Redemption of Derivative Secured Index Participation Notes

Abstract

Techniques are described for securitizing, administrating and trading various index shares securitized by derivative, cash-settled instruments on the underlying index.

1 . A computer implemented method of redeeming Index Participation Notes, the method comprising:
 receiving by one or more computers a redemption request from a holder of one or more creation unit size aggregations of Index Participation Notes that are secured by a creation unit that consists essentially of one derivative instrument on a financial index and an amount of cash that substantially equals a mark to market price of the one derivative instrument on a date of issuance of the Index Participation Notes; and   determining by the computer system an amount of cash to deliver along with the one derivative instrument of the financial index included in the creation unit to the holder of the plurality of Index Participation Notes in exchange for the creation unit size aggregations of Index Participation Notes.   
     
     
         2 . The computer implemented method of  claim 1 , wherein the one or more derivative instruments is a long index futures contract having an initial mark price on the issue date of the futures contract and having a contract multiplier. 
     
     
         3 . The computer implemented method of  claim 2 , wherein determining the amount of cash comprises:
 multiplying a current mark price for the long index futures contract on the date of receipt of the redemption request by the contract multiplier.   
     
     
         4 . The method of  claim 3 , wherein determining the amount of cash further comprises adding accrued interest. 
     
     
         5 . A computer implemented method of redeeming Index Participation Notes, the method comprising:
 receiving by one or more computers a redemption request from a holder of one or more creation unit size aggregations of Index Participation Notes that are secured by a creation unit that consists essentially of a long call index options contract and a short put index options contract on a financial index 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 and an amount of cash that substantially equals the strike price; and   determining by the computer system an amount of cash to deliver along with the long call index option contract or short put index options on the financial index included in the creation unit to the holder of the plurality of Index Participation Notes in exchange for the creation unit size aggregations of Index Participation Notes.   
     
     
         6 . The computer implemented method of  claim 5 , wherein determining the amount of cash comprises:
 multiplying the initial strike price of one of the long call and short put index options contracts by the contract multiplier.   
     
     
         7 . The method of  claim 6 , wherein determining the amount of cash further comprises adding accrued interest. 
     
     
         8 . The computer implemented method of  claim 1 , wherein the one or more derivative instruments is a short index futures contract. 
     
     
         9 . The computer implemented method of  claim 8 , wherein determining the amount of cash comprises:
 determining an initial amount of cash by multiplying a mark price for the short index futures contract on the date of creation of the Index Participation Notes by a contract multiplier;   subtracting an amount equal to a difference between a current mark price and the initial mark price from the determined initial amount of cash.   
     
     
         10 . The method of  claim 9 , wherein determining the amount of cash further comprises adding accrued interest. 
     
     
         11 . A computer implemented method of redeeming Index Participation Notes, the method comprising:
 receiving by one or more computers a redemption request from a holder of one or more creation unit size aggregations of Index Participation Notes that are secured by a creation unit that consists essentially of a long put index options contract and a short call index options contract on a financial index with the long put index options contract and the short index call options contract having the same initial strike price and the same expiration date and an amount of cash that substantially equals the strike price; and   determining by the computer system an amount of cash to deliver along with the long put index option contract or short call index options on the financial index included in the creation unit to the holder of the plurality of Index Participation Notes in exchange for the creation unit size aggregations of Index Participation Notes.   
     
     
         12 . The computer implemented method of  claim 11 , wherein determining the amount of cash comprises:
 multiplying the initial strike price of one of the short call and long put index options contracts by the contract multiplier.   
     
     
         13 . The method of  claim 12 , wherein determining the amount of cash further comprises adding accrued interest. 
     
     
         14 . The computer implemented method of  claim 1 , wherein the plurality of financial instruments is a plurality of long index futures contracts, each of the plurality of long index futures contracts having the same initial mark price; and the Index Participation Notes are further secured by an amount of cash about equal to a strike price for one of the plurality of long index futures contracts. 
     
