Classifications

• • G—PHYSICS
  • G06—COMPUTING; CALCULATING OR 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 generally relates to techniques for managing a novel proxy asset investment vehicle and the institutions necessary to implement the proxy assets. More particularly, the present invention defines the proxy assets set, distributes, manages, and maintains a plurality of proxy assets shares, linked to account activity in accordance with pre-dete ⁇ riined criteria. Some embodiments also execute trade, issuance and redemption of such proxy assets. 0
• BZW Barclays de Zoete Wedd
• PICs Property Index Certificates
• BZW owns companies like Canary Wharf and hrrry as a result of bad property loans, and has issued the PICs as a way to insulate itself from further moves in commercial real estate prices.
• BZW also created what are essentially UK commercial real estate index settled futures, although there is no clearing house 5 and BZW is always one side of the contract.
• An industry-wide group led by AMP Asset Management (the fund management component of Australia Mutual Provident), has been scheduled to start true index-settled UK commercial real estate futures markets in 1997.
• IP Index participations
• AMEX American Stock Exchange
• AMEX American Stock Exchange
• the IP were designed to create an alternative to stock index futures that could be traded on a stock exchange rather than a futures exchange.
• the investors in the long position received a regular dividend proportional to the dividend paid by the Standard and Poor Composite Stock Price Index. In this sense, the IP investors in the long positions could be considered effectively to 5 be holding the stocks in the index itself.
• the investors in the short position put up 150% margin, and promised to pay the dividend to the investors in the long position. The shorts were subject to the usual margin calls should the price fall, and were not in any sense holding a security.
• SPDRs, or, commonly, spiders were created at the American Stock Exchange in 1993.
• Each SPDR is like a security, which is traded on the stock exchange, and behind it is an underlying basket of assets, representing the stocks used to compute the Standard and Poor Composite stock price average. Redemption and issuance rules enforce market price correspondence with the market price of the underlying portfolio.
• the assets o held are the actual stocks themselves.
• the SPDRs are used to create an asset that is like a stock and to insure that the market price corresponds at all times to the value of the basket of stocks.
• a proxy asset according to the present invention is a new kind of security that is designed to make effectively tradable broad categories of assets or claims on income flows, or economic indicators that are individually difficult or impossible to buy, hold, or sell directly.
• the proxy 0 asset is designed to have a traded market price that reflects the true liquid-market value of the assets or claims or economic indicator.
• proxy assets can be created that allow people to make investments in local real estate in a given city, but also allow owners of local real estate to hedge their exposure to real estate risk in that city.
• the proxy asset must also allow the purchasers to see, in the proxy asset share price, an indicator of real estate prices in the city.
• proxy assets can be created to allow people to invest in claims today on shares of the flow of national income over future years of some country or to allow people to hedge their own income risk, and also to see a market price of such a claim as never before.
• the term proxy asset pertains to investments related to indexes, such as measures of assets and claims on income sources and economic indicators. Such measures of assets and o claims on income sources include those related to human labor or human capital.
• measures of assets and o claims on income sources include those related to human labor or human capital.
• illiquid assets that may be the basis of proxy assets include privately held or infrequently traded corporate stocks, infrequently traded bonds, ships and aircraft, rare coins, precious gemstones, masterpiece paintings, livestock, and thoroughbreds. These assets, like real estate, are highly illiquid, and are difficult or impossible to hedge using traditional hedging mechanisms. In most 5 circumstances, an index is appropriate for a set of proxy assets if its value is not controlled or affected by those investing in that set of proxy assets.
• proxy asset for the investment provider is that the payout and redemption value for a set of proxy assets defined together is fully funded by a resources pool under the control of the investment provider.
• proxy assets differ from derivatives offered by large investment houses.
• a proxy asset data processor is employed as part of a proxy asset management system in one embodiment, and is designed for creating, distributing, managing, and maintaining the proxy assets.
• the new data processor defines and manages the value of accounts for these proxy assets, guaranteeing payment of a defined distribution by management of underlying cash- value accounts, and also facilitating trade, issuance and redemption of such proxy assets. These attributes thereby assure certain adding-up constraints for account values.
• the proxy assets are configured to simplify their use and understanding by investors, to 5 parallel familiar existing assets in appearance and in terms of the kinds of contingencies and activities that the investors become involved with, and to offer the same feeling of financial soundness.
• the proxy asset data processor is designed to reinforce and confirm these impressions among investors, by facilitating the basic functions necessary for the proxy asset's essential equivalence with other assets.
• Proxy assets are designed to resemble existing well-known types of securities, like ordinary stocks, so that regulatory restrictions may have their intended effect.
• proxy asset shares are purchased outright and no position is leveraged or subject to a margin call. That proxy assets resemble familiar securities may also have certain psychological benefits.
• margin calls can involve margin calls to which investors can react very negatively because such margin calls force investors to focus on their losses from individual portions of their 5 portfolio, even when their overall portfolio is doing well.
• investors who hedge against losses in holdings of an asset by taking a short position in the futures markets can be very upset by the repeated margin calls that would be the consequence of such hedging should prices increase.
• Investors tend to feel upset by margin calls, even though their losses in the futures market are compensated (since the value of the portfolio of other assets is increasing). The o reason for this is that the margin call is made more psychologically salient by the need to take action.
• the defined criteria characterize the proxy asset's value so that 5 changes in a proxy asset's market price will approximately reflect the expected change in the value of the intended underlying index.
• the proxy asset account balance is adjusted over time in accord with changes in the value of the associated 0 index and the pooled resources balances managed by an investment manager or bank.
• the system uses indices of the asset value or of income or economic indicators at set intervals or events, and employs these indices as a vehicle for determining the balances in the accounts, which in turn will affect the price and payouts (herein termed "dividends") on the proxy asset.
• the database includes detailed account information and stores the updated account balances at set times or 5 events as controlled by the processing logic.
• the system adjusts the account balances corresponding to each investor in each proxy asset by transfers between accounts in accordance with a formula associated with each proxy asset.
• the new balance controls the scale of the dividend or distribution paid on the proxy asset, rewarding through time those proxy assets tied to formulas that increase as determined by the o indices.
• the proxy assets are exchanged in a market either via conventional brokerage services or directly through a trading system defined here, allowing a broad spectrum of investors access to this investment and risk management vehicle.
• the proxy asset system further includes processing logic to permit selective bundling of proxy assets into proxy asset 5 portfolios or proxy asset bundles.
• These proxy asset bundles are configured to permit enhanced distribution in response to changing investment and hedging demands for the underlying indices.
• Account features include the subsequent dispersion of the pools into their individual proxy assets.
• Accounts are linked to traditional markets to permit trading and exchanging of proxy assets by means akin to those techniques now employed to trade stocks and bonds.
• techniques provide a proxy asset set of two or more proxy assets that respond to a set of one or more indices. Each proxy asset of the proxy assets set has a proxy asset account value and a number of proxy asset shares representing equal claims on the proxy asset account value.
• the proxy assets set has a total number of shares equal to a sum over the proxy assets set of the number of proxy asset shares, and has a proxy assets set account value equal to a sum over the proxy assets set of the proxy asset account value.
• a proxy asset account value is defined with a predetermined account formula responsive to at least one corresponding index of the set of one or more indices.
• the proxy assets set account value is constrained by a value of a resources pool.
• the proxy asset account value is reevaluated 5 according to the account formula upon occurrence of each event of a plurality of predetermined events.
• techniques for investing in a proxy asset include maintaining a database having information indicative of a value for a resources pool, and information indicative of a particular investor account.
• the investor account information o includes a particular investor of a set of investors, a particular proxy asset of the proxy assets set, and an investor account number of proxy asset shares.
• a signal indicative of the value of the resources pool is sent over a communications link.
• a proxy asset account value per share responsive to an index of the set of one or more indices is received over the communications link for each proxy asset of the proxy assets set.
• techniques are provided for trading on an exchange shares of a proxy assets set of two or more proxy assets that respond to a set of one or more indices.
• Each proxy asset of the proxy assets set has a proxy asset account value and a number of proxy asset shares.
• a sum over the proxy asset set of the proxy asset account value substantially equals a value of a resources pool.
• a complete set of shares of the proxy assets set among one or o more offers to trade shares of the proxy assets set is presented to a trader.
• a complete set satisfies a certain condition among shares of the proxy assets set.
