This application is a continuation-in-part of U.S. patent application Ser. No. 11/478,519, filed Jun. 28, 2006 and entitled “Trust-connected Debit Card Technology”, which application is a continuation of U.S. patent application Ser. No. 11/286,261, filed Nov. 22, 2005 and entitled “Trust-Linked Debit Card Technology”, which paragraphs priority to U.S. Provisional Patent Application Ser. No. 60/654,208, filed Feb. 17, 2005 and entitled “System & Method for a Non-Banking Entity: (A) to Issue Bank Debit Cards to Customers Via the Issuance and Sale of Card-Linked Notes, and (B) to Control, for Investment Purposes, the Daily Float of the Aggregate Cash Deposits Maintained on Account, While Offering Card Customers 100% Protection Against Loss of Principal Through an Institutional Trust Arrangement; U.S. Provisional Patent Application Ser. No. 60/630,234, filed Nov. 22, 2004 and entitled “System & Method to Cause a Low-Risk Home Equity Loan to be Made to a Homeowner Where the Loan Proceed is Invested Wholly on Partially Through a Trust Arrangement so that the Investment Profits can then be Used to Automatically Repay the First Mortgage and the Home Equity Loan. The Positive Differential Assured Between the Low Interest Cost of the Loan and the Return on Investment is Used to Reduce the Homeowner's Debts” and U.S. Provisional Patent Application Ser. No. 60/630,233, filed Nov. 22, 2004 and entitled “System & Method for a Non-Banking Entity (e.g. A Card Issuer): (A) to Issue Bank Debit Cards or Stored Value Cards to Customers; and (B) to Control, for Investment Purposes, the Daily Float of the Aggregate Cash Deposits Maintained on Account, While Offering Card Customers 100% Protection Against Loss of Principal Through a Bank Trust Arrangement”.
The present invention relates generally to international finance and investment, banking, and the use of bank cards
How Banks Operate:
The central bank of every country is interconnected via its membership in the Bank of International Settlement (BIS) in Basel, Switzerland. The BIS provides settlement services between each country's central bank via each central bank's account with the BIS.
Each country's central bank licenses the country's wholesale and retail banks to distribute money into the economy through loans that can then be discounted to create liquidity. Each wholesale and retail bank is required to maintain a reserve account with the central bank in which they are required to leave a reserve deposit.
When banks make loans, they effectively serve as agents of the central bank to put new money into circulation in the economy. A central bank's discounting process allows a wholesale or retail bank to borrow against a tangible property it receives as collateral for a loan (for US banks, see the “Borrower in Custody” program of the New York Federal Reserve Board).
Loans deplete a bank's liquidity, leading them to refinance themselves either by borrowing from other banks that offer their excess liquidity through the overnight LIBOR market, or they can directly discount their assets (collateral) with a loan obtained directly from the country's central bank.
Banks' primary revenues are from making loans at an interest that is greater than their cost of money. Loans normally require a security interest in some form of collateral of the borrower (e.g. real estate). Thus banks technically act as loan agents and aggregators of tangible assets (wealth) for a country's central bank.
Interest rates are set around the world by central bankers. Interest rates fluctuate daily for each currency based on supply and demand, and on the basic economic performance of a country as evidenced by locally published indicators. Differing country's interest rates provide cross-currency arbitrage opportunities such as the interest rate charged for loans in a particular country compared to that offered for investments in another. The exploitation of such arbitrage opportunities has historically been only the purview of financial institutions, including securities firms and in recent years, certain hedge funds that are sufficiently sophisticated to exploit the opportunities for profit.
How Banks Make Money & What Risks are Associated with Bank Deposits
Debit cards have replaced checks as the most convenient and secure access to bank depositors' funds at automatic teller machines (“ATMs”) and direct purchases for two primary reasons: 1) it is faster and more convenient 2) it is safer than carrying cash. Debit card usage now represents 60-70% of all card (debit or credit) transactions worldwide.
Though debit cards offer convenient and secure services to account holders, debit card users rarely receive interest on their checking account balances, and if they do, it is usually minimal. However bank customers still have to pay monthly service charges, overdraft fees, returned check fees and a variety of other fees that fuel banking profits.
In addition, the aggregation of these same account balances allow banks worldwide to invest depositors' funds through loans at rates not only sufficiently high to cover the bank's cost of funds and operating expenses, but also yield profits that would surprise the most sophisticated bank depositor . . . yet rarely are any of these profits shared with a bank's customers.
The very significant profits banks earn are made possible by 1) the ability they have to treat a customer deposit (a liability to the bank) as an asset of the bank and 2) access to the fractional reserve banking (“FRB”) system afforded banks by the central bank. FRB allows banks to keep only a certain percentage of their deposits “on reserve” (e.g. 10% to pay depositors when they demand their funds) while the balances may be loaned or invested.
FRB allows banks to earn significant profits through the application of two principles of banking: (a) leverage (currently 10:1 in the USA; 20:1 in Canada; 12.5:1 in Europe, etc) of depositor funds that can be loaned and (b) favorable interest rate differences or, the “discounting” of loans at an interest rate that is lower (the wholesale rate at which a bank borrows from its Central Bank) than the rate at which funds are lent or placed into the market (retail rate).
For example, a $1,000 deposit in a US non-interest bearing checking account can be leveraged ten times (10:1 leverage) by the bank through the FRB process. FRB allows central bankers to stimulate or slow down a country's economy by lowering or raising the interest rate charged its member banks, without significantly impacting a bank's ability to make significant profits. The compounding of the leverage and discounting principals result in huge profits for the banking industry, assuming that loan defaults are minimized.
In this example, after payment of a one time 3% for deposits, the return on a $1000 initial deposit is $462 to the banking system. Thus we see that it is the process of loaning money that gives justification to the printing of new money that is then placed in circulation. Thus the central banks, operating through their member banks, distributes money into the economy through the lending that occurs at the wholesale and retail banking levels. The business of printing money at minimal costs and lending it out at interest is indeed the most profitable business there is.
| Initial | Interest | Fractional | Loan | Interest | |
| Deposit | Paid | Loan % | Reserve | Amounts | Charged |
| 3.00% | 6.00% | ||||
| $1,000.00 | $30.00 | 90% | $100.00 | $900.00 | $54.00 |
| $900.00 | ASSUMES A $1,000 ONE YEAR CD | 90% | $90.00 | $810.00 | $48.60 |
| $810.00 | THAT PAYS 3% INTEREST P.A. | 90% | $81.00 | $729.00 | $43.74 |
| $729.00 | 90% | $72.90 | $656.10 | $39.37 | |
| $656.10 | 90% | $65.61 | $590.49 | $35.43 | |
| $590.49 | 90% | $59.05 | $531.44 | $31.89 | |
| $531.44 | 90% | $53.14 | $478.30 | $28.70 | |
| $478.30 | 90% | $47.83 | $430.47 | $25.83 | |
| $430.47 | 90% | $43.05 | $387.42 | $23.25 | |
| $387.42 | 90% | $38.74 | $348.68 | $20.92 | |
| $348.68 | 90% | $34.87 | $313.81 | $18.83 | |
| $313.81 | 90% | $31.38 | $282.43 | $16.95 | |
| $282.43 | 90% | $28.24 | $254.19 | $15.25 | |
| $254.19 | 90% | $25.42 | $228.77 | $13.73 | |
| $228.77 | 90% | $22.88 | $205.89 | $12.35 | |
| $205.89 | 90% | $20.59 | $185.30 | $11.12 | |
| $185.30 | 90% | $18.53 | $166.77 | $10.01 | |
| $166.77 | 90% | $16.68 | $150.09 | $9.01 | |
| $150.09 | 90% | $15.01 | $135.09 | $8.11 | |
| $135.09 | 90% | $13.51 | $121.58 | $7.29 | |
| $121.58 | 90% | $12.16 | $109.42 | $6.57 | |
| $109.42 | 90% | $10.94 | $98.48 | $5.91 | |
| $98.48 | 90% | $9.85 | $88.63 | $5.32 | |
| etc. | etc. | etc. | etc. | ||
| $30.00 | $911.37 | $8,202.34 | $492.14 | ||
| Profit . . . | $462.14 | ||||
In this example, the profit to the banks is a rather significant 46.2% on depositors' funds. Yet banks do not share this level of profit, even with their most wealthy customers.
