Terms Used in Prime Bank Investment
Fraud,
Medium Term Note High Yield Bank Debenture Scams
Below is a glossary of terms and promotional material taken from
a Prime Bank Scheme site ( www.toerien.com ) which intermingles
actual financial terminology with those used by investment fraud
scammers to impress their victims.
Arbitrage
Buying securities in one country, currency or market and selling
in another to take advantage of price differentials.
Articles of Association
Regulations for governing the rights and duties of the members
of a company among themselves. Articles deal with internal matters
such as general meetings, appointment of directors, issue and transfer
of shares, dividends, accounts and audits.
Asset Protection Trust
A trust established offshore to protect settlor's assets against
those who may attempt to make claims against them: creditors, former
spouses and dependents on death. Some offshore jurisdictions provide
protection from creditor claims against persons who have guaranteed
bank loans.
Back to Back Loan
A loan structure when "A" deposits a sum of money with
a bank in country "X" on condition that a related branch,
agency, edge corporation or bank located in country "Y" will
lend an equivalent sum to "A" or a designee in country "Y".
Bare Trusts
Also known as dry, formal, naked, passive or simple trusts. These
are trusts where the trustees have no duties to perform other than
to convey the trust property to the beneficiary(s) when called
upon to do so.
Bear
An investor who has sold a security in the hope of buying it back
at a lower price.
Bearer Share Certificate
A negotiable share certificate made out in the name of the bearer
and not in the name of a particular person or organization.
Bearer Stocks/Shares
Securities for which no register of ownership is kept by the company.
Dividends are not received automatically from the company and must
be claimed.
Beneficial Owner
The actual or economic owner of an offshore company as distinct
to the registered or nominal owner.
Best Efforts
A designation that a certain financial result is not guaranteed,
but that a good faith effort will be made to provide the result
that is represented.
BIS - Bank for International Settlements
Bank for International Settlements, Basle, Switzerland. The bank’s
bank.
Blind Trust
A trust in which the trustees are not allowed to provide any information
to the beneficiaries about the administration of the assets of
the trust.
Blocked Funds
Term for "reserving" funds by one bank for the benefit
of another bank. Blocking of funds is an often used banking procedure
to ensure that the same funds are not used twice. Often more beneficial
to an investor than a bank guarantee.
Blue Chip
Term for the most prestigious industrial shares. Originally an
American term derived from the color of the highest value poker
chip.
Bond
Any interest-bearing or discounted government or corporate security
that obligates the issuer to pay the holder of the bond a specified
sum of money, usually at specific intervals, and to repay the principal
amount of the loan at maturity. A secured bond is backed by collateral,
whereas as an unsecured bond or debenture, is backed by the full
faith and credit of the issuer, but not by any specified collateral.
Bridge/Mezzanine
Financing for a company expecting to go public usually within
six months to a year. Often bridge financing is structured so that
it can be repaid from proceeds of a public underwriting.
Broker
An intermediary. An individual or organization in-between the
person/organisation that controls the funds and the provider/trader.
A broker often knows someone who knows somebody else who may provide
program trading. This chain of brokers is known in the business
as a "daisy chain". There are thousands of "want-to-be”-, "hope-to-be”-
and "wish-they-were”brokers in the high-yield business
who are giving the industry a bad name.
Bull
An investor who has bought a security in the hope to make a profit
from rising prices.
Buyout
Funds provided to enable operating management to acquire a product
line or business, which may be at any stage of development, from
either a public or private company.
Cap
An option-like contract for which the buyer pays a fee or premium,
to obtain protection against a rise in a particular interest rate
above a certain level. For example, an interest rate cap may cover
a specified principal amount of a loan over a designated time period
such as a calendar quarter.
If the covered interest rate rises above the rate ceiling, the
seller of the rate cap pays the purchaser an amount of money equal
to the average rate differential times the principal amount times
one quarter.
Capitalization Issue
The process whereby money from a company's reserves is converted
into capital and then distributed to shareholders as new shares,
in proportion to their original holdings, also known as bonus or
scrip issue.
Certificate of Deposit (CD)
A deposit with a fixed time period and a fixed rate of interest.
Clearing System
A mechanism for calculation of mutual positions within a group
of participants with a view to facilitating the settlement of their
mutual obligations on a net basis.
Collar
The simultaneous purchase of a cap and the sale of a floor with
the aim of maintaining interest rates within a defined range. The
premium income from the sale of the floor reduces or offsets the
cost of buying the cap.
Collateral Provider
An entity which has the contractual ability to purchase bar instruments
directly from the issuer. Also known as Master Collateral Commitment
Holders.
Conditional S.W.I.F.T
A method which uses the Society for Worldwide Interbank Financial
Telecommunications to transfer funds conditionally between banks
subject to the performance of another party.
Commission
The fee that a broker charges clients for dealing on their behalf.
Commitment Holder
A wealthy private party buying guarantees from the issuing banks,
reselling them to other banks/brokers. Commitment holders are not
allowed to trade or do business on their own behalf. Other designation:
provider.
Compound Yield
The total return on investment, consisting of the distribution
(dividend, interest) and the capital gain or loss, in % of the
investment amount.
