System and Method for Providing Financing for Long/Short Trading Strategies Including Convertible Arbitrage Transactions
A method and apparatus for providing financing for long/short trading strategies including convertible arbitrage transactions is described. First, this novel strategy packages longs and shorts into a single purpose transparent vehicle based on a Single Risk Based Strategy. Second, the platform contains rules-based modules which apply variable margins against securities positions. The Unitary Financial Platform performs daily pricing, risk-based computer modeling, custodial monitoring, client interfacing, and risk reporting to external parties. Third, the funding structure requires that clients contribute capital thereby creating equity in the entity. If multiple parties are involved in a single entity, this requirement puts all clients at risk with respect to the other clients in the context of the rules and provides a clearinghouse like aspect to risk sharing within the entity.
1 . A computer-based method for risk-based financing for long/short strategies applying rules-based logic to a single risk based strategy, comprising:
packaging long positions and short securities positions into a single purpose transparent financial vehicle, based on a single risk based strategy using risk-based engineering tools; and
pledging those securities positions as collateral for an extension of credit using a rules-based object.
2 . A computer-based method of claim 1 , comprising:
applying variation margin against long and short securities positions using rules-based modules;
determining respective values of long and short positions of a client by marking the long and short positions to market using a unitary financial platform;
identifying a rule based on the types of long and short positions and their relationship using a rules engine object;
calculating a collateral requirement based on the rule on a daily basis using the rules engine object; and
determining an additional margin value based on the rule using the rules engine object.
3 . The computer-based method of claim 2 , wherein if the additional margin value is positive, communicating the additional margin value to the client using the rules engine object.
4 . The computer-based method of claim 3 , further comprising receiving a transfer of margin funds from the client using the rules engine object.
5 . The computer-based method of claim 4 , further comprising allowing the client to access the margin funds in excess of the rules based margin value using the rules engine object.
6 . A computer-based method for reducing credit exposure to an entity, comprising:
receiving, by the entity, a margin payment from a client using a financial object, wherein a portion of the margin payment represents a variable margin payment; and
the remainder of the margin payment represents a fixed payment which is treated as capital in exchange for an equity interest in the entity to the client.