An initial submission of information to enable the Introducer and the Trader to review the matter is therefore an essential requirement. That initial submission should comprise detailed information in respect of the Cash or Asset as noted herein.
CASH
This is normally initially provided by Bank Statement or Account/Tear Sheet/Bank Letter etc. & verified subsequently. The Bank should ideally be a major International Bank within the USA, Canada, Western Europe, Australasia, or Hong Kong.Banks in certain other countries may be acceptable to certain Traders. Funds must always be owned and controlled by the “offeror” and free and clear without lien or encumbrance and available for the purposes of a private placement.
In certain cases funds may be acceptable but only if moved from the Bank of Deposit.Cash funds cannot normally be utilised by anyone other than the signatory & owner recognized by the Bank of deposit.
It is clear that there are a substantial number of substantial value Bank Cash Deposits in existence that are either issued to or assigned to the benefit of named Beneficiaries where the Beneficiaries have not taken delivery in a way that enables them to control the funds or provide direct Bank Officer evidence of Beneficiary control over the asset or even an acceptable beneficial interest in the Funds other than an account document etc. & many of
these appear as Euroclear/DTCC Banking Screen based only or are Heritage/Historical Funds many of which may be evidenced by Bank issued documentation but which is either held outside of the banking system as “off balance sheet” funds for which the bank issuing the documentation is only the “agent” as the funds are not actually held within the bank but in “restricted access accounts” under central bank control.
In many cases the Funds Owner or Beneficiary may be renting, leasing or otherwise using the Funds for Credit Enhancement purposes & as such not having either control over the funds or having created the funds in the first place, the funds even if potentially available for Private Placement purposes are likely to be unacceptable.
Investment Grade Bonds are issued by Governments, Corporations and Banks and are normally visible on Securities Screens and traded within the Securities market and the Bonds and the Issuers are rated Investment Status/Grade etc. and the Bonds are readily saleable and therefore readily valued and available for credit purposes.
It is clear that there are a substantial number of Bank Credit Instruments that are either issued to or assigned to the benefit of named Beneficiaries where the Beneficiaries have not obtained full control over the asset nor have they taken delivery in a way that enables them to provide direct Bank Officer evidence of full Beneficiary control over the asset or even an acceptable beneficial interest in the Asset or its underlying funds etc., whether by Screen based system of by Inter Bank communication etc.
In many cases the Asset Owner or Beneficiary may be renting, leasing or otherwise using the Asset for Credit Enhancement purposes & as such not having created it in the first place, based on the Beneficiary’s own funds or assets, or not having appropriate or acceptable control over the asset, the asset will in most cases, not be an acceptable asset or Private Placement purposes.
EVALUATION:-
Introducers who are knowledgeable about the business of Private Placements etc. will carry out initial enquiries concerning the Assets “offered” based on their knowledge & experience etc. Those enquiries may appear “intrusive” but are required in order to establish the full background to the funds or investment grade assets being “offered” to establish at the outset the likelihood of their acceptability for due diligence & compliance purposes & for the purposes of ensuring that full disclosures are made in the correct manner to try to ensure so far as is possible that the most appropriate structure is selected for the funds or assets etc.
The Trader selected by the Introducer will carry out an initial evaluation of the asset and indicate initial conditional acceptance or rejection. Conditional acceptance is subject to formal offer of the asset together with the offer, compliance and due diligence information & documentation etc. and the owner’s formal instruction to the Bank etc. to provide Verification and Authentication to the Trader through the Banking system etc., usually
known as “the Compliance Package”.
CONTRACT etc.
Some Traders will offer Contracts subject to acceptable evaluation and verification procedures etc. others will offer contracts only after such procedures have been concluded. Such contracts will normally include the agreed method of “committing” the asset for credit and trading purposes.
THE TRADING STRUCTURE:-
The standard arrangements for the utilisation of cash or assets are agreed between the Trader & the Asset Owner after the Funds or Asset has been offered to the Trader & evaluated & proven, and have passed through all relevant compliance processes.
The alternative ways in which this may be carried out are indicated below. Not all Traders wish to operate all of the alternatives indicated but whatever choices are determined and agreed the end result is very simple - the Trader has to be put in a position to be able to carry out certain essentials.
There is no “magic” - & there are no “smoke & mirrors”.
WHAT DOES A TRADER ACTUALLY DO ?
The Traders that operate within this specialized supervised and controlled private trading arena are not the same parties who operate within the normal Securities market place or in or with Security Houses or similar Institutions or Trading Desks etc.
They do of course operate within the Banking & Securities system but in this area of private placements there is a separate higher level of monitoring and supervision of the Client as Investor, the Transaction structure and the transaction itself and in most cases the funds created as profit etc.
They technically operate in an area known as “Private Placements/Private Trading” - & that is not securities trading as generally recognized by Investors, or Security Houses,Investment or Trading Departments of Institutions or Brokerage Houses etc. for day to day “On Market” transactions where Securities are traded “on Screen” with “real time quotes” etc.
