Note : Les descriptions sont présentées dans la langue officielle dans laquelle elles ont été soumises.
CA 02441810 2003-09-19
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System for Ranking Financial Underwriters
FIELD OF THE INVENTION
The present invention relates to a computerized method and to a computerized
system for ranking and/or rating the performance of financial underwriters
(firms or
individuals) who sell or advise on capital markets or securities issues
(regardless of
syndicate positions). More particularly, the present invention relates to a
computer
implemented process that applies data mining techniques to securities and
capital market
information to evaluate the performance of the financial underwriter.
BACKGROUND OF THE INVENTION
The present invention is concerned with the activities of financial
underwriters. For
the purposes of this document, the phrase "financial underwriter" is used to
denote those
individuals or firms who undertake to provide recommendations and predictions
on
capital marlcets, the economy and specific financial securities, and/or sell
new issues
(treasury or secondary), such as, for example, stocks, bonds and the like. The
phrase
"financial underwriter" therefore includes, for example, individuals or firms
who act in
respect of initial public offerings (IPO's), new issues of stock or other
stock or securities
offerings, debt, preferred or other financial issues or offerings, or research
analysts who
make recommendations and/or provide predictions on the future trends of the
markets in
stocks, shares, bonds or other securities. The phrase can also include the
individuals or
promoters responsible for the issue (or the like).
The phrase "financial underwriter" does not, however, include those
individuals or
firms who simply act to conduct financial securities transactions without any
input or
discretion on the financial underwriting decisions being made. The individuals
or firms
not included are primarily pension fund managers, mutual fund managers, and
the like.
. While there currently exists simple performance measurement techniques to
review
the activities of financial underwriters, these techniques do not provide
sufficient basis
for providing a meaningful review of the past performances of the financial
underwriter.
For example, with respect to research analysts, it would be desirable to
review the past
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recommendations of an analyst to determine whether his/her predictions on
future market
and/or securities performance were correct. In this fashion, the investor
would have a
more objective a,nd statistically valid method for determining the past
performance of the
analyst, and thereby use the past performance of the financial underwriter as
a method to
judge his or her current predictions and recommendations. Also, the investor
would
have a method to ranlc and/or rate various analysts in order to compare their
performance
and select the analyst or analysts who is or are most likely to provide them
with the best
performance in their area of interest. Further, the method would provide a
method for
quickly evaluating and "culling" a list of financial underwriters to remove
underperforming underwriters from further consideration.
With respect to new issues, for example, a financial underwriter determines
the
number of securities to be sold, and establishes a base price to be charged
for the
securities. The company essentially receives the gross proceeds of the
transaction less
expenses or the costs of issue.
These new issue securities are usually sold at a set price before the general
public is
able to freely trade the securities on the various world maxkets. However,
after a set date,
the securities can be freely traded and the price of the securities will rise
or fall
depending on the value set on the securities by the public markets. In some
instances, the
price of the securities can increase or decrease rapidly after the securities
become
available to the public. Where the price of the securities increases
significantly, it means
that the value of the new issue of the securities was undervalued, and that
the company
missed out on realizing the full value of the securities. Where the price of
the securities
decreases rapidly fiom the new issue price, it means that the investor has
overpaid for the
securities, and stands to lose a portion of its initial investment.
When a company pursuing a new issue process is selecting a financial
underwriter, it
would be useful to have a more objective and statistically valid 'method to
rate and/or
rank the performance record of the individual underwriter and/or the
underwriting firm to
determine whether it can expect to receive full value for its securities.
Also, for an
investor, it would be useful to obtain the performance record of the
individual
underwriter and/or the underwriting firm in order to determine whether the
investor can
expect the securities' price to increase after the new issue.
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Thus, the performance history of a financial underwriter would be of value to
either
the company entering the new issue process, or for the investor about to buy
securities in
a new issue process.
Similarly, with respect to research analysts, who malce recommendations on,
for
example, stocks or other securities, and in particular, the timing of buying
or selling
particular stocks or securities, it would be useful to provide a more
objective and
statistically valid method to rank and/or rate their performance over time in
order to
compare the performance of one research analyst to others. For example, it
might be of
interest to determine the percentage of times that the analyst has been
correct in their
recommendations and predictions.
