Blind Trust Intermediary for Confidential ETF Redemption Management
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Solution Overview
Problem
Current mechanisms for managing redemption and creation events in collective investment vehicles, such as ETFs, face challenges in maintaining confidentiality and efficient liquidation of assets, particularly in ensuring that market participants do not disclose the identity of underlying securities, and in accurately calculating and disseminating intraday indicative values.
Innovation Solution
A method and system for managing redemptions and creations in collective investment vehicles that involve receiving asset requests, issuing shares, obtaining securities, calculating and disseminating intraday indicative values, and performing redemption events, while ensuring confidentiality through the use of market participant representatives governed by agreements that restrict liquidation and disclosure, and utilizing third-party calculations to maintain portfolio secrecy.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of information
If market participants directly receive and liquidate underlying securities during redemption events, then the liquidation process is straightforward, but the identity of underlying securities becomes disclosed to market participants
Solution Approach 1:
The patent introduces a blind trust account as an intermediary mechanism between the collective investment vehicle and market participants. The blind trust holds the underlying securities and distributes them to market participants without disclosing their identities. This mediator structure resolves the contradiction by maintaining security identity confidentiality while enabling the redemption liquidation process to proceed normally.
Solution Approach 2:
The patent segments the redemption process into distinct functional components: (1) the collective investment vehicle calculates the redemption amount, (2) a blind trust account receives and holds the underlying securities, (3) the blind trust distributes securities to market participants without disclosure. This segmentation allows each component to perform its function while maintaining the confidentiality requirement.
2Measurement precision
If the collective investment vehicle calculates intraday indicative values using third-party services, then the calculation accuracy and timeliness improve, but the system complexity increases
Solution Approach 1:
The patent employs third-party calculation services as intermediaries to compute intraday indicative values. These external services process the portfolio data and return accurate, timely valuations without requiring the collective investment vehicle to build complex internal calculation infrastructure. The intermediary approach maintains high measurement precision while avoiding the complexity of developing and maintaining sophisticated valuation systems.
Solution Approach 2:
The patent uses a universal data exchange interface that enables the collective investment vehicle to work with multiple third-party calculation services. This standardized interface allows the system to maintain accurate intraday indicative values through external services while keeping the core system architecture simple and flexible.
3Loss of information
If market participant representatives are required to maintain confidentiality agreements, then the disclosure restriction is enforced, but the operational efficiency of redemption processing decreases
Solution Approach 1:
The blind trust account serves as an intermediary that handles the confidential distribution of underlying securities. Market participant representatives interact with the blind trust rather than directly with the collective investment vehicle's portfolio, allowing them to process redemptions efficiently without accessing confidential security identities. The blind trust maintains the confidentiality barrier while enabling smooth operational processing.
Solution Approach 2:
The system performs preliminary calculations and determinations of redemption amounts and security distributions before the actual redemption execution. By pre-calculating the intraday indicative values and determining the redemption quantities in advance, the system reduces real-time processing complexity and maintains confidentiality while improving overall productivity.
Data Source
AI summary
A method for managing redemptions, the method comprising: receiving, a request to redeem shares of a fund for a given market participant (MP), comprising a number of shares to redeem or a value-specifying parameter; communicating before a strike time an identification of a set of assets to distribute including a number of each one of the assets, to a MP representative, which MP representative is restricted from liquidating and disclosing the set of assets; calculating, a true-up amount, based on a monetary value at the strike time of the set of assets and either the monetary value as of the strike time of the number of shares requested to be redeemed, or the monetary value as of the strike time comprising a number of shares approximated by the value-specifying parameter, causing a transfer of all or a portion of the set of assets to the MP representative.