HISTORY OF PRIVATE PLACEMENT PROGRAMS
- Since the 1990s, trading with bank instruments is part of the global economy. The world’s largest holding companies of North American and European Banks are authorized to issue blocks of debt instruments such as Medium Term Notes, debenture instruments, and standby letters of credit at the behest of the United States Treasury for the United States Treasury Trust and Foundations and the United States Federal Reserve. The Instruments issued are backed by a treasury undertaking.
- The genesis of this marketplace was the 1944 Bretton Woods Conference of the world’s leaders. The principles originally championed as answers to post World War II. Economic stability is still the impetus for the operation of these transactions today. These transactions started some fifty years ago and they have been growing and been continuously modified. In this article the procedure and the core of the PRIVATE PLACEMENT PROGRAM will be explained comprehensively. The U.S. Treasury and the Federal Reserve investment transactions are administered by selected western banks primarily Barclays and HSBC being the leaders and having 31 licensed traders who make it operational.
OCCURRENCE OF PRIVATE PLACEMENT PROGRAMS
- The Bretton Woods Conference was held on July 1st, 1944, with more than 700 participants representing 44 countries coming together and advocating for the establishment of an international banking system. International leaders have decided to adopt the US dollar as the standard global currency for international trade. It was backed by gold, which was the most stable currency at the time. The adoption of the US dollar as the standard currency of international trade was the milestone that triggered the development of the banking instrument market.
- To further solidify the universal acceptance of the U.S. Dollar as the standard world currency, the Bretton Woods Conference had to fix the price of gold backing the U.S. Dollar per ounce. The United States did not possess enough gold to continue stabilizing international economic expansion.
- The US Treasury had to find a solution to continue creating US Dollars, that’s why it created financial instruments, mainly Medium Term Notes *(MTN), which were sold to major global banks.
- Once the Federal Reserve cashed out the sale of the financial instruments in dollars, they were able to reintegrate into targeted segments of the global economy in accordance with the US Treasury and policies determined by the G-8 countries.
- The world’s biggest banks exchanged their financial instruments. PRIVATE PLACEMENT PROGRAMS (PPP)were born, but they were only served for banks and governments.
- * Medium Term Notes are negotiable debt securities with an interest rate. They are issued by governments or companies in international debt markets, to finance their medium and long-term capital needs.
WHAT IS A PRIVATE PLACEMENT PROGRAM?
- PRIVATE PLACEMENT PROGRAM or high-profit investment programs are safe, private and “only invite-to-join” trading programs for financial instruments (especially MTN) They are offered by the banks. These instruments are first bought early for their nominal value with a significant discount, which are sold afterwards for a higher price in the secondary market. The difference between the selling price and the purchase price is the profit of the supplier/investor. These programs are offered only to customers with high purchasing power and such transactions may only be carried out by licensed dealers. Most of the revenues are used to finance humanitarian purposes and business projects.
- As explained earlier, PPP exist to ‘create’ money and money is created by creating debt.
- For example, you as an individual can agree to loan $100 to a friend with the understanding that the interest for the loan will be 10%, resulting in a total of $110 to be repaid. What you effectively have done is creating $10, even though that money can not be seen initially.
- Banks do this sort of lending every day, however when the amount gets higher, it gives banks the power to create money. PPP involve trading with discounted bank-issued debt instruments which defer payment obligations, or debts.
- Theoretically, any person, company, or organization can issue debt notes. Debt notes are, in a sense, deferred payment liabilities. The PPP market is changing and it is no longer limited to governments and MTN, also, industrial companies and banks can issue their own debt instruments.
- Debt notes such as Medium Terms Notes (MTN), Bank Guarantees (BG), and Stand-By Letters of Credit (SBLC) are issued at the discounted prices by major world banks in the amount of $-billions every day.
- All trading programs in the PRIVATE PLACEMENT PROGRAM area include trading with discounted debt notes. Furthermore, in order to bypass the legal restrictions, this trading can only be done on a private level. This is the main difference between trading with PPP and "normal" trading, which is highly regulated. PRIVATE PLACEMENT level business transactions are free from the usual restrictions in the securities market. It is based on reliable, essential, special relationships and protocols.
- However, none of these programs can be started unless there are sufficient funds to support each transaction. At this point, the customer is needed, because the banks and the covenantees are not allowed to trade with their own capital or with the capital of the costumers, as long as they do not have the sufficient funds.
MTN - MTN (MEDIUM TERM NOTES)
- Medium Term Notes (MTN) are medium-term bonds with a maturity of 1 to 10 years. MTN have become a key funding source for national and foreign companies, supranational institutions, and independent countries.
- MTN are sold by investment banks and by other broker companies on the base of best performance. MTN are also sold in smaller quantities than bonds. Most of the MTN are traded in non-customary formulas based on floating interest rates or commodity prices.