• techniques are provided for managing a proxy asset set of two or more proxy assets that respond to a set of one or more indices.
• a value of a resources pool and a value of an index of the set of indices are received.
• a proxy asset account value is 5 evaluated according to an account formula responsive to the value of the index and a constraint.
• the constraint is on the proxy assets set account value imposed by the value of a resources pool. The evaluation is performed upon occurrence of each event of a plurality of predetermined events.
• a system provides a proxy asset set of two or more o proxy assets that respond to a set of one or more indices.
• a network is connected to a computer readable medium.
• the computer readable medium includes a value of a resources pool and a number of shares of each proxy asset for each investor of a set of investors.
• One or more bank processors connected to the network are configured to compute the value of the resources pool.
• One or more proxy assets set processors are configured to evaluate a proxy asset account value as a function of at least one corresponding index of the set of one or more indices.
• the one or more proxy assets set processors are also configured for constraining the proxy assets set account value by the value of the resources pool.
• Figure 1 is a block diagram illustrating examples of closed paths the data processor of the o present invention may identify
• Figure 2 is a relational block diagram depicting the proxy asset account manager
• FIG. 3 A is a block diagram of the computer hardware available to practice the invention.
• Figure 3B is a block diagram of a computer system including a network
• 5 Figure 4 provides a logic flow diagram for a proxy asset generator, according to one embodiment of the present invention
• Figure 5 provides a logic flow diagram for an account manager, according to one embodiment of the present invention.
• Figure 6 provides a logic flow diagram for a dividend generator, according to one o embodiment of the present invention.
• Figure 7 is a logic flow chart depicting the proxy asset order processor, according to one embodiment of the present invention.
• Figure 8 is a logic flow chart illustrating an embodiment of the proxy asset trading, issuance and redemption system, according to one embodiment of the present invention
• 5 Figure 9 is a relational block diagram depicting a proxy asset bundle manager, according to one embodiment of the present invention.
• FIG. 10 is a block diagram of one embodiment of a proxy asset system in accordance with the present invention.
• Figure 11 is a block diagram of a portion of one embodiment of a proxy asset system o having a shift control mechanism.
• the present invention is directed to a novel proxy asset system operated by a system proprietor responsible for implementing and managing a group or set of proxy assets.
• the system proprietor is linked to various ancillary information sources and outlets, via communications 5 links, such as dedicated server lines or telephone connections to the internet.
• communications 5 links such as dedicated server lines or telephone connections to the internet.
• the system is accessible to brokers or outside investors, in a limited and pre-defined way.
• One connection of this embodiment is used to monitor the value of one or more indices.
• the proxy asset system in one embodiment, is implemented by a proxy asset data processor and a programmed controlled criterion for operation, with this criterion well o understood by participants.
• the proxy asset data processor includes a proxy asset account manager and a proxy asset dividend generator.
• the proxy asset system preferably includes a trading, issuance and redemption system that receives and stores customer orders to buy and sell, including market orders, limit orders and possibly other varieties of order. It also executes these orders by trading existing proxy asset shares or issuing or redeeming proxy asset 5 shares in complete sets, later defined, as needed.
• the stored programming implements an account formula or an account- shifting function that defines the balances in the accounts and a distribution payout formula for each proxy asset, to be discussed here below.
• the pooled resources for all accounts within the system are invested in some assets, such as money market instruments, by an investment o manager, or separate firm external to the system, characterized herein as the bank.
• the bank reports to the system proprietor the value of the pooled resources, and the system proprietor tracks the separate accounts for the proxy assets, which are claims on the pooled funds in the bank.
• the underlying criteria for account processing are publicly distributed to insure complete knowledge by participants. Transfers are made among cash accounts within the proxy asset 5 system.
• the illustrative examples here each present a single proxy asset system, recognizing that there could be more than one such system, each operating at different institutions run by different system proprietors.
• Another exemplary proxy asset system embodiment implements, at a minimum, two proxy assets for real estate in a given city for a given base year. These two proxy assets are o referred to as an up proxy asset and a down proxy asset, one share of each forming what will be called a complete set (see below).
• the first proxy asset, the up proxy asset has an account balance per share that is adjusted by the system proprietor according to an account formula that specifies that it contains, at regular intervals (e.g., quarterly), a balance proportional to the real estate price index for the given base year for that city.
• investors in that proxy asset receive a regular dividend or distribution according to a distribution payout formula that specifies a payout equal to a constant, predetermined, payout rate times the balance in the account corresponding to that share, and subject to an upper limit.
• the second proxy asset the down proxy asset, has account balance per share that is set, according to its account formula, 5 to equal the combined balances in the cash accounts for both up and down proxy asset per share minus the balance in the up proxy asset cash account per share.
• Its distribution payout formula defines a dividend equal to the payout rate times the balance in that account, so long as that balance is positive, and not exceeding an upper bound.
• the system is defined so that all dividends payouts are always feasible. By construction, the sum of the distribution payout 0 formulas for an up share and a down share is always less than the combined increases in balances per share in the two accounts in the bank.
• buying shares in the up proxy asset corresponds to investing in the illiquid real estate itself; the proxy asset is, however, liquid.
• shares in the up proxy asset have the look and feel of an ordinary investment, since they confer on the investor a claim on the 5 account which "backs" the proxy asset, thereby encouraging a receptive market psychology for these assets.
• Investments in the down proxy asset are less clearly analogous to existing investments. One might call a share in one of them analogous to a portfolio consisting of a short position in real estate and also to the margin account balance for that short position.
• the proxy asset system creates new up and down proxy assets with an index that is 100 in a newer base year, issuing both up and down proxy assets at 100. Investors may 5 then redeem their original proxy assets shares and purchase shares for the newer base year.
• the down proxy asset does not involve margin calls at all and resembles an asset, it is better to regard it as a fundamentally new investment vehicle that makes it much easier for participants to hedge their risks.
• the system o proprietor has two primary functions. The first is to create the proxy assets and distribute shares in these assets, like the up-down proxy assets described in the example above, in a way that allows free commercial access and payment of a market price for the proxy assets and redemption of shares.
• the second aspect involves, as seen in the example above, the management of an account of pooled resources for each proxy asset that is linked to the accounts of other proxy assets in the system, such that the changes in the value of an index are translated into changes in account balances and ultimately into distributions to the owners of the proxy asset shares.
• a third function, a trading, issuance and redemption system is optionally integrated as a feature of the system. 5
• the first primary function is to create the proxy assets.
• the system provides tools for a human to identify the index to be used and the predefined account-shifting relationship among the proxy assets in a set.
• the system includes computer logic to develop a proxy assets set that is optimal for the proprietor.
• input is received via a graphical 0 user interface that lets investors select indexes from a list of choices.
• Each potential investor is allowed to select from options indicating (1) an index in which the investor desires to take a position, (2) the side of the index they want to take, (3) the amount of leverage on the index, (4) the amount of money they want to invest, (5) the price range they would be willing to pay, (6) the length of time they want to hold such an investment, (7) the frequency of evaluation and 5 exchange of assets, and (8) conditions for terminating the assets set.
• This alternative system then processes all such investor inputs and builds an account formula based on a set of selected indices for which a balance can be found among investments from interested investors.
• Some selection options such as similarity and compatibility of the indexes, receive more weight than other selection options, such as amount of leverage. These other options themselves receive more o weight than yet other selection options, such as frequency of evaluation.
• each proxy asset within the proxy asset system has a pre- specified account formula that defines how much is in its account per share at each point of time.
• Those proxy assets whose account formulas sum identically to the combined values per share in the accounts corresponding to all the proxy assets in the set will be called a complete set of proxy 5 assets.
• all proxy assets are part of complete sets of proxy assets, then it is always possible for all proxy assets to be created such that the proxy asset data processor can always adhere to the account formulas defining the proxy assets' balances without running out of resources in the resources pool.
• Proxy assets will be issued and o redeemed by the proxy asset data processor only in complete sets, so that the account balances defined by the account formula and the distributions can always be paid in accordance with the account formula.
• Nt the proxy assets set account value, or total value of all pooled resources accounts for a given base year in the bank at time t.
• St the number of shares of all proxy assets in the system.
• the proxy asset data processor allows free issuance of new shares 5 and redemption of existing shares at any time t at values so as not to disturb WSt.
• the account formula for each proxy asset specifies how much its account contains per share, upon the occurrence of predetermined events, e.g. at regular intervals such as quarterly.