Understanding the backdrop against which this invention plays out is important because it demonstrates the following principles which are addressed and solved by this invention to the benefit of the consumer:
One bank's recent marketing ploy was summarized in the slogan,: “When banks compete, you win.” The consumer is left with the question, “win what”
The implementation of this invention by sponsors/licensees worldwide will effectively block or at least limit banks the ability to book depositors' funds as their own asset available for loans and for leverage. When this happens, inexpensive, to the bank, depositors' funds will cease, increasing the need for banks to increase the price for those funds needed for overnight and longer term financing. When this happens consumers will have the competitive edge in consumer-bank relationships. No longer will depositors be satisfied with “free checking” and/or a toaster oven in exchange for a $10,000 three month certificate of deposit. Banks will be forced to compete with hedge fund-like returns produced by the trusts.
Individually consumers have no chance of changing a powerful global banking monopoly. However, if enough consumers switch from a debit card to a Trust-Connected Card™, bankers who have heretofore operated under the protection of a tight fisted monopoly will have to start competing for funds by bidding against their colleagues for excess aggregated cash only available via the trusts. When this happens it is the trust beneficiaries, the holders of the Trust-Connected Card™s, who will win since they receive a share of profit in the form of monthly dividends.
Through the power of amalgamated trust funds, not only are consumers completely protected from the risk of bank insolvency or the collapse of banks, but they now have the ability to become, indirectly through the trust, a special group private banking client of banks worldwide, who will vie for this business, a privilege that heretofore only the very rich and powerful citizens of the world have enjoyed.
How Current Bank-Issued Debit Cards Work
Debit cards are linked to regular demand deposit checking accounts, in which debits (charges) and credits (deposits) are posted directly to the card holder's account at the bank. In that account balances are considered assets of the bank, banks profit from their customers' deposits as explained above.
As “demand deposits,” these funds can be called at anytime, but once deposited these funds become an asset of the bank, fully available to the bank to aggregate, loan, and/or invest.
Debit cards have replaced checks as the most convenient, secure access to demand deposits via automatic teller machines (“ATMs”) and direct purchases for two primary reasons: 1) Faster and more convenient 2) safer than carrying cash. Debit card usage now represents 60-70% of all card (debit or credit) transactions worldwide.
Though debit cards offer convenient and secure services to account holders, debit card users rarely receive any interest on their account balances, and in some instances still pay monthly service charges.
However, the aggregation of these same account balances allow banks worldwide to invest depositors' funds through loans at rates sufficiently high to cover the bank's cost of funds and operating expenses, plus yield profits (as noted above) that would surprise the most sophisticated bank depositor . . . yet rarely are any of these profits shared with a bank's customers.
The invention may be summarized as a revenue-producing, charge card system that also manages account balances to create an investment profit for the card holder. A trust account has a trust-account balance reflecting a first amount of funds, is constructed to subsequently record debits and credits related to the balance, and is constructed for access via remote communication. A bank account has a bank-account balance reflecting an initial zero balance, is constructed to further record debits and credits related to the balance, and is constructed for access via remote communication. A debit card is constructed for communication with the trust account and the bank account, and a switch is in communication with the trust account and bank account. The trust account and the bank account are constructed for intercommunication via the switch so that a card user can pass debits and credits to the trust account through the bank account so that the funds of the trust account can be managed via the trust account.
In a second embodiment, the invention is a method of producing revenue through a charge card method that also manages account balances to create an investment profit for the card holder. The method includes forming a trust account that has a trust-account balance reflecting a first amount of funds, is constructed to subsequently record debits and credits related to the balance, and is constructed for access via remote communication. The method also includes the steps of using a bank account that has a bank-account balance reflecting an initial zero balance, is constructed to further record debits and credits related to the balance, and is constructed for access via remote communication, and making a debit card constructed for communication with the trust account and the bank account. Also included is the step of configuring a switch in communication between the trust account and bank account. The trust account and the bank account are constructed for intercommunication via the switch so that a card user can pass debits and credits to the trust account through the bank account so that the funds of the trust account can be managed via the trust account.
A third embodiment of the invention is a revenue-producing machine for users who have bank accounts. The machine includes (i) a trust-account component that has daytime and overnight balances, is configured to allow balances to be invested, and includes a user-specific trust sub-account that is configured to provide cash required to settle transactions of the user, and (ii) a transaction actuator connected to the trust account and constructed to allow a user to make transactions chosen from the group consisting of debit and credit transactions.
A fourth embodiment of the invention is a revenue-producing, debit-card system for a user who has a bank account that is connected to a trust-like structure combined with a debit card connected to the trust-like structure.
A fifth embodiment of the invention is a controller, for a networked trust account and a networked bank account that are capable of communicating via a network, that maximizes revenue to the holder of both accounts. The controller includes an account actuator, and both can be constructed using software, firmware, hardware, or a combination thereof. The account actuator is constructed to communicate with the trust account and bank account as the holder desires so that the holder can actuate both via the network to make transactions. The controller may also include a trust-account originator and a bank-account originator.
A sixth embodiment of the invention is a method of maximizing revenue to the holder of a networked trust account and a networked bank account that are capable of communicating via a network. This method includes the steps of selecting a networked trust account and a networked bank account, and making and using a controller for maximizing revenue to the holder of both accounts. The making step may include constructing an account actuator to communicate with the trust account and bank account as the holder desires so that the holder can actuate both via the network to make transactions. The method may further including originating a trust account and originating a bank account.
A seventh embodiment of the invention is a principal-protected, revenue-producing investment system that includes the following components: (i) an investment mechanism consisting of a unit-participation trust having funds to invest and being divisible into plural trust units, each being ownable by a trust unit holder, (ii) a master trust that includes plural sub-trusts, (iii) a funds-flow mechanism constructed to permit the pooling of investment funds from the sub-trusts to the master trust, (iv) a trust-ownership-conversion structure that converts ownership units into any number of demand deposit sub-accounts and nested sub-accounts, (v) an ownership-interest-determining mechanism for computing the beneficial ownership interest of each trust unit holder at any point in time and for apportioning profits proportionally to trust unit holders, and (vi) an implementation mechanism in communication with the investment mechanism, the master trust, the funds-flow mechanism, the trust-ownership-conversion structure and the ownership-interest-determining mechanism to provide for investment of funds that produce revenue.
The implementation mechanism of the seventh embodiment may include: (i) a selection subsystem for selecting and appointing plural investment professionals for the funds on deposit in the trust and its sub-trusts, (ii) an allocation system for allocating pooled trust assets to plural investment managers, and (iii) a rule-based controller constructed to govern all investment functions according to pre-selected rules.
An eighth embodiment of the invention is an international financial system that includes: (i) trust structure that has daytime and overnight balances available for investment purposes, (ii) network-communication structure that is constructed to allow national and international communication between the trust structure and conventional banks having plural bank accounts, and (iii) transaction-communication structure connected to the trust structure and constructed for communication via the network-communication structure. The trust structure can be configured to allow balances to be invested, the network-communication structure affords communication to and from a bank account of one of the conventional banks, and the bank account is configured for pass-through activity to provide a net-zero-balance feature. The trust structure includes a user-specific sub-structure that is configured to handle cash, and the user-specific sub-structure is configured to provide cash required to settle charges resulting from transactions of the user, and to credit the user-specific sub-account.
A ninth embodiment of the invention is a method of providing an alternative international fiduciary financial system that manages investments and risks associated with the transfer of funds between different entities while enabling non-banking entities to provide traditional banking services without violating per say national and international banking laws. The method includes the steps of: (i) providing plural unit participation trusts, with having a trust corpus, having similar terms and conditions defined in a trust agreement, being configured as sub-trust accounts of a trust, and being connected to corresponding bank accounts, with the corresponding bank accounts being further connected to corresponding check writing facilities and debit cards, (ii) supplying plural account holders, (iii) configuring trust units as plural units of ownership of the trust, and (iv) selecting plural trust beneficiaries, and constructing at least one sub-trust with choosing plural service providers to the trust and a non-bank promoter of the trust.
