In the private placement world, there are a number of unique terms
which are important to understand and implement. For us, learning them
took endless questions and research, but after 7 years of persistence,
we finally mastered the language of “brokerland”.
To help our readers avoid the same learning curve, we created something which everyone can appreciate, a “
Private Placement Glossary”. Providing
OVER 85
of the most important terms in the private placement business, we
GUARANTEE you will NEVER find anything more comprehensive, or
well-detailed.
Below we have listed various acronyms, phrases, and other unique
terms which are commonly used in the private placement community.
Scroll down, it’s a long page, but it will prove invaluable in your journey to success!
PRIVATE PLACEMENT ACRONYMS
BCL
(Bank Comfort Letter): A letter written by a bank officer on behalf of a
customer, attesting to the current balance and good standing of an
account holder.
BG
(Bank Guarantee): A bank instrument, guaranteeing a certain face value
for an investor, while collecting an annual interest before expiring
upon maturity.
CD
(Certificate of Deposit): A financial product offered by banks to
account holders who agree to leave their funds on deposit for a
pre-defined period. This allows investors to collect a higher annual
interest, while securing their money in a low risk venture.
CIS (Client
Information Sheet): One of the compliance documents typically required
for private placement programs. This document asks for basic information
such as the contact details, and line of business the applicant is in.
CMO
(Collateralized Mortgage Obligation): A mortgage-backed,
investment-grade bond that separates mortgage pools into different
maturity classes. By creating a
CMO,
the bond issuer can collect immediate capital while the purchaser gets
the bond at a discount from face value, and collects annual interest.
Though these bonds are frequently found in the private placement
business, most of them are worthless since the financial crisis hit.
DTC
(Depository Trust & Clearing Corporation): DTCC provides clearing,
settlement and information services for equities, bonds, securities,
money market instruments and over-the-counter derivatives. This medium
is used in private placement programs to transfer/assign assets to a
trader, from an investor.
FPA (Fee
Protection Agreement): An official document outlining all fees due to
intermediaries upon the completion of transaction. This is critical for
any private placement broker to understand, and utilize.
ITR (Irrevocable Trust Receipt): A receipt
confirming and detailing the deposit of specific assets into a trust.
Though the ITR contains all details of the asset, banks typically will
not assign a value to it since the asset is NOT deposited in a credible
bank, but rather a private trust.
JV (Joint Venture): An agreement between two
entities outlining compensation, fees, and the obligations of both
parties in relation to a specific business venture. This is the most
common legal structure for private placement programs.
KYC (Know your Client): In some cases, this form will substitute for the client information sheet. Just like the
CIS,
it requests contact details and other related information. Also, this
phrase is used when referring to the “Know your Client” law, which many
investment markets enforce. It states that you must know your client
well, and unless deceived, you can incur certain liabilities for future
problematic actions of the client.
LOI (Letter of Intent): A letter provided by
investors interested in a private placement programs, defining their
unsolicited interest to enter the investment transaction. This document
can also be used for areas outside of private placement, especially
where solicitation laws apply.
LTV (Loan to Value): This is the loan value that a
bank/lender will provide after evaluating an assets worth. Usually, this
is used for hard/illiquid assets, and is stated in % in relation to the
asset’s appraisal value (Loan/Appraisal Value = LTV %).
MIA (Missing in Action): A term that describes what
happens to most private placement brokers when they fail to live up to
their promises. One day, they are blowing up your phones, the next day
they are nowhere to be found.
MTN
(Medium Term Note): A tradable and discountable debt instrument issued
by banks, collecting an annual interest before expiring upon maturity
with a specified face value.
NCND (Non-Circumvention, Non-Disclosure Agreement):
An agreement between two parties defining the boundaries and
limitations of their relationship. Typically, this agreement is used by
private placement brokers to “protect” from future circumvention.
POF (Proof
of Funds): The process of allowing another individual to temporarily
show your assets as their own, with the fee dependent upon the time it’s
utilized. Also, this phrase can refer to a bank statement, or other
financial document, proving the assets of a prospective investor.
PPM
(Private Placement Memorandum): A formal description of an investment
opportunity which is created to comply with various federal securities
regulations. This outlines all details of the “private placement”
offered, as well the obligations of both parties involved.
PPP (Private Placement Program): A private investment program which trades discounted bank instruments (
MTN/
BG) for profit in the secondary market.
RWA (Ready, Willing, and Able): Phrase used by
private placement brokers confirming the readiness of an investor to
satisfy requirements, and more forward with an opportunity. This
statement can also be made in the form of a document, which some
programs may require.
SBLC (Stand by Letter of Credit):
A document issued as a guarantee of payment by a bank, on behalf of a
client. This is used as “payment of last resort” if the client fails to
fulfill a contractual commitment with a third party. In the private
placement world, this term is often associated with fraudulent companies
that offer bank instrument leasing and/or project funding
“opportunities”.
SKR
(Safe Keeping Receipt): A document created by a bank, on behalf of its
customer, which specifies all details of an asset, and confirms its
current existence on deposit.
T-BILL (Treasury Bill): A short-term debt
obligation in the form of a interest accruing note, backed by the U.S.
government with a maturity of less than one year.
T-NOTE (Treasury Note): A marketable U.S.
government debt security containing a fixed annual interest, and a
maturity between one and 10 years.
T-STRIP (Treasury Strip): This is a “zero coupon”
bond issued by the U.S government whose yield is based upon the
difference between the discounted price it is purchased at, and its face
value at maturity (ex. 10M Note, buy at 85% of face, worth 100% at
maturity).
VOD (Verification of Deposit): This is a signed
document provided by a financial institution, verifying the current
balance and history of an account holder. This is similar to a
BCL, but the verbiage may be different.
PRIVATE PLACEMENT 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 placement 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 Diligence:
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 a private 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.
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.
Though we’ve done our best to include all of the key terms associated with private placement programs,
we apologize if we missed anything you feel is important. If there are
any other terms you feel our readers would appreciate, scroll down and
post them now!
Being this is
ONLY Private Placement Glossary
that exists online, we truly hope that you appreciate the extensive
effort we have put into it. Obviously, we encourage our readers to
understand and apply the terms we have mentioned, but you must ALWAYS
must remember one thing: you can learn all of the “lingo”you want, but
acronyms don’t close deals, education and experience does.
NOTICE TO INTENDING CUSTOMERS: These
posts are for educational purposes and I make them mostly to educate
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