In a managed buy/sell trading program, the spread between the buying and selling of bank debentures creates profits by buying low and selling high to a predetermined exit buyer. Because traders cannot use their own money to operate a program, they look for financially qualified investors to provide collateral support for the initial purchase of a new issue asset.
In trading, as we are discussing it here, a trader has locked in the first issuance of some instrument – such as a standby letter of credit, a bank guarantee or a medium term note – while, at the same time, the next, or secondary buyer has been lined up and ready to take the asset at a higher price. However, the trader cannot execute the start trade without having shown new money, such as a line of credit; there is nothing to buy or sell. That is where the investor comes in.
Typically, a credit line makes the trades work, and in order to get the credit line, the trader must show that an investor is proffering his cash or instrument assets to be monetized. In many cases, the investor becomes a joint venture partner in the process of this monetization. The investor money is never really touched – it simply acts as supporting collateral for the trade credit line. As the credit line is generally non-repayable, non-recourse or non-depletion, this means little to no risk to the investor of losing his money. This limits the risk of the underlying collateral being tapped in the event of a default. For additional safety, the bank blocks cash funds in an administrative hold, which prevents credit line depletion during the trade contract, or utilizes an acceptable instrument as the support. In the case of a bank instrument, the trader can rightfully use the instrument to support the credit line.
Because the trader already has the ‘exit’ buyer – the second buyer taking the asset at the predetermined higher price – the profit spread has also been predetermined.
When profits are generated, they are generally split so that the investor shares in the bounty, sometimes up to the full amount of the trade credit line, resulting in an 80 to 100 percent profit to the investor, sometimes more. Each program has different types of profit sharing with the trader, which are negotiated when the program is established with the client.
For illustration purposes, a new issue bank debenture may be purchased at about 40 percent of the face value. So, a €500m face value instrument may cost the trader €200m to buy. The trader uses the trade credit line to make that new issue purchase. Then an exit buyer who was pre-established at the beginning of the program may purchase it at 70 percent (or €350m). The difference is the profit made in the trade, of €150m. That is then used to pay profit to the investor (a shared percentage of the total profit), as well as the trader. When bank debentures trade multiple times during a month, this profit adds up handsomely. This is why an investor can see a profit on his money ranging from 80 to 100 percent of the amount of the trade credit line, and sometimes more (depending on the program).
The challenge for many investors is understanding the minimal risk for loss of principal, particularly if the money owned by the investor stays in his own bank account or is used to issue a cash-backed standby letter of credit. Small cap programs typically require movement of funds to a trader account in order to obtain the trade credit line. Few small cap programs, although there are some, can take under €100m and some offer an insurance policy against loss of principal. Several that we have seen do not offer this. One that we know of, does.
Having understood the principles behind a managed buy/sell, the next question most potential investors ask is, ‘what are the steps needed to engage with such a program?’.
Most investors need a minimum of $100m or €100m – either in cash in a commercial corporate bank account or the face value of a bankable instrument. That number is a little bit deceiving, because you have to factor in the trade credit line being anywhere from 70 to 80 percent of the value of the account. That 70 to 80 percent net must equal at least $100m. So, the real need is for the investor to have about $150m, to account for the deduction with the loan-to-value factored in.
A financially qualified investor, in order to avoid potential solicitation rules, is the one who moves first to establish the relationship. This is done with the submission of a Know Your Customer (KYC) and proof of funds set of documents which indicate the investor’s desire and capacity to enter a program. While the preparation of these documents takes just a little time to complete, it fulfills the solicitation rules allowing the trading organisation to open the conversation and subsequently prepare the trade contract shortly after receipt by the appropriate authorized intake person.
In general, it takes a couple of weeks to arrange the trade commitments and the banks, along with approval from the authorities governing these programs, at which time the trading may proceed at the next opportunity to start.
With the noise of internet brokers misinforming people about these programs, building trust must first be mutual between parties. Without trust, there can be no transaction. Trust is the first thing any investor needs to feel is in place before too much discussion of a program is presented.
The fact is that managed buy/sell programs using bank debentures do exist, however actual providers are few and far between. The supply of these programs is small, and demand far exceeds it. Getting in the way of being connected to something real are usually the internet brokers, who smell money but do not have the relationships or knowledge of how these work, so, the likelihood of success is almost nil. When you have a trusted party to work with, with authentic relationships and compatibility, it is possible to be included in a program. For most investors, this is the mechanism used to fund projects without debt or repayment.
PRIVATE PLACEMENT PROGRAM / PPP TRADE
Capital Funding | Capital & Credit Enhancement | Managed “Buy Sell’ or ‘PPP’
For PPP Trade Entry:
This is for ‘non-recourse loan ’ , or ‘non-recourse debt finance agreement’ to fund large scale infrastructure and commercial property development, in alignment with UNDP SDG 9. [Sustainable Development Goal 9: Infrastructure/Innovation/Industry].