Consideration
The money value of a transaction (number of shares multiplied
by the price), before adding commission, stamp duty, etc.
Contract Exit for Non-performance
A conditions in a financial agreement that enables the investor
to take back his funds if the result represented is not achieved.
Contract Note
The day that a transaction takes place, the broker sends the client
a document detailing the transaction, including full title of the
stock, price, consideration and stamp duty (if applicable).
Cover
The total net profit a company has available for distribution
as dividend, divided by the amount paid, gives the number of times
that the dividend is covered.
Credit Equivalent
Value amount representing the credit risk exposure in off-balance
sheet transactions. In the case of derivatives, credit equivalent
value represents the potential cost at current market prices of
replacing the contract's cash flows in the case of default by the
counter-party.
Credit Risk
The risk that a counter party to a transaction will fail
to perform according to the terms and conditions of the contract,
thus causing the holder of the claim to suffer a loss.
Currency Swaps
A transaction involving the exchange of cash flows and principal
in one currency for those in another with an agreement to reverse
the principal swap at a future date.
Current Account
A bank deposit that can be withdrawn by the depositor at any time.
Current Exposure Method
Term used in the Basle Capital Accord to denote a method of assessing
credit risk in off-balance sheet transactions, consisting of adding
the market to market replacement cost of all contracts and an amount
for potential credit exposure arising from future price- or volatility
changes.
Debenture
A general debt obligation backed only by the integrity of the
borrower, not by collateral. Depository Trust Corporation (DTC):
A domestic custodial clearing facility owned by all of the major
banks and securities firms which is monitored by various banking
regulatory agencies and the Securities and Exchange commission.
Demand Deposit
A bank deposit that can be withdrawn by the depositor at any time.
Demand Guarantees
General term for payment undertakings arising on the presentation
of a written demand (plus possible other documents specified in
the guarantee), not conditional on proof of default by the principal
in the underlying transaction. They ensure often that the lender
will be paid the principal on maturity and possibly, depending
on the instrument, interest when due. Example: SLC’s.
Depository Trust Company (DTC)
A custodial clearing facility owned by the major banks and securities
firms and monitored by various banking regulatory agencies and
the Securities and Exchange Commission.
Discount
When the market price of a newly issued security is lower than
the issue price. If it is higher, the difference is called a premium.
Discretionary Trust
The form of trust usually established offshore. The discretion's
are vested in the trustee who can usually decide which of the beneficiaries
is to benefit, when and to what extent. Discretion's are exercised
under advice of, or suggestions from the settlor or protector.
Dividend
The part of a company's post-tax profits distributed to shareholders,
usually expressed as an amount per share.
Domicile
The place of a person's permanent home and the means by which
the person is connected with a certain system of law related to
issues such as marriage, divorce, succession of estate and taxation.
Double Exit
Use of two passports for the purpose of confusion or convenience.
Draft
A signed, written order by which one party (the drawer) instructs
another party (the drawee) to pay a specified sum to a third party
(the payee), at sight or at a specific date.
ECU
European Currency Unit.
EMS
European Monetary Unit.
Equity
Equity is ownership interest in a corporation, represented by
the shares of stock which are held by investors.
Equity Offerings
Raising funds by offering ownership in a corporation through
the issuing of shares of a corporation's common or preferred stock.
Equity Options
A class of options giving the purchaser the right but not the
obligation to buy or sell an individual share, a basket of shares
or an equity index at a predetermined price, on or before a fixed
date.
Equity Related Loan
Equity related loans are loans convertible into equity ownership
or loans collateralized with equity positions
Equity Swaps
A transaction that allows an investor to exchange the rate of
return (or a component thereof) on an equity investment (an individual
share, a basket or index) for the rate of return on another non-equity
or equity investment.
Eurobond
A bond issued in a currency other than that of the country or
market in which it is issued. Interest is paid without the deduction
of tax.
Eurocurrency
Currency that is owned by people not being a national of the nation
that issued the currency.
Ex
Latin for 'without', the opposite of Cum. Used to indicate that
the buyer is not entitled to participate in whatever forthcoming
event is specified, for example, ex cap, ex dividend, ex rights.
Exercise Price
The fixed price at which an option holder has the right to buy,
in the case of a call option, or to sell, in the case of a put
option, the financial instrument covered by the option.
Exit Buyer
The buyer of a security arriving on the secondary (retail) market.
Expatriation
The removal of ones legal residence or citizenship from one country
to another in anticipation of future restrictions on capital movements
or to avoid estate taxes.
FED
Federal Reserve, the US Central Banking system, established in
1913 and responsible for managing the US Dollar, both within and
outside the US.
FIBV
World Federation of Stock Exchanges.
Fresh Cut
Security arriving on the secondary (retail) market.
Fiduciary Account
An amount typically deposited with a Swiss Bank which will redeposit
the sum with a third party bank outside Switzerland in its own
name (to eliminate Swiss withholding tax on interest).
Final Dividend
The dividend paid by a company at the end of its financial year.
Fixed Deposit
A bank deposit for a fixed period of time.
Flight Capital
The movement of large sums of money from one country to another
to escape political or economic turmoil, aggressive taxation or
to seeking higher rates of interest.
