Trust Structure for Equity Principal Protection
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Solution Overview
Problem
Existing methods for providing principal protection exposure to equity markets often result in substantial income statement volatility, which is undesirable.
Innovation Solution
A computer implementable method involving the sale of a trust certificate to generate proceeds, allocating a portion for purchasing an equity security and a put option, structured within a trust to provide principal protection exposure without significant income statement volatility, utilizing a trust such as a limited purpose Delaware or New York business trust with an independent bank trustee, and employing an SPDR share and over-the-counter European-style cash-settling put option.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If existing methods are used to provide principal protection exposure to equity markets, then principal protection exposure is provided, but substantial income statement volatility occurs
Solution Approach 1:
The investment structure is segmented into distinct components: a trust certificate representing the principal protection vehicle, equity securities providing market exposure, and put options providing downside protection. This segmentation allows each component to serve its specific function while collectively achieving principal protection with reduced income statement volatility
Solution Approach 2:
A trust structure acts as an intermediary between the investor and the equity market. The trust certificate is sold to a first entity, and the trust uses proceeds to purchase equity securities and put options, isolating the volatility impact from the investor's income statement while maintaining principal protection exposure
2Stability of the object's composition
If a trust structure is used to provide principal protection exposure, then income statement volatility is reduced, but device complexity increases
Solution Approach 1:
The trust structure performs multiple functions simultaneously: it issues trust certificates to raise capital, purchases equity securities to provide market exposure, buys put options to protect against downside risk, and manages proceeds allocation. This multi-functionality consolidates complex operations into a single versatile vehicle
Solution Approach 2:
The structure allows flexible parameter adjustments including the strike price of put options, the allocation ratio between equity securities and options, and the trust certificate terms. These parameter changes enable customization to match specific risk tolerance and market views while maintaining the core principal protection mechanism
Data Source
AI summary
Various embodiments of the present invention relate to methods and systems for providing principal protection exposure to equity markets. More particularly, one embodiment of the present invention relates to a computer implementable method for performing data processing operations associated with providing principal protection exposure to an equity market, comprising the steps of: carrying out a sale of a trust certificate to generate proceeds, which sale is from a trust to a first entity; allocating a portion of the proceeds of the sale of the trust certificate to a purchase of an equity security, which purchase is by the trust from the equity market; and allocating a portion of the proceeds of the sale of the trust certificate to a purchase of a put option on the equity security, which purchase is by the trust from a second entity; wherein the sale of the trust certificate to the first entity, combined with the purchase of the equity security by the trust and the purchase of the put option by the trust, provides the first entity principal protection exposure to the equity market without causing substantial income statement volatility.