FIGS. 1-6 are schematic and descriptive flow diagrams useful for understanding the first, second, fourth and eighth embodiments of the invention.
FIGS. 7-9 are schematic and descriptive flow diagrams useful for understanding the third, fifth, and sixth embodiments of the invention.
FIGS. 10-15 are schematic and descriptive flow diagrams useful for understanding the seventh embodiment of the invention.
FIGS. 16-24 are schematic and descriptive flow diagrams useful for understanding the ninth embodiment of the invention.
Attachment A is a copy of the text and drawings from co-pending U.S. patent application Ser. No. 11/478,519, filed Jun. 28, 2006 and entitled “Trust-connected Debit Card Technology”.
Attachment B is a document that provides further details of the rule-based controller and rules for determining permitted investments using the systems and methods of the invention.
Attachment C is a document that provides an example of an application of the systems and methods of the invention showing specifically a principal protected day trade involving a repo and reverse repo strategy with leverage and hedging.
Prior to describing the above figures, several sections follow to provide an overview of the invention, a glossary of terms, and preliminary descriptions of various features of the invention such as the trust (also referred to herein as trust structure) component.
From an overview, the invention involves a system for managing funds to earn a profit on idle funds. In one embodiment, the system of the invention uses a trust account, a debit card and a bank account to accomplish its purpose. For this particular embodiment, the debit card is connected to the bank account. However, the trust account and the bank account are further connected so as to pass debits and credits between the debit card and the trust account via the bank account. In this manner, any funds to be managed are managed via the trust account while the bank account functions on the front line to meet all regulatory banking rules and laws for the issuance of traditional demand deposit bank accounts with the distribution of a debit card that is connected to that bank account.
In another embodiment, the invention includes a switch, which may be implemented in any suitable manner, including hardware, software, firmware or any combination thereof. In this embodiment, credits and debits directed to the bank account are redirected, or routed, to the trust account. For example, if one were to make a purchase using a debit card, the debit would be routed to the connected bank account following conventional procedures. However, in this embodiment, a novel switch reroutes the debit to the trust account for further processing as described below.
The switch may be accomplished, for example, by a mechanism in which, when a debit is incurred via use of a debit card, the connected accounts are checked to see which accounts have funds available. In this embodiment, the bank account is maintained at a zero balance, and therefore the debit is routed instead to an account with a positive balance, i.e. the corresponding trust account.
In another embodiment, a debit card may be issued in the name of any non-banking entity. For example, the non-banking entity may comprise at least one of the following: an individual, a non-profit entity; a for-profit entity; or a government entity. For example, a for-profit entity could be an employer and the debit card would be issued to an employee of the employer. Likewise, the debit card may be set up to allow the employee to charge business travel expenses to the employer. In another embodiment, a debit card may be issued in the name of any non-banking entity and co-branded with the name of the bank issuing the debit card. In this embodiment, therefore, any non-banking entity can take on aspects similar to a bank with incurring the associated regulatory overhead.
It is noted that for this particular embodiment, the trust account is set up to allow funds of the trust to be invested in so-called, to-be-described “permitted investments”, at least during banking hours. However, the trust account is also set up to allow funds that remain in the trust account outside banking hours to be swept out for short term investment and swept back to the account by the opening of the next banking day, for example. It is noted that non-banking hours include evenings, weekends and legal holidays during which funds or moneys belonging to the trust can earn interest and profits in the same way that banks currently profit from the use of their customers' aggregated demand deposit account balances.
For this particular embodiment to operate effectively, the bank account, the debit card and the trust account are connected, or otherwise in communication, via a system infrastructure. Furthermore, and although above the trust account was described as being connected to a bank account, the invention can also be designed with one or more user-specific sub-trust accounts that are each configured to post debits and/or credits to the sub-trust account. In this situation, the sub-trust account, rather than the trust account, is connected to a bank account and debit card. More specifically, in this particular embodiment, the sub-trust account is set up to post credits for at least one of the following: cash, cash equivalent marketable instruments, securities, non-liquid assets, or any combination thereof. Likewise, in many instances, credits of cash can include regularly recurring deposits, such as for example, payroll check deposits or social security check deposits.
In the embodiment described above, one advantage of a user-specific sub-trust account includes having the capability to provide for the withdrawal of cash to settle charges resulting from purchase transactions executed via the debit card., such as alluded to by example above. More specifically, again, as alluded to previously, a bank account is set up to book a debit from the use of the debit card and to also book simultaneously an offsetting credit from the corresponding sub-trust account so that the balance in the bank account shows a zero balance. Of course, in an alternative embodiment, the bank account might simply maintain a consistent minimum positive balance or merely a consistent balance without loss of generality. Likewise, even assuming the balance changes, offsetting adjustments may be made to correctly account for this, if desired. Another advantage of this particular embodiment is that the bank account may be further set up to report information regarding debit card usage for the debit card linked to that bank account, which may be convenient at times. Likewise, the bank account may be further set up to report all debit card transactions for the debit card linked to that bank account on a regularly recurring basis, such as weekly, monthly, or quarterly, as examples. Also, for this particular embodiment, the bank account may be further set up to regularly report profits of the corresponding sub-trust account on a recurring basis.
In this particular embodiment, the trust account should typically include multiple sub-trust accounts and each sub-trust account can be set up to further include any number of nested sub-accounts. The sub-trust accounts and each nested sub-account, likewise, are respectively linked to a corresponding bank account and a corresponding debit card. Furthermore, one desirable feature associated with this particular approach, the nested sub-accounts and the sub-trust accounts may be set up to be aggregated on a regular basis to earn revenue from investing the aggregate amount of funds at the trust level.
Likewise, in another embodiment, this structure may be implemented through a “nesting” of sub-accounts. In other words, a particular sub-account may operate like a trust account, as just described, with respect to a group of its own sub-accounts. In this example, the group of sub-accounts is nested by that particular sub-account. Therefore, the nested sub-trust accounts may be set up to have their funds aggregated on a regular basis to earn revenue at the nesting sub-trust account level from investing the aggregate amount of the funds, in this example embodiment. Therefore, a debit card corresponding to a particular bank account linked to a nesting sub-trust account is able to earn a return from the aggregation of funds for investment at the nesting sub-trust level, a desirable feature particular in comparison with conventional debit cards.
Previously, an embodiment employing a switch was discussed. Although embodiments may be implement that do not employ a switch, in those embodiments that do, the switch may be conveniently incorporated as a component of the system infrastructure. In this embodiment, for example, for a debit card purchase transaction, the available balance of the sub-trust account linked to the bank account corresponding to the particular debit card may be accessed and the available balance may be compared with the amount of the debit card purchase transaction. Thus authentication and acceptance may occur if the available balance is sufficient; however, denial may occur if the available balance is not sufficient in such an embodiment.
A glossary of the terms used herein follows.
“Affiliate” means, with respect to any Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Available Funds” means the aggregate amount at a particular point in time of cash on deposit in the Sub-Accounts of a Trust which is available for overnight investment by the Trustee.
“Beneficiary” (or a “Trust Participant” in the case of a Participation Trust) is Person who owns a fraction of the Trust Estate as evidenced by Trust-Issued Receipts, Trust Notes or Trust-Participation Receipts, in pro-rata of his total holdings relative to the total Trust Estate.
“Cardholder” means any Person who is the holder of a Trust Sub-Account and who, by virtue of having adopted the Trust Agreement in which he is a beneficiary, has received a Floating Trust Participation Receipt for his initial deposit as well as a debit card that links directly to the Trust Sub-Account of the Cardholder.
“Custodian” means a bank or securities firm that is designated to act as custodian for Available Funds of the Trust and other Trust Funds.
