formula specified in a trust indenture document associated with the multi-class instrument.
  • a multi-class instrument can be either an actual security (as defined by the Securities and Exchange Act of 1934) or a notional swap transaction.
  • the face value of a transaction refers to the amount of principal that an investor pays up front when the transaction is initiated. Over the life of the instrument, the investor will receive back the principal amount that was paid up front. For example, if an investor buys $100MM face value of Treasury notes, the investor will receive $100MM in principal at the maturity of the notes. The interest component of the investment is linked to the face value. If the coupon rate is 10% and the face value is $10MM, the interest payment will be $1 MM ($10MM
  • the market value of the transaction is simply the price of the instrument multiplied by the face value.
  • the price of an instrument is often expressed in percentage terms.
  • a price of 103 actually means 103%.
  • 105% will have a market value of $10,500,000.
  • An investor who pays 105% for an investment with a face value of $10,000,000 must pay $10,500,000 to initiate the deal. But the investor will only receive $10,000,000 in principal back - not $10,500,000. All interest payments are tied to the face value of $10,000,000.
  • notional value transaction no principal is exchanged.
  • the notional value simply serves as a computational tool to compute market value and interest payments. If an instrument has a notional value of $10,000,000 and a market price of 105%, the investor would only pay $500,000 to initiate the transaction. If the notional transaction had a coupon rate of
  • a multi-class structure can include all notional instruments, all face value instruments, or any combination of the two.
  • CMOs Collateralized Bond Obligations
  • CBOs Collateralized Bond Obligations
  • CLOs Collateralized Loan Obligations
  • SMBS Stripped Mortgage Backed Securities
  • ICONs Indexed Currency Option Notes
  • BISTRO Broad Indexed Structured Trust Offering
  • Such instruments serve an important function in capital markets in that they allow a convenient mechanism for investors to literally buy and sell financial risks such as interest rate risk, credit risk, mortgage prepayment risk, currency risk, or credit default risk. [0009] Additionally, these instruments allow investors to benefit from future market conditions such as the level of interest rates, the shape of the yield curve, the spread between U. S. government rates and other corporate rates, currency exchange rates, mortgage prepayment rates, credit default rates or the value of another asset (e.g., gold price, oil price, or stock price). [0010]
  • the various classes (often called "tranches") of a multi-class security need not be the same size. Indeed, the sizes of the classes can vary significantly. Generally, the only restriction is that the sum total of the cashflow to all of the classes equals the total cashflow generated by the underlying collateral.
  • Figure 1 illustrates a typical multi-class instrument known as a collateralized mortgage obligation (CMO) based on Federal National Mortgage Association (FNMA) collateral.
  • CMO collateralized mortgage obligation
  • FNMA Federal National Mortgage Association
  • a pool of FNMA collateral worth nine million dollars and having an average life of ten years is offered in two separate classes.
  • the first class (Class 1 in Figure 1) is a planned amortization class having a face value of one million dollars and an average life of four years.
  • Class 2 is a support bond having a face value of eight million dollars and having an average life of eighteen years. Note that the face values of the two classes do not include an underwriter's profit or administration costs, issues that are addressed later herein.
  • Instruments with such asymmetric payoffs appeal to two types of investors: speculators and hedgers.
  • a speculative investor usually has a strong view about future market conditions and wants investments that will generate substantial returns should those conditions materialize.
  • a hedger in contrast, has concerns about the impact of adverse market conditions on other existing investments or future business operations. For example, if interest rates rise dramatically, an investor might lose significantly on current investments.
  • a note with an embedded option is an example of a structure where the multi- class nature of the structure is hidden.
  • An Indexed Currency Option Note (ICON) is a note where the final principal returned at maturity is linked to a foreign exchange rate.
  • An ICON linked to the dollar/yen rate for example, would pay a regular stated coupon.
  • the principal redemption formula might be a formula such as: 100% return of principal if dollar/yen is above 150; otherwise receive Exchange Rate/150 of principal. If dollar/yen exchange reaches 110, the return of principal would be 110/150 or 73.33% of principal.
