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C O L T - Covenant Optimized Leverage Trading

C O L T - Covenant Optimized Leverage Trading. Covenant Technology Services, LLC www.ctechnologyservices.net 2005. Covenant Optimized Leverage Trading. What is COLT ? Portfolio Financing System. Aggregate Trading & Position Management Securities Financing (Equity Repo, Stock Loan)

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C O L T - Covenant Optimized Leverage Trading

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  1. C O L T -Covenant Optimized Leverage Trading Covenant Technology Services, LLC www.ctechnologyservices.net 2005

  2. Covenant Optimized Leverage Trading • What is COLT ? • Portfolio Financing System. • Aggregate Trading & Position Management • Securities Financing (Equity Repo, Stock Loan) • Synthetic Financing (Portfolio Swaps) • Optimized multi-broker allocation engines. • Embedded Rule-Based Margin Calculator • Margin Financing (Rule Based). • What-if Scenario Evaluator - WISE

  3. Risk Based Margin • What is rule-based margin ? • Beyond Reg-T, NYSE and House Requirement. • Standard Framework – Eliminated inconsistencies • Rule-based model supports • Pair-Trading – Basket Enhancement • Cross-margin across all asset/security types. • Support Multi-Trading Strategies • Convertible Arbitrage with CDS • Synthetic Prime-Brokerage – Portfolio Swaps

  4. Equity Long/Short – Pair Trading • Equity Margin – Adjustment Based • Volatility Risk • Liquidity Risk • Concentration Risk • Basket Enhancement • Weight Average Liquidity • Sector Concentration • Country Tier

  5. Long/Short Basket

  6. Convertible Arbitrage Trading • Convertible Bond • Bond Investment Value - Credit/Interest Risk • Embedded Call Option - Volatility Risk • Convertible Arbitrage Strategy • Naked Convertible • Hedged with Equity • Hedged with Equity and CDS • CDS Reference Asset.

  7. Convertible in the secondary market Junk Out of the Money At the Money In the Money Discount Convertible Price Issue Price Convertible Price Parity Premium Bond Floor Conversion Ratio Stock Price

  8. Hedged with CDS Symbol: OAK 4.875 03/01/2008 Price: 104.03125 Conversion Ratio: 64.4329 Credit Rating: S&P – BB- / Moody – Ba3 Naked Credit Requirement: 20 % Underlying Price: 12.25 Parity: 789.30 Premium %: 24.13% Equity Hedged: Yes Hedge Ratio: 10% Margin w/o CDS Requirement: 20.00% CDS Hedged: Yes CDS Notional Pct: 100% CDS Reference Asset: Cheapest to delivery. Margin w/CDS Requirement: 13.75%

  9. Capital Structure Arbitrage Trading • Trading asset class of same issuer. • Xerox Example – Long Bond / Short Equity. • Credit versus Earning Improvement. • Debt Arbitrage – Credit Risk / Duration • Debt Structure - Senior versus Junior • Hybrid Hedged – Advantage.

  10. Hybrid Credit Hedged Advantage Issuer: Dynegy Yes Energy Debt Arbitrage: Senior vs Senior Long / Short: DYN 8.316 2027 DYN 7.125 2018 Quantity: 2,000,000 (1,500,000) Duration: Long Term Long Term Credit Rating: S&P – CCC / Moody – Ca CCC / Caa Naked Credit Margin: 50% 50% Debt Arbitrage: Junior vs Junior Long / Short: DYN 9.875 2010 DYN 8.75 2012 Duration: Long Term Long Term Quantity: 1,000,000 (3,500,000) Credit Rating: S&P – B / Moody – B CCC / Caa Naked Credit Margin: 30% 50% Hedged Unhedged Hybrid Hedged Senior vs Senior: Long / Margin 1,400,000 / 7.50% 600,000 / 10.00% Short / Margin (1,500,000) / 7.50% Junior vs Junior: Long / Margin 1,000,000 / 15.00 % Short / Margin: (1,143,243) / 15.00 % (1,870,270) / 50.00% (486,486) / 10.00 %

  11. Portfolio Swaps • What is it? • Total Return Swap vs CFDs • Synthetic Financing Vehicle. • Integrated with risk-based margin. • Supports –Multi Trading Strategies/Cross-Margining. • Equity Long / Short • Convertible Arbitrage • Credit Default Swap • Capital Structure Arbitrage

  12. COLT Advantage • Optimized Leverage Trading. • Support and Optimized multi-trading strategy. • Netting across prime-brokerage houses • Best Scenario Analysis • What-if Scenario Evaluator - WISE • Upfront decision making

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