“Distributable Funds” represents: (a) the portion of a Participant's funds on deposit in Participant's Sub-account and earmarked as being the amount (or percentage of total deposits) needed to be available at all times on simple demand (with no notice) to settle daily TCD Card payments or cash withdrawals; or (b) the amount of dividends, interest or profits earned by the Trust and posted to the Sub-account of the Participant. Distributable Trust Funds can be left on deposit in the Trust Sub-account until needed, in which case they continue to earn interest for the Cardholder/Participant.
“Floating Trust-Participation Receipt” is a Trust Participation Receipt that is initially delivered to a Trust Participant to evidence that party's beneficial interest at any point in time in the Trust Estate to the extent of his holdings therein. Since a Participant's account balance in a Trust Sub-Account will fluctuate daily when deposits and withdrawals are posted, the receipt amount evidencing available funds on account is floating as defined in the receipt certificate. Therefore, rather than being for a set receipted amount, such Floating Trust-Participation Receipt, when issued and delivered upon the opening of a Participant's Trust Sub-Account, will establish the method and basis of calculating, booking and reporting the balance of a Sub-Account at any point in time.
“General Investment Guidelines” shall mean the investment of Available Funds in accordance with the investment principles and guidelines defined in the Trust Agreement in the “Permitted Investments” section, the Trust Participation Agreement or the Trust Indenture.
“Instruction/s” means any investment orders issued from time-to-time in writing by third-party Asset Manager and addressed to the Trustee that is a “Permitted Investment” under the Trust Agreement or the Trust Indenture. Such written Instructions, when issued and delivered, obligates the Trustee and/or the Custodian to execute them.
“Invest-able Deposits” represent the portion of a Participant's Sub-account balance that has been earmarked (as a specified amount or as a percentage of total deposits) which the Trust is permitted to invest on the Participant's behalf and where such funds are callable, with some form of advance notice and without penalty, or for a specific pre-determined period.
“Investment Profits” mean the gross profits earned from any and all Permitted Investments of a Trust, less any and all pre-determined and pre-approved investment management expenses.
“Manager” or “Asset Manager” means any person or entity appointed from time to time by the Settlor of a Master Trust or a Sub-Trust to give investment Instructions to the Trustee in accordance with the terms and conditions of a Trust Agreement or a Participation Agreement.
“Master Trust” means a Trust which itself is the sole beneficial owner of 100% of the Trust Estate of other similar trusts.
“Nested Sub-Account” means a nested account of a Trust Sub-Account opened in the name of the principal account Beneficiary but which benefits a Related Party (e.g. employees of a company who use a debit card to automatically debit their travel expenses to the Trust Sub-Account of their employer, children or spouses of a cardholder who use the card, foreign parents of a migrant worker who are in need or support abroad, etc.).
“Non-Cash Contributions” means the contribution made by a Person to the Trust Estate effected by means of a transfer or assignment of all legal rights, title and interest to a specific non-cash asset, in exchange for a Trust Participation Receipt that can only be redeemed at maturity via the return of the original non-asset to the original contributor (e.g. a second mortgage in a residential home or rental property of a Beneficiary, restricted stocks of public corporations, stocks of public companies that fall below the minimum pricing threshold to qualify for a margin facility, etc.).
“Participant” means any Person or Entity that has deposited or caused money to be deposited to a Trust Sub-Account. Such a Participant is also the Beneficiary and the holder of the Trust-connected Debit Card (the Cardholder).
“Participation Agreement” means any duly executed and delivered Participation Agreement between a Settlor and a Participant to establish the basis of that Person or Entity's relationship to the Trust. It establishes the method of making deposits, withdrawals, and payments, as well as establishing the basis upon which the Person or Entity's beneficial interest in the Available Funds will be booked, profits and dividends accounted for, posted to the Person's account and reported on monthly statements of account.
“Participation Trust” means a statutory Master Trust or a Sub-Trust (normally named: The XYZ Participation Trust) formed by an individual, a company, a non-profit organization, or an affinity group for the ultimate benefit of the intended Beneficiaries. This would include, for example, an employer that contributes a nominal amount to the Trust corpus but intends for the Trust to be operated for the benefit of its employees. In this instance, the employer would be able to automatically cause employee-approved payroll deposits or bonuses to be posted electronically directly to that employee's Trust Sub-Account each month. Each time a deposit is made to the employee's Trust Sub-Accounts a double accounting book-entry is made to post the credit to the Beneficiary's account and to register a debit to cash (the Trust Estate), and to issue a Trust-Participation Receipt in favor of the Beneficiary.
“Permitted Investments” means investments authorized by the Trust Indenture or the Trust Agreement executed by the Trustee pursuant to orders received from a duly authorized Asset Manager and which complies with all investment guidelines including clear definition of an acceptable investment in terms of the type of investment products bought and sold, the duration of any investment, the credit risk, the settlement method, the exit strategy, and the overall risk tolerance.
“Person” means (a) any natural person, (b) any corporation, limited liability company, partnership, trust, joint stock company, unincorporated association, non-profit organization, joint venture or other entity established to conduct business or (c) any federal, national, state, provincial, municipal, local, territorial or other governmental department, commission, board, bureau, agency, regulatory authority, instrumentality or judicial or administrative body, whether domestic or foreign.
“Registrar” means an institution duly appointed to perform all accounting functions for the Trust and to report monthly the account activity for each Participant.
“Related Person” means any Person who is a related family member, a trustee, or an attorney-in-fact of such Person.
“Settlor” (also known as the Creator or Grantor) is the person or entity that enters into an agreement with a Trustee to form a new Trust.
“Sub-Trust” means a Trust whose Trust Estate is entirely owned by a Master Trust. In the case of the TCD Card System, Sub-Trusts can be individual Trusts formed for the purpose of accommodating specific organizations desiring to issue branded Trust-connected Debit Cards (e.g. employers, retailers, banks & financial institutions, affinity groups, credit unions, etc. desiring to offer the benefits of a TCD Card to their employees, members, customers or clients).
“Trust” in law means a legally-created fiduciary relationship in which a qualified person or legal entity (one free of conflict of interest) called a “Trustee” holds title to property for the benefit of one or more Persons, called a “Beneficiary” or “Beneficiaries”. The agreement that establishes the Trust, contains its provisions, and sets forth the powers of the Trustee is called the Trust Agreement or the Trust Indenture. The person or entity creating the Trust is the Creator, Settlor, Grantor or Donor; the property itself is called the “corpus”, the “Trust Funds” or the “Trust Estate” which is distinguished from any income earned by it.
“Trust Account” means a bank account or Trust account of a Master Trust or a Sub-Trust.
“Trust Sub-Account” means the sub-account of a Trust Account normally opened in the name of an individual Beneficiary or Participant.
“Trust-issued Receipt” is a Trust receipt issued by the Trustee of the Trust in favor of a Beneficiary to evidence the Beneficiary's pro-rata beneficial ownership in the Trust corpus up to the amount shown on the receipt. A Trust-Issued receipt operates much like a stock certificate of a corporation with the main difference being that in the case of a Trust, the assets of the Trust are managed by an independent Trustee in accordance with the pre-defined terms and conditions of the agreement governing the Trust.
“Trust-Participation Receipt” is a receipt issued by the Trust in favor of a Participant, that operates much like the Trust-Issued Receipt, except that it is issued in favor of a non-related third-party that causes deposits to be made to a Sub-account opened in the Participant's name under the master account of the Trust in accordance with the terms and conditions of a “Trust Participation Agreement,” thereby causing the Participant to be de-facto a Beneficiary of the Trust to the extent of the Participant's holdings in the Trust.
“Trust-connected Debit Card” is a term used to describe the debit card product which is the subject of this invention.
“Trust Company” means a regulated and licensed organization usually combined with a commercial bank, which is engaged as Trustee, fiduciary or agent for individuals or businesses in the administration of Trust funds, estates, custodial arrangements and other related services.