  • the investor in this note only sees the interest payment and principal redemption schedule. In this case, this schedule only shows the amount of interest and principal due to the single Class. No mention is made of what happens to the principal that is not returned to the investor.
  • the ICON structure consists, typically, of a traditional bond (usually a Treasury or federal agency note) and option position on exchange rates. The buyer of an ICON has sold an option on exchange rates.
  • the underwriter has usually made alternative arrangements to find a buyer for the option sold by the ICON investor. The underwriter may even purchase the option to hedge internal proprietary positions.
  • the objective of the underwriter is to structure the various classes of a multiclass instrument so that the total market value obtained from selling each class exceeds the cost of purchasing the securities and administrative costs of establishing and administering the trust. For example, assume that the total cost of the underlying collateral of the multi-class instrument is $100 million and the cost of establishing and administering the trust is $1 million. The effective cost to the underwriter is therefore $101 million. Now, assume that the underwriter creates a multi-class security with three classes: the underwriter might price Class 1 at $51 million, Class 2 at $30 million and Class 3 at $21 million. If successful in placing all the classes, the offering will generate $102 million (51+30+21) in revenues and, therefore, $1 million in potential profits.
  • the underwriter In accordance with prior art financial methods, the underwriter must first purchase the collateral and then attempt to sell the different classes. Significantly, if the transaction is to be successful, the underwriter must be able to sell all of the classes at the target price. However, the underwriter is susceptible to several risk factors before all of the classes are sold. [0028] For example, there might be no demand for one or more classes at the underwriter's target price. In this case, the underwriter must lower the price on the unsold classes. This reduction could reduce or eliminate any profit from the transaction. In the above example, if the underwriter is forced to sell Class 3 at $17 million (instead of $21 million), the underwriter will net only $98 million from the sale of all of the classes.
  • the underwriter will lose nearly $3 million on the transaction.
  • the lack of demand may have various causes.
  • One common reason is that even though the underlying collateral (e.g., mortgages on houses, condominiums, etc., in the case of a CMO) might be considered low risk, the prepayment schedules on the mortgages are sometimes very unpredictable. This unpredictability tends to make subordinate classes of a multi-class instrument less attractive to investors.
  • the underwriter may not be able to sell the classes at any reasonable price and therefore must hold on to the classes for an indefinite period of time. During this period, the underwriter is subject to potentially large financial risks inherent in these classes such as prepayment risk, interest rate risk, price risk or credit default risk.
  • prepayment risk e.g., interest rate risk, price risk or credit default risk.
  • Class 1 receives 120% return of principal if the dollar-to-yen exchange rate is above 110. Class 2 only receives an 80% return in that case. If the underwriter is unable to sell Class 2, the underwriter bears the full risk of paying the Class 1 investor the extra 20% return.
  • the underwriter is also subject to market risk between the time the collateral is purchased and the time the classes are sold. For example, changes in the market level of interest rates can cause a dramatic fall in the value of the collateral. The underwriter bears this loss. Consider what happens in the above example where the underwriter purchases the collateral for $100 million. Market conditions change and the value of the collateral falls to $95 million. The underwriter had planned to sell the individual pieces for $102 million or a 2% premium over the current market price.
  • the present invention provides an electronic trading system over which registered investors can, preferably in real time, commit to purchase initial offerings of multi-class securities offered by one or more underwriters.
  • the present invention also provides an improved multi-class instrument whereby risk to investors is substantially reduced.
  • the system preferably operates over either a private electronic communications network or over a public communications network such as the Internet, or both. Investors who meet certain minimum financial standards and who preferably sign appropriate contracts that guarantee performance would be permitted to purchase instruments using the system.
  • the system implemented on a general purpose or specially designed electronic computer, enables an underwriter to enter a detailed description of the underlying collateral, a description of the underlying classes, and the full details of the cashflow allocation rules for each of the classes, administrative costs associated with the offering, and the underwriter's target profit.
  • investor information (amount and price) is packaged and sent to the underwriter's computer.
  • the system preferably first checks the price and amount with price and amounts posted by investors in the other classes. If the price and amounts conform to the underwriter's profit requirements, cover the underwriter's administrative costs and meet the requirements of the cashflow allocation rules, the transaction is cleared and the system signals to the underwriter the required amount of collateral to purchase.