- Besides, the medium term is not required for MTN to fill the stated maturity level; they can have maturities from 9 months to 13 years. The MTN market has increased the funds of the companies and changed the way of the investments made by the corporations.
- This change has caused a rapid rise in derivatives markets, which have transferred the risks of investors and borrowers such as Swaps, Options and Futures to other risk preferences of the financial system. In the 1990s and after, the US market drew the attention of new borrowers. Meanwhile the Euro-MTN market, which is outside the United States, grew rapidly.
HIGH EFFICIENT MARKET
- All participating banks have AA or AAA degrees. They issue bank bonds, called MTN (Medium Term Notes). They usually have a 10-year term and a 5 to 7 ½ percent coupon.
- This information is well known. What is unknown is that each MTN document is covered by a US treasury document deposited by the FED into the issuing bank. MTN are in strong demand because they combine high double safety and high return.
- The banks transfer their sales revenues, profits and commissions to the US treasury via FED. The exported MTNare offset by US treasury securities and therefore the MTN are not included in the annual reports of the issuing banks.
- These securities are traded under discounted cuts due to various factors such as discounting, market return, issuer quality and above all purchasing power and slice rhythm. They have a CUSIP and a registration number so they can be fully processed.
WHICH NOTES ARE USED IN THIS PROGRAM?
- The instruments that are used in this trading program are fully traded bank instruments. These are not subjected to any liability, claim or restriction.
- The instruments are debt securities in the form of medium-term bank bonds with a maturity of 10 years or in the form of discounted one-year letters of credit.
- These banking instruments fully fits to the standard rules of ICC 400 (revision of 1983), the latest edition (revision of 1995) and the latest published ICC 500 (revision of 1983) and International Chamber of Commerce (ICC) loans in Paris / France.
- It should be emphasized that the re-sale contract already exists before the purchase of the bonds. The Buyer's account will contain value that is equal or greater than the current value of the fund or bank bills.
ARBITRAGE AND LEVERAGE
- PRIVATE PLACEMENT trading safety is based on the fact that the transactions are performed as arbitragetransactions. This means that the instruments will be bought and resold immediately with pre-defined prices. A number of buyers and sellers are contracted, including exit-buyers comprising mostly large financial institutions, insurance companies, or exceptionally wealthy individuals. The issued instruments are never sold directly to the exit-buyer, but to a chain of clients. For obvious reasons, the involved banks cannot directly participate in these transactions, but are still profiting from it indirectly by loaning money with interest to the trader or client as a line of credit. This is their leverage. Furthermore, the banks profit from the commissions involved in each transaction.
- The client's principal does not have to be used for the transactions, as it is only reserved as a compensating balance ("mirrored") against this credit line. This credit line is then used to back up the arbitrage transactions. Since the trading is done as arbitrage, the money (“credit line”) can not be used, but it has to be available to back up each and every transactions.
- Such programs never fail because they don't begin before all actors have been contracted, and each actor knows exactly what role to play and how they will profit from the transactions.
- Arbitrage transactions with discounted bank instruments are done in a similar way. The involved traders never actually spend the money, but have to be in control of it. The client's principal is reserved directly for this, or indirectly in order for the trader to leverage a line of credit.
EXPLANATION OF THE LEVERAGE EFFECT
- Once the investment contract is signed and endorsed by the Trading Bank, the Investor transfers the funds to the Depot Bank.
- The Depot Bank mirrors this account (with the full total amount) to the Trading Bank.
- The Trading Bank accepts the blocking via mirror and orders funds from the Central Banks of the G7, against these blocked funds.
- Example with an Investment amount of 100.000,00 €.
- The Investor invested 100.000,00 € and the Trading Bank has 110.840,00 € profit. The quote or the percentage are only examples.
TRADE
- This trade is highly profitable because the value of the notes constantly increase until they reach the final buyer. Therefore, they are subjected to extremely strict rules and the control mechanisms of the Federal Reserve Bank (FED).
- The conditions for the margins and the use of the profits are also included in regulations. Most of the profits generated in this trade are usually used to support international development assistance and the projects that are worth giving incentive.
- The states, banks, insurance companies etc. are kept out of the real trade. Only the specifically regulated and certified trading platforms can trade this way. Thus, it prevents the banks from doing business with their members, and the money market from becoming transparent.
- The private investors come into play here. Once the trading platforms have exhausted their advances, banking supervision allows private investors to participate in the program. The special instruments are increased by using this method. Thus, the economy is encouraged by the profits of the investors on one hand and the projects that are financed on the other hand.
- These investments have been in demand every day for years and are conducted under strict conditions by the Federal Reserve Bank of the United States (FED) and the ICC (International Chamber of Commerce in Paris, France).
HOW DOES THE INVESTOR GENERATE PROFITS?