When reviewing the activities of a financial underwriter, it should be noted
however,
that individual underwriters usually worlc for investment dealers. As
investment dealers,
they may have a number of individual financial underwriters (or other parties
(e.g.
promoters, major shareholders etc.)) and the degree of collaboration between
the
individual financial underwriters in a firm can vary from firm to firm. Thus,
it would not
only be useful to evaluate the performance of a financial underwriting firm,
it would also
be useful to determine the performance history of an individual financial
underwriter.
It would also be useful to traclc an individual financial underwriter who has
moved
from firm to firm in order to rate and/or rank his or her performance on
financial deals
worked on while at each firm. Within the firm, it would also be useful to
determine the
relative weight to be given to each individual financial underwriter who is
involved with
a particular deal (e.g. who was responsible for the deal). Fox example, the
"lead"
financial underwriters) on a particular new issue (for example) lilcely has
more overall
responsibility for the performance of the deal than an associate assisting on
the deal.
Additionally, various financial underwriters may have expertise in a certain
sector or
sectors, and their performance may vary depending on their level of expertise
in that
sector. For example, an underwriter skilled in underwriting a new issue for an
oil & gas
company, may be somewhat less skilled in underwriting a new issue for an
electronics or
computer related firm. Similarly, for example, a research analyst may have a
good rating
for predicting marleet changes with respect to financial institutions, but may
be somewhat
less skilled in predicting maxket changes in other areas.
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Further, the number of deals which a financial underwriter has been involved
in may
also influence their performance rating or ranking. For example, a financial
underwriter
who has been involved in numerous transactions may be given a higher rating
than an
underwriter who has provided similar returns on a smaller number of
transactions.
Additionally, it would be useful to evaluate the risk involved in the
financial
transactions undertaken by the financial underwriter. With respect to new
issues, for
example, a new issue of securities for an older established company would
likely have
less risk than a new issue of securities for a fledgling company raising
capital in a new
and unproven technology. Thus, the investor or issuer may want to determine a
performance ranlcing and/or rating of the financial underwriter which is
adjusted to
reflect the "risk" of the securities or securities issue. Accordingly, the
investor or issuer
may wish to obtain a risk-adjusted performance measurement.
Thus, it can clearly be seen that review of the past performance of a
financial
underwriter (either as an individual or as a firm) in a particular market
segment would be
of use to those investing in various securities.
Also, investors or issuers who conduct a n~.unber of securities market
transactions
over time, and/or on a regular basis, also need to constantly evaluate the
performance of
financial underwriters in order to identify any difficulties with a given
financial
underwriter, and/or select a financial underwriter having a performance
raucing or rating
more suitable to their respective needs.
Traditionally, however, this type of information is not readily available due
to
difficulties in establishing clear criteria for evaluation of the financial
underwriter, and
difficulties in determining the correct financial underwriter for a given
transaction. For
example, in situations where more than one underwriting firm is used, the lead
underwriter is often given credit for the entire offering. Accordingly, the
perceived
performance of the lead financial underwriter may not be correct, and the
performance of
the second or third financial underwriter (regardless of their position in the
syndicate)
may not be considered.
It may be important to consider the role of the second, third or other
underwriter in
the syndicate. Such consideration may be necessary in order to further
evaluate the
performance of the underwriter. For example, the involvement of a particular
underwriter
in a selected transaction as a non-lead underwriter may still provide some
"validation" of
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the deal to that firms' clients and to other investors, and may indicate that
the non-lead
underwriter has reviewed the deal and made some judgement on its value.
In a similar manner, the performance of a research analyst firm may be
dependent on
a small number of individuals, and the ranlcing and/or rating of the firm may
be
dependent on maintaining their relationship with those individuals.
Some information on the performance of financial underwriters is available
from
various sources. However, these prior art performance ratings merely provide a
superficial review of the underwriting frms' historical performance, and tend
to focus
primarily on the performance of the underwriters based on gross proceeds
raised. For
example, with respect to financial underwriters involved in new issues, the
prior art
performance ratings primarily review only those new issues where the
underwriters were
the lead financial underwriter, or merely review the financial underwriter's
performance
based on current securities prices versus the new issue price. Also, financial
underwriting
firms are usually ranked according to gross proceeds, rather than by their
investment
performance, and in particular, rather than by their performance over a
representative
time period, and using an appropriate performance measurement.
Also, the prior art performance measurement methods do not include an
adjustment
for consideration of the risk of the underwriting deal.