• the value of the account per share is given in terms of some measure of value of asset or income 5 or indicator underlying the proxy assets, as well as in terms of WSt.
• a complete set is a set of n shares of proxy assets, such that the sum of account formulas for the accounts per share equals nWSt.
• issuance is automatic when a complete set is identified in a set of o bids.
• a human may intervene before a complete set is issued to satisfy the bids.
• redemption is automatic or both are automatic or neither is automatic, in any combination.
• the distribution payout formula for each proxy asset specifies how much is paid out per share each time period to owners of that proxy asset as a function of the balance in that proxy 5 asset's cash account per share, and possibly as a function of other data, such as interest rates and the rate of inflation, or as a function of the balances in accounts that belong to the same complete set.
• the distribution payout formula must be specified so that dividend payments are always feasible given the balances in the cash accounts.
• the account for each proxy asset has several purposes. First, all proxy asset holders receive distributions proportional to the amounts in their asset value account at the predefined evaluation events or times, by a payout factor defined by the distribution payout formula. In the preferred embodiment, the same payout factor is applied to all proxy assets managed by a single proxy asset system. Second, the account balance is used by the system to determine whether offers to buy or sell can be settled by issuance of new proxy assets or redemption of old proxy 5 assets. Third, the account balance is provided to customers as information relevant to their evaluation of the proxy assets. The account balance maybe referred to as the cash value of the investment based on the value of the pool resources.
• the first technique involves issuing complete sets of proxy assets to brokers by conventional underwriting 0 methods, just as new shares in corporations are issued today. Brokers who buy the complete sets will then have the burden of selling off the elements of the complete sets to clients as best they can, leaving the problem of finding customers for the elements of the complete sets to the brokers. Moreover, brokers can redeem the complete sets of proxy assets by purchasing on the market the complete sets, and submitting these back to the system proprietor. 5
• the second technique provides for an integrated trading, issuance, and redemption system implemented by the system proprietor, (possibly with the participation of an existing electronic trading system) that solves the problem of finding complete sets for the brokers, and also allows trading of existing shares. If the proxy asset shares are traded on the trading system described here, participants in the system (e.g., brokers and possibly individuals) can place orders to buy or o sell proxy assets in the form of either a market order (to buy or sell at any price) or a limit order
• the trading, issuance, and redemption system is preferably fully automated and electronic, though it is possible that 5 elements of the system may need to be done manually, given possible regulatory or other issues. Please see U.S. Patent No. 4,674,044 to Kalmus, et al., relating to automated trading techniques, the contents of which are incorporated in their entirety by reference.
• a rule selects the transaction set that maximizes or minimizes the price for one side of the proxy asset set, prioritizes transactions by the size of orders, clusters the orders if people are willing to wait, or alternates among these selection criteria or uses some combination of them. Any other method for prioritizing transactions known in the art may be used.
• the system 5 proprietor is not the only exchange, or even the primary exchange, on which the existing proxy assets are traded. Trades on the system may be limited to issuance and redemption, or limited to certain times, such as once a month. Additional system constraints are imposed to reflect federal and state regulations, taxation issues and issues raised by existing securities exchanges.
• proxy asset bundles are groupings of o proxy assets that may be traded as a bundle even if the individual components do not trade individually.
• the system implements the dismantling of the proxy asset bundles under select circumstances. The bundling and dismantling will be illustrated below.
• the rules include trigger events for which termination occurs and the specifics of disbanding the proxy assets set and distributing the entirety of the resources pool.
• trigger events include reaching a certain duration for the proxy assets set since its inception, reaching a certain percent of the pooled resources in one proxy asset or subset of proxy assets, achieving a fixed threshold value in one proxy asset or subset of proxy assets, changing the proprietorship of the proxy assets set, or changing the definition or computation of the index on which one of the proxy assets is based, or any combination of these events.
• the indices used to define the proxy asset or set of proxy assets can be any measure not determined by an investor in the proxy asset or set. There is only required an investor interested in an investment that corresponds to changes in the index. Several further examples of indices an investor would want an asset to respond to in other embodiments are given below.
• the indices can include a composite stock index such as the Standard and Poors (S&P) 500 index or the Dow Jones Industrial index.
• S&P Standard and Poors
• the indices can include any economic indicators.
• the composite stock index is used to define one proxy asset that tracks earnings, e.g., that strips a portion from the total growth of the index due to earnings in a quarter. Another proxy asset in the set then tracks appreciation of the underlying composite stocks in "an appreciation strip.” If an appreciation strip is computed first, the earnings are tracked with a residual between the stock price and the appreciation strip. In other embodiments, the earnings strip proxy asset can strip earnings as figured over one or more years.
• indices are defined that track earnings in different combinations or subcombinations of corporations or other companies.
• an index represents earnings of one or more corporations.
• an index represents earnings in a particular time period for a plurality of corporations.
• an index is used that represents price to earnings ratio for a corporate stock, h another embodiment, an index is based on a tracking stock for a subdivision ofa company.
• the economic indicator is the consumer price index (CPI). Persons of fixed income may want proxy assets that track the CPI as a hedge against inflation.
• the CPI is a natural for an up/down proxy asset pair.
• the index is a component of the CPI, such as energy or medical costs. An industry needing cheap energy to compete may want to hedge its position by investing in a proxy asset that increases in value as energy prices climb.
• the CPI components are material for multi-asset pooling, described below.
• the economic indicator is a balance of trade. Up/down proxy assets can pit the U.S. versus the rest of the world. Multi-asset pooling can define a set of proxy assets that track each country against the world or any pair of countries.
• Those investing in currencies may need such proxy assets to hedge their currency holdings in one or more currencies.
• lenders can hedge their positions with proxy assets that track consumer credit default rates as one of the indices. Again, this can be done with up/down proxy asset pairs or with multiple assets by country.
• the indices include same store sale statistics for those needing proxy assets that hedge their position in retail outlets.
• the indices include bid-ask spreads in one or more commodity markets. Any one market lends itself to an up/down proxy asset pair, while multiple markets can be used for multiple proxy assets. Those with seats on a commodity market may want to hedge their position with one that increases as the bid-ask spread decreases.
• at least one index measures income flow.
• One such embodiment uses indices associated with the income flow of a country. Examples of such national income flows include national income, gross domestic product, proprietor's income, imports, exports and any other item from national income and product accounts ( PA) of a country.
• indices associated with the income flow that is a measure of human labor.
• Examples of such human labor income flows include an index of occupational incomes, such as the income of doctors or lawyers or economists, or an index of wages or salaries or both accruing to certain classes of labor, or accruing to clusters of labor with similar characteristics.
• Other embodiments use indices associated with consumption expenditures. Examples include an index of consumption and consumer confidence.
• indices associated with other spreads such as a spread in different types of mortgage rates and a spread in different types of interest rates, or any combination of these. 5
• any economic or macro-economic indicator in which investors are interested in establishing a position can be used as an index used in defining a proxy assets set.
• EXAMPLE I UP-DOWN PROXY ASSETS
• two proxy assets are established for o each city (and associated base year) to be managed by the system: one (the up proxy asset) for a long position in real estate in that city, and the other (the down proxy asset) for a short, or reciprocal position, in the city.
• the proxy assets for this base year were first issued in that base year, the home price index was scaled so that the index equaled 100 then, and the initial Accounts for both the up proxy asset and the down proxy assets originally 5 contained $100.
• the account formula for the up proxy asset at quarterly intervals after that is just the price index:
• Up Cash Account Balance Per Share End of Quarter Home Price Index.
• the combined investment value in the up and down accounts was $200 for two shares on the base date, when the index was 100 by definition.
• the combined value in the up and the down cash accounts per share is now $205, then when the 0 index is at 120, the up share is $120 and the down account has $85 corresponding to each down asset share.
• the proxy asset data processor searches over the buy and sell orders to find a complete set whose total prices exceed the total value of a set. Since a complete set consists of one up proxy asset share and one down proxy 5 asset share, then whenever an offer to buy an up proxy asset share at price Pi and a down proxy asset share at price P 2 are found such that Pi + P 2 > 2WS. both orders are executed. One new share is issued for each proxy asset and the resources pool is incremented by 2WSt. From the proceeds of the combined sale the proxy asset data processor allocates an amount equal to the value corresponding to one up share to the up account, and an amount equal to the value o corresponding to one down share to the down account.
• each share has the same account balance as before, and there are now more shares outstanding.