Floor
A contract whereby the seller agrees to pay to the purchaser in
return for the payment of a premium, the difference between current
interest rates and an agreed (strike) rate times the notional amount,
should interest rates fall below the agreed rate. A floor contract
is effectively a string of interest rate guarantees.
Flotation
The occasion on which a company's shares are offered on a market
for the first time.
Foreign Currency Account
An account maintained in a bank in another currency than the currency
of the country in which the bank is located. Foreign currency accounts
can be maintained for depositors by banks in the United States.
Forfaiting
The process of purchasing at a discount registered bank "paper" which
will mature in the future without recourse to any previous holder
of the debt-generated bank paper.
Fully Paid
Applied to new issues when the total amount payable in relation
to the new shares has been paid to the company.
Futures
Securities or goods bought or sold for future delivery. There
may be no intention to take them up but to rely upon price changes
in order to sell at a profit before delivery.
Glass-Steagal Act
A portion of the Banking Act of 1933 which prohibits banks from
entering into the securities business and prohibits securities
firms from accepting deposits. However, any security which is issued
or guaranteed by any bank is not subject to the Securities Act
of 1933. Therefore bank instruments, by virtue of being issued
by a bank, are not considered a form of securities.
Grantor Trust
Under US tax law, income of the trust is taxed as the income of
the grantor.
Grossing Up
Calculation of the amount that would be required in the case of
an investment subject to tax to equal the income from that investment
as if it were not subject to tax.
Hard Currency
The term "hard currency" is a carry-over from the days
when sound currency was freely convertible into "hard" metal,
i.e. gold. It is used today to describe a currency which is sufficiently
sound so that it is generally accepted internationally at face
value.
Hedge Funds
Speculative funds managing investments for private investors (in
the US, such funds are unregulated if the number of investors does
not exceed one hundred).
Hot Money
(1) Large quantities of money that move quickly in international
currency exchanges due to speculative activity.
(2) Foreign funds temporarily transferred to a financial center and subject
to withdrawal at any moment.
Initial Margin
Initial margin is simply the minimum amount of money you must
have in your account (at the close of trading) on the first day
you establish a new position. Think of it as an initial requirement
you must have to enter an exclusive club. In order to pass
through the front door of the “Sugar Club”, you have
to have at least $700 in your pocket, and it can not be $700 that
you have committed to anything else.
Initial/Seed
A relatively small amount of capital provided to an investor
or entrepreneur, usually to prove a concept. It may involve product
development, but rarely involves initial marketing.
Insider Dealing
A criminal offense involving the purchase or sale of shares by
someone who possesses inside information about a company's performance
and prospects which is not yet available to the market as a whole,
and which, if available, might affect the share price.
Interbank Rate of Exchange
The rate at which banks deal with each other in the market.
Interest Rate Swap
A transaction in which two counterparties exchange interest payment
streams of differing character based on an underlying notional
principal amount. The three main types are coupon swaps (fixed
rate to floating rate in the same currency), basis swaps (one floating
rate index to another floating rate index in the same currency)
and cross-currency interest rate swaps (fixed rate in one currency
to floating rate in another).
International Business Company (IBC)
A term used to define a variety of offshore corporate structures.
Common to all IBC's are the dedication to business use outside
the incorporating jurisdiction, rapid formation, secrecy, broad
powers, low cost, low to zero taxation and minimal filing and reporting
requirements. An increasing number of offshore jurisdictions are
permitting the use of nominee shareholders, directors and officers.
International Chamber of Commerce (lCC)
An international body which governs the terms and conditions
of various financial transactions worldwide, it is headquartered
in France and has no affiliation with the local Chamber of Commerce
offices.
Investment Banks
An investment banking firm acts as underwriter or agent, serving
as intermediary between an issuer of securities and the investing
public. Investment bankers handle the distribution of blocks of
previously issued securities, either through secondary offerings
or through negotiations, maintain markets for securities already
distributed, and act as finders in private placements of securities.
Investment Trust
A company whose sole business consists of buying, selling and
holding shares.
IPO / Initial Public Offering
A company's first offering of stock to the public.
Key Tested Telex (KTT)
An older form of transferring funds between banks using a telex
machine on which the messages are verified by use of key code numbers.
Laundering
Laundering is the process of cleaning illicitly gained money so
that it appears to others to have come from, or to be going to,
a legitimate source.
Letter of Intent (LOI)
A document by which the investor states that he intends to enter
into a High-Yield transaction.
Letter of Wishes/Memorandum of Wishes
A document prepared by the settlor or grantor of a trust providing
guidance on how trustees should exercise their discretion's.
Leverage
Company debt expressed as a percentage of equity capital. High
leverage means that debts are high in relation to assets. The equivalent
UK term is gearing.
Leveraged Programs
Programs which use leased assets (such a United States government
obligations) to increase the amount of instruments purchased and
resold for a profit. The benefit of leased assets is that such
programs generate substantially larger profits.
Limit
In relation to dealing instructions, a restriction set on an order
to buy or sell, specifying the minimum selling or maximum buying
price.
Limited Power of Attorney
A legal document that empowers the trade manager to deal with
the various parties of the transaction on behalf of the owner of
the funds (the Principal). Transactions will not happen without
this instrument.