  • the formula for translating prices from one class to other classes is determined by the cost of the class, the cost of the underlying collateral, the arbitrage profit desired by the investor, and the cashflow allocation formula.
  • prices are quoted to/by investors as either a percentage of par (the price is a percent of the face or notional value of the security) or as initial yield.
  • a price of 101% would mean that the face value of the securities would be multiplied by 1.01 to determine the cost.
  • Securities with a face value of $10 million at price of 101% would cost $10.1 million.
  • the yield quotation method implies that the class is being sold at par (i.e., 100% of the face or notional value). This initial yield will become the coupon on the instrument.
  • the system of the present invention determines the amount of underlying collateral that the underwriter would need to purchase to meet the investor's demand. The system then obtains the current market cost of acquiring this amount of collateral. Using the cashflow allocation formulas, the system also translates the investor's price to the corresponding prices and amounts for the other classes.
  • the system preferably permits the underwriter to clear the transaction directly by purchasing the remaining classes for the underwriter's proprietary account.
  • the system sends a signal to the underwriter to clear the transaction and purchase the required amount of the underlying collateral.
  • the counter amount and price are translated into the corresponding prices for each class and the process iterates until the underwriter sells the desired amount of underlying collateral.
  • (ii) Change the structure of the entire offering by eliminating classes or modifying the cashflow allocation rules. If no buyers can be found for any class, the underwriter can change the cashflow allocation rules to create more and/or different classes. The system also permits the underwriter to change or alter the composition of the underlying collateral to permit different cashflow allocations or to obtain less expensive collateral.
  • the new collateral includes Treasury or Agency notes that tend to reduce the risk for one or multiple classes (tranches) of the multi-class instrument.
  • the system avoids the risks to underwriters inherent in current market practice. Unlike current market conventions, underwriters need not risk any capital until all classes, or some minimum amount of at least some of the classes, have been sold. The system directly adapts to changing market conditions so that the underwriter does not bear any market risk. Moreover, by combining types of collateral
  • the underwriter can increase demand for one or multiple classes of the multi-class instrument.
  • the present invention allows both for interactive and iterative negotiation of the transaction to develop a structure that best meets the needs of the market.
  • Figure 1 illustrates the structure of a conventional collateralized mortgage obligation.
  • Figure 2 illustrates a preferred embodiment of the present invention.
  • Figures 3A and 3B illustrate exemplary initial display messages in accordance with the present invention.
  • Figure 4 is a flowchart of the operation of the system of the present invention.
  • Figure 5 illustrates the structure of a multi-class instrument having reduced risk in accordance with the present invention.
  • Figures 6A and 6B illustrate exemplary displays in accordance with the present invention.
  • Figure 7 illustrates a multi-class structure that is used to explain an example in accordance with the present invention.
  • Figures 8A-8I depict exemplary records/fields of the structure and investor databases in accordance with the present invention.
  • FIG. 2 is a schematic diagram illustrating a preferred system for implementing the present invention.
  • System 200 includes program memory 210, central processing unit (CPU) 215, structure database 220, investor database 223, modems 225 and 235 and display driver 230. Preferably, all of these components are connected directly to an address/data bus 235 according to well known computer system implementations.
  • System 200 also includes an input for market data 250 and connections to multiple display units 260, 270, 275, either directly (260) or via the Internet 265 (270, 275).
  • Program memory 210 preferably stores the various components of the computer software that operate the present invention.
  • CPU 215 performs the various mathematical calculations associated with the present invention as well as facilitates access to the various components of the system via address/databus 235.
  • Structure database 220 preferably stores the structure of a multi-class instrument like that shown in Figure 1. Specifically, the structure database preferably stores information including the various classes of the multi-class instrument, the underlying collateral, cashflow allocations rules, class structure, desired arbitrage profit and other parameters for a multi-class instrument, including, the face value of the individual classes and specific information about the underlying collateral.
  • Investor database 223 preferably includes information about individual investors who have standing contracts with the underwriter such that they are eligible to participate in a multi-class investment offering by the underwriter. Preferably, this database is secure whereby dissemination of any information therein is strictly controlled.
