PRIVATE PLACEMENT PROGRAM TERMS
PPP Terms and Definitions;
Its a good idea to have a basic understanding of vernacular typically used when discussing or considering participation in a Private Placement Program PPP or looking to buy or sell Bank Instruments.
Administrative Hold: A term usually used by brokers. It refers to the investor’s bank reserving funds in favor of another individual, without actually encumbering or moving the assets.
Asset Backed: A note or bank instrument which is collateralized by hard assets, not liquid assets such as gold, arts, diamonds, or other rare valuables.
Assignment: Transferring ownership, or rights to use the collateral, to another individual for a specific period of time.
Bank Instrument: A debt instrument issued by banks to access immediate liquidity, providing an annual interest and face value for the purchaser such as BGs and MTNs.
Beneficiary: The individual listed as the owner of a debt instrument, such as a medium term notes (MTNs) or bank guarantees (BGs).
Best Efforts: This term (contract with trader) states that the trader, or investment manager, will use their best efforts to achieve high profits. For example, a contract may say “profits will be achieved ona best efforts basis”.
Blocked Funds: A phrase which refers to blocking liquid assets in favor of another person. This is most commonly achieved via a Swift MT-760
Broker Chain: Also known as a “daisy chain”, this frequently-used term describes the “layers” of brokers that one must go through before one reaches a trader.
Bullet also referred to Elevator or Accelerator Program: Phrase used by brokers that describes “short-term” private placement programs, promising high returns in less than 30 days.
Cash Backed: Assets which are backed by cash, the most common type of backing.
Collateral: An asset guaranteeing the line of credit the bank gives, which can be seized upon default from the loan terms. Bank instruments, such as cash and MT-760s.
Commitment Holder: An individual/institution who is contractually obligated to purchase a bank instrument at an agreed upon value.
Compliance: The process of completing due diligence on a newinvestor. At this time, the investor must complete the required documentation, usually referred to as the “compliance package”.
Corporate Resolution: A compliance document which asks the client to formally state their relationship to the business entity they represent.
Cutting House: Term referring to a bank which creates, issues, and backs discounted bank instruments. The instruments are “cut”, and sold to traders at discounts, who then sell them at a higher price to“exit buyers”.
Discount: The concept that bank instruments can be purchased at a discount from face value, leaving the opportunity to profit from resale or the difference from the face value.
Due Diligence or DD: Phrase referring to the process of qualifying people or companies, verifying and investigating their financial and legal background.
Escrow: An escrow service is a licensed and regulated company that collects, holds, and sends money, according to conditions specified by both the investor and service provider.
Euroclear: The world’s largest settlement system for securities transactions, covering bonds and equities, as well as bank instruments. This system allows transactions to be completed directly and remotely, while ensuring safety for both the buyer and seller of the asset.
Exit Buyer: The “buyer in place” purchasing the bank instrument at a higher value from the current owner.
Fishing: When a “prospect” contacts a broker or advisor with little to no intent to move forward, but plenty of detailed questions in an effort to investigate (fish) for information.
Free and Clear: Also known as “unencumbered”, there are no liens or debt obligations associated with an asset.
Fresh Cut: Phrase referring to a recently issued bank instrument that has had only one owner over the course of its existence. They are accessed at a steep discount from the face value.
Gate-Keeper: An individual who claims to be in direct contact to a trader with a private placement program.
Hypothecate: The process of assigning a monetary value to an illiquid asset, and then extracting liquidity in the form of a loan, using the illiquid asset as collateral.
In-Ground Assets: Land areas which have been appraised based upon geological assessments of the assets which lie beneath.
Intermediary: Anyone involved in a private placement transaction, either through introduction or compensation, who is not the trader, program manager or investor. Junk Bond: A bond issued by a company or institution which has poor financial integrity, making the bond effectively worthless.
Ledger to Ledger: A transfer between two accounts held by the samebank.
Letter of Authorization: A compliance document required for all private placement investors, allowing the trade group to verify the investor’s assets from bank to bank
Line of Credit: Volume of a Bank loan.
Structured or Managed Buy/Sell: Managed buying and selling of bank instruments by a private placement trader. Trader utilizes arbitrage buy ensuring before bank instruments are bought that a exit buyer is ready to purchase them.
MT-103: This is an improved version of the original Swift MT-100, which is similar to a wire transfer.
MT-760: Swift message used to block funds in favor of someone other than the investor, collateralizing the asset while enabling loans against it.
MT-799: Swift message used between banks to communicate in written form and is usually referred to as “pre-advice”. Usually, the MT-799 will be used before the MT-760.
MTN: Medium Term Note, a tradable and discountable debt instrument issued by banks to collect annual interest before expiring upon maturity with a specified face value.
Non-Depletion Account: Article, used in private placement contracts which guarantees that the funds of the client will never be depleted by the trader.
Paper: A synonym used by private placement brokers referring to several bank instruments such as bank guarantees or medium term notes.
Paymaster: A lawyer / attorney or notary elected by intermediaries who will receive the commission payments on a financial transaction and distribute them in accordance to the agreement between the parties.
Piggyback Program: Pooling of investors to meet the minimum capital requirements of a private placement program.
Pinging: Leaving funds in an account while the trading bank verifies the full balance is still present on a daily or weekly basis. A ping verification system is NOT a guarantee to obtain a loan from a third bank without the Swift MT-760!
Power of Attorney: (PoA): A document signed by an individual or a company which gives authority for someone to act on their behalf, as specified in the agreement.
In-take or Program Manager: An individual who is directly connected to a trader or a trader group with a private placement program, accepting all applications and questions from investors.
Promissory Note: A LOU (letter of understanding) given from one party to another, stating debtrepayment obligations and terms.
Seasoned: Bank instruments, such as medium-term notes (MTNs) and bank guarantees (BGs), which have been previously owned by several different beneficiaries.
Shopping: When a representative/broker sends out an investor’s compliance package to several program managers” at the same time. Not recommended!
Signatory: An individual or company who legally represents the assets/services of another person, entity or themselves.
Slightly Seasoned: A bank instrument which has been traded, having more than one owner over its lifespan before maturity. This is a bank instrument which is discounted and sold at a value of 65-80% of its face value.
Swift: A system of communication between banks. (MT-100, MT-103, MT-760, MT-799.)
Tabletop or F2F: Face to face meeting between a buyer/investor and a seller/trader.
Trade Program: Synonym of “private placement program”, this is used by brokers and program managers.
Trader: A person with a direct contact to banks which are issuing discounted bank instruments that will later be sold to a pre-defined “exit buyer” for a higher value.
Trading Bank: Bank where the trader receives the collateral or assignment from an investor. This bank also provides the loan to the trader.
Unencumbered assets: These assets have no liens or debt obligations to third parties.
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