SUMMARY OF THE INVENTION
Accordingly, it is a primary object of the present invention to provide a
method for
rating and/or ranlung the performance of a financial underwriter (either as an
individual,
a pan of a firm, or as a firm in general) in relation to their securities
issues,
recommendations, predictions and the like, related to the financial markets,
and in
particular, the capital markets, the economy or the securities marlcet.
It is a further object of the present invention to provide a computerized
method for
rating and/or ranking the performance of a financial underwriter.
It is a still further object of the present invention to provide a method for
rating
and/or ranking the performance of a financial underwriter in relation to their
history of
f nancial underwriting matters.
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It is a yet still further object of the present invention to provide a method
for rating
andlor ranking the performance of a financial underwriter which performance
rating
and/or ranking is risk-adjusted.
The foregoing objects are attained by conducting data mining techniques on the
information obtained from a variety of financial information sources, in order
to relate
the information obtained on capital (or financial) market activity to
financial
underwriters. This includes financial underwriters such as individual research
analysts,
new issue underwriters or new issue underwriting firms.
In particular, the above-described method is preferably risk-adjusted to
factor in the
risk involved in the financial transaction, and further, the method is
particularly well
suited for use on a computerized system, and in particular, a networked
computerized
system such as, for example, the Intexn~t.
Accordingly, the present invention provides a method for rating and/or ranking
the
performance of a financial underwriter comprising the steps of:
(i) accessing capital or securities market information sources to access data
related to
the transactions, recommendations or predictions of a financial underwriter;
(ii) initiating data mining techniques on the accessed data to extract and
assign the
data to said financial underwriter according to a selected plurality of
financial
underwriter selection criteria;
(iii) comparing a selected, non-simple return value of one or more financial
holdings
from said transactions against a base level of said financial holdings to
determine the
performance history of the f nancial holdings over a selected time period, or,
comparing
the actual performance of one ox more financial holdings to the
recommendations arid
predictions of the underwriter, and thus determine a performance history fox
the
underwriter according to the underwriter selection criteria; and
(iv) comparing the performance history of two or more underwriters in order to
ranlc
the performance of the underwriters.
In a preferred embodiment, the above-described method also includes a
computerized method, and still more preferably, the method also includes a
method
wherein the performance history for the financial underwriter is adjusted by
applying a
risk-adjustment factor in order to determine a risk-adjusted performance
history; and
subsequently comparing the risk-adjusted performance history of two or more
financial
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underwriters in order to rate or ranlc the risk-adjusted performance of the
financial
underwriter.
A simple return value is merely the current market price related to the issue
price. A
non-simple return value is the return value calculated in some other fashion.
The
non-simple return value may be selected from a variety of methods of
calculating returns,
as is discussed hereinbelow.
Preferably, the various data mining techniques and performance history
comparisons
are conducted by a computerized system. Accordingly, the present invention
also
provides a computer-based technique for conducting a variety of data mining
techniques
and/or conducting performance history comparisons.
Further, the computer-based technique system can be a stand-alone PC system,
or
more preferably, is a networlced computer system; either of which can conduct
a variety
of data mining operations in accordance with a variety of selected search
design criteria.
This can include computers (or similar devices such as various computer access
terminals or hand held PDA's) which are either physically connected or are
remotely
connected by, for example, the Internet. The "connection" can also be a
wireless
connection by, for example, satellite communication.
Most preferably the computer system is an intranet or Internet-based system
that can
be readily accessed by a number of interested individuals. A particular
feature of an
Internet-based system is that a wide variety of clients could conduct a series
of rating and
ranking operations to determine the effectiveness of a particular financial
underwriter,
and/or use the data mining techniques to select a preferred financial
underwriter for their
particular needs. The computerized method can be formatted to use selected,
pre-chosen
techniques for rating and/or ranlcing the performance of the financial
underwriter using
pre-set forms. Alternatively, the computerized method of the present invention
can be a
query-based system wherein the user can select from a variety of comparison or
performance history rating and/or ranking techniques.
The method of the present invention can also be established on an open access
computerized system, such as for example, the Internet, so that those
individuals
interested in determining performance history rating and/or ranking of
financial
underwriters can conduct such ratings and/or rankings on a single use basis, a
multiple
use basis, or on a subscriber basis to receive updated information on a
regular basis.
