Dynamic CIV Share Pricing Without Portfolio Disclosure
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Solution Overview
Problem
The Securities and Exchange Commission's requirements for transparency in actively managed ETFs (AM-ETFs) hinder the creation of non-transparent AM-ETFs, as public disclosure of equity securities can lead to front running and free riding, compromising the confidentiality of the fund's investment strategy.
Innovation Solution
A method involving a pricing server that determines market-dynamic security prices based on market-feed metrics, generating an indicative value for CIV shares without disclosing the underlying portfolio, thereby protecting the manager's strategy from reverse engineering.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If the ETF publishes holdings of the fund every day to meet SEC transparency requirements, then the ETF complies with SEC regulations, but the confidentiality of the investment strategy is compromised leading to front running and free riding
Solution Approach 1:
The patent segments the pricing information into two distinct components: (1) the indicative value which is published to satisfy SEC transparency requirements, and (2) the underlying portfolio holdings which remain confidential. This segmentation allows the ETF to comply with regulations while protecting the investment strategy from disclosure
Solution Approach 2:
The patent introduces an intermediary mechanism - a pricing server that calculates and publishes indicative values without disclosing the actual portfolio composition. This intermediary allows transparency requirements to be met while maintaining confidentiality of the underlying assets, preventing front running and free riding
2Loss of information
If the ETF maintains confidential portfolio information to prevent front running, then the investment strategy remains protected, but the ETF cannot meet SEC transparency requirements
Solution Approach 1:
The patent creates a copy or representation of the portfolio value in the form of an indicative value that is published to the market. This copy satisfies SEC transparency requirements without requiring disclosure of the actual portfolio holdings, thus maintaining confidentiality while ensuring compliance
3Ease of operation
If the ETF uses traditional transparent pricing methods, then the pricing is simple and transparent, but the portfolio securities identity is disclosed enabling anticipatory trading
Solution Approach 1:
The patent implements dynamic pricing where the indicative value is continuously updated based on market conditions and portfolio performance without disclosing the actual holdings. This dynamic approach maintains pricing transparency for investors while preventing the disclosure of specific portfolio securities that would enable front running
Data Source
AI summary
Disclosed herein are methods and systems for dynamic pricing of collective investment vehicles (CIVs). Portfolio composition data that identifies a plurality of portfolio securities of a CIV is received at a pricing server. Pricing data is obtained at the pricing server. A market-dynamic security price is determined at the pricing server for each portfolio security of the plurality of portfolio securities. The market-dynamic security price is dependent at least in part upon market-feed metrics determined from the pricing data. Based on the determined market-dynamic prices, an indicative value of a CIV share is generated at the pricing server. The indicative value of the CIV share is transmitted for publication.