Listed Company
A company that has obtained permission for its shares to be admitted
to the London Stock Exchange's Official List.
Maintenance Margin
The amount of money you must have in your account after the
first day. The amount is always slightly less than the Initial
Margin . In other words, after the first day in
the club, you no longer have to have the full $700 in reserve.
You can spend a little of it, as long as you keep, say, $500 (the
theoretical maintenance margin) in your pocket at all times.
Man of Straw - Straw man
Effectively a nominee settlor or grantor who creates an offshore
trust but often has no further connection with the trust once it
is created.
Managed Bank
An offshore bank also known as a Class "B" or Cubicle
Bank. The Managed Bank is not required to maintain a physical presence
in the licensing jurisdiction. Its presence in the licensing jurisdiction
is passive with nominee directors and officers provided by a managing
trust company with a physical presence. The Managed Bank is not
permitted to transact business within the licensing jurisdiction
but may maintain its books, records, etc., to assure secrecy of
operations.
Margin Calls
Occur anytime your account balance falls below your total margin
requirement. If you do not have enough money to satisfy your
total margin requirement, you are placed on a Margin Call.Technically
you have up to 5 days to satisfy a margin call, which can be done
by increasing your account value or by liquidating some of your
positions. Many brokerage firms, however, will insist that
you correct a margin call immediately.
Medium Term Note (MTN)
When discussing bank trading programs, a standard form of debenture
with a term of ten years and a annual interest rate of 7.5 %. Also
known as Medium Term Debenture (MTD).
Merchant Bank
A European form of an Investment Bank.
Mini-Trust
A short (usually preprinted) form of a trust, often used as a
confidentiality enhancer, to bridge the ownership and management
of an International Business Company. The Mini-Trust is intended
only to pass assets on the death of the settlor, i.e. a will substitute.
Money Supply
The total of all money and money substitutes (demand deposits
and currency outside of banks).
MT 100 Field 72
A means of irrevocably transferring funds between banks using
computers.
Mutual Legal Assistance Treaty
A treaty which provides for mutual legal assistance, including
the exchange of information, etc., in cases where criminal offenses
have been committed.
Net Asset Value
The value of a company after all debts have been paid, expressed
as an amount per share.
Nominee Company
A company formed for the express purpose of holding securities
and other assets in its name or to provide nominee directors and/or
officers on behalf of clients of its parent bank or trust company.
Nominee Director
A director whose function is passive in nature. The director receives
a fee for lending his or her name to the organization. Nominee
directors are subject to director responsibilities.
Nominee Name
Name in which security is registered and held in trust on behalf
of the beneficial owner.
Off-balance sheet financing
The process whereby a contingent (dependent on certain events)
liability is not recorded as a liability on the balance sheet but
typically appears in the notes to the financial statement. Off-balance
sheet financing is therefore not reflected in the balance sheet
total, although possible related reserves will.
Offshore Banking
By popular usage, the establishment and operation of US or foreign
banks in such offshore tax havens as the Bahamas, The B.V.I. and
the Cayman Islands.
Offshore Banking Unit (OBU)
A bank in an offshore financial center, not allowed to conduct
business in the domestic market but only with other OBU’s
or with foreign persons.
Offshore Booking Centers
An offshore financial center used by international banks as a
location for "shell branches" to book certain deposits
and loans. Such offshore bookings are often utilized to avoid regulatory
restrictions and taxes.
Offshore Company
See International Business Company.
Offshore Financial Centers
A country or jurisdiction where an intentional attempt has been
made to attract foreign business by deliberate government policy
such as the enactment of secrecy laws and tax incentives.
Offshore Group of Banking Supervisors (OGBS)
Established in October 1980 at the instigation of the Basle Committee
on Banking Supervision with which the Group maintains close contact.
The primary objective of OGBS is to promote the effective supervision
of banks in their jurisdictions and to further international cooperation
in the supervision between the Offshore Banking Supervisors and
between them and Basle Committee member nations and other banking
supervisors.
Current OGBS members are: Aruba, Bahamas, Bahrain, Barbados, Bermuda,
Cayman Islands, Cyprus, Gibraltar, Guernsey, Hong Kong, Isle of
Man, Jersey, Lebanon, Malta, Mauritius, Netherlands Antilles, Panama,
Singapore and Vanuatu.
Offshore Limited Partnership
A partnership, the general partner of which is an offshore company.
The limited partners may be onshore entities.
Offshore Profit Centers
Branches of major international banks and multinational corporations
located in a low tax financial center which are established for
the purpose of lowering taxes.
Offshore Trust
The quality that differentiates an offshore trust from an onshore
trust is portability. The offshore trust can be transferred to
additional jurisdictions to maintain confidentiality and to advantage
desirable facets of the new jurisdictions laws.
One-year Zeros
An obligation of a bank due in one year and sold at a discount
from face value in lieu of an interest coupon.
Ordinary Shares
The most common form of shares. Holders receive dividends which
vary in accordance with the profitability of the company and the
recommendations of the directors. The holders of the ordinary shares
are the owners of the company.
Par
Equal to the nominal or face value of a security. A bond selling
at par is worth the same dollar amount as it was issued for, or
at which it will the redeemed at maturity.