     
         15 . The computer implemented method of  claim 14 , wherein determining the amount of cash comprises:
 determining an initial value of the cash by multiplying the strike price for one of the plurality of long index futures contract by a contract multiplier;   multiplying the contract multiplier by the number of index futures contracts included in the plurality of long index futures contracts to generate a gains multiplier;   adding an amount equal to a difference between a current mark price and the initial mark price multiplied by the gains multiplier to the initial value of the cash.   
     
     
         16 . The method of  claim 15 , wherein determining the amount of cash further comprises adding accrued interest. 
     
     
         17 . A computer implemented method of redeeming Index Participation Notes, the method comprising:
 receiving by one or more computers a redemption request from a holder of one or more creation unit size aggregations of Index Participation Notes that are secured by a creation unit that consists essentially of a plurality of long call index options contracts, each of the plurality of long call index options contracts having the same strike price, a plurality of short put index options contracts, each of the plurality of short put index options contracts having the same strike price; the plurality of long call index options contracts and the plurality of short put index options contracts having the same initial strike price and the same expiration date; and an amount of cash equal to the strike price for one of the plurality of long call index options contracts and the plurality of short put index options contracts; and   determining by the computer system an amount of cash to deliver along with the long put index option contract or short call index options on the financial index included in the creation unit to the holder of the plurality of Index Participation Notes in exchange for the creation unit size aggregations of Index Participation Notes.   
     
     
         18 . The computer implemented method of  claim 17 , wherein determining the amount of cash comprises:
 multiplying the strike price for one of the plurality of long call index options contracts and the plurality of short put index options contracts by a contract multiplier.   
     
     
         19 . The method of  claim 18 , wherein determining the amount of cash further comprises adding accrued interest. 
     
     
         20 . A computer implemented method of redeeming Index Participation Notes, the method comprising:
 receiving by one or more computers a redemption request from a holder of one or more creation unit size aggregations of Index Participation Notes that are secured by a creation unit that consists essentially of a long index futures contract and a short call options contract on a financial index and an amount of cash that substantially equals a mark to market price of one of the contracts on a date of issuance of the Index Participation Notes; and   determining by the computer system an amount of cash to deliver along with at least one of the contracts of the financial index included in the creation unit to the holder of the plurality of Index Participation Notes in exchange for the creation unit size aggregations of Index Participation Notes.   
     
     
         21 . The computer implemented method of  claim 20 , wherein determining the amount of cash comprises:
 multiplying a current mark price for the long index futures contract on the date of receipt of the redemption request by a contract multiplier.   
     
     
         22 . The method of  claim 21 , wherein determining the amount of cash further comprises adding accrued interest. 
     
     
         23 . A computer implemented method of redeeming Index Participation Notes, the method comprising:
 receiving by one or more computers a redemption request from a holder of one or more creation unit size aggregations of Index Participation Notes that are secured by a creation unit that consists essentially of a long call index options contract, a short put index options contract, the long call index options contract and the short put index options contract having the same initial strike price and the same expiration date; and a short call options contract on a financial index and an amount of cash that substantially equals the strike price; and   determining by the computer system an amount of cash to deliver along with at least one of the contracts of the financial index included in the creation unit to the holder of the plurality of Index Participation Notes in exchange for the creation unit size aggregations of Index Participation Notes.   
     
     
         24 . The computer implemented method of  claim 23 , wherein determining the amount of cash comprises:
 multiplying the initial strike price of one of the long call, short call, and short put index options contracts by a contract multiplier.   
     
     
         25 . The method of  claim 24 , wherein determining the amount of cash further comprises adding accrued interest. 
     
     
         26 . A computer implemented method of redeeming Index Participation Notes, the method comprising:
 receiving by one or more computers a redemption request from a holder of one or more creation unit size aggregations of Index Participation Notes that are secured by a creation unit that consists essentially of a long index futures contract; and a long put index options contract, with the long put index options contract and the long index futures contract each having the same initial mark price and expiration date on a financial index and an amount of cash that substantially equals the mark price; and   determining by the computer system an amount of cash to deliver along with at least one of the contracts of the financial index included in the creation unit to the holder of the plurality of Index Participation Notes in exchange for the creation unit size aggregations of Index Participation Notes.   
     