  • System 200 receives market data 250 via modem 225, for example.
  • the market data may come from a source such as Reuters or Bloomberg. However, any reliable source of information concerning the pool of instruments that is to be offered via a multi-class offering is acceptable.
  • market data 250 is compared against bids presented by multiple investors to determine if the underwriter should proceed with a sale of the various classes of the multi-class instrument in view of the prevailing market conditions.
  • Communication with the various investors is implemented via display driver 230, modem 235 and the various displays 260, 270 and 275.
  • FIG. 2 if system 200 of the present invention is operating under a private network scenario, display 260 (which represents Class 1 in this case) is connected directly to modem 235. Alternatively, or in addition, communication with investors may occur over a public network such as the Internet 265 whereby display 270 and display 275 for Class 2 can be accessed.
  • Figures 3A and 3B show exemplary data displayed on the displays for a two class multi-class instrument offering. Note that the information shown in Figures 3 A and 3B is consistent with the structure of the multi class instrument shown in Figure 1.
  • Figure 3A indicates a planned amortization class and identifies the underlying security as a 7% FNMA. The particular pool identification number is also provided.
  • the coupon rate (here 6.25%) is stated so that the investor is aware of the cashflow allocation rules associated with this class.
  • the screen also shows the PSA band for which the average life will be approximately 4 years. Further, the payment frequency is also identified.
  • device driver 230 is capable of supplying the display screens with an HTML format datastream such that the present invention operates seamlessly over the Internet.
  • the investor's bid information is entered and the "commit" button is pressed, the investor's bid information is sent to system 200 via well known techniques, e.g., TCP/IP, or other suitable protocol.
  • Figure 3B shows similar information to Figure 3A except that in this case, as
  • FIG. 4 is a flowchart illustrating the preferred operation of the system of the present invention.
  • an underwriter populates the structure database 220 and investor database 223. Specifically, the underwriter enters information on the underlying collateral, cashflow allocation rules, class structure, desired arbitrage profit and other parameters relating to a particular multi-class instrument.
  • the underwriter indicates the source of data to value the underlined collateral, i.e., the source of the market data 250.
  • the underwriter also stores in investor database 223 information about investors and their agreed-upon investment limits, if any.
  • Investor database 223 preferably also includes e-mail addresses, telephone numbers and business addresses so that when a transaction is cleared, system 200 can easily notify the investor of the purchase.
  • system 200 invokes display driver 230 which obtains the information on the multi-class security from the structure database and sends that information to the individual displays 260, 270, and 275.
  • each display displays only a single class of the multiple class instrument offering.
  • each display screen display only a single class rather than multiple classes since, under typical circumstances, the market segments for the different classes are distinct; investors in Class 1 have little interest in the offerings in Class 2. Similarly, investors in Class 2 have little interest in the offerings in Class 1. As an analogy, a person interested in buying a condominium in a downtown setting would probably have little interest in looking at suburban estate property even if both properties were listed by the same real estate agent and the seller of both properties was the same individual. However, where an individual or institution desires access to information regarding multiple classes, the present invention preferably is capable of providing such information.
  • the present invention further contemplates (though not shown) supplying data with respect to like classes of different multi-class instruments to, respectively, multiple display screens at a single location. Accordingly, an investor operating under a particular investment strategy can choose from among similarly styled classes of different multi- class instruments.
  • display driver 230 generates/updates two or more display screens.
  • Each display screen contains information on a particular class.
  • the display driver may generate HTML to generate the screen displays over the Internet.
  • an investor having access to any one of those displays then enters a bid amount and bid price. If the investor believes his entered bid amount and bid price are as desired, the investor then presses the "commit" button or clicks (using a mouse, for example) on a displayed "commit” button. By invoking commit, the bid amount and bid price information along with the investor's identity is sent to system 200 via a private network or public network as described earlier.
  • system 200 preprocesses the information received from the investor.
  • preprocessing preferably includes verifying that the price and amount are valid numbers and, if valid, the data is made available for further verification. On the other hand, if the received information is invalid, e.g., the received data includes characters where numbers are expected, system 200 preferably sends a message to the "offending" display indicating that the information was invalid and requesting new information.
