Securities, supporting systems and methods thereof

#The present invention is generally directed to a select group of novel security structures utilized in support of certain investment objectives. More particularly, the present invention is directed to an enhanced equity linked security structure and the systems and methods for implementing the security.

#Corporations raise capital in a number of different ways, issuing equity and equity linked products being some of the most common ones.

#One popular instrument used to raise capital is known as the “convertible bond.” Much like a regular bond, a convertible bond entitles a holder to periodic coupon payments as well as the repayment of the principal amount at maturity. In addition, the holder has the right to convert his bond to a specified number of underlying shares, thus participating in the performance of the company's shares. The stock price at which it becomes economical for convertible bond holders to convert their bonds into the underlying shares is known as the conversion price. The recently published article in The Economist (Jul. 19, 2003, pp. 59-60), describes the convertible bond as “in effect, two financial securities in one: a bond, plus a call option on the shares.” While this description is not entirely accurate, it is sufficient for our purposes. The combination of the relative safety of regular bonds with the potential upside participation in the underlying shares renders convertible bonds an attractive instrument for investors.

#For a more complete understanding of the specific embodiments, FIGS. 1-4 are provided as illustrations relating to the practice of the present invention, wherein:

#FIG. 1a is a schematic block diagram that depicts the general use of a callspread option to prevent dilution;

#FIG. 1b, provides a numeric example for FIG. 1a specifically applied to a convertible bond;

#First briefly by way of background, the present invention is directed to a novel investment vehicle for increasing the flexibility of select convertible bonds and other equity-linked securities. The inventive investment is best illustrated as the coupling of a convertible bond with a callspread option corresponding to the same underlying asset. The payment for the callspread option, in one variation of the invention, is spread over a select time period and permits exchange rights based on events that accrue within the pre-selected time span. This innovative investment provides the purchaser the flexibility of canceling the investment and avoiding any future payments at any point in time. This is extremely significant since market conditions may change making the original intention of the investment irrelevant.

#Implementation of the investment vehicle is accomplished on a program controlled data processing system, operated by the system administrator. Functional characteristics of the system include the tracking of select investment events and market conditions associated with the underlying asset. Additional operation encompasses traditional hedging techniques to allow proper risk management.

#Previously, the schematic block diagram depicted in FIG. 1a was discussed with regard to the general use of the callspread option in conjunction with an equity-linked security. In FIG. 1b, a similar form of diagram is used to delineate the processes associated with implementing variations on the callspread option that can be applied to a convertible bond.