- Due to international regulations and conventions, banks that issue stocks must not sell such valuable papers to other banks or other institutional investors. This is only allowed in the secondary market, with the appropriate ISIN or WKN number, upon the valued papers have acquired the securities property after the investment.
- Therefore, the funds of the private Investor undertake the intermediary role as an intermediary, through a trading company in the primary market, but in reality there is no such role. In order to make the valuable paper sufficient, proof of the value purchase price is nessecary. Private investment fund is the necessary link between banks and final buyers who issue bonds of value. In general, such a process will be done in less than a day, which means that investment fund can be used as evidence of fund that is needed several times a day. The targeted earnings between purchase and sale is called Fall Out. It is divided among the participants.
PROCESS OF PROFITS OF PRIVATE PLACEMENT PROGRAM
- Here is an example;
- A program accepts 72% of the nominal value of an MTN (for very large quantities, the price may be below 50%) and a sale price of 80% to the covenantee. However, the difference of 8% points is not yet the profit of the program. This profit is first shared with the Federal Reserve Bank (FED) at a rate of 50:50, where deviations are also possible. Then, after deducting the bank charges, the program usually shares it with the investor at a rate of 30:70, the program takes 30% and the investor takes 70%. Excluding bank charges, the investor has 2.8% of the nominal value. These values are not entirely impossible.
- Assuming 40 trading weeks per year, the investor earns 112% per annum. That means, two transactions per week and 224% per year.
- In fact, in MTN this trade is done several times a day (3-4 times a day or even more) for 40 bank weeks per year. For a total of 40 bank weeks of 4 trading days, 2 transactions per 2% commission per transaction, a total yield of 640% is derived, based on the capital provided (blocked fund). In fact, the total return is higher.
- The secret lies in the rate of turnover, that is to say the speed of the same investor fund is used and returned repeatedly. Programs that buy back property and sell back immediately to export to the secondary market are the fastest operating performances.
- The profits are paid to the investors every month. The investor determines the account to which the revenue will be transferred. Program banks offer a discontinuation of revenue for a deduction. The investor is solely responsible for the correct taxation of the investment income.
- The process that we explained above is a short simplification. In fact, the course of this trade is much more complex.
CLAIM
- Due to high quality and return, the main buyers are banks, insurance companies and pension funds, as well as trusts, foundations, companies, etc. The largest sectors are american and japanese pension funds.
- However, due to economic reasons, many banks, insurance companies and pension funds cannot be purchased directly from issuer banks of the primary market.
- The reason is that if they can buy these documents directly, they will not see any reason to provide credit to the economy. Banks, insurance companies and pension funds are dependent on the secondary market, where prices are much higher and yields are very low.
RISK
- a) The agreement between the program and the associated bank expressly stipulates that, under no circumstances, the bank should not pay the credit limit, but only pay the proceeds from traded bank instruments (MTN). Therefore, the sale must be completed and paid before commissions are paid.
- b) A commercial transaction allows the investor to cancel the sales contract in the event that it has not been resold or paid for any reason.
- c) Even if the purchase price changes in a negative way (for example, with the price increase of the FED (Federal Reserve Bank), which is considered as a force majeure), the program does not cause any further loss in the sales contract with its end user, thanks to the Evergreen Clause, which allows it to increase its price to the same extent.
- In this way, the system is protected from process loss. As a result, the program bank gives the program a credit limit without the right to apply to investor's capital at its bank. Thus, the investor's capital in the account remains irrecoverable.
CONTROLS
- The investor always has the right to use his/her own capital. It may be contrary to the investment contract, but the only sanction is not to make profit payments.
- To ensure that the capital is always kept in the account, the controls will be done at regular intervals by checking the direct investor's account in accordance with the Sweap system with a Euroclear regulation (Screening).
WHAT IS THE PROFITABILITY OF THE TRANSACTIONS?
- It is clear that the key to profitability is to have the necessary resources and to buy at a comparable level from the issuing bank in order to obtain the maximum discount. It is also important to have the resources and contracts to negotiate the most lucrative instruments in the secondary market.
- These links are protected very strictly by traders involved in the trading of these tools, which are regularly and commercially available.
- As a result, the real secret of successful participation is to create and develop strong business relationships with insiders, customers, bankers, lawyers, leading brokers and other professionals who can combine their skills.
IS THE PROGRAM SUITABLE TO THE INTERNATIONAL BUSINESS PRACTICES?
- All these programs follow the specific guidelines set by the International Chamber of Commerce. These arrangements are generally known as ICC 400/500. The ICC is the approval authority of the world's largest Central Bank in Paris / France. It has existed for 100 years and performs strict controls globally in banks' procedures.
PROCESS
- For the 40 weeks program;
- Minimum amount for PRIVATE PLACEMENT PROGRAM: 1.000.000,00 Euro
- (We also offer other investment programs for our customers, starting with 10.000,00 Euro)