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Preferably, in operation of the present invention, a Web site would be
maintained on
the Internet which would contain the information related to capital and
securities market
information, general economic information, and information related to
financial
underwriters. By accessing the Web site, an interested party would request a
search of the
database information in order to rate and/or rank financial underwriters
according to a
variety of possible ranking and/or rating techniques. Preferably, the Web page
would
provide a series of Hypertext liu~s through which the user would select
products and
information of use to him or her, and selected search criteria for conducting
the analysis
of the Web site data. The Web site could be used to provide single inquiry-
type results,
or could be used to generate a scheduled report to subscribers of the system.
The terms "Internet", "Web" and "Hypertext" are commonly used. However for
clarity, the following definitions are used for the purposes of tlus document:
Internet - A collection of intercomZected (public and/or private) computer
networks that are linked together by a set of standard protocols (such as
TCP/IP and
HTTP) to form a global, distributed network. (While this term is intended to
refer to
what is now commonly known as the Internet, it is also intended to encompass
variations
which may be made in the future, including changes and additions to existing
standard
protocols.)
Web (or World Wide Web) - Used to refer generally to both (i) a distributed
collection of interlinlced, user-viewable hypertext documents (commonly
referred to as
Web documents or Web pages) that are accessible via the Internet, and (ii) the
client and
server software components which provide user access to such documents using
standard
Internet protocols. Currently, the primary standard protocol for allowing
applications to
acquire Web documents is HTTP, and the Web pages are encoded using HTML.
However the terms "Web" and "World Wide Web" are intended to encompass future
markup languages and transport protocols which may be used in place of (or in
addition
to) HTML and HTTP.
Hypertext - A computer-based informational system in which documents
(and possibly other types of data entities) are linked together via hyperlinks
to form a
user navigable "web".
These terms, and others related to Internet technology, are defined in a
number of
documents. However, the terms as defined in US Patent No. 6029141 (Bezos et
al.)
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issued February 22, 2000, the contents of which are incorporated herein by
reference, are
to be used for the purposes of the present invention.
In a most preferred embodiment, the present invention provides a method for
rating
and/or ranlcing the performance of a financial underwriter as claimed in Claim
1 which
method comprises:
(i) accessing capital or securities market information sources to access data
related to
the transactions, recommendations or predictions of a financial underwriter;
(ii) providing a Web site that includes a browsable collection of the accessed
capital
or securities market data;
(iii) providing access to said Web site by clients, and, in accordance with
client
requested search criteria, initiate data mining techniques on the accessed
data to extract
and assign the data to said financial underwriter according to a selected
plurality of
financial underwriter selection criteria;
(iv) comparing a selected, non-simple return value of one or more financial
holdings
from said transactions against a base level of said financial holdings to
determine the
performance history of the financial holdings over a selected time period, or,
comparing
the actual performance of one or more financial holdings to the
recommendations and
predictions of the underwriter, and thus determine a performance history for
the
underwriter according to the underwriter selection criteria;
(v) comparing the performance history of two or more financial underwriters in
order to rate ox rank the performance of the financial underwriter; and
(vi) providing an electxonic output of the rating and/or ranking results to
the client
through a Web page document.
As previously stated, the client can be a subscriber to the system operator
and would
be provided with routine access to the Web page, ox would receive regular
reports
generated from the Web site (which could be electronically delivered to the
client).
Alternatively, the client could be a single-time user who would conduct a
query-based
search. The clients would preferably be billed for the searches conducted and
the results
generated.
In an additional aspect, the present invention also provides a computer system
for
rating and/or ranking the performance of a financial underwriter comprising:
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(i) means for accessing capital and securities market information sources to
access data
related to the transactions conducted by the financial underwriter;
(ii) means for initiating data mining techniques on the accessed data to
extract and assign
the data to said f nancial underwriter according to a selected plurality of
financial
underwriter selection criteria;
(iii) means for comparing a selected, non-simple return value of one or more f
nancial
holdings from said transactions against a base level of said financial
holdings to
determine the performance history of the financial holdings over a selected
time period,
and thus determine a performance history for the financial underwriter
according to the
underwriter selection criteria; and
(iv) means for comparing the performance history of two or more financial
underwriters
in order to rate or rank the performance of the financial underwriter.
The computer system can be a stand-alone PC, but more preferably is a
networked
computer system, and most preferably, the networked computer system is
connected via
an intranet or Internet system.
In a most preferred method, the computer system is an Internet based system.
