Private Placement Program - Key Terms

Administrative Hold: A term usually referred to by inexperienced brokers. It refers to the investor’s bank reserving funds in favor of another individual, without actually encumbering or moving the asset.

Asset Backed: Refers to a note or bank instrument which is collateralized by hard assets, not liquid assets.?This can be gems, gold, art, diamonds, or other rare valuables.

Assignment: Transferring ownership, or rights to use the collateral, to another individual for a specific period of time. Some traders require this for private placement investments.

Bank Instrument: A debt instrument issued by banks to access immediate liquidity, providing an annual interest and face value for the purchaser. BG’s and MTN’s are common examples.

Bank to Bank: A phrased typically used by brokers, referring to the private verification of assets from the investor’s bank officer, to the trader’s/seller’s bank officer.

Beneficiary; The individual listed as the owner of a debt instrument, such as a medium term notes (MTN‘s) or bank guarantees (BG’s).

Best Efforts: This is a term used in any real private placement contract. It 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 on a best efforts basis”.

Blocked Funds: A general phrase which refers to blocking liquid assets in favor of another person. This is most commonly achieved via swift MT 760, unless you are in the USA.

Broker Chain: Also known as a “daisy chain”, this frequently used term describes the “layers” of brokers that one must go through before they reach a trader. Unfortunately, there are usually several private plasement brokers involved in any deal.

Bullet Program: Phrase created by inexperienced brokers that describes “short-term” private placement programs, promising high returns in less than 30 days.

Cash Backed: Assets which are backed by cash, making them far more appealing for banks and private placement traders.

Cash Poor: This refers to an individual that is “asset rich, but cash poor”.?Though they may have millions in hard assets, they may have little to no liquidity to engage in various transactions.

Circumvention: Cutting out the people who introduced you to the opportunity or broker, with no intent to reward them if you are successful.

Collateral: An asset guaranteeing the line of credit the bank gives, which can be seized upon default from the loan terms.?Bank instruments, cash, and MT 760’s are some examples.

Commission: Payments which can be earned by introducing a service provide to a prospective client.

Commitment Holder: An individual/institution who is contractually obligated to purchase a bank instrument at an agreed upon value.??Without “prior commitment”, the seller of the bank instrument would never have purchased the note because their intent was trading for profit.?This term is also similar to the phrase “exit buyer”.

Compliance: The process of completing due diligence on a new private placement investor. 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 idea that bank instruments can be purchased at a discount from face value, leaving the opportunity to profit from resale, or the difference between face.

Due Diligance: Phrase referring to the process of qualifying people by verifying and investigating their background. This is used mutually by private placement traders and investors.

Escrow: An escrow service is a licensed and regulated company that collects, holds, and sends money, according to conditions specified by both the customer and service provider. Once the conditions of the customer are met, funds are immediately released to the service provider. Typically, in the private placement business, escrow is used to pay upfront fees for “sketchy” services such as leased bank instruments, funding opportunities, and others.

Euroclear: The world’s largest settlement system for securities transactions, covering bonds and equities, as well as bank instruments.?This important and efficient medium allows transactions to be completed remotely, while ensuring safety for both the buyer and seller of the asset.

Exit Buyer: A term used very frequently, referring to the “buyer in place” purchasing the bank instrument at a higher value from the current owner.

Fishing: When a “prospect” contacts a private placement broker with little to no intent to move forward, but plenty of detailed questions in an effort to “fish” for information.

Free and Clear: Also known as “unencumbered”, it means there are no liens or current debt obligations associated with that particular asset.

Fresh Cut: Phrase referring to a recently issued bank instrument that has had only one owner over the course of its existence. Usually, they are accessed at a steep discount from face.

Funding: A shorter way to reference “project funding”, usually referred to by those with insufficient capital to fund their project through private placement programs.

Gate-Keeper: An individual who claims to be “direct” to a trader with a private placement program.

Guarantee: This is a word that should NEVER be used in any investment niche, especially one as volatile as the private placement market.?Though it may not seem like a key term, it is for one VERY big reason.?Any broker or trader that “guarantees” certain profit amounts is breaking the law, and will NEVER fulfill their claims.

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.??Many in the private placement business try to enter programs with land containing precious metals, energy materials, and more. Unfortunately, most have no luck due to the current worldwide liquidity crisis, and the high excavation costs to isolate the asset.

Intermediary: Anyone involved in a private placement transaction, either through introduction or compensation, who is NOT the trader or client.

Joker Broker: Term used to describe inexperienced private placement brokers who do nothing but waste your time.

Junk Bond: A bond issued by a company or institution which has poor financial integrity, making the bond effectively worthless.?Some examples which private placement brokers may encounter are: Venezuelan bonds, Brazilian bonds, gold bearer bonds, certain corporate bonds, and many others.

