System and method for determining the liquidity of a credit

1. A processor-implemented method for selecting bonds for inclusion in a liquid bond index, the method comprising:

selecting bonds for inclusion in a broad index composition based on a broad bond index selection criteria;

applying, via the processor, a disqualification criteria to the bonds in the broad index to identify bonds that are qualified entrants into the liquid bond index;

assigning, via the processor, a liquidity score to each of the identified bonds that are qualified entrants into the liquid bond index, wherein the liquidity score approximates the ease of transaction execution for the corresponding bond; and

selecting a quantity of the bonds from the broad index for inclusion in the liquid bond index based, at least in part, on the liquidity scores.

2. The processor-implemented method of claim 1 , further comprising determining, via the processor, the liquidity score for each of the identified bonds that are qualified entrants into the liquid bond index.

3. The processor-implemented method of claim 2 , wherein determining the liquidity score for a particular bond comprises:

determining a raw score as a function of age and a size of the bond;

determining an applied issuer premium associated with the bond; and

determining the liquidity score by combining the raw score and the applied issuer premium.

4. The processor-implemented method of claim 2 , wherein selecting the quantity of the bonds from the broad index for inclusion in the liquid bond index further comprises ranking the quantity of bonds according to the liquidity score.

5. The processor-implemented method of claim 2 , wherein selecting the quantity of the bonds from the broad index for inclusion in the liquid bond index further comprises removing one or more bonds from the liquid bond index, and wherein any bond that falls out of the liquid bond index into the broad index faces a lockout period.

6. The processor-implemented method of claim 1 , wherein selecting the quantity of the bonds from the broad index for inclusion in the liquid bond index further comprises applying an incumbency premium to any bond that is already included in the liquid bond index.

7. The processor-implemented method of claim 1 , further comprising maintaining a period of inclusion time for each bond during which the bond is included in the liquid bond index, wherein each bond in the liquid bond index has a minimum potential run during which the bond cannot be removed from the liquid bond index.

8. The processor-implemented method of claim 1 , wherein the broad bond index selection criteria includes two or more of: denomination criteria, face value criteria, issuer criteria, credit rating criteria, or bond type criteria.

9. The processor-implemented method of claim 1 , wherein the broad bond index selection criteria comprises time period criteria including a time period since issuance and a time period remaining to maturity.

10. The processor-implemented method of claim 1 , wherein the broad index is rebalanced periodically.

11. The processor-implemented method of claim 1 , wherein applying the disqualification criteria to the bonds in the broad index further comprises:

determining a performance of each of the bonds in the broad index; and

disqualifying the bonds in the broad index if the bonds have chronic poor performance.

12. The processor-implemented method of claim 1 , wherein applying the disqualification criteria to the bonds in the broad index further comprises:

determining a spread volatility for each of the bonds in the broad index; and

disqualifying the bonds in the broad index that exceed a threshold volatility.

13. A system for selecting bonds for inclusion in a liquid bond index, the system comprising:

a processor;

a memory unit having instructions stored thereon, wherein the instructions, when executed by the processor, cause the system to:

select bonds for inclusion in a broad index composition based on a broad bond index selection criteria;

apply a disqualification criteria to the bonds in the broad index to identify bonds that are qualified entrants into the liquid bond index;

assign a liquidity score to each of the identified bonds that are qualified entrants into the liquid bond index; and

select a quantity of the bonds from the broad index for inclusion in the liquid bond index based, at least in part, on the liquidity scores.

14. The system of claim 13 , wherein the instructions, when executed by the processor, further cause the system to:

determine the liquidity score for each of the identified bonds that are qualified entrants into the liquid bond index,

wherein determining the liquidity score for a particular bond comprises:

determining a raw score as a function of age and a size of the bond;

determining an applied issuer premium associated with the bond; and

determining the liquidity score by combining the raw score and the applied issuer premium.

15. The system of claim 14 , wherein selecting the quantity of the bonds from the broad index for inclusion in the liquid bond index further comprises ranking the quantity of bonds according to the liquidity score.

16. The system of claim 14 , wherein selecting the quantity of the bonds from the broad index for inclusion in the liquid bond index further comprises removing one or more bonds from the liquid bond index, and wherein any bond that falls out of the liquid bond index into the broad index faces a lockout period.

17. The system of claim 13 , wherein selecting the quantity of the bonds from the broad index for inclusion in the liquid bond index further comprises applying an incumbency premium to any bond that is already included in the liquid bond index.

18. The system of claim 13 , wherein applying the disqualification criteria to the bonds in the broad index further comprises:

determining a performance of each of the bonds in the broad index; and

disqualifying the bonds in the broad index if the bonds have chronic poor performance.

19. The system of claim 13 , wherein applying the disqualification criteria to the bonds in the broad index further comprises:

determining a spread volatility for each of the bonds in the broad index; and

disqualifying the bonds in the broad index that exceed a threshold volatility.

20. A computer readable medium having instructions stored thereon, wherein the instructions, when executed by a processor, cause the processor to:

select bonds for inclusion in a broad index composition based on a broad bond index selection criteria;

apply a disqualification criteria to the bonds in the broad index to identify bonds that are qualified entrants into the liquid bond index;

assign a liquidity score to each of the identified bonds that are qualified entrants into the liquid bond index, wherein the liquidity score approximates the ease of transaction execution for the corresponding bond; and

select a quantity of the bonds from the broad index for inclusion in the liquid bond index based, at least in part, on the liquidity scores.

21. A system for selecting bonds for inclusion in a liquid bond index, the system comprising:

means for selecting bonds for inclusion in a broad index composition based on a broad bond index selection criteria;

means for applying a disqualification criteria to the bonds in the broad index to identify bonds that are qualified entrants into the liquid bond index;

means for assigning a liquidity score to each of the identified bonds that are qualified entrants into the liquid bond index, wherein the liquidity score approximates the ease of transaction execution for the corresponding bond; and

means for selecting a quantity of the bonds from the broad index for inclusion in the liquid bond index based, at least in part, on the liquidity scores.