“Trust Estate” means all rights, title and interests the Trust has in the aggregate of all cash deposits of Beneficiaries to their Trust Sub-Accounts at any point in time calculated as the total of all assets less the total of all liabilities, including set-aside reserves that are subject to a fiduciary duty of the Trustee. It is also the amount that is normally available for investment purposes, and it includes any and all accumulated and accrued interest, dividends or profits earned by the Trust as well as any other asset otherwise acquired by the Trust.
“Trust Funds” means the aggregate of all cash funds and other assets deposited to the credit of the Trust by the Settlor, Grantor, Beneficiaries or Participants.
“Trust Indenture” is a legal agreement that establishes the Trust and appoints a Trustee to manage the assets of the Trust. It is an agreement entered into between a Settlor and a qualified Trustee which normally contain protective clauses for bond holders or Beneficiaries, including how funds are to be managed. Its provisions set forth the powers of the Trustee and establish the interest of the Beneficiaries or Participants in the assets held in Trust.
“Trust Note” is a debt instrument that obligates the Trust to pay the holder of the note the principal and interest, if any, when due, in accordance with the terms of the Note. A Trust can create an indebtedness secured by Trust Assets, unless such activity is specifically prohibited by the Trust Agreement.
“Trustee” is a qualified (meaning free of a conflict of interest) person or legal entity, such as a Trust Company that holds title to property for the benefit of one or more Persons, called a “Beneficiary” or “Beneficiaries”. A Trustee is usually charged with investing Trust property productively for and on behalf of the Beneficiaries in accordance with the specific instructions of the Trust Agreement or Trust Indenture. The Trust Agreement will usually define whether the Trustee can make investment decisions of his own or whether he is only to execute investment orders submitted by a third-party asset manager.
A. Why the Use of a Trust Structure
Trusts are governed by trust laws which protect the interest of the beneficiaries of a trust. Like banks, trust companies are subject to regulatory oversight and to strict operating guidelines.
Trust funds constitute fiduciary funds held in the custody of a trustee of the trust. Trustees act in a fiduciary capacity only, may not treat fiduciary funds as an asset of the trustee, and therefore hold funds in trust for trust beneficiaries and agree contractually to perform certain services which are described in full in a trust agreement (the governing instrument of the trust).
Furthermore, funds held in a custody account by a trustee are not available or accessible to creditors of the bank or the trust beneficiaries in the event the trustee becomes insolvent. In contrast, if a bank becomes insolvent, depositors with an account balance in excess of the insured limit (e.g. $100,000 in the US and C$65,000 in Canada) could find themselves as one of many creditors looking to recoup their deposits which exceed the insured limits.
By providing an interconnected network of trusts (commonly referred to a unit participation trusts) and by supporting the network with the appropriate settlement mechanisms, it is possible to create a parallel financial system that uses the same technologies in traditional banking, but which effectively removes from the banks the ability to make money on its depositors funds without paying fair compensation for the use of these funds.
The system described in the present invention effectively creates a new financial system which is juxtaposed on the current banking system and is connected to it by necessity for two primary reasons only: (a) to facilitate profitable investments, and (b) to enable the issuance of debit cards which are regulated banking products.
In this new parallel fiduciary system, a central bank is replaced by a master unit participation trust, member banks are replaced by unit participation sub-trusts, regular bank accounts become sub-trust accounts, and debit cards are replaced by trust-connected debit cards.
Each trust is governed by a uniform trust agreement which governs all trusts. Therefore, as all trusts have the same operating guidelines and permitted investments, money can flow from one trust to another without increasing or changing the risk.
Only one bank per country is required to accommodate the entire trust network within the country's banking infrastructure.
B. The Unique Application of a Trust Structure
In this new “trust-connected financial transaction card system” (the “System”), each sub-trust is able to compete with banks for retail depositors' funds and the sponsors of a sub-trust formation is able to participate in the new system, offering the same basic services and products banks offer.
In this new trust System, any employer can sponsor a trust for the purpose of offering a trust-connected debit card to its employees, and any church organization for instance can benefit from offering trust-connected services to its members.
In this new trust System, trust funds can easily and freely flow from one trust to another through loans followed by a settlement and offsetting process;
In this new trust System, trust funds can easily be aggregated at the account level, the sub-trust level, and the master trust level so that the aggregated pool of assets can be invested in permitted investments which are standard for all trusts.
In this new trust System, aggregated trust funds can be invested as large asset pools, thus affording each trust beneficiary, however small, the ability through the trust, to participate indirectly in investment strategies which heretofore have only been available for ultra wealthy bank clients.
In this new trust System, retail banks will compete for the overnight use of the aggregated pool of cash available only through the master trust. In the competition created between banks, for the first time ever, consumers will regain effective control of their money.
In this new trust System, trust beneficiaries receive their share of trust profits which are distributed to them monthly in the form of trust dividends.
In this new trust System, funds on deposit in a trust sub-account are fully protected from creditors and are not subject to the risk of bank insolvency.
In this new trust System, a commercial or wholesale bank can become a sponsor or promoter of a trust, thereby agreeing to forego its normal way of making money with depositors' funds, and instead share in the profits of the trust.
In this new trust System, the poor who maintain a small balance on deposit are treated with equity and receive the same benefits and return on investment as those who maintain much larger balances.
In this new trust System, trust accounts can be designed to offer the same basic functionality and services as those offered for traditional bank checking accounts (e.g. check writing features).
In this new trust System, trust accounts can be designed to hold liquid or illiquid assets (e.g. investment grade securities or the equity value a person has in a home).
In this new trust System, trusts can be formed and interconnected so that the excess liquidity of one trust can flow seamlessly to another trust (in exchange for a share of profits or a pre-determined interest rate) in which it can be invested.
In this new trust System, a multiple asset managers and broker dealers can be appointed to handle the investments of the assets of each trust, thus capitalizing on worldwide investment arbitrage opportunities.
In this new trust System, investment strategies of the trusts and the master trust are synchronized and standardized so as to provide a virtually riskless system to create a profit.
In this new trust System, a pre-determined method of segregating investment profits among trust sponsors (e.g. employers) and account holders (e.g. employees) gives every participant opportunity to profit from their account balances.
C. Formation of a Trust
This new System uses a Unit Participation Trust structure in which each trust is governed by a trust agreement and is subject to fiduciary trust laws.
A Master trust is formed by executing a trust agreement between the trustee and the grantors (licensor and license of the Invention). A sub-trust can be formed through the execution of a simple adoption agreement in which the trustee and a new sponsor both accept that the new trust will be governed by the same trust agreement that governs the master trust. A copy of the trust agreement of the master trust is simply attached to the adoption agreement.
A sponsor appoints fiduciary trustees and agents (trustees, custodians, registrars, paying agents, transfer agents, exchange rate agents, underwriting agents, etc) as well as broker dealers & asset managers to give investment orders to the trustee.
A sponsor may be any individual, corporation, any other legal entity or government. A corporate sponsor can be any for-profit group (e.g. an employer, a retailer, a financial institution) or any not-for-profit entity (e.g. a church, an affinity group, a labor union, and association, etc.).
Each sub-trust issues “trust-preferred variable rate notes” (the “notes”) rather than trust certificates. The notes evidence the indebtedness of the trust to the account holder. However the notes also give the account holder a fractional ownership interest in the trust up to the amount of account holder's account balance at anytime.
Notes do not pay a fixed interest rate as normal debt instruments would, but instead are structured to receive trust dividends in pro-rata share of the fractional interest an account holder has in the trust (a share of the total investment profits of a trust).
Each sub-trust has one or more sub-accounts for each beneficiary. Each account holder in the sub-trust becomes a de-facto fractional beneficial owner of the sub-trust. The account holder's proportional beneficial interest equals the aggregate balance of all accounts relative to the total trust corpus.
The trust corpus (total trust assets) represents the total aggregated balance of all sub-accounts.
Each account holder/beneficiary holds a trust note, the value of which increases each time a deposit (credit) is made to a sub-account and decreases each time a withdrawal (debit) is posted to it.
Account/Note holders have an option to call their notes fractionally or in whole at any time. The call option is revolving in the sense that each withdrawal from an account gives birth to a new call option for the next withdrawal.
