System, method, and computer program product for managing securities funded by a municipal arbitrage portfolio (map)

Abstract

A system, method, and computer program product for managing securities funded by a municipal arbitrage portfolio (MAP) are set forth herein. A computer receives a daily valuation of a portfolio of securities from an administrator of a special purpose trust (SPT) the portfolio having been issued by the SPT. The portfolio being funded in part by equity from the MAP fund, the MAP fund being an entity subject to securities regulation oversight, the assets of the MAP fund being managed by a fund manager, and the portfolio provides a first series of payments to the MAP fund, the MAP fund having entered into a security agreement with a liquidity provider (LP). A computer verifies the daily valuation of the portfolio. A computer calculates a daily ending net asset value (NAV) of the MAP fund, where the MAP fund holdings include at least the portfolio.

1 . A computer-implemented method for administering a municipal arbitrage portfolio fund (MAP), comprising:
 providing, by a computer, a first security issued by a special purpose trust and funded in part by equity of the MAP, the first security providing a series of residual interest payments to the MAP, wherein the special purpose trust includes one or more municipal bonds;   providing, by the computer, a second security issued by the special purpose trust, the second security providing a series of distributions to a second investor;   reimbursing, by the computer, losses incurred by a third party liquidity provider (LP) as a result of an obligation to purchase the second security upon tender by a holder, wherein said obligation to reimburse said losses is imposed in order to comply with at least one of:
 a reimbursement agreement between the LP and the MAP, wherein the reimbursement agreement may include provisions that permit the LP to cause a sale of at least one of the municipal bonds, or a second trust which holds the first security and other investment securities if shortfall criteria specified in the reimbursement agreement are not met; 
 a shortfall swap agreement between the LP and the MAP, wherein if the LP cannot recover losses of the LP from a sale of the municipal bonds underlying the special purpose trust that issued the first security and the second security, the shortfall swap agreement requires the MAP to pay an amount to the LP equal to a shortfall; 
 a tri-party agreement between the LP, the MAP, and a financial intermediary approved by the LP and the MAP, where the tri-party agreement includes provisions that permit the financial intermediary to fulfill a role as trustee to enforce provisions of a second reimbursement agreement or a second shortfall swap agreement, for the benefit of the LP; or 
 a non-recourse obligation of the MAP; and 
   implementing, by the computer, one or more step out transactions that ensure that brokers acting on instructions from a manager of the MAP act only as principals for the benefit of the special purpose trust and not as agents for the manager of the MAP.   
     
     
         2 . The method of  claim 1 , wherein the first security comprises a residual trust certificate. 
     
     
         3 . The method of  claim 1 , wherein the second security comprises at least one of: a floating rate certificate, a fixed rate certificate, or a zero coupon certificate. 
     
     
         4 . The method of  claim 1 , wherein the second security may have a payment priority over the first security with respect to amounts received on the municipal bonds. 
     
     
         5 . The method of  claim 1 , further comprising:
 hedging interest rate exposure or risks inherent in the first security and reimbursement obligations, using at least one of:
 exchange traded futures, 
 exchange traded options, 
 U.S. Treasury obligations, or 
 swap agreements or other derivatives. 
   
     
     
         6 . A non-transitory computer-readable medium comprising software that, when executed by a computer, causes the computer to administer a municipal arbitrage portfolio fund (MAP), the computer-readable medium comprising:
 instructions for providing a first security issued by a special purpose trust and funded in part by equity of the MAP, the first security providing a series of residual interest payments to the MAP, wherein the special purpose trust includes one or more municipal bonds;   instructions for providing a second security issued by the special purpose trust, the second security providing a series of distributions to a second investor;   instructions for reimbursing losses incurred by a third party liquidity provider (LP) as a result of an obligation to purchase the second security upon tender by a holder, wherein said obligation to reimburse said losses is imposed in order to comply with at least one of:
 a reimbursement agreement between the LP and the MAP, wherein the reimbursement agreement may include provisions that permit the LP to cause a sale of at least one of the municipal bonds, or a second trust which holds the first security and other investment securities if shortfall criteria specified in the reimbursement agreement are not met; 
 a shortfall swap agreement between the LP and the MAP, wherein if the LP cannot recover losses of the LP from a sale of the municipal bonds underlying the special purpose trust that issued the first security and the second security, the shortfall swap agreement requires the MAP to pay an amount to the LP equal to a shortfall; 
 a tri-party agreement between the LP, the MAP, and a financial intermediary approved by the LP and the MAP, where the tri-party agreement includes provisions that permit the financial intermediary to fulfill a role as trustee to enforce provisions of a second reimbursement agreement or a second shortfall swap agreement, for the benefit of the LP; or 
 a non-recourse obligation of the MAP; and 
   instructions for implementing one or more step out transactions that ensure that brokers acting on instructions from a manager of the MAP act only as principals for the benefit of the special purpose trust and not as agents for the manager of the MAP.   
     