Parallel Account
A separate account established at the transactional bank.
Pay Order
Document which instructs a bank to pay a certain sum to a third
party. Such orders are normally acknowledged by the bank which
provides a guarantee that the payment will be made.
Portfolio
A collection of securities held by an investor.
Principal
The party that controls the funds and seeks a secure high-yield
investment.
Private Placement
The sale of securities to a small group of investors (generally
35 or fewer) which is exempt from SEC registration requirements.
The investors execute an investment letter stating that the securities
are being purchased for investment without a view towards distribution.
Private Trustee Company
A company incorporated in certain offshore jurisdictions, such
as Bermuda, to act as a trustee for a limited class or group of
trusts. Private trustee companies are not permitted to offer trustee
services to the public generally.
Privatization
Conversion of a state run company into a public company, often
accompanied by a sale of its shares to the general public.
Proof of Funds (POF)
A document by which the principal's bank states that the principal
owns the funds required for the transaction. Usually, proof of
funds can also be delivered in the form of a recent bank-, security-
or custody statement.
Proper Law
The body of law which governs the validity and interpretation
of a contract or trust deed.
Protector
A person appointed by the settlor/grantor of a trust, who has
limited powers to control the trustee. The protector usually has
the right to change trustees.
Provider
A wealthy private party buying guarantees from the issuing banks,
reselling them through banks/brokers. Other designation: commitment
holder.
Purpose Trust
A trust created for an express purpose without any individually
ascertained or ascertainable beneficiaries. A purpose trust is
typically used in circumstances where the trust is of philanthropic
nature.
Resident Company
A bank, trust company or holding company permitted to deal only
in local currency. Foreign currency transactions must be approved
by the appropriate regulatory authority.
Retail Buyer
The buyer of a security when it arrives on the secondary (retail)
market.
Re-domiciliation Corporations
Some offshore jurisdictions allow corporations incorporated in
other jurisdictions to reincorporate in their own at will.
Rights Issue
An invitation to existing shareholders to acquire additional shares
in the company in proportion to the number of shares they already
own - usually at a preferential price.
Roll Program
A broker term describing a trade program. The use of the term “roll
program”should be avoided.
Safekeeping Receipt
A document issued by a bank which obligates the bank to unconditionally
hold certain funds separate from other bank assets and return them
when requested by the depositor. In this way, the funds are not
an asset of the bank nor are they directly or indirectly subject
to any of the bank's other obligations or debts.
Seasoned
Securities owned by a participant in the secondary (retail) market.
Secondary Public Offering
This refers to a public offering subsequent to an initial public
offering. A secondary public offering can be either an issuer offering
or an offering by a group that has purchased the issuer's securities
in the public markets.
Secondary Purchase
Purchase of stock in a company from a shareholder, rather than
purchasing stock directly from the company.
Securities
General name for shares and bonds of all types. Shares produce
a variable dividend and bonds a fixed interest.
Service Company
A company located in an offshore financial center to provide management,
invoicing and other services for client companies located in other
countries. Initially used to advantage double taxation treaties.
Service Companies are now frequently used to facilitate flight
capital outflow and are often involved in money laundering schemes.
Settlement
Exchanging money or securities for securities.
SLC - Standby Letter of Credit
Stand-by Letter of Credit. A financial guarantee or performance
bond issued by a bank on behalf of a customer and regulated by
the ICC-500 rules.
Stages
First Stage
Financing provided to companies that have expended their initial
capital and require funds, often to initiate commercial manufacturing
and sales.
Second Stage
Working capital for the initial expansion of a company that is
producing and shipping and has growing accounts receivable and
inventories. Although the company has clearly made progress, it
may not yet be showing a profit.
Third Stage
Funds provided for the major growth of a company whose sales
volume is increasing and that is beginning to break even or turn
profitable. These funds are typically for plant expansion, marketing
and working capital development of an improved product.
Follow-on/Later Stage
A subsequent investment made by an investor who has made a previous
investment in the company -- generally a later stage investment in comparison
to the initial investment.
Sub Account (Segregated account)
Where an entity has established a relationship with a bank that
includes the bank acting on the entity's behalf a sub account is
opened to hold funds in the name of the entity's client. The funds
can only the used according to the terms of a written agreement
that is given to and approved by the bank. The funds are not considered
an asset of the entity or the bank, and are not subject to the
debts of either the entity or the bank if a safekeeping receipt
is issued by the bank.
Sub-account (segregated account)
When a bank acts on behalf of an intermediary, a sub-account is
opened for each of the intermediaries' clients, to hold their funds
in their name. The account can only be operated, and the funds
can only be used, according to the terms of a written agreement
(Power of Attorney) that is given to, and approved by, the bank.
The deposited funds are not considered intermediary assets nor
bank assets if a safekeeping receipt is issued by the bank.
Time Deposit
A bank deposit that is not payable on demand.
Total Margin
Total margin for your futures account is simply all the margin
requirements of all your positions added together. As
long as your account balance is greater than this total, you have
adequate margin.
Trade Program
A term for the participation in the buying and the selling of
bank debentures.
