Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Finance
Reexamination Certificate
1999-11-01
2003-07-22
Rice, Kenneth R. (Department: 3627)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Finance
C705S026640, C705S03600T, C705S037000
Reexamination Certificate
active
06598028
ABSTRACT:
BACKGROUND OF THE INVENTION
1. Field of the Invention
The present invention relates to systems and methods that include mechanisms for facilitating international trade and investment involving conversion of currencies.
2. Discussion of the Background
Mutual Funds
As presently recognized there is a growing market for international, financial and wealth management products that can be conveniently accessed and combined with “needs based” collateral services. Small business and individuals continue to recognize the benefits and low cost entry of investing, as well as traveling and conducting international business transactions. In response, many developed and emerging market countries have relaxed regulatory barriers to incoming and outgoing capital flows.
As a result, the demand for well-structured, pooled investment products is likely to accelerate, due to many macro-economic and political factors. These include, firstly, the trend to restructure welfare and retirement programs to place more reliance on investor directed plans and less on state managed programs. A second important factor is the growth of developing countries. As countries relax their barriers to capital flows in order to become more competitive in attracting international capital, local markets are expanding at a rapid pace. With this expansion comes growing wealth and a demand for professionally managed investment products wrapped with fee based investment, or financial planning services. Due to their structure, mutual funds are natural investment vehicles for local investors in these markets.
Offshore Investment Funds
Conservative estimates put $5 trillion in banks, mutual funds, and trusts in the world's international offshore banking centers. These centers have no or low taxes, flexible regulations, and, quite often, strict secrecy laws designed to attract capital. As the economy has gone global, corporations have increasingly used these centers to stay competitive, making them especially attractive for money market mutual funds and bank sweep services. Valued at $2.4 trillion, offshore funds now account for almost half the mutual funds sold worldwide, with their chief selling point being higher-than-average yields.
As a result, most of the major mutual fund groups in the U.S. and Europe either have or are in the process of developing a family of offshore funds. Typically, they are cloning existing domestic funds, and wrapping these products with various collateral services, such as check writing on money market mutual funds, daily sweep services, or free exchange amongst a “family of funds.”
U.S. Financial service companies seeking to expand market share in Europe, or elsewhere, understand that without a proper distribution strategy, their initiatives will fail. Distribution options include building a captive sales force, “renting” an established channel, forging an alliance with a foreign investment manager to cross-distribute products, buying a foreign distribution channel and/or investment manager, or “going direct.” Each of these options has its own characteristics and concerns, but perhaps the most difficult is direct distribution. Gaining access to an existing source of distribution is by far the most desirable method, although cost is a key consideration. Many consider that the easiest part is deciding the correct product type or investment style. However, these financial service companies understand that product structure and design, including management, other fees, and its supporting technology are extremely important in ensuring maximum competitive advantage and profitability for their offshore financial products. For example, the typical fund group will build on its domestic product strengths, whether equity or fixed income funds, or global, regional or single country funds. Innovation beyond this limited scope is typically not the mandate for busy fund company executives.
Administrative and technological considerations are often overlooked until late in the development process, although it is understood by the financial institutions offering these products that they are extremely important for certain products. In fact, it can be the deciding factor in selecting a particular jurisdiction, because of time zone problems or the quality of accounting or transfer agent systems of a particular fund Administrator. Many fund Administrators serving the offshore market are now establishing subsidiaries in at least one location within the three offshore regions of Europe (preferably in a UCITs qualifying EU country), the Caribbean and the Asia-Pacific region. Beyond mutual funds products which require relatively sophisticated systems and experienced agents include mortgage-backed securities, commodity funds, funds investing in LDC debt and bank loans, limited partnerships with complex allocation structures, hedge funds, funds qualifying as passive foreign investment companies and funds requiring retail transfer agent capabilities. In addition, the regulatory authority may require that certain functions are performed within the domicile, thereby eliminating it as a viable option for certain types of funds if the most experienced agents are located elsewhere.
Currency Facilities and Foreign Exchange Services
The beginnings of a common European market goes back several decades but had not moved markedly until the early 1990s. The European Community has given way to the European Union (EU). And the development of a single currency for the 250 million residents of the EU, the Euro, has created a pressing need for financial and investment products that can serve the needs of the Continent's small-to-medium-sized business market.
There is not a market, as we know it, for currencies, but rather an informal network of trading desks at investment houses, multi-national corporations, and commercial banks. Currency prices are based on certain assumptions, including trends in trade data, interest rates, and political developments.
Until recently, spot currency trading was dominated by major institutional Dealers and Brokers. With the advent of Electronic Dealing Systems (EDS,) the major Dealers no longer control price discovery. In fact, the buyer side represented by pension funds, and retail mutual funds, and aided by Foreign Exchange transaction systems, are the new market makers. Consequently, the major players are focusing more on derivative trades to make money. Second, elimination of intra-European currency trade will temporarily reduce overall Foreign exchange volumes by 07-10% in the near future. Third, Internet based spot, currency trading systems are now being aggressively sold to individuals.
As presently recognized, with minimum account balances as little as $3,000.00, five-point spreads, and low commissions per lot and per round turn, inter-bank market exchange fees, this could be as popular as on-line stock trading has become. So the time has arrived to offer these services bundled in a structure that is trusted, convenient, and that brings efficient currency price discovery to the masses. The money market mutual fund structure and credit/debit cards come to mind. It is our observation that traditional sources of foreign exchange for small and medium size business that conduct cross border business transactions, will need to re-align themselves with these obvious trends.
Businesses in the Euro area are changing to prepare for a more competitive environment. The impact of the Euro currency can be detected in a string of events, ranging from the restructuring plans at multinationals such as Germany's Siemens, to actions such as the takeover of Belgium's BBL bank by ING of the Netherlands. As the single currency transmits and amplifies competitive pressures across the Euro area, more of the same can be expected. Price transparency and the elimination of foreign-exchange costs and risks will have strategic implications in three main areas in particular: in pricing, in supplier relationships and in internal Organization and investment.
Second, travel and education are enlarging tastes of
Jedlicka John
Rosenberg Alan
Sullivan Lynn
McClellan James S.
Rice Kenneth R.
Sullivan Lynn
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