Each sub-account may have multiple nested sub accounts (e.g. for spouses, children, employees of the same company, etc.). Funds may flow freely from the primary sub-account of the account holder to nested sub-accounts
A Trust-Connected Card™ (debit card) can be attached to each nested sub-account as requested.
D. The Trust-Connected Debit Card
The “trust connected debit card” (hereinafter, “Trust-Connected Card™) is a debit card with a new income-producing feature. Availability in any country requires only the participation of a single bank, licensed to issue and distribute debit cards.
In the description of this invention, each time the name Trust-Connected Card™ is used, it means a customary debit card which is linked to a trust sub-account that has a positive balance.
The Trust-Connected Card™ system comprises a trust account, a standard debit card (a plastic card or any other electronic devise capable of being used at a merchant location to effect a retail purchase, a banking or an ATM transaction); and a pass-through bank account.
Bank accounts and trust sub-accounts can be opened in the name of individuals or corporations so that, for instance each traveling employee can carry his own Trust-Connected Card™
The Trust-Connected Card™ can be used equally by individuals, corporations and governments to create a new profit center or to substitute existing banking arrangements.
Since only banks are allowed to issue and distribute debit cards, the Trust-Connected Card™ is directly linked to the corresponding bank account as would be the case for any bank-issued debit card. In such a way, the requirements of banking laws are fully met; the only difference being that because the deposit account is configured as a net-zero balance pass-through account, the card issuing bank never has access to the trust accounts deposits and therefore cannot use Trust-Connected Card™ funds as an asset of the bank. This process entirely protects account holders from the bank insolvency and bankruptcy.
The deposit and trust accounts are interlinked through an electronic switch which makes use of a computer system, software-driven functionality, and an account database to seamlessly post debits and credits between accounts.
The Trust-Connected Card™ is the primary tool used to drive this new trust-based financial system or economy. Each Trust-Connected Card™ is linked to a global transaction-processing, authentication, transaction-clearing, and transaction-settlement system that enables a card holder to use the Trust-Connected Card™ worldwide for ATM cash withdrawals or to make merchant purchases.
The Trust-Connected Card™ delivers standard debit card functionality to its holders, including 24×7 access to their account balance in the trust sub-account as well as full online banking functionality to permit the movement of funds to other banks or between accounts, the payment of bills and/or to manage the account and obtain account statement.
The sub-trust sub-account is designed to accept any form of deposit of cash, checks, bank wire transfers or recurring automatic deposits (e.g. payroll deposits or social security payments).
Trust sub-accounts are also configured to have nested sub-accounts that can be used by the primary account holder for a variety of purposes, including pre-determined account access to a child, a spouse, a relative or parent, and in the case of corporations, traveling employees of a company.
Each time a Trust-Connected Card™ is used to withdraw cash from the trust sub-account, the deposit account-trust account connection provides: (1) the account/user verification and authentication; (2) the acceptance or rejection of a transaction depending on the sufficiency of the trust sub-account to cover the authorized debit; (3) a debit from the trust sub-account of the transaction amount; (4) a credit to the temporary settlement account for the same amount; (5) a simultaneous offsetting credit and debit to the pass-through zero balance bank account; and (6) a final debit of the temporary settlement account when the transaction is settled at regular intervals throughout the day.
The Trust-Connected Card System™ is also designed to drive and process a check-writing and check-clearing process through the switch (through the use of the banking license or the participating bank) so that checks can also post directly and seamlessly to a trust sub-account rather than to a traditional deposit account. The processing a debit request at the presentment of a check is the same as that required when a debit card charge authorization request is presented to the accounts connection process.
Trust sub-accounts can be further configured online by the account holder to accept pre-established preferences of the account holder, including one-time or recurring instructions to debit the account (e.g. to automatically pay the balance due on a credit card when due or to pay recurring bills or to wire money to a designated third-party).
The unique benefit of the Trust-Connected Card™ is that it henceforth will allow cardholders to earn trust dividends on investments made on their behalf in principal-protected permitted investments that are designed to limit or entirely eliminate all downside risks.
The Trust-Connected Card™ can be issued in conjunction with a parallel credit card so as to give the card holder the option of either making a debit card or a credit card transaction when the card is used at a merchant location. When the credit card is used to make a retail purchase, the issuing bank makes money from transaction fees, but the bank also extends to its customers a standard 20 to 25 day credit period during which there is no interest charged on the account. Holders of both a Trust-Connected Card™ and a parallel credit card will be able to further use the free 25 day credit offered by banks and to use their trust sub-account to automatically settle such credit card balances when due.
The Trust-Connected Card™ can also be co-branded as part of an agreement between the licensor of the System (the licensor), the issuing bank and any individual, company or entity desiring to market and distribute its own brand of trust-connected banking products and debit cards.
Through a profit-sharing arrangement stipulated in each trust agreement, the licensor, the card-issuing bank, the trust sponsor (e.g. an employer, a church, an affinity group, a labor union, a retailer, an entrepreneur, a government entity, a school district, etc.) and the primary trust sub-account holder will be able to share in the investment profits of the trust based on percentages that can be changed based on circumstances and the agreements reached between the parties in each case. This means for instance that any employer would be able to cause a co-branded Trust-Connected Card™ to be issued to their employees for payroll deposit purposes, whereby both the employee and the employer will be able to share in the income of the sub-trust so that the employer can apply its share of profits as a benefit to its employees or to cover increasingly more expensive costs of benefits and health insurance.
A trust sub-account and the corresponding bank account can be configured for any number of nested sub-accounts for the purpose of: (1) allowing each nested sub-account holder to have its own individual account and a corresponding Trust-Connected Card; (2) allowing any number of new group-sponsored trust participants to obtain a Trust-Connected Card™ by opening the appropriate accounts as a dependent of a primary sub-account holder; (3) allowing a revenue-sharing opportunity to exist for those who desire to sponsor others by allowing their sponsored friends to have a nested trust sub-account immediately under their primary sub-account.
A trust sub-account can be configured to hold both cash and non-cash balances in order to allow a trust sub-account holder or a nested trust sub-account holder to transfer all rights, title and interest in non-cash assets to a trust or a sub-trust and to receive in exchange a trust preferred variable rate note (the “Note/s”) of equal amount (e.g. the market value of stocks and bonds, the appraised value of equity held in a home, a life insurance policy, an annuity, a-revenue producing intellectual property or other non-cash assets) so as to earn an income on such assets. Since each Note may be put back to the trust at any time, with the only trust obligation being the is to return the contributed asset/s to its original transferor without liens or encumbrances, illiquid assets can be aggregated within a trust structure so that a secured line of credit can be obtained for the purpose of investing same in the permitted investments of the trust.
Permitted Investments of a Trust
Introduction to Principal-Protected Investments
Conventional wisdom has it that in order to achieve a high return on investment it is necessary to take a proportionately high risk. Inversely that same logic concludes that a low return is always accompanied by an equally low risk.
This present invention disproves this notion and shows instead that it is possible to make a consistently high rate of return with little or no investment risk through the use of fixed income arbitrage strategies which are disclosed herein and which forms an integral part of this invention.
The principal-protected permitted investment rules of the trust are embodied in each trust agreement which govern the management of the trust by an independent fiduciary trustee.
Trustees have a fiduciary responsibility to manage the trust in accordance with their mandate as laid out in the trust agreement. If they deviate from prescribed terms and conditions, they could be liable to trust beneficiaries for damages. For this reason, trustees maintain insurance for errors and omissions, and, are additionally bonded and insured to cover any other potential liability.
Trust investment decisions and implementation functions are separated and allocated to different parties to ensure maximum safety and security. An investment manager (“Manager”) or broker/dealer submits a trade order to a Rules Validation Agent, and the agent confirms or rejects the trade order depending on whether all the permitted investment rules are met. When approved, trade orders that are then submitted to the Trustee for execution through the Prime Broker or Custodian of the trust.