Tranche
A specified part of a larger transaction. Each purchase and resale
of a separate block of bank instruments in a trading group is known
as a tranche. For example, a contract may the signed to buy 10
billion dollars worth of bank paper with an initial tranche (or
purchase) of 500 million dollars.
Transfer
The form signed by the seller of a security authorizing the company
to remove his name from the register and substitute that of the
buyer.
Underwriting
An investment banking firm acting as underwriter sells securities
from the issuing corporation to the public. A group of firms may
from a syndicate to pool the risk and assure successful distribution
of the issue. There are two types of underwriting arrangements:
best efforts and firm commitment.
With best efforts, the underwriters have the option to buy and
authority to sell securities, or if unsuccessful, may cancel the
issue and forgo any fees. This arrangement is more common with
speculative securities and with new companies. With a firm commitment,
the underwriters purchase outright the securities being offered
by the issuer.
Venture Capital
Venture Capital is the process by which investors fund early
stage, more risk oriented business endeavors. A venture capital
funding arrangement will typically entail relinquishing some level
of ownership and control of the business. Offsetting the high risk
the investor takes is the promise of high return on the investment.
The investment is usually in the form of stock or an instrument
which can be converted into stock at some future date. As the business
matures, an initial public offering may take place, or the business
merged or sold, or other sources of capital found. Any of these
would occur with the intention of buying out the venture capitalists.
Venture capitalists typically expect a 20-50% annual return on
their investment at the time they are brought out. Venture capitalists
typically invest in high growth companies with the potential to
generate revenues of $20MM in any one company, but typical investments
range from between $500,000 and $5MM. Management experience is
a major consideration in evaluating financing prospects.
Warrant
A special kind of option given by the company to holders of a
particular security giving them the right to subscribe for future
issues, either of the same or of some other security.
White Knight
A company which rescues another which is in financial difficulty,
especially one which saves a company from an unwelcome takeover
bid.
Yield
The return earned on an investment taking into account the annual
income and its present capital value. There are a number of different
types of yield and in some cases different methods of calculating
each type.
106/108% Bank Guarantee
A written guarantee issued and payable by a bank which provides
for the return of the principal amount plus six or eight percent
interest.
Introduction
The trading in "debt instruments" is a multi trillion
dollar industry worldwide. Top world banks (Money Center Banks)
are authorized to issue blocks of debt instruments like Bank Purchase
Orders (BPOs), Promissory Bank Notes or Mid-Term Notes (MTNs),
Zero Coupon Bonds (Zeros), Documentary Letters of Credit (DLCs),
Stand By Letters of Credit (SLCs), or Bank Debenture Instruments
(BDls) under International Chamber of Commerce guidelines (ICC
- 500 & 600).
The prices of these instruments are quoted as a percentage of
the face amount of the instrument, with the initial market price
being established when first issued. Thereafter, as they are resold
to other banks, they are sold at escalating higher prices, thus
realizing a profit on each transaction, which can take as little
as one day to complete.
As these debt instruments are bought and sold within the banking
community, the trading cycles generally move from the higher level
banks to lower level (smaller) banks. Often they move through as
many as seven or eight trading cycles, until they eventually are
sold to an already contracted retail customer or "exit buyer" such
as a pension fund trust fund, foundation, insurance company, security
dealer, etc. that is seeking a conservative, reasonable yield investment
that is suitable for 8 figure amounts.
By the time the bank debentures ultimately reach the "retail" or
secondary market level, they are of course selling at substantially
higher prices than when originally issued. For example, while the
original issuing bank might sell a "MTW" at 80% of it's
face value, by the time it finally reaches the "retail/exit" buyer
it can sell for 91% to 93% of it's face value. Since these transactions
are intended for large financial institutions, they are denominated
in face amounts commonly ranging from US $10 million.
The key to safety and profits
The key to successful trading in Bank Instruments lies in having
the contacts, initial cash resources, and wherewithal to purchase
them at the maximum discount while also having the necessary resources
and contacts to sell the Instruments in the higher priced secondary
markets.
The real secret of successful participation lies not in knowing
the how, why and wherefore of these transactions, but far more
importantly, in knowing and developing a strong working relationship
with the "Insiders": the Principals, Providers, Bankers,
Lawyers, Brokers, and other specialized professionals who can combine
their skills and connections to turn these resources into lawful,
secure, and responsible programs with the maximum potential for
safe gain. There has been a lot of interest expressed by persons
seeking to learn more about risk free capital accumulation by participating
in Forfaiting (Trading) Programs.
Essentially, we are discussing a Money Center Bank Instrument
or Bank Debenture Purchase and Resale Program in which these monetary
securities are bought at a beneficially lower price and then sold
in the money markets at a higher price.
Before a trader commits to any transaction, they must always ensure
that they have a guaranteed Exit Sale, (another party willing to
purchase the bank debentures at an agreed to higher price, at the
conclusion of a number of trading cycles). If no end customer is
available before the transaction commences, then no trade will
take place, as the trader must always protect his positions; This
is, of course, vital for the maintaining of the profitability of
the program.
Questions and Answers
If this is such a good investment, why have we not heard
about it?
The internal trading of bank debentures is a privileged and highly
lucrative profit source for participating banks, and as a result,
these opportunities are not made known to the public (bank customers).