After signing a Trade Contract with the Investor, the Trader enters into contractual and pre-structured arrangements that include the following:-
• the Trading bank by reference to an agreed format of investor funds/asset
Inter bank Commitment.
Arranging for secured, non-principal-depleting credit facilities for trading within (usually Bank issued Medium Term Notes (MTNs), "AA" credit-rated or
better - although other Instruments may well be traded)
• Trading Bank contract, i.e. - fixed returns or participating returns etc.
Providing access to Investment Grade paper supply contractsProviding pre-arranged access to exit buyers for 100% of the supply contractsOrchestrating the execution of the paper supply contracts for trading via theArranging compliance and clearing & settlement supportArranging for invoicing and trading activityArranging for settlement of profits and accounting dependent on the basis of the
• In most cases these arrangements take place without the active involvement orparticipation of the Investor other than the commitment of the funds/asset for credit purposes.
Undertaking the safe release of the investor’s funds/asset at the termination
WHAT IS A "NON-PRINCIPAL-DEPLETING" CREDIT FACILITY?
The Trader typically arranges a credit facility to facilitate the actual "buy-sell" trading operation; the resultant credit line amount is created by the Trader & is generally held on deposit in a trading account at the Trading bank but based on the Investor’s Asset.
The Credit Line can only be created against an appropriate Bank responsible
“commitment” of the Investor funds/asset. The credit line is normally maintained on a nonprincipal-depleting status at all times, meaning that the balance of cash on deposit plus the value of for example, the AA-rated instruments on deposit in the account (at market value)
will never be less than the total of all proceeds held on deposit in the account. Of course,since all transactions are normally closed-end transactions, the proceeds from the credit facility is not intended to be & is rarely if ever placed at commercial risk, the funds (or instruments) used to secure the facility in the first place will similarly not be placed at commercial risk either; hence, the somewhat secured nature of these specialized private placement initiatives.
HOW IS THE TRADING CREDIT CREATED?
The Trader has to access the Investors Cash or Asset one way or another, otherwise there will be no credit to trade with. The Trader does this in any number of ways depending upon the basis of agreement with the Investor. In most cases the Investor creates a transfer of value or a security of value in a suitably secure way that allows the Trader to create a non depleting facility in his Trading Account & thereby securing the interest of the Investor by
one or other of a range of alternative devices referred to below. This arrangement is structured to release the Investor cash/asset at termination.
PRIVATE TRADING BANK RESPONSIBLE COMMITMENT OF FUNDS/ASSET
Most Investors prefer to retain their Funds or Asset in their own account in their own Bank.They often take the view for one reason or another that it may not be appropriate to transfer funds but this remains a possibility & in certain cases a necessity. There are a variety of ways in which an Investor can create credit for the Trader. The normal operating standard is the creation of credit by the issuing of a Bank Issued Swift MT 760 - a form of guarantee of funds availability from the Investor to the Trader on an Inter Bank/Inter
Account basis. There are many other ways in which to create credit based on cash funds,including other formats of Inter Bank Swifts, with a similar or with less of a commitment,inter bank - inter account undertakings etc.
Where Securities are involved such as Bonds or Bank Credit Instruments, more complex arrangements are required.
SWIFT MT 760 - NATURE OF SWIFT:-
A SWIFT MT 760 is a bank-responsible guarantee issued by the sender bank, upon instructions of its account holder, in favour of a particular transaction or counter-party as a cash-backed or investment grade asset backed non-negotiable bank credit undertaking instrument or obligation. Since banks do not put their own funds at risk, the Investor’s funds or asset are "blocked" by the Investor’s Bank & held by that bank as security(collateral) for the issuance of the SWIFT. The SWIFT MT 760, therefore, is more than just an inter-bank message - it is a binding cash backed Bank obligation against which Credit is available in an another Bank. In some cases a SWIFT MT 760 transfers title to or ownership of an Investment, and in some cases in respect of Bonds or Securities etc. this is issued by SWIFT MT 720.
SWIFT AVAILABILITY:-
U.S. Banks (and some banks in Europe & the Far East) have shown a general
unwillingness to issue a SWIFT MT 760. Before an Investor can commit to any proposed transaction requiring a Mt 760 it will be necessary for the Investor to first confirm that its bank will take instructions to issue a Swift Mt 760. And if the bank will not cooperate, the Investor may wish to consider moving its or assets funds out of the bank to a more accommodating financial institution, or engage in one or other of the alternatives suggested by the Trade Organisation.
Because a SWIFT MT760 requires a Bank to effectively take cash funds off General Account to back up the MT 760 obligation these funds are no longer available to back up the general activities of the bank & a bank’s borrowing & trading activities are operated by leveraging its deposits & free funds. For this reason alone many banks dislike them. There are a variety of other reasons too. However as most alternative arrangements or Bank Instruments or the Blocking or Reserving of funds in any other way normally similarly requires the funds to be taken off General Account the same principles apply.
