Open end mutual fund securitization process

Abstract

<heading lvl="0">Abstract of Disclosure< / heading> A mutual fund securitization process permitting the trading of open end mutual funds and linked derivative securities on or off the floor of a National Securities Exchange. The targeted individual open end mutual fund or group of open end mutual funds, selected through a screening process is securitized through the creation of a new, separate security. This new security is preferably a closed end fund of funds and linked derivative securities, which synthetically replicate the statistical relationship of the defined individual or group of open end mutual funds. The maintenance of financial records for the new security is maintained by electronically storing dividend, capital gains and income received from the open end funds which have been invested in, and calculating pro-forma financial statements to disseminate to shareholders and all relevant parties.

Description

Cross Reference to Related Applications[0001] This Application is a continuation of co-pending U.S. Application No. 09 / 579,801 filed May 26, 2000, which is a continuation of U.S. Application No. 09 / 140,868 filed August 27, 1998, now U.S. Patent No. 6,088,685, which is a continuation of U.S. Application No. 08 / 542,431 filed October 12, 1995, now U.S. Patent No. 5,806,048.Background of Invention[0002] This application relates to a new financial process which securitizes open end mutual funds to facilitate intra-day trading of the funds and linked derivative securities.[0003] There are currently over 7,000 open end mutual funds registered with the Securities and Exchange Commission. None of these open end mutual funds, or any index of open end mutual funds, or any linked derivative, are traded on a National Securities Exchange. The reason for this phenomenon lies in the way that open end mutual funds sell their shares, and subsequently buy back their shares from the public.[0004] Open ...

AI Technical Summary

Benefits of technology

Facilitates intra-day trading of mutual fund indexes and open end mutual funds with increased liquidity, allows investors to place various orders, reduces fees, and provides stability in asset levels, enabling quicker short selling and reduced volatility for fund managers.

Problems solved by technology

Many mutual funds make hundreds (if not thousands) of trades during the day, purchasing and selling a wide range of financial securities, some of which are difficult to value.

Thus, it is time consuming, tedious, expensive and otherwise difficult to determine an exact N.A.V. during the day.

In either case, however, the investor does not know what price will be paid for the open end fund shares until after the order has been placed, and the fund has calculated its N.A.V.

But like all the other open end funds created in the past, they can only be bought and sold at the end of the day.

Unfortunately, because the net asset value of the open end sector funds was unknown during the 59 minutes of each hour that the basket was traded, the spread between the price that the firm was willing to buy the funds and sell the funds for was large.

Further, the correlation between the performance of the basket of stocks to the performance of the open end sector funds was neither reliable nor consistent.

This problem existed because the open end fund managers were constantly buying and selling securities during the day, and the investment banking house did not know exactly which securities the open end funds held.

This service has failed to generate significant trading volume, however, because only the public can buy or sell fund shares.

As a result of these restrictions, it is very difficult, if not impossible, for either the public or the professional investor to purchase or sell open end mutual funds during the day.

Because of the lack of liquidity and the legal obstacles involved in trading open end funds at prices other than N.A.V., up to now, those skilled in developing new products for stock exchanges thought that there was no workable way to trade open end funds, an index of open end funds, or linked derivative securities.

B) Open end funds are unable to let their customers know what price they will receive when they place their order.

C) Open end funds are not traded on an exchange so investors cannot leverage their investments through the trading of derivative securities.

D) Open end funds do not allow investors to place orders including: good "til cancelled (GTC), open, market, limit, stop loss, or stop limit, which would allow an investor to purchase or sell shares at a specific price or time.

G) Open end shares cannot be easily sold short.

Shares must be found, which could take days, weeks or even years.

I) Open end fund shares cannot be sold or purchased except through written notification, which may take several days to mail or process.

Images