• offers to sell the shares are found at prices such that Pi + P 2 ⁇ WSt, then the shares are redeemed.
• shares are redeemed, the number of shares is decreased, the resources pool is decreased by WSt times the number of redeemed shares, and an amount is deducted from each 5 proxy asset account in proportion to the amounts already in these accounts.
• Dividend Per Share r x (Amount in Own Account Per Share) if positive and if amount in own account is less than the combined value in the two accounts
• the payout rate r is a fixed number such as 2% per annum, corresponding to an estimate of the long-term real interest rate on money market accounts. (It must of course be less than 100% so that the dividend payout is always feasible, but presumably it will be much less. Preferably, it is less 0 than the actual growth of the resources pool.)
• the rates r are predetermined to be a given number for the up asset and a different number, e.g., a smaller number or zero, for the down asset.
• the down proxy asset's cash account could have a negative value in it, in which case no dividend will be paid to its shareholders.
• the up proxy asset's cash account would have more than 5 the total cash in the two accounts, in which case the dividend paid for the up proxy asset per share would just be the payout rate, r, times the total cash in the two accounts per share.
• the investor holding the down asset will receive no payout in this case.
• the market price of the down proxy asset may still be positive, since there is always the possibility that the index will drop enough to o bring its balance to a positive number again.
• the market price of the up proxy asset will tend to the index, so long as the index does not differ too far from 100.
• investing in the up proxy asset will be a proxy for investing in the real estate itself. So long as the unobserved dividends (in the form of housing services) on the actual real estate are approximated by the distribution payout 5 fo ⁇ nula payout rate, then the owner of the proxy asset will be receiving the same dividends as would be received by investing in the real estate itself. So long as the proxy asset price stays close to the price index for the real estate, then investing in the proxy asset will also tend to produce essentially the same capital gains and losses as investing in real estate. However, investing in the proxy asset will not produce the identical capital gains and losses because the o proxy asset market will be more liquid, allowing investors to take better advantage of predictable movements in index values.
• the down proxy asset will be extremely useful to homeowners wishing to hedge the risks of their investment in their own home. As is well known, many recent declines in real estate markets have caused homeowners to lose the real equity in their homes. A single decision ofa homeowner to put part of his or her investments in a down proxy asset for the city will then effectively hedge the homeowner indefinitely against such price risk. Because the down proxy asset has such a simple form, and is easily understood, it is easy for people to do this.
• the system will provide continuous information about the balance in the account. This 5 will reinforce for investors the fact that their accounts are "backed” by some real assets - the pooled resources. They will also know that if certain predefined circumstances pertain (such as termination of the system), they will automatically receive the balance in their account, further strengthening their impression that their investment has substantive value. This impression will result even though such circumstances are so defined as to be unlikely for the foreseeable future. 0 Bundling is applied to our up/down proxy assets to facilitate the marketing of the assets.
• each city there is a demand for the down asset for that city, corresponding to the natural hedging demand for people of that city, but little or no demand for the individual up assets of individual cities, because investors all want to be diversified.
• the system creates and markets down assets for each of the cities, but the corresponding up proxy s assets for each city is bundled for distribution as a single global up proxy asset which is a portfolio of the up proxy assets for all cities. These up assets could then later be taken apart, under defined circumstances.
• the initial down proxy assets are for individual zip codes or even census tracts, thereby facilitating very accurate hedging for individual homeowners.
• the up proxy assets marketed are only highly aggregated bundles of the corresponding individual up proxy assets.
• EXAMPLE E SWAP PROXY ASSETS
• a second form of proxy asset, continuing the real estate example, is labeled here swap 5 proxy assets. Investors wishing to swap out of the risk in their own city can buy an asset that is short in their own city and long in some other city. With such assets, they cannot adjust their overall real estate exposure (as they could with up/down proxy assets) but they can diversify their real estate exposure across cities (horizontal hedging). Adjusting the exposure to their own city can be a useful portfolio management device because many investors are not overinvested in real o estate per se but are overexposed to real estate in one region.
• the average account value per share is the total balance in all accounts in the system per share, denoted WSt, above, h this example the swap proxy assets are more leveraged than in the 0 previous up/down example, in that the indices are multiplied by two. (Another multiplier, other than two, could of course be used, to create a different amount of leverage; the number given is just for illustration.)
• the prices of the swap proxy assets will not have the simple interpretation of the price of the up proxy asset of the previous example, but the assets will have the offsetting advantage that they offer effective means of diversifying risk.
• FIG. 1 shows an illustration of the kinds of closed paths (complete sets) that the swap 5 system processor identifies among the orders to buy and sell shares.
• the first set, set A is just a
• the second set, set B is a complicated closed path involving three cities and three swap proxy assets.
• the proxy asset data processor applies these more complicated definitions of complete o sets and searches the data to find opportunities to issue, redeem, and allow trading of proxy assets, a process much more complicated than was the case with the up/down proxy assets. For example, setting the average account balance in the system (WSt) at $105.50 dollars per share, suppose that three book windows on the trading display screen are as shown: Bid Quantity Offer Quantity
• the proxy asset system and processor would discover that a bid for 50 Boston-Chicago shares at $110.15 matches with the offer to sell 50 Boston-Chicago shares, and so this trade would automatically be executed. Thus the match shown on the hypothetical window above would not persist for more than an instant. To execute these orders, there is no need for issuance or redemption.
• the computer will also discover that there is a bid for Boston-Chicago for another 50 shares at $110.15, a bid for 50 Chicago-Seattle shares at $85.93, and a bid for 50 Seattle- Boston shares for $120.42.
• embodiments of the invention include some modifications in the electronic trading system. For one example, traders would benefit from an embodiment which maintains more than one book window on the screen at a time, because of the interaction of orders within complete sets. For another example, traders who have asked the trading system to alert them when the price has hit a specific level, also benefit from an embodiment which alerts them in case any combination of orders for other proxy assets within the same compete set would suggest an opportunity to obtain the specified price by issuance or redemption at the specified price. This embodiment to provide such an alert relies on the embodiments which search for complete sets among the orders.
• the swap proxy assets are optionally bundled together and sold only as a group (called here a proxy asset bundle). For example, if there is much demand among residents of each city to swap their city real estate index for an average of all other cities, thereby effecting a diversified proxy asset bundle.
• the relevant assets are the proxy asset bundles of swap proxy assets of each city versus all of the others.
• complete sets with only two elements would not exist; complete sets would require representation of all cities.
• Such structures permit investors to go long in the chosen city while requiring no one to hedge any city. Such a structure could be of value if the demand for hedging is minimal.
• EXAMPLE ni MULTI-ASSET POOLING PROXY ASSETS
• a third form of proxy asset is labeled here as multi-asset pools. This arrangement has no down securities, only up securities; the up securities for a given index function also as down securities for the others together.
• N the assets are analogous to swaps between pairs of assets, as with the swap proxy assets described above.
• Another account formula defines the balance in the cash account a at time t with a nonlinear formula:
• FIG. 2 providing a schematic block diagram of the proxy asset account manager in the up/down proxy asset version.
• two proxy assets are created, and the two constitute a complete set.
• the system proprietor issues shares of up proxy asset (A) (block 10), following orders placed in the system on behalf of investors by conventional brokerage arrangements (block 40).
• the system proprietor also issues, at block 20, the down proxy assets (B), also following orders placed in the system by brokers on behalf of investors.
• the shares must be issued only in complete sets, which in this example means that the number of A proxy assets issued must equal the number of B proxy assets issued. Receipts from the sale of both the up and the down securities are pooled by the system proprietor in the bank and then the individual cash accounts credited with shares of this pool, block 30, in proportions to the amounts per share already in these accounts.
• the system operates to provide a proxy to real estate.
• the up proxy assets are marketed with a set of defining parameters including a link to an established index and the account, ACCT A, tied to these account balance would grow in proportion with the index, h a reciprocal manner, the down proxy asset's cash account balance would drop in value in 5 proportion to an increase in the real estate index value.
• ACCT A would grow and ACCT B would shrink by a like amount.
• Fig. 2 depicts capital flows in both directions.
• the system receives input on adjusted account balances and determines a dividend payment, W, corresponding to this new balance.
• W a dividend payment
• An inverted relation is found between the index and the dividend stream of ACCT B, linked to the down securities.