COST OF SWIFT MT 760:-
Utilising a SWIFT MT 760 is not a procedure to adopt lightly - at least from a cost standpoint. Banks often not only raise difficulties about the issue of MT 760s but also often charge quite heavily. Costs can range anywhere from 0.5%-2.5% percent of the amount of the SWIFT, depending on the financial institution, the size of the proposed guarantee and the client's relationship with the sender bank. These costs are often similar in nature and value to the cost of issuing a Bank Credit Instrument; Letter of Credit, Bank Guarantee etc. If it is possible to avoid the issue of a SWIFT MT 760 and issue some other format of commitment the cost is likely to be substantially lower.
EUROCLEAR – Securities Database - Banking Screens (DTCC similar)
Funds or an Asset such as a Bond, Credit Instrument, Certificate of Deposit, BankGuarantee etc can be registered with & clearly shown on Euroclear- for Europe etc. or DTCC – for USA etc. - Securities database.The legally stated Ownership stays at all times in the name of the Owner/Beneficiary until re-registered to a subsequent Beneficiary by transfer or assignment. Ownership therefore never changes unless authorized by the owner and directed by the Owner’s Depository Agent.
Any asset registered on the Euroclear or DTCC database may sold, assigned or transferred for credit purposes by the Owner’s Bank or Securities House at the request of and in accordance with the instructions of the Investor on an Inter Bank- Inter Securities House basis.
Euroclear/DTCC charges fees for their services, but these fees are not at all excessive.The Funds or Assets placed on Euroclear or DTCC remain at all times within the Client’s Bank or Securitis House and certain Assets or Securities may be held by a Third Party Financial Repository.
Euroclear/DTCC may "guarantee" the instrument but it will never guarantee a value so technically anyone can arrange to register any asset on Euroclear/DTCC irrespective of its real value and so the fact that a Bond or Security is registered guarantees nothing other than its existence within the registration system as shown by the Screen Print Outs etc.
Investment Grade Assets within the Securities Database are therefore potentially readily available for credit purposes etc.In many cases the documentation presented refers to Cash or Instruments on Euroclear/DTCC - in the Banking sector - not the securities Database. The Banking Screens are not the same as the Securities Screens. In the main most assets that are posted to the Banking Screens are assets that are not as easy to create credit with as assets within the Securities Database. In many cases assets within the Banking Screens are “screen only assets” often made available only as leased or rented assets and which are not under the total control of the stated beneficiary and in most cases Traders are unable to establish credit lines against leased or rented assets etc.Transactions relating to “Screen Only Assets” are a very complex activity and a brief summary cannot address all of the complexities involved.
NON-DEPLETION ACCOUNTS:-
Some Traders are prepared to work with the concept of Non- Depletion accounts, others not. A Non Depletion structure ensures that the funds/credit line amount is held on deposit in the client's own account under the client's sole transactional control, and subject to non depletion instructions lodged with the holding bank.This could be the Investor’s Own Bank or a Bank that the Trade Group uses. In some of these cases the Trader may be added on the account as a secondary (or class B) signatory in order to direct the trading operation etc. but restrictions relating to the account should protect it. “Non Depletion” can be structured within “adjoining” accounts belonging
to an Investor & a Trader in the Trading Bank. "Non-Depletion" arrangements are commonly used by Trade Groups to permit trading on an account, while, at the same time, providing “bank security” for the Investor’s funds/ asset.
Whether the funds are secure will depend on whether the non-depletion arrangements have been properly implemented.
In some cases “Non Depletion” is arranged by moving Funds or Bank Instruments to the “Trading Bank” etc.As indicated - in most cases the Investor will neither participate in nor be aware of most of these arrangements which will usually be internal arrangements within the Trading Bank.
EXCHANGE OF FUNDS FOR A BANK GUARANTEE:-
In certain cases some Traders may be prepared to exchange a Bank Guarantee for funds transferred by the Investor. The Bank Guarantee is usually in a standard international format & for a standard period of around one year or more. The Trader may create a variety of trading or placement structures on this basis. Currently this is an unusual option.
SCANNING/PINGING:-
In certain cases “Scanning” or “Pinging” of accounts may be possible via inter bank/inter account verification and a concept known as “approved data mining procedures” carried out by authorization & between participants of data exchange systems. Alternatively this is achieved by the concept of a revolving Bank Account balance confirmation. This is not normally possible for anything other than Cash in certain types of accounts, eg: US Dollar Deposits within the Federal Reserve System and usually restricted to certain classifications of traders. Although references to Scanning/Pinging regularly occur, transactions in which this structure is actually utilizable are not as frequent as others due to the complications involved.
ASSIGNMENT OF ASSET OR ISSUE OF A BANK GUARANTEE OR LETTER OF CREDIT ETC:-
Some Traders are geared up to take assignments of instruments where they are
assignable or accept the issue of a restricted use Bank Guarantee or Letter of Credit etc.
Protective devices may be built in to these arrangements, either into the instrument or into the procedures on an inter bank basis.