Ledger to Ledger: This phrase refers to a transfer between two accounts held by the same bank. For example, a trader may have an HSBC account, and send the profits to a client with a different HSBC account.?This is far more efficient, and avoids possible problems associated with external transfers.

Letter of Authorization: A compliance document required for all private placement investors, allowing the trade group to verify the investor’s assets bank to bank.?This is also known as the “Authorization to Verify”.

Line of Credit: Though it may sound fancy, it’s just a bank loan. Usually in the private placement world, this refers to the loan given to the trader right before trading starts.

Managed Buy/Sell: Another synonym for private placement programs. It refers to the managed buying and selling of bank instruments by aprivate placement trader.

Mandate: Another term meaning someone is “direct” to an investment opportunity or client.?Usually, this term is used by very inexperienced brokers.

MT 103: This is an improved version of the original swift MT 100, which is similar to a wire transfer. Though it is a direct transfer, the MT 103 has a large number of options which describe conditions and instructions for how the payment should be made.

MT 760: This swift message is used to block funds in favor of someone other than the investor, collateralizing the asset while allowing for loans against it.

MT 799: This swift message is used between banks to communicate in written form, and is usually referred to as “pre-advice”. Typically, the MT 799 will be needed directly before the MT 760 Is issued.

MT799 is a simple text message, sent bank to bank. This is used for a bank to bank proof of funds, only. The MT799 is not a form of payment and it is not a bank undertaking or promise to pay. It is simply a bank to bank confirmation of the funds on deposit, nothing more.?

What does the SWIFT MT799 option provide?

An account with the SWIFT MT799 capability allows bank-to-bank SWIFT electronic verification for Proof of Funds in compliance with the SWIFT Category 7 "Treasury Markets & Syndication" message types. Often there is a misconception that a particular circumstance requires a SWIFT MT760 message, when in fact, the SWIFT MT799 format provides the required bank confirmation for the application. There is a $1 million minimum account size for a SWIFT MT799, and additional costs apply.

Non-Depletion Account: A term used in private placement contracts which guarantees the funds of the client will never be depleted by the trader.

Non-Solicitation: A compliance document that protects the consultants by having the investor state they were not solicited.

Paper: A synonym used by private placement brokers referring to bank instruments such as bank guarantees or medium term notes.

Paymaster: An individual elected by intermediaries who will accept all commission payments on a private placement transaction, and then distribute them in accordance to the agreement between the parties.?This can be an attorney, one of the brokers, or anyone else the intermediaries feel comfortable with.

Piggyback Program: A newly created phrase referring to the concept of “pooling” investors to meet the minimum capital requirements of a private placement program. For example, 10 investors with 10M would try to meet the 100M minimum which most private placement traders require. Be VERY careful when pursuing this type of “program”, since most do not perform as promised.

Ping: This term refers to a type of private placement program which allows investors to leave funds in their account, while the trading bank verifies the full balance is still present on a daily or weekly basis. Supposedly, traders can access a loan against this “ping”/verification of funds and start trading on the clients behalf. Beware of these programs, as most never perform as promised.

Platform: Another synonym for private placement programs which refers to the corporate structure of the trade group.

Power of Attorney: A document signed by the account holder which gives authority for someone to act on their behalf, as specified in the agreement.

Program Manager: An individual who claims to be “direct” to a trader with a private placement program, accepting all applications and questions from prospective investors.

Promissory Note: Basically, it’s an IOU given from one party to another, stating debt repayment obligations and terms. In all reality, it is really worth nothing to third parties.

Seasoned: Common term that refers to bank instruments, such as medium term notes (MTN’s) and bank guarantees (BG’s), which have been owned by several different beneficiaries over their existence.

Shopping: When a representative/broker sends out an investor’s compliance package to several “program managers” at the same time.?This is greatly frowned upon, and can ruin relationships with real traders.

Signatory: An individual who legally represents the assets/services of another person, entity or themselves, by executing all contractual agreements and related obligations.

Slightly Seasoned: A bank instrument which has been traded, having more than one owner over its lifespan before maturity.?This is usually a bank instrument which is discounted moderately, sold at a value of 70-85% of face.

Swift: A system of communication between banks, allowing account holders to block, transfer, or assign assets as per their request.?Examples are the swift MT 100, MT 103, MT 760, and MT 799.

Tabletop: A term which refers to a face to face meeting between a buyer/investor, and a seller/trader.

Trade Program: A synonym of the term “private placement program”, this phrase is frequently substituted by brokers in business.

Trader: A person with a direct relationship to a bank that is issuing discounted bank instruments, which will later be sold to a pre-defined “exit buyer” at a higher value.

Trading Bank: This is the bank where the trader receives the collateral, or assignment thereof, from the investor. Also, this bank provides the line of credit to the trader.

Unencumbered: This means the referenced asset has no liens or debt obligations to any third party.