A Buyer’s funds aren’t AT ANY effective RISK. A Buyer’s funds are ALWAYS used to buy liquid fiscal instruments which are worth seriously more than the applicable price: the purchase is often collateralized at close to a 200% level. Example: buy at 30% and have a ready wholesale market in the 60s%. Whether the instruments are bought at 31% or 81%: they are issued by credit-worthy/AA or AA-rated banks, possess market-competitive interest rates, and have a retail market value in the 90s%. So, as long as their Trader can buy low and sell high, a profit will be made with NO effective risk. The customer is contracting in some cases without delay with the Trading Bank, or other verifiable financial institutions and/or banks. Closings happen at major banks or legal corporations — there isn’t any “coffee table closing” at a restaurant. The quantity of profit is a result of volume — bucks involved and the quantity of times a bank day when a provider is able to buy and resell into the monetary market. Most Cutting houses do one tranche/bank day. The largest traders can do several such tranches — from different sources to different exit-buyers.
The CLOSING is finished only AFTER a mutual required research. The provider first checks-out the possible customer. Then the Provider’s officer contacts the client. At that time secret information and reciprocal required groundwork info is shared, so the Client’s fiscal institution and/or advisors can develop an amount of comfort about the transaction and the caliber of the provider establishment. There’s not much “blind faith” concerned. If the Client/Buyer isn’t snug, he only says “thank you, but no thank you” and exits the negotiation or closing.
Despite the growing number of people actively participating in the private placement and bank instrument business, there are very few that truly understand what a medium term note is. Though this amuses us to some degree, it also has alarmed us enough to take action. Since the “MTN” (medium term note) is a major reason the private placement business exists, we felt like it would be a good idea to connect the dots for our readers with less experience.For those of you who understood bank instruments prior to this article, we hope this provides additional insight to educate you further. For the rest of our readers, this information will open the door to a new understanding of wealth, while providing facts to help remove uneducated brokers from your network. By definition, Medium Term Notes (MTN’s) are debt instruments which are created by banks and sold to investors, having a predefined face value, date of maturity, and annual interest rate.For example, you may have a 10 year note issued from Barclays Bank worth 100M, collecting a coupon (interest) of 6.5% per year. Each year you would receive 6.5M until the date of its maturity, where you may cash it in for its full face value. Though an MTN has similar characteristics to other debt notes, it is completely unique due to its flexibility, price, resale potential, and ability to be purchased at a discount from face. Now that you know what a medium term note is, let’s see why they have become so popular recently.
Over 50 years ago, when medium term notes (MTN) started to become available, there were very few passive investments which could compete with the benefits of owning a bank instrument. Given the high annual interest rate, possible discount from face value, and solid backing by top 25 banks, many flocked toward those who issued and owned the notes, looking for ways to financially capitalize. Once the idea of “trading bank instruments” caught on in the secondary market, the private placement business grew steadily, until the entire business changed with the introduction of the internet.
With the explosion of the internet, the secondary market has been flooded with tons of new brokers trying to broker buy/sells of medium term notes, and bank guarantees. The real discussions about bank instruments, at least for those who are successful, revolve around private placement programs.
Bank instruments, such as medium term notes and bank guarantees, are the lifeblood to any private placement program. Since these notes can be purchased at a discount from top banks, traders can earn quite a hefty profit, all while being risk free due to a prior contractual obligation they had with an “exit buyer”.
As we all know, an “exit buyer” is the entity which purchases the MTN/BG at a slightly higher value, but still discounted from face. Once the first exit buyer purchases the note from the trader, the process repeats itself several times until a final buyer purchases it to hold until maturity. By that time, the note has a very small discount (ex. 93% of face), but many conservative buyers are happy with the remaining spread and annual interest.