Defined Outcome ETF Structure Using FLEX Options and Loss Buffers

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Solution Overview

Problem

Existing investment vehicles, such as structured notes and mutual funds, lack transparency, flexibility, and fail to provide defined investment outcomes with downside protection, while ETFs are limited in delivering complex strategies due to regulatory and operational complexities.

Innovation Solution

A computer-based system and method for managing ETFs that utilize FLEX Options to provide a perpetual, resettable defined outcome strategy with a buffer against losses and a cap on returns, ensuring transparent, cost-effective, and continuous investment without termination.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Adaptability or versatility

If structured notes are used to provide flexibility in investment strategies, then investment strategy flexibility is improved, but credit risk concentration and lack of transparency worsen

Engineering Contradiction:

Improveinvestment strategy flexibilityVSAvoidcredit risk concentration

Core Design Contradiction:

Adaptability or versatilityVSReliability

Solution Approach 1:

The patent introduces an ETF structure as an intermediary vehicle that replaces direct counterparty exposure in structured notes with exchange-traded fund shares. The ETF holds the underlying assets directly, eliminating the need for issuer creditworthiness while maintaining the ability to implement complex investment strategies through transparent portfolio management.

Inventive Principle:

Principle #24Intermediary (Mediator)

Solution Approach 2:

The patent replaces the mechanical structure of structured notes (which require issuer credit and lack transparency) with an ETF structure that uses exchange-traded shares and transparent portfolio holdings. This substitution maintains investment flexibility while improving reliability through direct asset ownership and exchange oversight.

Inventive Principle:

Principle #28Mechanics substitution (Replace mechanical system)

2Adaptability or versatility

If structured notes are used to provide defined investment outcomes, then investment outcome definition is improved, but liquidity and secondary market access worsen

Engineering Contradiction:

Improveinvestment outcome definitionVSAvoidliquidity and secondary market access

Core Design Contradiction:

Adaptability or versatilityVSEase of operation

Solution Approach 1:

The patent creates an ETF structure that serves multiple functions: it provides defined investment outcomes through structured strategies, maintains liquidity through exchange trading, and offers secondary market access like traditional stocks. The ETF share structure enables investors to buy and sell freely on exchanges while the fund maintains its defined outcome strategy.

Inventive Principle:

Principle #6Universality (Multi-functionality)

3Loss of information

If mutual funds are used to provide transparency and regulation, then transparency and accountability are improved, but inability to provide downside protection and defined outcomes worsens

Engineering Contradiction:

Improvetransparency and accountabilityVSAvoiddownside protection capability

Core Design Contradiction:

Loss of informationVSAdaptability or versatility

Solution Approach 1:

The patent combines the transparency and regulatory framework of mutual funds with the strategic flexibility and downside protection capabilities previously only available in structured notes. The ETF structure integrates registered fund transparency requirements with complex option strategies and buffer mechanisms, creating a hybrid product that achieves both goals simultaneously.

Inventive Principle:

Principle #40Composite materials

4Ease of operation

If ETFs are used to provide liquidity and transparency, then liquidity and transparent pricing are improved, but complexity in delivering defined outcome strategies worsens

Engineering Contradiction:

Improveliquidity and transparent pricingVSAvoidoperational complexity for defined outcomes

Core Design Contradiction:

Ease of operationVSDevice complexity

Solution Approach 1:

The patent segments the defined outcome strategy into manageable components within the ETF structure, using separate option positions and buffer mechanisms that can be independently managed. This segmentation allows the complex strategy to be broken down into discrete, tradable elements that maintain liquidity and transparency while achieving the defined outcome objectives.

Inventive Principle:

Principle #1Segmentation

Data Source

PatentUS12579577B2System and method for offering structured defined outcome investing in an exchange-traded fund

Publication Date: 2026.03.17 INNOVATOR CAPITAL MANAGEMENT LLC

AI summary

A computer-based apparatus for managing data based on performance of an underlying securities index including a memory element of a computer configured to store computer executable instructions and a processor for the computer, configured to execute the computer readable instructions to receive information on a lower buffer threshold against losses for an investment, and determine a total return on the investment during an outcome period o, wherein the total return is adjusted to fall above the buffer threshold.