• funds in ACCT B are transferred out, leaving less capital for distribution generation W, and thus a reduced distribution for the holders of the down 5 proxy assets B even as the pooled resources grow in value.
• These proxy assets should remain in demand at some price, because of the account value, and because of their usefulness as a hedging vehicle against a drop in real estate values.
• FIG. 3 A wherein a block diagram highlights the components ofa computer system useful for implementing these assets.
• the computer system is of conventional design, having a central processor (CPU) block 100 linked to a main database, DB(I), block 110.
• the main database includes archival data on the various securities, and allows proper 5 manipulation of the underlying parameters in accordance with system logic.
• the database structure is outlined in detail in the database structure section below.
• the logic controlling system operation is stored in discrete memory block 120.
• the system includes commlink, block 140, to a network for proper controlled communication to various institutions and investors involved in the proxy asset. These participants have separate workstations, block 150, located at remote locations, but in communication with the system. It is expected that the bank, the index provider(s)and the brokers handling trades with individuals, as well as possibly the investing individuals themselves, will each communicate with the system proprietor.
• FIG. 3B is a block diagram that illustrates a computer system 900 upon which an embodiment of the invention may be implemented.
• Computer system 900 includes a bus 902 or other communication mechanism for communicating information, and a processor 904 coupled with bus 902 for processing information.
• Computer system 900 also includes a main memory 906, such as a random access memory (RAM) or other dynamic storage device, coupled to bus 902 for storing information and instructions to be executed by processor 904.
• Main memory 906 also may be used for storing temporary variables or other intermediate information during execution of instructions to be executed by processor 904.
• Computer system 900 further includes a read only memory (ROM) 908 or other static storage device coupled to bus 902 for storing static information and instructions for processor 904.
• ROM read only memory
• a storage device 910 such as a magnetic disk or optical disk, is provided and coupled to bus 902 for storing information and instructions.
• Computer system 900 is coupled via bus 902 to a display 912, such as a cathode ray tube (CRT), for displaying information to a computer user.
• a display 912 such as a cathode ray tube (CRT)
• An input device 914 is coupled to bus 902 for communicating information and command selections to processor 904.
• cursor control 916 is Another type of user input device
• cursor control 916 such as a mouse, a trackball, or cursor direction keys for communicating direction information and command selections to processor 904 and for controlling cursor movement on display 912.
• This input device typically has two degrees of freedom in two axes, a first axis (e.g., x) and a second axis (e.g., y), that allows the device to specify positions in a plane.
• the invention is related to the use of computer system 900 for proxy assets.
• proxy assets are defined and managed by computer system 900 in response to processor 904 executing one or more sequences of one or more instructions contained in main memory 906. Such instructions may be read into main memory 906 from another computer-readable medium, such as storage device 910. Execution of the sequences of instructions contained in main memory 906 causes processor 904 to perform the process steps described herein, hi alternative embodiments, hard- wired circuitry may be used in place of or in combination with software instructions to implement the invention. Thus, embodiments of the invention are not limited to any specific combination of hardware circuitry and software.
• the term "computer-readable medium” as used herein refers to any medium that participates in providing instructions to processor 904 for execution.
• Non- volatile media includes, for example, optical or magnetic disks, such as storage device 910.
• Volatile media includes dynamic memory, such as main memory 906.
• Transmission media includes coaxial cables, copper wire and fiber optics, including the wires that comprise bus 902. Transmission media can also take the form of acoustic or light waves, such as those generated during radio-wave and infra-red data communications.
• Computer-readable media include, for example, a floppy disk, a flexible disk, hard disk, magnetic tape, or any other magnetic medium, a CD-ROM, any other optical medium, punchcards, papertape, any other physical medium with patterns of holes, a
• RAM random access memory
• PROM read-only memory
• EPROM electrically erasable programmable read-only memory
• FLASH-EPROM any other memory chip or cartridge
• carrier wave as described hereinafter, or any other medium from which a computer can read.
• Various forms of computer readable media may be involved in carrying one or more sequences of one or more instructions to processor 904 for execution.
• the instructions may initially be carried on a magnetic disk of a remote computer.
• the remote computer can load the instructions into its dynamic memory and send the instructions over a telephone line using a modem.
• a modem local to computer system 900 can receive the data on the telephone line and use an infra-red transmitter to convert the data to an infra-red signal.
• An infra-red detector can receive the data carried in the infra-red signal and appropriate circuitry can place the data on bus 902.
• Bus 902 carries the data to main memory 906, from which processor 904 retrieves and executes the instructions.
• the instructions received by main memory 906 may optionally be stored on storage device 910 either before or after execution by processor 904.
• Computer system 900 also includes a communication interface 918 coupled to bus 902.
• Communication interface 918 provides a two-way data communication coupling to a network link 920 that is connected to a local network 922.
• communication interface 918 may be an integrated services digital network (ISDN) card or a modem to provide a data communication connection to a corresponding type of telephone line.
• ISDN integrated services digital network
• communication interface 918 maybe a local area network (LAN) card to provide a data communication connection to a compatible LAN.
• LAN local area network
• Wireless links may also be implemented.
• communication interface 918 sends and receives electrical, electromagnetic or optical signals that carry digital data streams representing various types of information.
• Network link 920 typically provides data communication through one or more networks to other data devices.
• network link 920 provides a connection through local network 922 to a host computer 924 or to data equipment operated by an Internet Service Provider (ISP) 926.
• ISP 926 in turn provides data communication services through the world wide packet data communication network now commonly referred to as the "Internet" 928.
• Internet 928 uses electrical, electromagnetic or optical signals that carry digital data streams.
• the signals through the various networks and the signals on network link 920 and through communication interface 918, which carry the digital data to and from computer system 900, are exemplary forms of carrier waves transporting the information.
• Computer system 900 can send messages and receive data, including program code, through the network(s), network link 920 and communication interface 918.
• a server 930 might transmit a requested code for an application program through
• Internet 928 ISP 926, local network 922 and communication interface 918.
• one such downloaded application provides for values of pooled resources as described herein.
• the received code may be executed by processor 904 as it is received, and/or stored in storage device 910, or other non- volatile storage for later execution, hi this manner, computer system 900 may obtain application code in the fo ⁇ n of a carrier wave.
• Order Number Customer ID Number: Buy Order or Sell Order: o Proxy Asset ID Number or Bundle ID Number:
• V t Total h vestable Assets Held for Cash Accounts (in Bank)
• St Total Number of Shares Outstanding in Entire System
• WSt Average Cash Account Balance per Share in System
• Price or Income Index e.g. price Date*: e.g. First Quarter 1980 Index Level*: e.g. 100.00 Cash Account Formula: 5
• Cash Account Formula ID Number Proxy Asset Type: Swap, Up or Down, etc.:
• Cash Account Formula: e.g., a) for up Cash Account index (index ID number) o b) for down Cash Account 2 x Vt/St, - index (index ID number) c) for swap Cash Account Vt/St, + 2 x (A Index - B Index) (index ID numbers) Dividend Payout Formula:
• Proxy Asset Balance Change Information 0
• Proxy Asset Cash Balance Change Formula ID 0
• Cash-Balance Change Frequency e.g. quarterly 5 Next Cash Balance Change Date:
• Historical Cash Balance Change ID Number Historical Cash Balance Change Date*: o Historical Cash Balance Before Change Amount*: Historical C ash Balance Change Amount*: Historical Cash Balance After Change Amount*: Proxy Asset Definition: 5 Proxy Asset ID Number:
• Proxy Asset Bundle ID Proxy Asset ID Numbers*:
• Proxy Asset or Bundle ID Number Complete Set ID Number: Issuance ID Number: o Issuance Date:
• the first is to allow controlled creation of proxy assets, by defining new proxy assets from scratch, by bundling existing proxy assets together, by debundling existing proxy asset bundles, or by combining some or all of the above.
• the second is to transfer balances among accounts so that the account formula is satisfied by the balances.
• the third is to define and allocate dividends on the proxy assets. In each case, the critical controlling data must be stored in the properly configured database.
• the first of these three functions is important, as success in risk management requires identifying the appropriate risk categories; such categories may be changing all the time. For example, investor demand for proxy assets in real estate may suddenly shift to a small configuration of neighborhoods that might be represented by a combination of zip-code or census-tract real estate price indices.
• the system is designed to allow the creation of new proxy assets as automatically as possible by a trained representative of the system proprietor operating the proxy asset data processor or even possibly by broker clients themselves. If the cost of creating new proxy assets is made very low, then many more such proxy assets should be created.