CONTRACTUAL COMMITMENT NOT TO MOVE FUNDS:-
Some Trading or Placement Scenarios are based on a Contractual Commitment by the Investor to retain his funds on deposit & not to move them. This is often called an Administrative Hold.
This appears to vary from Trade Group to Trade Group with some requiring an Inter Bank Commitment of one sort or another and others requiring an Inter Bank Confirmation with technical behind the scenes account activity etc. It does appear that some traders can create Credit based on this concept whilst others appear to regard it as unrealistic.
ALTERNATIVE ARRANGEMENTS FOR CREDIT:-
Provided that a Trader can create a suitable form of credit a variety of other ways can be utilised between the Investor & the Trader & their respective Banks & Accounts to ensure that the Investor’s assets are utilized to create such credit by co-operation between them.
PRIVATE PLACEMENT & PRIVATE TRADING ISSUES THAT CAUSE PROBLEMS & REQUIRE TO BE FULLY UNDERSTOOD WORKING WITH BLOCKED FUNDS OR ASSETS.
It is accepted practice that in order for an “Investor” to participate in a Placement/Trading
opportunity his funds or assets must be free of liens, charges or encumbrances of any kind. Therefore the Investor’s funds or assets must be immediately available and freely transferable upon the Investor’s sole instructions. The funds must be "investable". And so if for some reason the funds have already been blocked or reserved & are therefore confirmed on Bank Letterhead or on Euroclear, or even on Bank Screens, for example, as "blocked funds" - i.e. funds already held by the bank under blocking restrictions and, hence, not freely transferable – then they are not “investable” or “tradable” at all at that point.
Therefore funds or assets which for one reason or another have already been “blocked” or “reserved” by one party in favour of another party are NOT freely available and may not necessarily be useable by either party, subject to review. They may need to be unblocked before they can be correctly re- organized etc.
The stipulation that the Investor must be able to transfer his funds or assets at will does not mean that the Investor will necessarily be called upon to move his funds or assetsthat will depend, ultimately, on the procedural requirements of the transaction under consideration.
The Trader may, indeed, permit the Investor to “Block or Reserve” his funds or assets in the Investor’s home bank (typically in favor of the Trader) - but that is an entirely different matter from an Investor attempting to place funds into trade that have already been blocked (which cannot normally be done).
No one in the Private Placement/Trading business can work with “restricted funds”. If the Investor does not own and control the funds and have them freely available and they are currently “blocked" in some way then they are not immediately available and freely transferable and the Investor will not be able to participate at that time in a managed trading opportunity.
They must be unblocked/freed up & then confirmed as such & verifiable as such prior to any arrangements being made.
WORKING WITH CREDIT LINES:-
On rare occasions it has been known that certain Traders may be able to work with an “Investor” who has a Bank Credit Line. However there are very important parameters because the fundamental principle is that unless the Investor has acceptable assets against which the Credit Line has been created or can be created then there can be no unconditional, unrestricted & freely available or transferable credit.
And if there is credit then it has to be freely available and transferable or similar. The fundamental concept of Private Placements is that for the purposes of Compliance & Approval the Investor’s funds or assets must have been created by the investor from his own activities (unless inherited). It is true that under certain conditions & circumstances it may be possible for funds or assets other than those precisely derived from the “Investor’s” own resources to be utilizable – but normally NOT in Private Placements & possibly only in Private Trading & certainly not without full Due Diligence & Compliance information & documentation on the Source of the Funds/Assets & the Parties involved & the reasons for them providing the Financial Support provided etc.
As previously noted the only party that can offer funds or assets to a Trader & Contract for an intended Private Placement is the legal owner or beneficiary recognized as signatory of the funds recognized by the deposit Bank or the Beneficiary of the asset recognized by the Issuing Bank & Safekeeping Bank.
STRUCTURE & PROFITS:-
WORKING WITH BANK INSTRUMENTS:-
Traders will normally only work with Investment Grade Bank Instruments issued in an International Format by acceptable major international Banks, mainly USA, Canada, Western Europe, Australasia, Hong Kong & certain other countries. & which are fully verifiable & authenticatable back to the Issuing & Safekeeping Banks etc.Certain Traders, Trusts & Foundations may consider Bank Instruments issued by Banks from other countries under certain conditions if they believe that it may be possible to create credit lines based either on the instrument or by reference to the underwriting of the instrument by their own assets or by the concept of “wrapping” utilizing an Insurance Wrap for which significant fees may be required to be paid - usually by the Trader.
The only party capable of “offering” a Bank Instrument to a Trader is the Legal Owner/Beneficiary recognized by the Issuing Bank as the only party having a claim on the instrument at maturity and who can demonstrate this.
In circumstances where that party is the Beneficiary of the Instrument but not
the Applicant for the issue of the instrument nor the party whose assets are securing the instrument then some fundamental technical issues arise regarding the Owner’s/Beneficiary’s rights to assign the asset for credit purposes.
the Applicant for the issue of the instrument nor the party whose assets are securing the instrument then some fundamental technical issues arise regarding the Owner’s/Beneficiary’s rights to assign the asset for credit purposes.