Permitted Investments include three basic strategies designed to maximize the utilization of funds around the clock, around the world, year-round. These include:
A repurchase agreement is a sale of securities coupled with an agreement to repurchase the same securities at a higher price on a later date which can be from one day all the way to maturity. A repo is thus broadly similar to a collateralized loan. For example, a dealer can borrow $10,000,000 overnight at an interest rate of 3 percent per annum by selling securities to a mutual fund and simultaneously agreeing to repurchase the securities the following day for $10,000,833 ($10,000,000+1/360×3 percent of $10,000,000). The payment from the initial sale is the principal amount of the loan; the excess of the repurchase price over the sale price is the interest paid on the loan. As with a collateralized loan, the lender has possession of the borrower's securities during the term of the loan and can sell them if the borrower defaults on its repurchase obligation.
A repo is economically similar to a secured loan, with the lender of money receiving securities as collateral to protect against default. However, the legal title to the securities clearly passes from the seller to the investor. The cash provider is referred to as an “investor” or “repo buyer”; the provider of the collateral (i.e. the security) is the “repo seller”. Coupons (installment payments that are payable to the owner of fixed income securities) which are paid while the repo buyer owns the securities are, in fact, usually passed directly onto the repo seller (i.e. cash receiver).
There are three types of repo maturities: overnight, term, and open repo. Overnight refers to a one-day maturity transaction. Term refers to a repo with a specified end date. Open simply has no end date and can extend to maturity if desired.
A repo consists of two legs or transactions. The first leg of the repo consists of a repo seller (the party looking for liquidity) transferring securities to and receiving funds from the repo buyer (the party wishing to place its liquidity); and the close leg consists of the repo buyer transferring securities to and receiving principal and interest from the repo seller. Based on these characteristics, repos are considered loans collateralized by securities. There is little that prevents any security from being employed in a repo; so, Treasury or Government bills, corporate and Treasury/Government bonds, and stocks/shares, may all be used as securities involved in a repo.
A reverse repo is the same repo transaction except that it is viewed from the perspective of the repo buyer (the provider of liquidity) instead of from that of the repo seller (the provider of the security).
Although the underlying nature of the transaction is that of a loan, the terminology differs from that used when talking of loans due to the fact that the cash receiver does actually repurchase the legal ownership of the securities from the cash provider at the end of the agreement. So, although the actual effect of the whole transaction is identical to a cash loan, in using the ‘repurchase’ terminology, the emphasis is placed upon the current legal ownership of the collateral securities by the respective parties. Federal regulators treat repos as financing transactions, i.e. loans, although courts in some bankruptcy cases have treated them as securities transactions.
Repo traders have been traditionally known as “matched-book repo traders”. The concept of a matched-book trade follows closely to that of a broker that takes both sides of an active trade, essentially having no market risk, only a credit risk for a very brief period of time. Elementary matched-book traders engage in both the repo and a reverse repo within a short period of time, capturing the profits from the bid/ask spread between the reverse repo and repo rates. Presently, matched-book repo traders employ other profit strategies, such as non-matched maturities, collateral swaps, liquidity management. By locking in simultaneously the pricing on both ends of a trade, these traders are assured a profit every time they execute a trade.
This invention uses a similar process; except that in this case a fixed income product is pre-engineered to deliver new issues discount which are reflected in a greater yield to maturity than that of the anticipated refinancing interest rate. Through the use of volume discounts achieved for large underwritings coupled with a process to buy and resell (or refinance) each instrument that is underwritten, it is possible to create the financial products that deliver the arbitrage advantage in each case.
General Background Matched Trades
In a “principal-protected 1 , matched-trade,” a trader (or underwriter) purchases a security or underwrites a new issue for which one or more investors-buyers have been identified and the terms of a resale (the secondary private placement) have been locked-in at a price greater than the cost of the instrument or the discount price of the underwriting (the net “spread”). By contracting for the resale of the securities prior to purchase, the trader is executing a type of arbitrage transaction, which essentially eliminates market, liquidity, credit, and other risks which would be present in traditional trading of privately placed securities.
1 A “Riskless-Principal” transaction (or “Principal-Protected”) is one “whereby one party enters into a transaction and thereafter or contemporaneously enters into an offsetting transaction so that the risk or payments under the two transactions net out.” US House of Representatives, Currency Committee on Banking and Financial Services, Rep. James A. Leach, Chairman, House Banking and Financial Services Committee, “On Commodity Futures Modernization Act,” Friday, Dec. 15, 2000.
The Permitted Investment Rules for Engineering Consistently Profitable Arbitrage Trades
The pre-defined fixed income trading/arbitrage strategy is designed to achieve long-term capital appreciation, high-yield returns and protection of capital as described in detail herein. The basic investment strategy for each trust consists of five core principles and objectives:
1. The underwriting of fresh issues of fixed income products that will result in profitable yield arbitrage opportunities when underwriting discounts (volume discounts) are taken into account.
2. The immediate mining of arbitrage profits and the capture of built-in underwriting discounts or pricing inefficiencies relative to the markets.
3. The application of matched-trade 2 strategies (only place a buy order when a target portfolio is pre-sold or refinanced at lower yield to maturity) executed within the context of “principal-protected” transactions.
2 “Matched Trade” means a transaction where all the following conditions are met: (a) the financial instrument is pre-sold before it is purchased; (b) the settlement risk is eliminated through some form of guarantee of payment against delivery, (c) the price of the resale is greater than the purchase price, (d) the trade will result in an immediate profit, and (e) there is no long-term credit or interest rate fluctuation risk.
4. Income maximization through the overnight sweep of cash funds made available to third party financial institutions for a pre-set transactional fee to facilitate the settlement of their own repo & reverse repo transactions.
5. The maximization of profits through the use of leverage in transactions that are pre-determined to result in a positive yield arbitrage.
To accomplish the above objectives, it is necessary to engineer each transaction with precision so that each part of the process or trade occurs sequentially and when the entire process is implemented, will result in a guaranteed profit with no downside risk of loss of principal. To further accomplish these objectives, the following are required:
Turning now to the figures for further description of the several embodiments of the invention, FIGS. 1-6 show a revenue-producing, charge card system that also manages account balances to create an investment profit for the card holder. A trust account has a trust-account balance reflecting a first amount of funds, is constructed to subsequently record debits and credits related to the balance, and is constructed for access via remote communication. A bank account has a bank-account balance reflecting an initial zero balance, is constructed to further record debits and credits related to the balance, and is constructed for access via remote communication. A debit card is constructed for communication with the trust account and the bank account, and a switch is in communication with the trust account and bank account. As shown in the mentioned figures, the trust account and the bank account are constructed for intercommunication via the switch so that a card user can pass debits and credits to the trust account through the bank account so that the funds of the trust account can be managed via the trust account.
Still referring to FIGS. 1-6, the debit card is issued by a licensed banking institution but the promoter, marketer, distributor, or sponsoring entity is not a bank. The entity is chosen from the group consisting of an individual, a non-profit entity; a for-profit entity; a governmental organization or non-governmental organization. The for-profit entity may be an employer and the debit card could be issued to an employee of the employer. The debit card can be configured to allow the employee to charge business travel expenses to the employer. In addition, the debit card can be co-branded with the name of the employer and the name of a bank that issues the debit card.
Continuing with the description of FIGS. 1-6, the trust account and its dependent accounts are configured to allow funds that remain in the trust account outside banking hours to be swept out for short term investment and swept back and posted in the account at the opening of the next banking day. The trust account also includes a user-specific sub-trust account having a sub-trust account balance reflecting a third amount of funds and being constructed to post debits and credits to the sub-trust account. Each sub-trust account is configured to accommodate an unlimited number of nested sub-accounts. In addition, each primary sub-account and nested sub-account specify permitted investments that allow funds to be aggregated at a trust level and invested in permitted investments that maximize returns through the application of pre-selected investment strategies that continuously invest funds.