• Logic conceptually begins at start block 200 and continues to block 210 wherein the proxy asset under consideration AST(I) is entered by the system user.
• AST(I) we mean, for the real estate example, a definition of the geographical area, identification of real estate price index, base year, cash account formula, and dividend payout formula. Since users will find it difficult to specify these, the system may provide tools, such as maps showing locations of zip codes or census tracts, and some summary statistics about the price indices for each of these.
• the system first tests whether the entered proxy asset definition AST(I) is new and cannot be approximated by either existing proxy assets, an identical proxy asset already defined, by proxy assets with a slightly different base year, new bundles of existing proxy assets, components of existing proxy asset bundles, or by combinations thereof.
• the system searches over the existing proxy assets, the possibilities for new proxy asset bundles from existing proxy assets and components of existing proxy asset bundles to display the characteristics of the proxy assets that may be thus generated.
• the display includes information about the cash account balance that would be implied for the proxy asset under consideration. Possibly, some combination or division of proxy assets with a slightly different base year may be close enough to the proposed proxy asset.
• a positive response to test 220 branches logic to block 250 wherein the parameters of the new proxy asset are entered into the system, and the parameters of the remaining elements of the complete set specified.
• the complete set can be automatically defined by the system, providing a definition of the proxy asset pair (AST_PAR(I)), both elements of which must now be created.
• the new proxy asset pair should be defined in terms of a single index or whether the pair should be defined as a Proxy Asset Bundle in terms of a cluster of component indices. If the former, the system branches to block 290. If the latter, the system branches to block 270, where the bundle is defined, possibly by entering new indices into the system, and updating the database, block 280.
• the system queries about a default cycle for the asset adjustment period. A negative response to this allows custom entry ofa controlling cycle, CYC(I), setting the time interval between adjustments for the accounts and dividends for the up/down proxy assets.
• the more common response to test 310 defaults the controlling interval to a system stored value, blocks 320-330. This completes the first portion of the processing with logic shifted to the next sequence, block 350.
• AST_PAR(I) a new proxy asset pair at test 1420. If new, logic continues to block 1440, wherein the cash account balance per share AST-BAL(I) is entered for both elements of the pair. These balances provide the financial backbone of the proxy assets.
• Implementation is made at blocks 1450-1460 setting up the two corresponding accounts ACCTA(I) and ACCTB(I): operation allows the entry of custom account parameters ("yes" to test 1470 - and entry at block 1490) or entry of pre-selected default values, block 1480.
• the system includes a communication link between various participants and governing institutions.
• a book window is created, block 1500, for traders on the trading system, indicating, the initial defined cash account balances per share for both proxy assets in the pair, even though no shares yet exist. Orders may now be placed by customers that will appear on the book window.
• the trading system To create the first proxy asset share, since no shares yet exist, the trading system must first identify a complete set within the orders whose value equals (or exceeds) the combined cash account balances per share. Thereafter, the system can fill orders both by exchanging existing shares and by finding complete sets among orders.
• the bank or similar repository of capital in account form must be notified with wire transfer of funds and automatic structuring of accounts particularized in advance in response to the order.
• the system proprietor will be directly responsible for rebalancing the accounts (maintained by the bank in pooled form only) within complete sets with the changing indices governing the accounts.
• logic in FIG. 6 first pulls the current date, date(J), and enters this into the process, block 1610.
• the current proxy asset pair file is recalled, block 1620 read, which includes the current asset balances updated for interest earned by the bank.
• the periodic date is compared to the present date to determine if the current date is an event date for adjusting the proxy asset accounts.
• a positive response to test 1630 reflects the match of dates and need to update the accounts. Accordingly, logic continues to block 1640 and the system recalls the current index value for the tracked asset, IDX(I,J). h this context, the counter variable J tracks the cycle - and thus absolute and relative time periods.
• the system applies the cash account-formula to the down proxy asset, block 1650, making the balance per share equal the combined balances per share in the two accounts before the transfer minus the index, and applies the account formula to the up proxy asset, block 1660, making the balance per share just equal to the index. Note that the combined balances of the two accounts is unchanged by this transfer, so the transfer is always feasible, even though the down proxy asset cash account balance may be negative. Then the foregoing calculations are applied to calculate the appropriate dividend level per share for each proxy asset pair, using the distribution payout formula.
• the system queries whether the balance in the down proxy asset is negative. If not, the system proceeds to blocks 1680 and 1690, where each account is given a dividend at the rate DR(I).
• this embodiment of the system includes a communications link between various participants and governing institutions. These participants include a bank or similar repository of capital in account form, with wire transfer of funds and automatic structuring of accounts particularized in advance, and individual brokers or even individual investors who might place orders directly with the system.
• the bank will be directly responsible for investing the pooled balances of the cash accounts, while the proxy asset system will be responsible for maintaining the cash accounts for the individual proxy assets, thereby in effect dividing up the balance in the bank among proxy asset shareholders.
• FIG. 7 shows the proxy asset order processor. Beginning at start block 400 in FIG. 7, the order entry subroutine is detailed. Orders are received at block 410 from investors or brokers via workstations 150 (FIG. 3) or Internet link. Orders may consist of market orders (to buy or sell a specific number of a specific proxy asset at any price) or limit orders (to buy a specific number of proxy assets at or below a certain price or to sell a specific number of proxy assets at or above a certain price, bids and offers, hits and takes), or possibly other kinds of orders.
• buy and sell orders are stored, at block 420, in a pending order list for each proxy asset in what is essentially equivalent to a book window in the trading system, h one embodiment, they are arranged in the book window with the highest bid at the top of one column and the highest offer at the top of another column, with prices in descending value below these.
• the proxy asset trading, issuance and redemption system begins at block 500.
• the pending order lists corresponding to each proxy asset are individually accessed and searched.
• those shares are traded at block 530 without the issuance or redemption of any additional shares.
• Those orders are removed from the pending order list and processing returns to block 520 to search for additional matching orders.
• the NO path from block 520 is followed and processing loops to the next asset in the 5 system.
• test block 560 branches to a processing routine, beginning at block 570, for issuing new shares of these proxy assets, updating the accounts of the respective proxy assets in the 5 proportion to amounts already there, then deletes these buy orders from the pending order list, before returning to loop 550 to search for additional closed paths. Alternately, if the sum of the buy orders in the identified path does not meet the total value of the path, the path identified in block 550 is rejected at test 560 and different path combinations are searched.
• processing o continues to a subroutine beginning at block 600, searching for closed paths of sell orders in the pending order lists of all proxy assets in the system. The sum of the sell orders is compared to the total value of the proxy assets in the identified path at block 610. If greater, the orders are executed beginning with block 620 by redeeming existing shares of these proxy assets, updating the accounts to reflect the redeemed proxy assets and deleting the sell orders from the pending 5 order list. Processing then continues to exhaust all possible closed paths. When all closed paths are identified, the subroutine ends at block 630. Alternately, the subroutines of FIG. 8 maybe performed in a different order, e.g., beginning at blocks 510, 550 or 600 as separate, and/or concurrent subroutines.
• FIG. 9 is a relational block diagram depicting the proxy asset bundle manager.
• four proxy assets, proxy assets A, B, C, and D are shown for illustration, hi this example, only proxy asset D is sold directly to the public.
• Proxy assets A, B, and C are bundled together as shown, and the bundle is sold to the public.
• proxy assets A, B, 5 and C are already in place, and their account formulas and distribution payout formulas already defined, people will have some idea of the effects of taking this proxy asset bundle apart at a later date. Knowing that the proxy asset bundle may be decomposed later may facilitate its marketing to the public today.
• Table 2 shows an outline of the functions of the proxy asset data processor 0 according to one embodiment.
• the table gives an outline of the basic steps that this data processor must handle, on a continuing or daily basis, and the steps that are undertaken only on a less frequent basis.
• a proxy asset system in accordance with the present invention may take the form of proxy asset system 1000 of FIG. 10.
• a set of proxy assets 1012 is defined and related to one or more underlying assets 1040, which may include one or more of a variety of publicly or privately available liquid or illiquid assets, or some combination thereof.
• the underlying assets 1040 may include one or more 5 of either publicly or privately available individual corporate stocks, groups of corporate stocks, mutual funds, and bonds, as well as streams of income (e.g., revenues or accounts receivable) from corporations, partnerships, joint ventures, sole proprietorships, individuals, trusts, estates, contracts, and so forth.