Accordingly, the present invention also provides an Internet-based system for
rating
and/or ranlcing the performance of a financial underwriter comprising:
(i) a system for accessing capital and securities market information sources
to access data
related to the transactions conducted by the financial underwriter;
(ii) a Web site for storage of the accessed data;
(iii) a system for accessing said Web site;
(iv) a system for initiating data mining techniques on the Web site accessed
data in order
to extract and assign the data to said financial underwriter according to a
selected
plurality of financial underwriter selection criteria;
(v) a system for comparing a selected, non-simple return value of one or more
financial
holdings from said transactions against a base level of said financial
holdings to
determine the performance history of the financial holdings over a selected
time period,
and thus determine a performance history for the financial underwriter
according to the
underwriter selection criteria;
(vi) a system for comparing the performance history of two or more financial
underwriters in order to rate or ranlc the performance of the financial
underwriter; and
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(vii) a system for reporting said rating or ranking information to said Web
site.
DETAILED DESCRIPTION OF THE INVENTION
The present invention may be used to determine, rate and rank the performance
of a
financial underwriter, such as for example, a financial underwriter or a
research analyst,
to determine a historical ranking of the advice provided by the financial
underwriter, or
to determine, rate and rank the performance of financial underwriters involved
in
securities issues.
For the purposes of the present invention, the databases of capital and
securities
markets (such as stock markets), or other financial information (and thus, the
source of
input data) include a wide variety of financial information sources including
newspaper
or other media reports, newsletters, Securities Commission disclosure
documents,
private and public databases, company annual reports, and the like.
The term "data mining" is used to indicate that various analytical
calculations are
conducted in order to extract and use relevant data to the criteria selected
by the user.
These calculations can vary depending on the criteria selected a,nd the manner
of
evaluating the financial underwriter. For example, the performance values
could be
adjusted by the size of the transaction, which might itself be adjusted by the
price of the
relevant securities, or the total value of the transaction underwritten by the
financial
underwriter, or the like. These techniques are all relatively straight forward
once the data
mining criteria have been selected.
The underwriter selection criteria can vary depending on the nature of the
transaction, the nature of the end-user of the invention, the nature of the
financial
underwriter and the like. However, the input data can be collected into a
variety of data
categories based on the criteria of issue size, price, coupon, if debt,
dividend, date of
issue (e.g. closing of financing), date of issuance of a final receipt (i.e.
free trading), type
of issue (e.g. public, bought deal, private placement, IPO, secondary),
category of issue
(e.g. equity, debt, pre~), sub-category of issue (e.g. common, voting/non-
voting,
multiple/subordinated voting), sector (e.g. mining, financial services, high
technology),
sub-sector (e.g. by SIC Code software, hardware, biotech), syndicate position
(e.g. lead,
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co-lead, co-managed etc.), dividends or interest, stock splits and
consolidations, or a
variety of other criteria.
The selected return value of the financial holding is generally based on
publicly
available information based on the price of the securities at the time of the
request, or at a
selected date. The financial holdings are preferably securities listed and
traded on the
capital markets, but can also include securities such as bonds and the like.
The "base level" of the financial holdings is generally the value of the
securities at a
selected point in time. For example, with respect to a new issue, the base
level could be
the initial price of the securities offez~ing. With respect to the predictions
of a research
analyst, the base level could be the securities price at the time of the
prediction and/or
recommendation.
The "return" achieved by the transactions of the financial underwriter can be
measured in a variety of ways. For example, the rate of return can be
calculated using
return rates including average returns, internal rates of return, compound
returns, holding
period returns, total returns, annualized returns, and the like. However, any
appropriate
return rate can be used. The return rate can be measured over any appropriate
time period
(e.g. daily, weekly, monthly, quarterly, annually, etc.). The selected return
rate can be
comprised of capital gains only, or more preferably, optionally also comprises
any other
return such as, for example, dividends and the like. In this fashion, the
return rate is
calculated on the total return of the investment. The return rate can also be
calculated on
either a nominal or real basis.
The performance of the underwriter could be calculated over a number of years
in
order to establish a longer term record of the underwriter's performance.
Preferably, the
performance of the underwriter is measured over a time period of at least 2
years.
However, the records could be calculated for longer periods so that the
performance of
the underwriter over the past 3, 5 or 10 year period could be considered.
Longer time
period records could also be calculated and used in rating and/or ranlcing
calculations, if
desired.
It is also generally preferable to select a return measurement system which
recognizes the "time value" of money. In simple terms, an investment which
earns 10%
over 6 months is preferable to an investment which earns 10% over 12 months.