The sub-trust account and each nested sub-account is set up and configured to: (a) receive cash for crediting the user-specific sub-account; (b) post credits for at least one of the following: cash, cash equivalent securities, non-liquid assets (e.g. equity in a home or the value of a stock portfolio), or any combination thereof; and (c) is configured to provide cash to settle charges resulting from card transactions of the cardholder. The credits of cash include regularly recurring deposits such as payroll deposits and/or social security check deposits.
The user-specific sub-trust account is also set up to provide for the withdrawal of cash to settle charges resulting from retail, banking and ATM transactions executed via the use of the debit card.
Still referring to FIGS. 1-6, the bank account is configured for pass-through activity and record-keeping only. At all times, the balance in the bank account is zero and is specifically set up to book a simultaneous credit and a debit for the exact amount of the charge (debit) made on the debit card. Plural sub-trust accounts and plural nested sub-accounts can be set up and configured to: (a) receive cash for crediting the user-specific sub-account; (b) post credits for at least one of the following: cash, cash equivalent securities, non-liquid assets (e.g equity in a home or the value of a stock portfolio), or any combination thereof; and (c) provide cash to settle charges resulting from card transactions of the corresponding cardholder.
The bank account can be configured to report information regarding debit card usage for the debit card linked to that bank account, and can be further set up to report all debit card transactions for the debit card linked to that bank account on a regularly recurring basis. In addition, the bank account can be further set up regularly to report the profits of the corresponding sub-trust account on a recurring basis.
In the system shown in FIGS. 1-6, the trust account includes multiple sub-trust accounts that are respectively connected to a corresponding bank account via the switch. Funds of the sub-trust accounts are seamlessly aggregated on a regular basis, and the aggregated amount of all sub-account balances can be invested to earn revenue from investing in “permitted investments” and for overnight permitted sweep investments. One or more of the sub-trust accounts can be respectively set up to have their own sub-trust accounts so as to be nested by the one or more sub-trust accounts. One or more of the nested sub-trust accounts can also be set up to have their funds aggregated on a regular basis to earn revenue from investing the aggregate amount of the funds.
The debit card corresponding to a particular bank account connected to a nesting sub-trust account can be configured to earn a return from the aggregation of funds for investment at the nesting sub-trust level. The debit card corresponding to a particular bank account can also be configured to earn a return from the aggregation of funds for investment at the trust level.
The system shown in FIGS. 1-6 can also include system infrastructure that includes the switch to connect the bank account and trust sub-account, thereby to allow information and/or debits and credits to flow among the connected accounts, and between the connected accounts and a temporary transaction settlement account. The system infrastructure can also include a Transaction Processing Backbone that includes the switch. The settlement transaction account can be set up to receive credits from multiple sub-trust accounts and to settle debit card transactions for debit cards linked to corresponding bank accounts.
Still referring to FIGS. 1-6, the bank account can be configured as at least one of the following: a demand deposit account, a money market account, a savings account, or a business bank account. The bank account can also be configured with a check writing capability.
The trust account can be configured or formed to include a user-specific sub-trust account set up to segregate: (a) a reserve which is available at all times for settlement of debit card transactions, and (b) an investment account for funds in the sub-trust account beyond the reserve to be aggregated at the trust level and to be invested in permitted investments of the trust. The system infrastructure can be set up to connect multiple user-specific sub-trust accounts having different names and/or legal beneficiaries.
The system infrastructure can be further set up to allow a deposit to a sub-trust account to be posted as follows: (a) a credit to the particular sub-trust account of the depositor; (b) a debit to a master cash account of the trust; and (c) a debit and an immediately offsetting credit to the corresponding bank account linked to the particular sub-trust account via said switch. In addition, the system infrastructure can be further configured to allow a charge made on a debit card to be posted as follows: (a) a debit to the sub-trust account linked to the bank account corresponding to the debit card; (b) a credit to the merchant settlement account; and (c) a debit and an offsetting credit to the bank account corresponding to the debit card and linked to the sub-trust account via said switch.
Completing the description of FIGS. 1-6, the system infrastructure is further set up, for a debit card purchase transaction, to access via said switch the available balance of the sub-trust account linked to the bank account corresponding to the particular debit card and to compare the available balance with the amount of the debit card purchase transaction for authentication and acceptance, if the available balance is sufficient, or, for denial, if the available balance is not sufficient. The bank account and the sub-trust account can be connected, or be in communication, by and via the system infrastructure, and the switch can be configured to route debit card purchase transactions to the account with a higher available balance.
The trust account in FIGS. 1-6 can be formed as at least one of the following: a general, all-purpose unit participation trust, an auction participation trust, a home equity loan participation trust, a real estate deposit participation trust, a commercial equipment lease deposit participation trust, a college savings plan participation trust, a brokerage cash participation trust, a retirement fund participation trust, an endowment fund participation trust, a probate funds participation trust, an escrow participation trust, and/or a health savings participation trust. The charge card can be a debit card, a prepaid card, a stored value card, a gift card, a payroll card, a health savings card, or any other suitable card/transaction device.
The bank account can be configured to provide a credit card to the account holder, whether or not the account holder is connected to the bank account. The bank account can be configured to provide to the account holder, a card such as a prepaid card, a stored-value card, and a gift card, and the card is may or may not be connected to the bank account.
Still referring to FIGS. 1-6, there is also shown a method of producing revenue through a charge card method that also manages account balances to create an investment profit for the card holder. The method includes forming a trust account that has a trust-account balance reflecting a first amount of funds, is constructed to subsequently record debits and credits related to the balance, and is constructed for access via remote communication. The method also includes the steps of using a bank account that has a bank-account balance reflecting an initial zero balance, is constructed to further record debits and credits related to the balance, and is constructed for access via remote communication, and making a debit card constructed for communication with the trust account and the bank account. Also included is the step of configuring a switch in communication between the trust account and bank account. The trust account and the bank account are constructed for intercommunication via the switch so that a card user can pass debits and credits to the trust account through the bank account so that the funds of the trust account can be managed via the trust account.
The making step can involve issuing the debit card in the name of an entity that is not a bank, and the entity can be an individual, a non-profit entity; a for-profit entity; a governmental organization or non-governmental organization. If the entity is for-profit, it could be an employer and the debit card could be issued to an employee of the employer.
The making step can also involve configuring the debit card to allow the employee to charge business travel expenses to the employer, can involve co-branding the debit card with the name of the entity and the name of a bank that issues the debit card.
The forming step can involve configuring the trust account and its dependent accounts to allow funds that remain in the trust account outside banking hours to be swept out for short term investment and swept back and posted in the account at the opening of the next banking day. The forming step can also involve including in the trust account a user-specific sub-trust account having a sub-trust account balance reflecting a third amount of funds and being constructed to post debits and credits to the sub-trust account. The method may also include the step of configuring each sub-trust account, and corresponding nested sub-accounts, to specify permitted investments that allow account balances to be aggregated at a trust level and to be invested in permitted investments that maximize returns through the application of pre-selected investment strategies that continuously invest funds. The method may further include the step of configuring the sub-trust account and each nested sub-account to: (a) receive cash for crediting the user-specific sub-account; (b) post credits for at least one of the following: cash, cash equivalent securities, non-liquid assets (e.g. equity in a home or the value of a stock portfolio), or any combination thereof; and (c) provide cash to settle charges resulting from card transactions of the cardholder. The credits of cash can include regularly recurring deposits, such as for example payroll check deposits or social security check deposits.
The method may further include the step of configuring the user-specific sub-trust account to provide for the withdrawal of cash to settle charges resulting from retail, banking and ATM transactions executed via the use of the debit card. The using step may also involve configuring the bank account for pass-through activity and record-keeping only in such a way that at all times the balance in the bank account is zero and where such account is specifically set up to book a simultaneous credit and a debit for the exact amount of the charge made on the debit card.
The method can also further include the step of configuring the sub-trust accounts and plural nested sub-accounts to: (a) receive cash for crediting the user-specific sub-account; (b) post credits for at least one of the following: cash, cash equivalent securities, non-liquid assets (e.g., equity in a home or the value of a stock portfolio), or any combination thereof; and (c) provide cash to settle charges resulting from card transac