The asset may be leased or Rented and the Beneficiary may have limited rights etc.A Leased or Rented Asset is unlikely to be utilizable for credit purposes by the Beneficiary.The Trader must be supplied with full information for due diligence & compliance purposes on all the parties involved and the rights and obligations of the parties , the source of the funds/assets backing the instrument including details of the relationship between the Parties, the arrangements between them & the reasons for such arrangements etc.
WORKING WITH “HARD ASSETS"-
Occasionally some Traders appear capable of utilizing certain types of “Hard Asset”, such as Property, Commodities, Assets “in ground” etc, for credit purposes. In most cases most Traders will not normally do so because they are generally unable to create credit lines against the security of such assets even if they could be fairly valued & put into appropriate safekeeping etc. and “wrapped” with an Insurance Guarantee of Value etc. In some cases it may be possible to create an “Insurance Wrap” on the assets & this may assist in the creation of Credit. In many cases the Investor does not appear to capable of
either securing an “Insurance Wrap” or paying for it. In some cases Traders may consider doing this.
“GREY SCREEN” FUNDS OR ASSETS:-
Traders are often requested to work with certain Cash Funds or Bank Credit Instruments that are not quite as clear-cut as normal cash or credit instruments. Often these are known as “Grey Screen Assets”.
So called Grey Screen Cash or Credit Instruments are normally funds, or assets derived from funds, that are “restricted” by reference to their history and origin etc. In many cases they are arise from “assets” that are not actually held within the general Banking system, are not actually “on Balance Sheet” of the Bank that issued the documentation as it is the Agent not the actual Principal, and the underlying funds are controlled or supervised by, for example, the Central Bank of a Country, the International Monetary Fund, the Federal Reserve, etc. because they are Historical or Heritage Funds or Assets, or in some cases are derived from previous Placement or Trading profits that ought to have been used for Projects & which may have remained uninvested for lengthy periods or have been “de-monetised” ie: removed from normal banking use etc. due to their origins and ownership. These amounts may be very substantial.They are normally documented “On Banking Screen only” with large numbers of pages of Euroclear &/or DTCC Banking Screen Print Outs with access codes etc.The practical position is that in general these funds or assets are only utilizable - if at all -under restricted conditions requiring certain high level clearances which are often notavailable and which are only verifiable under certain “Screen based inter bank procedures” and not under rather more normal inter bank procedures.In most cases the Screen Beneficiary of the Asset is rarely the Legal Owner of the underlying Assets and is very rarely able to supply all of the background information required and in most cases is unable to “control” the asset or ensure that the procedures actually required to engage the asset are actually capable of being carried out.
In other cases the Owner may indeed be the legal owner but still be unable to supply the clearances required.
These types of assets are not generally of interest to most Traders.
These types of procedures are not generally of interest to most Traders.
This is a highly complex area of activity.
In addition there are even “higher level” screens often referred to as Black Screen – where the technical issues involved are even more complex.
WORKING WITH – A POWER OF ATTORNEY:-
In general a Power of Attorney can cause a variety of technical problems, because they are very rarely correctly drafted or if correctly drafted are very rarely ever utilisable as they very rarely convey any legally acceptable authority to actually control or engage the funds/asset correctly.
Unfortunately the major issue with a Power of Attorney is that technically it can be cancelled by its Issuer at any time.
A Trader may recognize an Investor’s Power of Attorney for the purposes of structuring a proposed transaction and will normally do so if the Investor is not able to communicate effectively due to language difficulties etc. but because a Power of Attorney is rarely registered with the Investor’s Bank and rarely gives effective control over the asset to the Attorney in most cases the Trader has to contract directly with the Investor as it is only the Investor who is able to legally and effectively give instructions in respect of the funds/asset. A Power of Attorney that creates a Signature on an account or asset that is recognized by a Bank may be acceptable to a Trader under certain very precise and controlled conditions. However, in general they are rarely acceptable.
WORKING WITH – A MANDATE:-
In general a Mandate created by an Investor in favour of a third party however drafted will not normally enable a Mandated Party to take the place of the Investor in a transaction.The same technical problems exist as for a Power of Attorney (see above). Unfortunately the major issue with a Power of Attorney is that technically it can be cancelled by its Issuer at any time. The only party that can legally offer funds or assets to a Trader & Contract for an intended
Private Placement is the legal owner or beneficiary recognized as signatory of the funds recognized by the deposit Bank or the Beneficiary of the asset recognized by the Issuing Bank & Safekeeping Bank.
A Mandate may give a third party certain rights to negotiate arrangements on behalf of an Investor which may be recognized by a Trader, particularly where the Investor may have language difficulties, etc., but Traders cannot accept Applications, Due Diligence & Compliance documentation from anyone other than the Investor, signed by the Investor, and cannot legally Contract with anyone other than the Investor, except, for example, as noted above, where there is a validly enforceable Power of Attorney in existence.As previously noted the only party capable of legally contracting is the party that controls
the asset and can give instructions in respect of it that will be carried out. At worst a Mandate can totally negate a potential transaction. At best it allows the Mandate to effectively act on behalf of the asset controller but it cannot create contractual rights to engage the asset that are recognized by the Trader unless the Mandate has Signature on an account or asset that is recognized by a Bank.