It would be difficult, at best, to entice clients to purchase Certificates
of Deposit, yielding 2.5% to 6%, if they were aware that other,
equally secure investment accounts yielded more than ten times
higher rates of return.
The banks and traders always employ the strictest non-disclosure
and non-circumvention clauses in trading contacts to ensure the
confidentiality of the transactions. The contracts usually contain
explicit language forbidding the contracted parties to disclose
any aspect of the transaction for a period of five years.
As a result, it is difficult to locate experienced individuals
who are knowledgeable and willing to candidly discuss these opportunities
and the high profitability associated with them, since in so doing,
they would severely jeopardize their opportunity to participate
in further transactions.
There are no smoke and mirrors involved; all of the trading programs
are conducted under the specific guidelines set up by the International
Chamber of Commerce (I.C.C.)., generally known as I.C.C. 500 & 600.
The I.C.C. is the regulatory body for the World's Great Money Center
Banks and is based in Paris, France. It has existed for more than
100 years, and exerts strict control on world banking procedures.
The U.S. Federal Reserve is a very important member, but unlike
most other central banks, operates independently of the I.C.C.,
and as a result, the vast majority of U.S. citizens have not been
made aware of the money making opportunities already available
for forty-five years to qualified European Investors through I.C.C.
affiliated banks.
A few major U.S. banks do participate from within their banking
operations based in Switzerland and the Cayman Islands, but they
do not normally make their programs available to Americans living
in the USA, and the chances are very great that your local bank
manager has absolutely no knowledge of them, and may even deny
their existence.
How are the investor's funds protected?
As the funds are deposited into a transaction they are secured
by a Bank Guarantee issued by a Top Money Center Bank, until the
completion of the transaction and return of the proceeds to the
Investor. This feature makes the investment as secure as buying
a CD in a major world bank, at least for the investor with sufficient
funds to get his own contract.
The return on the investment is normally not guaranteed by the
bank, except for a small portion (up to 12% per year). Oftentimes
the return is guaranteed by the trader, who has to perform according
to the contract to stay in business.
What is a bank guarantee?
A Bank Guarantee is a bank debenture instrument (or Certificate
of Deposit), usually issued by a Top Money Center Bank. Bank Guarantees
in the form of Bank Debentures are not available to the general
public. They are used to secure the safekeeping of clients' funds
while they are committed to a forfaiting (trading) transaction.
Can I participate through my U.S. bank or brokerage firm?
There is no advantage to the U.S. Federal Reserve in making Forfaiting
transactions available in the United States. Under the Glass-Steagal
Act of 1933, U.S. Banks and Brokerage Houses are prohibited by
law from offering such programs in the domestic markets.
In addition, as a result of the 1929 collapse, American bankers
are severely inhibited by various regulatory procedures and other
requirements which make it impossible for them to offer these transactions
to their U.S. clients. Chances are that your attorney, banker and
broker have absolutely no knowledge of these programs since they
are only conducted by Top Money Center Banks located in Western
Europe.
Can I go directly to a European bank to participate?
This type of trading contract is not offered as over-the-counter
transactions. Forfaiting (Trading) transactions are highly privileged "insider" opportunities
which are only made available to those who have qualified for participation
by first completing all of the necessary documents, including bank
certified proof of funds, and have followed the established protocol
before they are allowed to proceed.
Any attempt to circumvent the established procedures results in
automatic blacklisting of the offending party, by the applicable
provider, and possible penalties with no possibility of further
participation in other programs.
Can the profits be compounded?
Under I.C.C. regulations, all transactions close to new business
on December 15th of the year and are not repeated in the following
year. Those transactions already in place will continue through
to the completion of the agreed period.
Many programs become fully subscribed in a relatively short time,
and once closed to new business will not reopen. During the trading
year an Investor may, subject to continuing availability, step
up to another program or reinvest at the same or higher levels
in the currently available program and thus maximize his returns.
Can I use U.S. Treasury Bonds, Bills or other U.S. Government
Securities in a Forfaiting Program?
It is possible to use the above types of securities to participate
in specific "Blocked Funds" forfaiting (trading) programs,
subject to the following requirements:
a) That the securities intended for participation can be authenticated
by a Top 25 West European Money Center Bank; that they carry a
registered, current C.U.S.I.P. number, and that ownership in the
name of the intended participant can be verified to the satisfaction
of the bank.
b) That the intended participant provide, from the West European
Money Center Bank, under an approved format, Bank Certified Proof
of Funds and other required documentation The securities can, of
course, be hypothecated to the bank for a cash loan; the cash can
then be used for participation in a trading program as usual This
is the preferred procedure.
What part does the I.C.C. play?
Regulation of the international banking industry is under the
authority of the International Chamber of Commerce. The I.C.C.
is based in Paris, France, and has been in existence for more than
100 years. The I.C.C. is the world's monetary policeman and exerts
tremendous power in establishing the policies and procedures under
which all international banking transactions take place.
Some indication of this can be seen when one realizes that the
U.S. Federal Reserve came into being and gained acceptance in the
international banking community only after it's approval was granted
by the I.C.C. I.C.C 500 and 600 regulations are the controlling
authority for all European and international banking transactions.