  • step 406 if the information provided by the investor is valid, that information is checked against the investor database to verify that the bid amounts and/or price fall within the guidelines agreed to by the investor and the underwriter. If the amounts and/or price are somehow out of range, a warning/error message preferably is generated by system 200 and displayed on the appropriate display. On the other hand, if the amount and price information is within a pre-agreed range, e.g., not more than five million dollars, system 200 proceeds to step 408.
  • a pre-agreed range e.g., not more than five million dollars
  • system 200 performs price/amount equalization. More specifically, system
  • the 200 reads the parameters from structure database 220, obtains the current price of the underlying collateral via market data 250 and determines the equivalent price and amount for the other classes such that the underwriter maintains his desired profit margin. If, at step 408, a set of prices that matches all conditions set by the underwriter can not be found, the price and amount bid from the investor is rejected and a warning/error message preferably is sent to the appropriate display. On the other hand, if the price and amount bid by the investor of, for example, Class 1 translates to acceptable positions for the other classes, the investor's price and amount information is sent to a clear trade process shown at step 410.
  • step 410 checks the recently computed set of equivalent prices and amounts against the structure database 220 for current prices and amounts posted by investors in all of the classes. If a match occurs, at step 412, a final trade process is invoked at step 414, explained below.
  • step 418 is an update trade process.
  • This process updates the structure database with the latest price/amount information received from step 410.
  • the update trade process also updates each of the class displays with the latest current market price/level.
  • the price and amount equalization of step 408 preferably implements industry standard formulas for computing price and yield. Such formulas are published by trade organizations such as the Bond Market Association. Price equalization typically involves an internal rate of return calculation or a net present value calculation.
  • the amount equalization calculations are more algebraic; the amounts preferably are structured so that the cash flow from the underlying collateral will meet all the interest and principal obligations required by each class.
  • a final trade process is invoked at step 414.
  • the final trade process preferably clears the transaction.
  • the structure database is read and the identities of the investors are determined. Those investors are then notified preferably either by email or by other direct means that their respective offers have been accepted and that the trade will be processed.
  • the final trade step preferably also notifies the underwriter regarding the amount of collateral to buy in view of the accepted bid amounts and prices.
  • the period of time between invoking the "commit" button and an investor receiving a response is relatively short, e.g., 120 seconds, or any other suitable time period, which permits true real-time, dynamic offering of multi-class instruments. That is, class offerings are updated on the respective displays, when necessary, within the 120 second period.
  • the period of time may be as long as desired.
  • step 416 clean up occurs wherein structure database 220 is cleared of prices and the display screens for each of the classes is updated.
  • the process then again begins at step 400. If no match was made between the investor amounts and price bids and the amounts and price data in the structure database at step 412, after step 418, system 200 returns to step 402 wherein updated information is displayed on the various displays.
  • an underwriter may utilize the present invention to structure or re-structure a multi-class instrument offering such that the underwriter need not be saddled with having to initially purchase the underlying collateral.
  • some classes, especially substantially subordinate classes, of a multi-class instrument are sometimes not particularly desirable and are therefore difficult to place.
  • the present invention provides a way to increase demand for the various classes of a multi-class instrument by reducing the risk associated with each of those classes.
  • Figure 5 illustrates how a conventional pool of FNMA collateral is further collateralized with treasury or agency notes in order to dilute the risk among the classes.
  • class A receives 7% interest from FNMA.
  • the initial balance is $100MM.
  • the balance amortizes based on FNMA note prepayments, i.e., the principal pay downs on the FNMA note are passed to class A up to $100MM.
  • principal proceeds from the maturity of treasury/agency notes are used to retire any remaining balance on class A.
  • Class B receives all coupon interest from the treasury/agency notes. Class B further receives any residual interest from the FNMA note. Further still, class B receives principal from the treasury/agency notes that is not paid out to class A. After year five, class B also receives all proceeds from the FNMA pool.
  • class A has a guaranteed final maturity (regardless of prepayment) and class B has greater protection against prepayments than the underlying FNMA note.