WORKING WITH – A JOINT VENTURE:-
In general a Joint Venture Agreement between a potentially capable Investor & a Third Party effectively giving that that third party certain exclusive rights & privileges of placement over the Investors funds/assets in favour of a third party however drafted will not enable such Joint Venture Third Party to take the legal place of the Investor in a transaction, or enable such third party to contract for the engagement of the Investors funds/assets or to engage the Investors funds/assets in a private placement etc.
Technically however the document is drafted it cannot acceptably convey the necessary rights to obtain engagement in a private placement unless the agreement conveys rights over the funds/assets recognised by the relevant Deposit, Issuing and/or Safekeeping Bank etc.
As previously noted the only party that can offer funds or assets to a Trader & Contract for an intended Private Placement is the legal owner or beneficiary recognized as signatory of the funds recognized by the deposit Bank or the Beneficiary of the asset recognized by the Issuing Bank & Safekeeping Bank.
The party that can give legal instructions in respect of the Funds/Asset is therefore the only party legally capable of contracting the Funds/Asset.
A Joint Venture Agreement may give a third party certain rights to negotiate arrangements on behalf of an Investor which may be recognized by a Trader, particularly where the Investor may have language difficulties, but Traders cannot accept Applications, Due Diligence & Compliance documentation from anyone other than the Investor, signed by the Investor, & cannot contract with anyone other than the Investor, except as noted above, where there is a validly enforceable Power of Attorney in existence but this is rarely the case. It may be possible for a Joint Venture Agreement to be recognized at the point of
distribution of returns/profits in certain circumstances.
At worst a Joint Venture Agreement can negates a potential transaction. At best it can allow the third party to effectively act on behalf of the asset controller but it cannot create contractual rights to engage the asset that can be recognized by the Trader.
WORKING WITH - CORPORATIONS,
FOUNDATIONS, TRUSTS, CHARITIES ETC.:-
FOUNDATIONS, TRUSTS, CHARITIES ETC.:-
Investor entities other than individuals may engage funds/assets in private placements etc. subject to the fundamental principles set out in this document & to their structure.Corporations, Foundations, Trusts & Charities are normally constituted by reference to the rules, regulations, charters etc. by which they are legally established.
In dealing with any of these entities appropriate information & documentation is required for Compliance & Due Diligence purposes to not only establish the legal existence of such entities but also the relevant rules & regulations by which decision making takes place so as to ensure that the decisions to be taken, the parties legally able to take such decisions & the relevant documentation created to engage the funds/assets of the entity are legally correct & binding on the entity and the parties acting as signatories.
Traders will not involve themselves with or negotiate with Committees & it is always advisable when dealing with legal entities for that organisation to legally delegate responsibility to one of its number, a Director, a Trustee or similar, by appropriate Resolution as the party responsible for the negotiations, arrangements & contract etc.It is accepted that there is often a requirement in such organizations for there to be more than one signatory in relation to funds/assets & therefore not only is it a fundamental requirement for the relevant information regarding this to be initially provided but it also a
fundamental requirement that any negotiations & resolutions agreed upon are capable of being legally binding in respect of the commitment of funds/assets to the Private Placement.
CONCLUSION:-
Investors are required at all times to operate to the highest standards of disclosure & to provide in full the information & documentation required to enable their funds/assets to be evaluated.
Most genuine Traders & Trade Organizations have the flexibility and capability to accommodate the Investor’s preferences across the full spectrum of available procedures.Most Traders have the flexibility to discuss a range of alternative structures & procedural arrangements.Investors should therefore not only be prepared to provide full due diligence/compliance information concerning themselves & their funds/asset etc. but also be prepared to discuss, in good faith, their bank’s position & their own preferences with the Trade
Organisation/ Trader to establish a mutually acceptable arrangement based on their preferences & those of the Trader etc.
Respectable Traders have reputations to maintain & no Trader who wishes to continue in business will do anything remotely potentially damaging to that reputation or to harm their relationships with their Trading Banks or the Banks Compliance Department or indeed the Compliance & Oversight Departments of the Federal Reserve & the European Central Bank, etc.
As a result the Investor’s Cash or Asset will normally always be capable of investment & protection to the highest standards possible.
As in any commercial transaction an Investor must take all reasonable steps to satisfy himself that the proposed transaction meets his requirements and deals safely with his assets and should avail himself of such advice as is considered necessary and appropriate.
NORMAL PROCEDURES IN DETAIL:-
1 Initial Investor & Asset information reviewed by Introducer.
Guidance obtained from Trader or Trader’s Platform Facilitator – as appropriate.