     
         27 . The computer implemented method of  claim 26 , wherein determining the amount of cash comprises:
 multiplying a current mark price for the long index futures contract on the date of receipt of the redemption request by a contract multiplier.   
     
     
         28 . The method of  claim 27 , wherein determining the amount of cash further comprises adding accrued interest. 
     
     
         29 . A computer implemented method, comprising:
 determining by a computer system, a value for a tradable index share that tracks performance of an index, the tradable index share backed by a fractional interest in a creation unit that consists of a derivative financial instrument and a defined amount of cash that corresponds to either a mark or strike price of the derivative financial instrument.   
     
     
         30 . The computer implemented method of  claim 29  wherein the financial instrument comprises a long index futures contract. 
     
     
         31 . The computer implemented method of  claim 29  wherein determining the value of the tradable index share comprises:
 accessing in the computer system a representation of the creation unit that includes fields that identify the long index futures contract and the defined amount of cash; 
 accessing an initial mark price of the futures contract and a contract multiplier of the futures contract; and 
 accessing a current value for the defined amount of cash included in the creation unit. 
 
     
     
         32 . The computer implemented method of  claim 31 , further comprising:
 calculating the current value for the defined amount of cash by multiplying the market price of the index futures contract on a particular date by the contract multiplier.   
     
     
         33 . The computer implemented method of  claim 31 , wherein determining the value for the tradable index share further comprises:
 modifying the initial value for the defined amount of cash based on performance of the long index futures contract.   
     
     
         34 . A computer implemented method comprising:
 producing by a computer system by accepting delivery of a creation unit that consists essentially of a long index futures contract and cash corresponding to a mark price of the long index futures contract multiplied by a contract multiplier; and   recording by the computer system a plurality of Index Participation Note shares, each Index Participation Note share representing a fractional interest in the creation unit.   
     
     
         35 . The computer implemented method of  claim 34 , further comprising listing the Index Participation Note shares on a securities exchange. 
     
     
         36 . The computer implemented method of  claim 34 , wherein producing the creation unit further comprises:
 determining a number of Index Participation Note shares to issue based on a value of the long index futures contract.   
     
     
         37 . The computer implemented method of  claim 34 , further comprising:
 publicly disclosing the long index futures contract and a total value of the cash included in the creation unit.   
     
     
         38 . A computer implemented method, comprising:
 determining by a computer system, a value for a tradable index share that tracks performance of an index, the tradable index share backed by a fractional interest in a creation unit that consists essentially of a long call index option 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 strike price and the same expiration date; and a defined, initial amount of cash that substantially equals the strike price.   
     
     
         39 . The computer implemented method of  claim 38  wherein determining the value of the tradable index share comprises:
 accessing in the computer system a representation of the creation unit that includes fields that identify the long call options contract, the short put options contract, and the defined amount of cash; 
 modifying the defined amount of cash upon expiration of the long call and short put index options contracts based on a performance of the index. 
 
     
     
         40 . The computer implemented method of  claim 39  wherein modifying the defined amount of cash comprises:
 determining if the index value on the settlement date is greater than the strike price of the long call and short put options contracts; 
 if the index value on the expiration date is greater than the strike price of the long call and short put options contracts, exercising the long call index options contract; and 
 if the index value on the expiration date is less than the strike price of the long call and short put options contracts, exercising the short put index options contract. 
 
     
     
         41 . A computer implemented method comprising:
 producing by a computer system a creation unit that secures a plurality of Index Participation Note shares by recording acceptance of delivery of a long call index options contract and a short put index options contract and a defined amount of cash substantially equal to a strike price of either of the long call index options contract and the short put index options contract; and   recording by the computer system issuance of the plurality of Index Participation Note shares, each Index Participation Note representing a fractional interest in the creation unit.   
     
     
         42 . The computer implemented method of  claim 41 , further comprising listing the Index Participation Notes on a securities exchange. 
     