  • the underwriter has the flexibility to increase or decrease the level of protection.
  • the treasury/agency note combination serves two purposes. First, it provides interest income (which remains constant regardless of prepayments) to class B. Second, it provides enough principal to retire class A at the end of five years.
  • an investor's investment is secured not only by the underlying FNMA collateral, but also by the treasury/agency note. This provides reduced credit risk to individual investors thereby increasing demand even for subordinate classes.
  • the combination FNMA collateral/treasury or agency note structure can be offered to investors via system 200 as well. If such a structure is offered, the individual displays also will be provided information indicating that the class is also underwritten by treasury or agency notes. See Figures 3A, 3B, 6A, 6B.
  • Class 1 is a Prepayment Cap and Class 2 is Guaranteed Final Maturity Mortgage
  • Class 1 is a notional instrument. Recall that with a notional instrument, no principal exchange takes place. The investor makes an up-front payment to initiate the transaction and, at best, will only receive interest based on the notional principal amount.
  • Class 2 is a regular face value instrument. In this case, the investor makes an up front principal payment and will receive the full principal payment at maturity.
  • U. S. Treasury five-year notes with a 7% coupon are used to collateralize the cash flow for the two classes. The interest cash flow from the notes will be allocated to the two classes contingent upon the prepayments on the reference notes. All principal from the U. S. Treasury notes will be allocated to the Class 2 investor.
  • the reference notes for this multi-class instrument are FNMA 7% mortgages. No investment is made in these mortgages. Indeed, neither investor may have a position in these instruments. However, the prepayment speed on these instruments is publicly disclosed by FNMA on a monthly basis and is therefore easily implemented as an index security. [00105]
  • the underwriter enters information into the system as follows:
  • PSA PSA is 270% or less during the six month period
  • the interest rate will be 0%
  • Maturity Five years
  • - Class 2 Face Amount Minimum of $12,000,000
  • - Interest equal to 7.00% if prepayments on designated FNMA collateral below 270%
  • the underwriter also enters into the system that the target arbitrage profit is
  • the underwriter uses the proceeds remaining after deducting the arbitrage profit to purchase the five-year Treasury notes.
  • the interest payments from the Treasury notes will be allocated solely to Class 2 unless the principal prepayments on the pool of FNMA mortgages exceeds
  • the Class 1 description is then posted on a display seen by registered Class 1 investors.
  • the Class 1 description would include, inter alia: the maturity of the prepayment cap, the PSA strike rate, the collateral type (FNMA), the payment frequency (semi-annual), the notional amount, and the coupon rate.
  • the Class 2 description is posted on a display seen by registered Class 2 investors.
  • the Class 2 description preferably includes the face amount, the initial yield, the worst case yield, the maturity, and the PSA strike rate.
  • a face value of $50,000,000 will produce a worst case internal rate of return of 6.20%.
  • the system preferably is programmed to force Class 2 to be of sufficient size to produce some minimum worst case yield.
  • the system can also allow Class 2 investors to select any size (rounded to the nearest $100,000) in excess of $5,714,286.
  • the system polls the market and determines that the market price of the five- year Treasury notes used to collateralize the transaction is 100% or $12 million.
  • the system posts on the Class 2 screen that $12 million of five year securities are available at a current yield of 7.45% and a worst case yield of 4.08%.
  • the 7.45% yield is the internal rate of return if $11,780,000 is spent today and the investor receives $420,000 interest every six months for five years and a final payment of $12 million in five years.
  • the 4.08% yield is the internal rate of return if $11,780,000 is spent today and the investor receives $220,000 every six months for five years (the remaining $200,000 has gone to Class 1) and $12 million at the end of five years.
  • the market value of Class 2 is $11,780,000.
  • a five- year 7% coupon note purchased at a price of 97.13% produces an internal rate of return of 7.70%.
  • $11,730,000 The value of $11,730,000 is obtained by finding the initial payment amount that will produce an internal rate of return of 7.55%.
  • the $11,730,000 implies a price of 97.75%
  • the underwriter can continue with the offering of additional securities or can terminate the offering.