     
         7 . The non-transitory computer-readable medium of  claim 6 , wherein the first security comprises a residual trust certificate. 
     
     
         8 . The non-transitory computer-readable medium of  claim 6 , wherein the second security comprises at least one of: a floating rate certificate, a fixed rate certificate, or a zero coupon certificate. 
     
     
         9 . The non-transitory computer-readable medium of  claim 6 , wherein the second security may have a payment priority over the first security with respect to amounts received on the municipal bonds. 
     
     
         10 . The non-transitory computer-readable medium of  claim 6 , further comprising:
 instructions for hedging interest rate exposure or risks inherent in the first security and reimbursement obligations, using at least one of:
 exchange traded futures, 
 exchange traded options, 
 U.S. Treasury obligations, or 
 swap agreements or other derivatives. 
   
     
     
         11 . A system to administer a municipal arbitrage portfolio fund (MAP) comprising:
 one or more computing systems programmed to perform the following:
 providing a first security issued by a special purpose trust and funded in part by equity of the MAP, the first security providing a series of residual interest payments to the MAP, wherein the special purpose trust includes one or more municipal bonds; 
 providing a second security issued by the special purpose trust; the second security providing a series of distributions to a second investor; 
 reimbursing losses incurred by a third party liquidity provider (LP) as a result of an obligation to purchase the second security upon tender by a holder, wherein said obligation to reimburse said losses is imposed in order to comply with at least one of:
 a reimbursement agreement between the LP and the MAP, wherein the reimbursement agreement may include provisions that permit the LP to cause a sale of at least one of the municipal bonds, or a second trust which holds the first security and other investment securities if shortfall criteria specified in the reimbursement agreement are not met; 
 a shortfall swap agreement between the LP and the MAP, wherein if the LP cannot recover losses of the LP from a sale of the municipal bonds underlying the special purpose trust that issued the first security and the second security, the shortfall swap agreement requires the MAP to pay an amount to the LP equal to a shortfall; 
 a tri-party agreement between the LP, the MAP, and a financial intermediary approved by the LP and the MAP, where the tri-party agreement includes provisions that permit the financial intermediary to fulfill a role as trustee to enforce provisions of a second reimbursement agreement or a second shortfall swap agreement, for the benefit of the LP; or 
 a non-recourse obligation of the MAP; and 
 
 implementing one or more step out transactions that ensure that brokers acting on instructions from a manager of the MAP act only as principals for the benefit of the special purpose trust and not as agents for the manager of the MAP. 
   
     
     
         12 . The system of  claim 11 , wherein the first security comprises a residual trust certificate. 
     
     
         13 . The system of  claim 11 , wherein the second security comprises at least one of: a floating rate certificate, a fixed rate certificate, or a zero coupon certificate. 
     
     
         14 . The system of  claim 11 , wherein the second security may have a payment priority over the first security with respect to amounts received on the municipal bonds. 
     
     
         15 . The system of  claim 11 , wherein the one or more computing systems are further programmed to perform the following:
 hedging interest rate exposure or risks inherent in the first security and reimbursement obligations, using at least one of:
 exchange traded futures, 
 exchange traded options, 
 U.S. Treasury obligations, or 
 swap agreements or other derivatives.