The
prior art method of calculating simple returns do not always recognize this
fact.
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However, methods such as calculating an average return or an annualized
holding period
return can reflect the time value of money.
The ranking or rating of the financial underwriter can also be adjusted by the
"risk
factor" (as discussed hereinabove) of the transactions, so that a good
performance in a
higher risk area might lead to a lower ranlcing than a similar performance in
a lower risk
area. The risk factor can be determined by comparison to, for example,
relevant past
performance of similar transactions for a particular industry, sector,
transaction type, or
the like.
In a further, most preferred embodiment, the rating and/or ranking of a
selected
financial underwriter can be established so as to reflect their overall
performance
between a number of different types of transactions. Thus, it is possible to
provide an
overall ranking and/or rating of a financial underwriter which will reflect
their
performance on any type of securities-related transactions and/or
recommendations or
predictions.
In particular, the method can be used to rate financial underwriters who are
involved
in specific capital or securities marlcet areas. Of particular interest are
those financial
underwriters who axe involved in any publicly offered securities including the
fixed
income maxlcet, the equity (or equity-linked) markets or any other public
capital markets.
It should be understood that the present invention is of primary utility in
providing
an evaluation of underwriters who are providing predictions and/or
recommendations on
a wide variety of events, and that there are few, if any, "common"
transactions wherein
the underwriters axe commenting on the same transaction at the same time.
Also, it
should be understood that the method of the present invention allows for the
comparison
of the performance of a relatively large number of underwriters, such that the
performance of two or more underwriters, from the large number evaluated, can
be
ranked and/or rated. Therefore, the method of the present invention is
preferably used to
compare the performance of more than 10 underwriters, more preferably, the
performance of more than 20 underwriters, and still more preferably, the
performance of
more than 30 underwriters.
The rating and/or ranking of a selected financial underwriter can also be
adjusted to
reflect their participation in transactions where more than one financial
underwriter is
involved. These multi-underwriter syndicates are common, particularly for
larger
CA 02441810 2003-09-19
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transactions. In the practice of the present invention, it is preferred that
the participation
of a financial underwriter in such a mufti-underwriter syndicate still be
reflected in the
rating and/or ranking of the underwriter. Since the underwriter is
participating in the
transaction, its involvement should be recognized and preferably is used in
the
calculation of the overall ranking and/or rating of the underwriter.
Accordingly, it is
preferred that the accessed data is assigned to the financial underwriter
regardless of
syndicate position in a mufti-underwriter syndicate transaction. Additionally,
in order
that responsibility be equally shared by all underwriters in a mufti-
underwriter syndicate,
it is preferred that the accessed data is assigned equally to all financial
underwriters
regardless of syndicate position in a mufti-underwriter syndicate transaction.
BRIEF DESCRIPTION OF THE DRAWINGS
The foregoing and other obj ects, aspects and advantages will be better
understood
from the following detailed description of a preferred embodiment and examples
of the
invention, with reference to the drawings, in which:
Fig. 1 is a flow-chart style description of the process of the present
invention in
respect of the ranking of financial underwriters;
Fig. 2 is a histogram of underwriter performance by number of issues; and
Fig. 3 is a histogram of underwriter performance by percentage of issues.
DETAILED DESCRIPTION OF A PREFERRED EMBODIMENT
~ OF THE INVENTION
Referxing now to the drawings, and more particularly to FIG. 1, there is shown
a
flow-chart showing one particular method of the present invention. The method
(generally depicted as 10) comprises the collection of information related to
a series of
new issues. The sources of input data 12 and maxket data 14 axe as described
hereinabove. The collected input data 12 axe sorted 16 according to the input
data sorting
criteria, again as hereinabove described, to relate the financial underwriter
information to
the issue. Once the input data has been collected and sorted, it is related 17
to the market
data 14, in order to produce a collection of combined data 18.
CA 02441810 2003-09-19
-15-
Combined data 18 is then analysed to calculate a return rate 24 and to
calculate the
risk 20 (such as market volatility) for that particular market area. Once the
risk has been
calculated, a risk adjustment factor 22 is calculated and applied to the
return rate in order
to determine a risk-adjusted return 26.