2 Submit initial information - if required - for review, comment & guidance.
3 Program Outline discussed with potential Investor
4 Complete Trader specific Investor and Compliance Package is issued to Investor
5 Completed Package is issued to Trader for consideration – via Introducer
6 FPA – if applicable is issued by Investor
7 Package is reviewed by the Trader and determined to be or Rejected.
Acceptable Queries may require further information from Investor.8 If package is 'accepted in principle', the process moves forward and Due
Diligence takes place. Due Diligence takes place in detail on both the
signatory/owner of the funds/assets and the actual funds/assets and the history etc.
9 Due Diligence usually takes between 3-5 days, but where there is inter bank
communication involved timings are uncertain.
With a Bank Instrument involved timings can be longer.
10 If Due Diligence comes back trade group will then have initial telephone contact direct with the signatory or meet depending on the geographical situation .
The Trader will wish to be certain that he is dealing directly with the applicant as “Investor” and that the “Investor” prepared and submitted the documentation and knows what is likely to be required of him and that he is willing to consider the proposals that the Trader wishes to discuss with him.
11 Once the Trader verifies via meeting or telephone and often additionally by e-mail that the Investor & his information & documentation is valid and that he not only freely submitted the package on his own behalf and is willing to move forward the parties will work out the terms of a mutually acceptable transaction and the procedures mutually acceptable to allocate the funds/asset to the Trader, any protective devices applicable & acceptable & the precise form of Trading arrangement available as to period & returns/profits etc.
12 The Contract will be prepared for review and approval and signature of the
Parties which will include the Investors Compliance package & Details of
the Investor’s funds/asset & the agreed method of commitment & protection etc.
'Approved' status the process moves forward & the 13 Verification & Commitment of the Funds/Asset takes place etc. Depending on
the final arrangements made either funds/assets are Confirmed or Reserved/
Committed or Blocked on an Inter Bank basis or New Accounts established & the Funds/Assets put in place.
14 The initial arrangements to create a tradable credit structure for the Trader
having been concluded Trading will normally commence.
This normally commences within two weeks of the establishment of inter bank
procedures relating to the Investors Funds/Asset
15 If there is a weekly trading arrangement then the profits will normally be seen in the Investor's chosen account within the first 10 days depending on which day of the week the first trade takes place. If monthly profits, these are normally paid out around the 30th day of the month or the beginning of the next month.
Different Investors and different Traders may have different preferences and while it is possible for variations to occur these are the generally accepted principles upon which most successful Private Placements or Private Trading arrangements are structured.
STRUCTURE & PROFITS:-
Because different Investors and different Traders have different preferences, a variety of different structures exist:
1 For different Cash/Asset values
2 For different procedures
3 For different time periods or contract values
4 For different Investor or Trader relationships
5 Additionally there are differences between Private Placements & Private Trading
It is not possible to cover all the potential alternatives within a generalized briefing document but suffice to say:
A Transactional structures operate primarily with Investor Cash amounts of $/
Upwards (from time to time even smaller amounts of $/accommodated)
B “Minor” transactions take place in the category of $/
C “Major” transactions take place in the category $/
D “Super” transactions take place in the category $/
E There are very special transactions that take place at even higher values
With Investment Grade Assets, in general, Transactional Structures usually start at the level of $/Profits available to the Investor are usually structured by reference to either a fixed percentage per week or month over a period of a year (Private Placements) or by reference to a contract size or term etc. (Private Trading).
The Profit Returns generated are substantial because significant “off market” spreads exist & bear no relationship with the margins applicable to conventional securities transactions.
Profits are very rarely quoted in discussions and negotiations and in some cases may not even appear in detail in a contract which may state “best efforts” or a low figure as a minimum.
€10m€1m+ may be€10-100m€100m - $500m€500m upwards€50m-$/€100m Face Value. Indicative profits or historical profits may be referred to in discussions. Indicative profits on certain types of transactions could be in the region of up to 100% per month for smaller investment amounts and in the region of up to 100% or more per week for larger investment amounts. In certain specific transactions short or long periods with short or long term returns are sometimes possible. In other cases Joint Ventures or Project related
returns may be required.
These transactions have been created for the purposes of creating financial liquidity, & to create funds for Humanitarian & Commercial Projects & are monitored by the Regulatory Authorities to ensure that funds are used appropriately. Investors may be involved with their own projects or Traders may be involved with projects etc.
Discretionary use of a proportion of funds generated is not normally a problem depending on the size and the substance of the assets and the type of transaction and the returns and profits generated.
WORKING WITH FUNDS/ASSETS NOT CREATED BY THE INVESTOR:-
Bank Credit Instruments may be created in a variety of formats, such as Bank Guarantees,Letters of Credit, Certificates of Deposit etc., A Bank Credit Instrument is required to be an unconditional financial liability of an acceptable issuing bank, not trade related, & with a specific date of payment and a specific value and created in an internationally accepted format.
The Bank should ideally be a major International Bank within the USA, Canada, Western Europe, Australasia, or Hong Kong. Banks within the top World listings will normally be acceptable for Credit purposes although there may be queries in respect of Bank branches etc. in certain countries.
