Novel securities, supporting systems and methods thereof

Abstract

A novel financial instrument, equity dilution inhibitor and security upgrade account are disclosed based on an enhanced callspread option. Implementation of the novel investment vehicle and / or upgrade account are managed via program controlled data processor governing system operation in accordance with investment parameters. Enhanced flexibility for this investment vehicle increases its usefulness to a broad spectrum of potential investors.

Description

FIELD OF THE INVENTION[0001]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.BACKGROUND OF THE INVENTION[0002]Corporations raise capital in a number of different ways, issuing equity and equity linked products being some of the most common ones.[0003]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...

AI Technical Summary

Benefits of technology

"The present invention provides a novel investment vehicle that combines cost efficiency with flexibility for raising capital while limiting the potential for stock dilution. It offers a lower cost of capital to corporate entities seeking to raise funds in the market. It also provides a synthetic security that favorably alters the effective conversion price for the convertible bond issuer. The invention also includes a data processing system to assist in implementing and managing a select synthetic security. The invention also provides a portfolio of financing arrangements for implementing callspread options associated with equity-linked investment offerings. The invention offers a convertible bond or other equity-linked security linked to a callspread option structured to decrease the effective conversion price for a convertible bond investor or to lower the effective conversion price of a bond through a surrender of coupon payments. The invention also includes supporting systems to manage the investment accounts and risk management procedures."

Problems solved by technology

The downside is that the potential conversion of the bond into shares may increase the number of outstanding shares of the company, thus reducing earnings per share.

While this method would eliminate the dilution entirely, it would also negate all the benefits of convertible bond issuance, since the premium spent on a call option would cancel the benefits of cheaper funding rate achieved by an issuer through the issuance of convertible bond.

The issuer is therefore faced with potential equity dilution if the stock exceeds the conversion price of $125.

The investment vehicles described above have at least two significant drawbacks that may limit their appeal to a wider spectrum of potential users.

First, the cost of the callspread option can be significantly high.

And second, the benefit of the dilution protection may become irrelevant if the market price of the underlying stock decreases substantially, since the possibility of achieving the conversion price becomes very remote.

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