Finally, the risk-adjusted return 26 for each financial underwriter is
compared to
establish the period performance of the financial underwriter. This
performance is
ranked 28 against other financial underwriters according to the selected
criteria (used to
calculate the return or the risk adjustment) in order to determine, for
example, the
returns for different time periods, for type of issue, for sector or sub-
sector, or the like.
Based on their ranking, the financial underwriter can then be rated 28. A
rating system
can be established to compare the financial underwriters being reviewed.
The final performance ranking data may be presented in a variety of formats
including providing lists of the top 10, 20 or 30 performers, or the worst 10,
20 or 30
performers, by type of issue, by sector or sub-sector and the like, or by
providing
histograms of returns fox each underwriter and the like.
The output format can be modified to suit the needs of the person conducting
the
analysis.
EXAMPLE
The method of the present invention is demonstrated in the following examples.
While the examples are simple and brief, they demonstrate the techniques of
the present
invention, and how the method can be applied to a more complex set of
information.
In Table l, a collection of input data is chosen to compare the performance of
underwriters "A", "B", and "C". The input data is then related to the market
data such as,
in this example, the date of closing of the securities offering, the price of
the securities at
year end, and the dividend paid on each of the securities. Accordingly, Table
1 represents
a set of combined data which provides market data which has been related to
the input
data.
In Table 2, the combined data is analyzed to determine the return rate of the
various
overall transactions. A number of different methods for analyzing the combined
data are
shown. The method of analysis can be chosen from a variety of methods, such as
simple
CA 02441810 2003-09-19
-16-
return (which is typical of prior art evaluation techniques), holding period
return, average
return, annualized holding period return, annualized holding period to group
return, as
shown in Table 2, or accordingly to a number of other methods.
In particular, a risk measurement factor, based on volatility is shown. Using
the risk
measurement factor, the combined data can be adjusted to determine a xislc-
adjusted
return rate or ratio, and produce a set of risk-adjusted returns related to
each underwriter.
In Table 3, the financial underwriters are ranked according to the return rate
method
calculations shown in Table 2. Using a simple return technique, underwriters
"A", "B"
and "C" are ranked as being first, second and third, respectively, in
performance.
However, using other return rate evaluation techniques, other ranking orders
are
apparent. In particular, the annualized holding period return or the risk-
adjusted return
ratio provide the complete opposite ranking such that underwriters "A", "B"
and "C" are
now ranlced as being third, second and first. For an investor interested in
this area,
selection of underwriter "C" would likely provide the best total return based
on the
financial information shown.
In a further analysis, the return rates achieved by a given underwriter can be
evaluated. In Table 4, each issue transaction of the underwriter is reviewed
to determine
its return rate. The issues of the underwriter are grouped together by the
return rate for
each year. The return rate groups are selected so that the issues are ranked
in similar
categories. For example, the category "(100)% - (75)%" indicates that the
securities issue
has lost 75 to 100% of its initial value. In 1997, of the 71 issues reviewed,
35 lost
between 75 and 100% of their initial value, while 5 achieved greater than 100%
gain on
their initial value.
From the values shown in Table 4, a histogram of performance can be prepared
and
is shown in Figure 2. From Fig. 2 it can clearly be seen that for this
particular
underwriter, most of its issues lose the majority of their value after issue,
and therefore,
an investor should carefully review any issues presented by this underwriter.
In Table 5, the data of Table 4 has been adjusted to show the data in terms of
percentage of transactions for the underwriter. A histogram of this data,
shown in Figure
3, again demonstrates that most of the transactions of the underwriter have
lost value
after issue.
CA 02441810 2003-09-19
-17-
Using histograms such as those shown in Figures 2 and 3 thus provides a method
for
comparison of the underwriting performance of different financial
underwriters, and
thereby provides a method for rating and/or ranking the performance history of
a selected
group of financial underwriters.
Thus, it is apparent that there has been provided, in accordance with the
present
invention, a method for ranlcing the performance of a financial underwriter
which fully
satisfies the means, objects, and advantages set forth hereinbefore.
Therefore, having
described specific embodiments of the present invention, it will be understood
that
alternatives, modifications and variations thereof may be suggested to those
skilled in the
art, and that it is intended that the present specification embrace all such
alternatives,
modifications and variations as fall within the scope of the appended claims.
Additionally, for clarity and unless otherwise stated, the word "comprise" and
variations of the word such as "comprising" and "comprises", when used in the
description and claims of the present specification, is not intended to
exclude other
additives, components, integers or steps.
CA 02441810 2003-09-19
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