Our Receiving Bank is JP Morgan Chase (New York)
Disbursement Fiduciary : Licensed Hong Kong Fiduciary
Principal Administrator: Based in New Zealand
Sender's Bank : AA/AAA only
SWIFT MT760 only
Disbursement Target: Target LTV per month to Client/Project Value Matched [Historical target]
LTV/Loan To Value: 70%-90% of Face Value
Minimum First Tranche : $200M
Compliance Norms Applicable
SWIFT MT760 VERBIAGE : Cash Backed Standby Letter of Credit [SBLC]
WE, [BANK NAME] , LOCATED AT [BANK ADDRESS] , WITH FULL BANK RESPONSIBILITY ON BEHALF OF OUR CUSTOMER, [CLIENT NAME/COMPANY NAME] , WITH ACCOUNT DETAILS STATED, , CONFIRM THIS CASH BACKED STANDBY LETTER OF CREDIT FOR €200,000,000 [TWO HUNDRED MILLION EURO] IS ASSIGNED IN FAVOUR OF [TRADE TITLE] FOR A PERIOD OF ONE YEAR AND ONE MONTH.
ACCOUNT NAME: [TRADE TITLE]
ACCOUNT NUMBER (EURO ) A/C No:
WE CONFIRM WITH FULL BANKING RESPONSIBILITY, THIS CASH BACKED STANDBY LETTER OF CREDIT CONFIRMED AND VERIFIED BY SWIFT MT760 BANK TO BANK, IN FAVOUR OF [TRADE TITLE] , AS INSTRUCTED BY OUR CLIENT. THIS STANDBY LETTER OF CREDIT SERVES AS COLLATERAL TO SECURE ANY LOAN OR CREDIT FACILITY EXTENDED TO THE BENEFICIARY: [TRADE TITLE] . WE FURTHER CONFIRM THAT THESE CASH FUNDS IN OUR CLIENTS ACCOUNT ARE GOOD, CLEAN, CLEARED, UNENCUMBERED CASH FUNDS OF NON-CRIMINAL ORIGIN
THIS INSTRUMENT IS ASSIGNABLE, DIVISIBLE AND TRANSFERABLE.
FOR AND ON BEHALF OF [BANK NAME] , LOCATED AT [BANK ADDRESS]
AUTHORIZED ACCOUNT SIGNATORY: [CLIENT NAME/COMPANY NAME]
Bank Officer (1) Name:
Bank Officer (2) Name:
1. Client provides standard Compliance/AML Risk Assessment/KYC documentation; including client color copy of passport, company registration [if applicable] proof of account, bank, bank officer and asset/fund. and/or all relevant RWA [ready willing and able] bank documentation, and standard KYC signatures on the following:
Affidavit requesting information/client information sheet
Corporate resolution [if applicable]/letter of intent
Letter of cease and desist confirmation to all third parties
Non-circumvention non-disclosure agreement
Source of funds affidavit
Letter of authorization to verify funds
Confirmation of bank officer
Bank officer business card
2. Principal issues full Finance Agreement to the Client for countersign. Once signed by both parties, the Agreement is legal binding and lodged with all parties of the alliance involved in the transaction. The Agreement will also have full details of receiving bank, receiving bank officer, principal party, authorized licensed fiduciary, and overview of project finance from trade assigned to the Client.
3. Client Bank, sends MT760
4. Principal Bank confirms and verifies swift MT760 cash backed SBLC.
5. Disbursements according to contract
6. Appointed Auditors Report is received confirming Project Funds are placed as assigned in commercial and economic development , job creation focus.
7. Repeat Trade Tranche is cleared to proceed by Party B: Principal Administrator.
For clients with cash funds who want simple admin Hold and no SWIFT Transfer... We only need to add our trade director as non depleting signatory either on master account or zero balance sub account linked to master account. No funds are ever moved or touched and client can remove signatory at any time. All banks considered. Must have bank officer to verify funds.
+ Standard Anti-Money Laundering [AML] client assessment regulations apply on all clients.
+ In financial markets, high-frequency trading (HFT) is a type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools.
+ We support groups in alignment with United Nation Development Programs Sustainable Development Goals in particular UNDP SDG 9: Investment in Infrastructure, Industry and Innovation.
+ We support investments at a community level to improve social and economic prosperity, and commercial development and investments in long term infrastructure projects.
This communication is not to be construed as an offer to sell or the solicitation of an offer to purchase any security or invest in a Private Placement Program or Trade Platform. Any such offer or solicitation can be made only by means of an exempt disclosure document and trade platform offering memorandum (which contain a detailed description of risk factors). The offering documents and exempt disclosure documents can only be provided by a licensed and regulated Private Placement Program or Trade Platform to a qualified eligible person or entity. Participation in Private Placement Programs and Trade Platforms is only available to qualified eligible persons. Past performance is not a guarantee of future returns. Applicants are expected to be experienced investors who are familiar with how these investments are done. We DO NOT formally educate or provide any advice as to how one can incorporate this PPP strategy into his / her financial plan.
Applicants are expected to be experienced investors who are familiar with how these investments are done. We DO NOT formally educate or provide any advice as to how one can incorporate this PPP strategy into his / her financial plan.