These regulations are not available for public scrutiny any more
than are those of the Federal Reserve in the USA.
What role is the Federal Reserve playing?
The U. S. Federal Reserve is a member of the International Chamber
of Commerce. As such, it represents the U.S. Dollar, which has
been used as the International Reserve Currency since the days
the Bretton Woods Agreement came into effect. The Bretton Woods
Agreement was signed in 1944 between the major Western Powers,
and became fully effective in 1951.
The Federal Reserve regulates the supply of dollars in circulation,
and as dollar credits are shipped offshore they are placed with
London Bankers for entry into the worlds money markets. The London
Banks have been the international monetary clearing house for hundreds
of years. The vast majority of nations, large and small, entrust
their funds to these bankers which have been the major managers
of Eurodollars (offshore dollars) ever since the Dollar became
the "pegged" currency, replacing the English Pound
The U.S. Dollar is the sole currency used in Forfaiting (Trading)
Transactions, primarily because it is the accepted reserve currency,
but also because of the huge amount of Eurodollars which are in
circulation worldwide.
The supply of Eurodollars continues to increase on a daily basis
as the U.S. Government continues to pay its international trade
deficit (which amounted to $166 billion in the 1994 trading year)
and national debt interest payments (which now amount to approximately
US$350 billion each year) with fiat currency.
It is important to recognize that the European nations in which
the Forfaiting transactions take place are financially powerful
sovereign nations, with their own well regulated stable banking
systems which have proven their worth and stood the test of time.
These bankers report to the Federal Reserve, not in a subservient
capacity, but as the managing agents for the Eurodollars engaged
in transactions and general banking activity throughout the world.
It follows that the Federal Reserve, to some extent, regulates
the amount of dollars available for use by the European Banks,
and as Forfaiting transactions take place, they are reported to
the Federal Reserve. These reports are normally not made on an
individual basis, but on the overall volumes of dollars engaged
in value building Forfaiting transactions, in support of the U.S.
Dollar.
What is the reason for the existence of this market?
The legal and regulatory environment created by the Bretton Woods
Agreement which authorized the issuance of fiat paper currencies,
provides the necessary mechanism that enables the forfait trading
of U.S. dollars in international markets.
The vast majority of currencies in use around the world today
are fiat currencies, i.e., not backed by real assets.
For example, at the time of creation (printing) by the Federal
Reserve, Federal Reserve Notes are literally worth the price of
the paper, ink and labor. No more and no less.
Dollar bills are non-redeemable, which means that the Federal
Reserve has no obligation to make their notes good or even to hold
their value stable at home or abroad. We use Federal Reserve Notes
inside the USA as the accepted vehicle of exchange, and they are
given value solely by our productivity, labor and taxes.
However, when we ask foreign nations to accept this paper to pay
for debt service and/or trade deficit purchases of their oil cars,
VCR's, machine tools, wine, food clothing etc., there has to be
a process to build value for this otherwise: unsecured and non-redeemable
fiat currency. This is what creates the market.
How does the process work?
This is where the European bankers come into the picture. They
establish Forfaiting trades in Money Center Bank Debentures which
are first issued in U.S. dollar denominations at a discounted price
to the Commitment Holders of about 75 to 80 cents on the dollar.
The debentures are then placed at the disposal of major European
Money Center Banks and first go into trade at about 82 cents on
the dollar. Thereafter, through a series of trading transactions
which build value in increments of 1, 2 or even 3 cents on the
dollar, the U.S. dollar eventually reaches parity with its perceived
street value on any given day.
The importance of this value building process can be seen when
it is understood that these trades are taking place in multiples
of hundreds of millions of dollars on a daily basis, year in and
year out.
Incidentally, the reason that the value of the U.S. dollar continues
to decline in world markets is because the Federal Reserve has
dramatically escalated the amount of Eurodollars in circulation
over the past ten years; there are many trillions in circulation
around the world.
It is not a matter of the Yen or Deutche Mark "increasing" in
value, as the Fed and the U.S. politicians would have you believe;
it is the old rule of supply and demand. As more and more U.S.
paper is put into play, the less its perceived value becomes in
world markets; and the world's bankers are unwilling to exchange
less of their more stable currencies for it.
Are IMF and the World Bank involved?
All fiat currencies are debt instruments, which are issued against
a value building transaction. When we accept dollar loans from
a U.S. bank they literally created that loan on paper, funded it
with paper, and we then redeem the debt with our labor and goods,
creating value for the borrowed currency in the process. The International
Monetary Fund and the World Bank work to place EurodoIlar into
value building projects the world over. The funds used by these
organizations originate from Debenture Forfait Trading, and is
yet another method to establish value for the U.S. dollar in world
markets.
Where are the Money Center banks located?
Major Money Center Banks engaged in Forfaiting (Trading) transactions
are primarily located in the financial centers of Paris, London,
Brussels, Amsterdam, Vienna Zurich Geneva, Liechtenstein and Luxembourg.
Specific banks are not disclosed to potential clients outside the
parameters of an approved transaction.
The Teorien site or Turin Group is run by "Rudi" Roelof
Stepanus Toerin of:
374 Nicilsan St.
WaterKloof, Pretoria, ZA 0021
South Africa
27121 460 4865
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