     
         43 . The computer implemented method of  claim 41  wherein the creation unit consists essentially of the long call index options contract and the short put index options and the defined amount of cash. 
     
     
         44 . The computer implemented method of  claim 41  wherein the defined amount of cash is the strike price of the long call and short put options contracts multiplied by a contract multiplier. 
     
     
         45 . The computer implemented method of  claim 41 , further comprising:
 recording a purchase of an interest bearing instrument with the defined amount of cash; and   adding interest from the interest bearing instrument to the defined amount of cash.   
     
     
         46 . The computer implemented method of  claim 42  wherein the creation unit consists of a plurality of different long call and short put index options and an amount of cash corresponding to strike prices of each of the different long call or each of the different short put index options. 
     
     
         47 . The computer implemented method of  claim 42 , further comprising:
 publicly disclosing long call and short put index options and a total value of the cash included in the creation unit.   
     
     
         48 . A computer implemented method, comprising:
 determining by a computer a value for a tradable index share that inversely tracks performance of an index, the tradable index share backed by a fractional interest in a creation unit that consists essentially of a derivative financial instrument and a defined amount of cash that corresponds to a cash component of the derivative financial instrument.   
     
     
         49 . The computer implemented method of  claim 48  wherein the financial instrument comprises a short index futures contract and the cash component of the derivative financial instrument is an initial mark to market price of the futures contract. 
     
     
         50 . The computer implemented method of  claim 49 , further comprising:
 producing in the computer system a representation of a creation unit that includes fields that identify the short index futures contract and the amount of cash.   
     
     
         51 . The computer implemented method of  claim 49  further comprising:
 accessing an initial mark price of the short index futures contract and a contract multiplier of the futures contract; and 
 recording the defined amount of cash related to the initial mark price to add to the creation unit. 
 
     
     
         52 . The computer implemented method of  claim 51 , further comprising
 calculating the defined amount of cash on a date subsequent to generation of the tradable index shares by multiplying the market price of the index futures contract on a particular date by the contract multiplier.   
     
     
         53 . A computer implemented method, comprising:
 determining by a computer a value for a tradable index share that inversely tracks performance of an index, the tradable index share backed by a fractional interest in a creation unit that consists essentially of a long put index option and a short call index option, wherein the long put index options contract and the short call index options contracts have the same initial strike price and the same expiration date, and a defined amount of cash that corresponds to a cash component of the strike price.   
     
     
         54 . The computer implemented method of  claim 53  further comprises:
 recording an initial strike price of the long put index and short call index options contracts and a contract multiplier of the futures contract; and 
 recording the defined amount of cash to add to the creation unit, as the strike price of one of the long put index and the short call index options contracts. 
 
     
     
         55 . The computer implemented method of  claim 53  further comprises:
 calculating the defined amount of cash on a date subsequent to generation of the tradable index shares by: 
 determining if the index value on the expiration date is greater than the strike price of the long call and short put options contracts; 
 if the index value on the expiration date is greater than the strike price of the long call and short put options contracts, exercising the long call index options contract; and 
 if the index value on the expiration date is less than the strike price of the long call and short put options contracts, exercising the short put index options contract; and 
 adding accrued interest. 
 
     
     
         56 . The computer implemented method of  claim 49  wherein the index is a securities index. 
     
     
         57 . A computer implemented method, comprising:
 determining by a computer, a value for a tradable index share that provides a positive return if performance of an index is within a predefined range of performance of the index, the tradable index share backed by a fractional interest in a creation unit that consists essentially of a long index futures contract, a short call options contract, and an amount of cash that corresponds to the strike price of the options contract and mark price of the futures contract.   
     
     
         58 . The computer implemented method of  claim 57 , further comprising:
 calculating the defined amount of cash on a date subsequent to generation of the tradable index shares by:   multiplying a current mark price for the long index futures contract on the date of receipt of the redemption request by the contract multiplier;   adding accrued interest.   
     
     
         59 . The computer implemented method of  claim 57 , wherein the index is a securities index.