  • the Class 1 investor has obtained a prepayment cap that has cash flows guaranteed by the United States government. The Class 1 investor does not have to worry about the creditworthiness of the Class 2 investor. In fact, the Class 1 investor does not even know the identity of the Class 2 investor.
  • Figures 8A-8I illustrate exemplary records/fields that comprise the structure and investor databases 220, 223 in accordance with the above example.
  • the present invention structures a multi-class instrument transaction such that (i) credit risk of a counterparty is eliminated, (ii) the underwriter bears minimal price risk in the transaction and (iii) the underwriter executes an order to purchases securities only after investors for the respective classes have been identified and have committed to the transaction.

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  • Financial Or Insurance-Related Operations Such As Payment And Settlement (AREA)

Abstract

La présente invention concerne un procédé et un système pour une offre de souscripteur d'instruments à classes multiples, comprenant une unité centrale (UC), une mémoire de programme, une base de données de structure et une base de données d'investisseurs. La base de données de structure stocke une structure représentant une pluralité de classes d'un instrument à classes multiples et le système fonctionne pour (i) informer les investisseurs des informations de classe associées, respectivement, à chaque classe de l'instrument à classes multiples, (ii) recevoir des informations de soumission en provenance d'investisseurs, (iii) modifier la base de données de structure en réponse aux informations de soumission et, par la suite, informer les investisseurs avec les informations de classes mises à jour ; et une fois qu'il est déterminé que le souscripteur peut prendre ferme de façon rentable la transaction, (iv) notifier le souscripteur d'un volume de nantissement à acheter pour couvrir les soumissions acceptées.
PCT/US2007/088959 2007-12-27 2007-12-27 Procédé et système pour une offre initiale interactive d'instruments financiers à classes multiples Ceased WO2009085043A1 (fr)

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PCT/US2007/088959 WO2009085043A1 (fr) 2007-12-27 2007-12-27 Procédé et système pour une offre initiale interactive d'instruments financiers à classes multiples

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PCT/US2007/088959 WO2009085043A1 (fr) 2007-12-27 2007-12-27 Procédé et système pour une offre initiale interactive d'instruments financiers à classes multiples

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WO2009085043A1 true WO2009085043A1 (fr) 2009-07-09

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Citations (6)

* Cited by examiner, † Cited by third party
Publication number Priority date Publication date Assignee Title
US20020013752A1 (en) * 1999-12-30 2002-01-31 Johnson Christopher D. Rapid valuation of portfolios of assets such as financial instruments
US20020019793A1 (en) * 2000-08-04 2002-02-14 Nicholas Frattalone Method and system for implementing a combined investment
US20020188536A1 (en) * 2001-04-26 2002-12-12 Olga Milosavljevic System and method for income planner
US20020188543A1 (en) * 2001-06-12 2002-12-12 Adam Wizon System and method for formating a portfolio report of fixed income securities
US20030135447A1 (en) * 2002-01-11 2003-07-17 Capital Lease Funding, Llc Multi-note method and system for loans based upon lease revenue stream
US20050222940A1 (en) * 2002-04-24 2005-10-06 Schulman Henry Evan C Securitization of sales participation certificates

Patent Citations (6)

* Cited by examiner, † Cited by third party
Publication number Priority date Publication date Assignee Title
US20020013752A1 (en) * 1999-12-30 2002-01-31 Johnson Christopher D. Rapid valuation of portfolios of assets such as financial instruments
US20020019793A1 (en) * 2000-08-04 2002-02-14 Nicholas Frattalone Method and system for implementing a combined investment
US20020188536A1 (en) * 2001-04-26 2002-12-12 Olga Milosavljevic System and method for income planner
US20020188543A1 (en) * 2001-06-12 2002-12-12 Adam Wizon System and method for formating a portfolio report of fixed income securities
US20030135447A1 (en) * 2002-01-11 2003-07-17 Capital Lease Funding, Llc Multi-note method and system for loans based upon lease revenue stream
US20050222940A1 (en) * 2002-04-24 2005-10-06 Schulman Henry Evan C Securitization of sales participation certificates

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