• the underlying assets may also include any other previously mentioned or implied types of assets.
• the underlying assets may include other proxy assets, or o funds including proxy assets.
• Underlying assets may be represented by one or more asset indices that are either commonly known, uniquely defined, or some combination thereof, h FIG. 10, such asset indices are represented by arrow 1042.
• a set of asset indices may include one or more domestic or foreign composite indices, such as an index representing S & P 500, NASDAQ, DJIA, NYSE Composite, Nikkie, and so on.
• An asset index may also represent a single asset, such as an individual corporate stock or a mutual fund.
• the set of proxy assets 1012 is represented by a proxy asset index, denoted as "I" in FIG. 10. The value of the proxy asset index is responsive to the asset indices 1042, and is a function thereof.
• the proxy asset index 5 may completely mirror the asset indices or may be a weighted function of the asset indices.
• the various asset indices that comprise the set of asset indices may be weighted differently, i.e., by one or more leverage factors, hi any event, preferably, as the values of the asset indices 1042 change so too does the value of the proxy asset index.
• the set of proxy assets 1012 includes at least two subsets of proxy assets, a set of down 0 proxy assets 1012A and a set of up proxy assets 1012B.
• the set of proxy assets 1012 may include more than two subsets of proxy assets and the assets need not be characterized as "down" and "up", but preferably have some type of value-based relationship, wherein a change in the proxy asset index causes different changes in the values of different defined proxy asset shares related to the different subset of proxy assets.
• two subsets of down assets and three subsets of up proxy assets maybe defined, h other examples, 1 subset of low risk, 1 subset of moderate risk, and 1 subset of high risk proxy assets may be defined, and so on.
• each subset may offer a different risk reward to the investor.
• these different types of risk rewards are embodied in the functions (e.g., functions Fdown 1022 and F up 1024 discussed below) that control the value of o the corresponding proxy asset shares.
• shares are offered to investors as claims on the set of proxy assets 1012.
• the shares may be offered publicly, privately, or some combination thereof.
• a set of down proxy asset shares 1014 is offered against the down proxy assets 1012A and a set of up proxy asset shares 1016 is offered against the up proxy assets 1012B.
• the market values of the down proxy 5 asset shares 1014 and the up proxy asset shares 1016 are a function of the proxy asset index.
• Down shares and up shares may be purchased, sold, and/or valued in different manners and/or by different entities.
• shares related to different sets of proxy assets e.g., up shares and down shares
• shares related to different sets of proxy assets may be offered at the same time, or at different times.
• Shares for a given set of proxy assets e.g., down shares 1014
• any proxy asset shares maybe offered as a function of one or more conditions (e.g., the value of the resource pool reaching a certain threshold, the value of the proxy asset index reaching a certain threshold value, the value of the asset indices reaching a certain value, and so on).
• a purchase of down proxy asset shares 1014 anticipates a fall in the proxy asset index, while a purchase of up proxy asset shares 1016 anticipates a rise in the proxy asset index. Therefore, as the value of the proxy asset index changes, so too does the value of the down proxy asset shares 1014 and the value of the up proxy asset shares 1016.
• a down account 1018 may be defined that represents the value of the down proxy asset shares 1014 and an up account 1020 may be defined that represents the value of the up proxy asset shares 1016.
• the transfer of value between down proxy asset shares 1014 and up proxy asset shares 1016 is implemented as a shifting of proxy assets back and forth between the two opposed positions, i.e., between the subsets of down proxy assets 1012A and up proxy assets 1012B.
• This shifting is represented by arrow 1044 and is a function of the proxy asset index (I), which is a function of the asset indices 1042. Therefore, as an example, in response to an increase in the asset indices, the proxy asset index will also increase. Consequently, if the value of the change in the proxy asset index correlates to "X' proxy assets, then proxy assets will be shifted from the pool of down proxy assets 1012A to the pool of up proxy assets 1012B.
• up proxy asset shares 1016 will increase and the value of down proxy asset shares 1014 will decrease, since the total number of issued down and up proxy asset shares is unchanged. Although, as will be discussed below, for rebalancing purposes the number of shares issued may be altered.
• the resource pool 1026 includes, and constrains, the down account 1018 and the up account 1020. That is, regardless of the changes in the values of the up proxy asset shares and the down proxy asset shares, the resource pool 1026 constrains the value of the down account 1018 and the value of the up account 1020 such that the investor can not lose more money that the investor invested.
• the constraint provided by the resource pool 1026 is a function of the way in which the currency that comprises the pool is invested, i.e., the way in which the proxy assets are collateralized. While the set of proxy assets 1012 represents liquid or illiquid assets, the proxy assets 1012 are preferably collateralized, at least in part, by relatively stable (i.e., low risk, reliable rate of return) securities, such as U.S. Treasury securities. Since these types of securities do not tend to lose value and, in fact, have predictable, though conservative, rates of return, the resource pool 1026 itself is practically not at risk of being diminished, and in fact earns interest income.
• proxy asset shares may be configured to pay dividends as a 5 function of the interest earned on the Treasury securities used to collateralize the set of proxy assets 1012.
• the set of proxy assets 1012 may be collateralized by other liquid or illiquid assets, such as stocks, mutual funds, shares of proxy assets, other types of ownership interest or rights, or some combination thereof.
• the value of the resource pool 1026 may be held 0 substantially constant, with distributions made of any earnings on the underlying collateral, or the resource pool may be adjusted. When adjusted, the value of the resource pool may be adjusted as a function of a triggering event.
• the triggering event may include one or more of a plurality of events, such as a termination of a predetennined period of time, adding or deleting an index from a set of asset indices, a value variation in said set of indices (or an index therein), a change in a 5 set of one or more economic indicators, a change in a level of risk reward, a change in the value of one or more of the underlying assets, a change in the prime lending rate, or a change in the attractiveness of proxy asset shares (e.g., up, down or both).
• triggering events may be monitored by a proxy asset o computer system 1010 and the proxy asset resource pool 1026 may be automatically adjusted in response to such events by the proxy asset computer system, hi other embodiments, the resource pool 1026 may be manually adjusted.
• the offering of proxy asset shares may be terminated as a function of a termination triggering event.
• the termination triggering 5 event may be one or more of a variety of events, including predetermined events or events not previously determined.
• termination triggering events may include a termination of a predetermined period of time, a value variation in the set of asset indices 1042 (or an index therein), a change in rate of return of said proxy asset shares 1014 and 1016, a change in the level of risk reward to investors, a change in the value of the resource pool 1026, a o change in one or more of the underlying assets, a change in the prime lending rate, or a change in the attractiveness of proxy asset shares (e.g., up, down, or both).
• shares When shares cease to be offered, they may be purchased from the owners of the shares with payouts, or distributions made according the then market value of the shares, hi other instances, payouts or distributions may be transferred to a different investment vehicle in response to aforementioned types of triggering events, or some other triggering event.
• the termination events may be automatically monitored and the offering of shares automatically terminated by the proxy asset computer system 1010, or may be manually accomplished, h such cases, the payouts or distributions may be automatically or manually accomplished.
• the proxy assets shares may be publicly or privately offered for sale.
• the shares may be purchased and sold in packages (as in pairs, for example) or independently (e.g., as in buying only down shares, for example).
• the down proxy asset shares 1014 and the up proxy asset shares 1016 may be offered via the same channels as publicly available stocks, funds, bonds, and so on.
• Proxy asset shares may be offered on any of a variety of public or private, 0 foreign or domestic exchanges.
• shares of proxy assets could be offered on the NYSE, American Stock Exchange, or any of a number of exchanges, as will be appreciated by those skilled in the art.
• the proxy asset shares (e.g., down shares 1014 and up shares 1016) may be offered by any number of financial institutions 1028, such as banks, investment firms, brokers, and the like.
• Several entities may play different roles in creating a set of proxy assets, defining 5 the functions by which the value of proxy asset shares are determined, managing the resource pool, brokering proxy asset shares, and so forth.
• a proxy asset system 1100 may define a set of proxy assets comprised of two or more subsets (or pools) of proxy assets, e.g., down proxy assets 1112A and up proxy assets 1112B.
• Each set of proxy assets may be o related to a common set of underlying assets, such as the one or more liquid and/ or illiquid assets described above.