Banks in countries outside of those countries listed & in the top world listings may be acceptable to certain Traders and not to others.
From time to time certain Traders may be able to create credit against Bank Instruments issued by less mainstream banks.
A Credit Line is always technically more difficult to create for a Bond or Bank Instrument than for Cash and the value established for contract purposes will always reflect this and the discount to face value and costs etc. incurred in its utilization.
In all cases no review can be undertaken without the following information:-
Copy of the front and back of the Bond or Bank Credit Instrument
Copy of all documents of Issue and Title
Copy of all Safekeeping Receipts etc.
Copy of all Screen Print Outs for Securities/Instruments shown on: Euroclear/DTC
Securities or Banking Screens
It is essential to provide incontrovertible and acceptable evidence of:
The existence of the asset.
The ownership of the asset.
The quality and value of the asset.
The fact that the asset is free and clear and available for the purposes of a private placement.
In every case, without exception, the only party able to offer Cash or an Asset to the Trader is the Owner/Beneficiary as recognized by the Deposit or Issuing Bank & Safekeeping Institution. In certain cases an original owner may assign an asset to a third party. That third party is unlikely to be able to use or offer the asset unless the legal assignment is registered & acknowledged by the issuing & safekeeping Bank and full details of the relationship between “Assignor” and “Assignee” is available.
In the case of the creation of Bank Credit Instruments there is always an Applicant & a Beneficiary. In most cases these parties will be one & the same. In some cases they will be different. Where they are different it is also necessary to supply full details of the relationship between the parties & the reasons for the Beneficiary being provided with the use of the Asset etc. and whether the Beneficiary has total control or limited control over
the Bank Credit Instrument.
Where there is an Assignee the same details are also required.
With Cash this is normally a relatively simple matter. An Investor should provide credible evidence of the Bank Account Balance at a very recent date to include the Bank name and branch, the account name and number, the account balance, evidence that he is the account signatory and the fact that the funds are good, clean, cleared, freely available,unencumbered, without third party interest and preferably freely transferable.INVESTMENT GRADE BONDS & BANK CREDIT INSTRUMENTS:-
A BRIEF SUMMARY:-
A normal Private Placement is a private transaction carried out “off market” on a closed end basis, & arranged between an Investor and a Trader/Trade Group, that is monitored and supervised and which is designed to create a safe & secure High Yielding Structure based on the safe utilization of the Investor’s Asset, whether Cash or an Investment Grade Bond or Bank Credit Instrument, & where the Trader operates a closed end Buy/Sell of Bank Obligations that are only available on a contractual basis “off market” & through privileged contractual arrangements, & at margins not normally available to the generalmarket, and through procedures that while within the Banking and Euroclear system are “off market” rather than “on market” because they are private rather than public.
In every case an Investor wishing to access such arrangements through the introduction to a Trader qualified to operate these procedures has to be ready, willing and able to demonstrate to the Introducer, and subsequently to the Trader, that the Investor is qualified to enter into such arrangements.
To be qualified to enter into such arrangements requires the Investor to provide the Introducer and the Trader with certain specific information and in particular to demonstrate financial capability by proving ownership of free, clear and unencumbered Cash or Cash Equivalents, such as a creditworthy and potentially acceptable Bank Issued Credit Instrument and to demonstrate acceptable provenance for the ownership of such assets as well as personal/corporate bona fides.
Cash has to be of acceptable provenance & in an acceptable Bank.
Bonds or Bank Credit Instruments have to be of Investment Grade, in an International Format & issued by an acceptable Investment Grade Issuer or Bank whose obligations are regarded as of Investment Grade status and in acceptable Safekeeping & subject to acceptable provenance.
Neither the Introducer nor the Trader can give formal opinions or “offers” on the utilization of the Investor’s Cash or Instrument or the terms under which it may be utilized unless and until it is evidenced and then subsequently offered & appropriate compliance & due diligence carried out. Indicative opinions are available.
Investors may be reluctant to provide such information for a variety of reasons but as nothing is capable of being formally reviewed, discussed, or proposed without such information and in addition because of the necessity that Investor’s assets must always be seen to be “offered” to Traders rather than being solicited by Introducers or Traders etc., it has become an accepted normal requirement for certain transaction specific documentation to be created, whether in stages or in total, to enable such procedures to take place.
Investors may be reluctant to provide such information for a variety of reasons but as nothing is capable of being formally reviewed, discussed, or proposed without such information and in addition because of the necessity that Investor’s assets must always be seen to be “offered” to Traders rather than being solicited by Introducers or Traders etc., it has become an accepted normal requirement for certain transaction specific documentation to be created, whether in stages or in total, to enable such procedures to take place.
It is therefore not possible to consider what is or is not the appropriate method for dealing with an Investor’s Asset or to establish the appropriate trading structure, period of operation or potential terms to be proposed, without knowing the full details of what asset is available, where it is, and how it is owned & controlled, & how it has been created, its history & bona-fides etc.