• a proxy asset index I is based on an asset index 1142 (similar to asset index 1042 above) that reflects a value of the underlying assets 1140.
• a set of down proxy asset shares 1114 represent claims on the pool of down proxy assets 1112A and a set of up proxy shares 1116 represent claims on the pool of up proxy asset 5 shares 1112B.
• the value of the down proxy asset shares is determined as a function (e.g., function Fdown 1122) of the proxy asset index I and the value of the up proxy asset shares is determined as a function (e.g., function F up 1124) of the proxy asset index I.
• the change in value of proxy asset shares is accomplished via the shifting of proxy assets between the pool of down proxy assets 1112A and o the pool of up proxy assets 1112B, as indicated by arrow 1144.
• a shift control 1110 is inserted between these two pools of proxy assets (i.e., 1112A and 1112B), which may take the form of a module of computer system 1100 (which is otherwise similar to computer system 1000).
• at least one financial institution acting as or controlling the shift control 1110 enters into separate relationships (e.g., contracts) with the investors of down proxy shares and the investors of up proxy asset shares.
• investors 1152 in down proxy asset shares 1114' may enter into a relationship with the financial institution regarding the operations of down proxy asset shares.
• This relationship may be, for example, conceptualized as pertaining to elements within dashed 5 line box 1160, wherein the relationship includes obligations pertaining to the transfer of proxy assets to and from the set of down proxy assets 1112 A, depicted by double arrow 1144A. However, there are no per se obligations of the financial institution regarding transfers of proxy assets to pools of proxy assets not covered by the contract between the investor 1152 and the financial institution.
• the shift control 1110 may be used to otherwise manipulate the values of the up and down shares, by inhibiting the natural shifting of proxy assets as a function of the proxy asset index (or set of asset indices).
• the proxy asset shares of FIG. 11 may be offered in any of the manners o previously described (e.g., on public or private foreign or domestic exchanges).
• Each set of proxy assets shares e.g., down shares 1114 and up shares 1116) may be treated as being relatively independent.
• Down shares and up shares may be purchased, sold, and/or valued in different manners and/or by different entities.
• shares related to different sets of proxy assets (e.g., up shares and down shares) may be offered at the same time, or at different times.
• any proxy asset shares may be offered as a function of one or more conditions (e.g., the value of the resource pool reaching a certain threshold, the value of the proxy asset index reaching a certain threshold value, the value of the asset indices reaching a o certain value, and so on).
• the rebalancing may also include redeeming proxy asset shares, modify the underlying resources or modifying that which is used to collaterlize the proxy assets.
• the rebalancing may also include issuing or cashing out proxy asset shares from the pool of down proxy assets 1012A, the pool of up proxy assets 1012B, or both.
• the issuer of the proxy asset shares may, from time to time, reset the settlement price for the proxy asset shares. For example, this may be done periodically or in response to economic factors that undesirably alter the attractiveness of the proxy asset shares as an investment. This resetting may be done to redistribute the proxy assets, and consequently rebalance the resource pool 1026 between the down account 1018 and the up account 1020. It may also be done to alter 5 the account functions 1022 and 1024.
• the point in time when the resetting is accomplished may serve as the point in time (e.g., a new start or initial offering time) from which other account activity is related, such as detennining subsequent changes in the proxy asset index or applying the relevant account formulas (e.g., functions 1022 and 1024).
• Various embodiments may also include mechanisms for adjusting the offering of proxy o asset shares as the investment vehicle nears stock out or reaches some other thresholds, for example, in terms of proxy asset index movement.
• primary mechanisms involve either dividending out principal or rolling over the principal into a new offering.
• the principle exists in the resource 5 pool generally, but may be more specifically allocated to the down account 1018 or the up account 1020, for example, and attributed to the value of the corresponding proxy asset shares.
• a dividend scenario would be one where the proxy asset index has moved significantly in one direction and the issuer then takes the resource pool and either just pays some of it out to the side winning (i.e., the up shares or down shares) at that point to rebalance to o resource pool, takes the resource pool and uses it to buy the actual security (i.e., underlying asset) that proxy asset represents and then dividends that out proportionally.
• the asset index was representative of the S&P 500
• proceeds from the resource pool 1026 would be used to by SPDRs, i.e., the S&P 500 exchange traded security, or if it were representative of an individual corporate stock, then proceeds from the resource would be used to buy shares of that corporation's stock.
• the proceeds from resource pool may be rolled over into proportionate shares of a similar new issue of proxy asset shares at that point with a new share (or reset) price. Otherwise, the proceeds may be rolled into other types of investment vehicles. For example, it may be predetermined that proceeds, if any, will be used to by low risk 5 securities (e.g., Treasuries), high risk securities (e.g., high risk mutual fund), or investments having risk-reward features similar to those of the proxy asset shares. As will be appreciated by those skilled in the art, there is a wide variety of manners in which such proceeds may be disposed. hi the embodiments of FIG. 10 and FIG.
• the function of 0 establishing the set of proxy assets 1012 (including the up and down proxy assets), the proxy assets index, the up and down proxy asset shares, the resource pool (including the up and down accounts) may be accomplished and managed by the proxy asset management computer system 1010.
• Computer system 1010 maybe a single computer system or a network of distributed computer systems cooperating.
• Indices 1042 may serve as an input to system 1010 and the down 5 proxy asset shares and up proxy asset shares may be managed and offered via system 1010. That is, a variety of functions may be accomplished or supported by system 1010, including issuance, redemption, buying, selling, resource pool and account management (including rebalancing), brokering of proxy asset shares, and the distribution of dividends and payouts related to the up and down proxy asset shares.
• System 1010 may include interfaces to third party providers of o information or financial institutions, including brokers, fund managers, portfolio managers, market makers, exchanges and so forth.
• various embodiments may allow for or facilitate on-line (e.g., Internet or Web based) trading of proxy asset shares, which may be public or private, as part of a trading system.
• Trading may be tightly controlled and only via privileged access (e.g., through a 5 secure Web site).
• trading may be available to the public generally via a public trading Web site interface, or it may be available to the public through the interface of a third party financial institution (e.g., Fidelity Investments at www.fidelity.com).
• interfaces may be provided offering various types of information relevant to the proxy asset system, such as information pertaining to the proxy assets, proxy asset index, proxy asset shares, the underlying o asset indices, the formulas for adjusting the value of shares as a function of the proxy asset index, and the characteristics of shifting proxy assets between the pools of up and down proxy assets.
• information available through a computer interface may include the name of the proxy asset (or proxy asset shares), date of issuance of the proxy asset shares, date interest was/is scheduled to be paid, approximate current yield, provisions in the particular issue for repricing, special dividends, rollovers, provision/ expectation of stock out, historical performance, and projected performance.
• functionality may be provided at the trading system Web site that investors could use to help them price the security or compare proxy asset shares to other investment vehicles.
• shares related to different proxy assets may be purchased, sold, and/or valued in different mamiers and/or by different entities.
• shares related to different sets of proxy assets e.g., up shares and down shares
• shares related to different sets of proxy assets may be offered at the same time, or at different times. Shares for a given set of proxy assets (e.g., down shares 1014) may be issued and redeemed at 0 different times (e.g., incrementally, periodically, etc.).
• any proxy asset shares may be offered as a function of one or more conditions (e.g., the value of the resource pool reaching a certain threshold, the value of the proxy asset index reaching a certain threshold value, the value of the asset indices reaching a certain value, and so on).
• non-proxy assets e.g., shares in a public or privately offered, foreign or domestic corporate stock or mutual funds
• proxy assets may be pooled or combined with proxy assets to form a hybrid pool of assets and proxy asset shares may represent claims on the hybrid pool of assets.
• the non- proxy asset shares may be altered after initial offering, i.e., shares of non-proxy assets maybe o bought sold in and out of the hybrid pool of assets.

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• 2002
  • 2002-03-01 CA CA002443278A patent/CA2443278A1/en not_active Abandoned
  • 2002-03-01 RU RU2003129533/09A patent/RU2316819C2/ru active
  • 2002-03-01 WO PCT/US2002/006328 patent/WO2002071188A2/en not_active Application Discontinuation
  • 2002-03-01 EP EP02709752A patent/EP1390887A4/de not_active Withdrawn
  • 2002-03-01 AU AU2002244221A patent/AU2002244221B2/en not_active Ceased
  • 2002-03-01 NZ NZ528555A patent/NZ528555A/en unknown

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