Another option for 'Funding Mega Dollar Projects' is to use Bank Guarantees (BG's), or similar Bank Instruments.
This is an excellent option for 3rd world countries. The government has a prime 'Bank' issue the Bank Guarantee to the Developer who was awarded the 'Project'. This can be for any type of project:
B.O.T. - Build, Operate, and Transfer
B.O.O. - Build, Operate, and Own
Environmental Project
Construction Project
Hospital or Medical Facility
ManufacEagle Tradersg Facility
Development Project
Quasi Government Project
Government Project
Nature and Natural Preservation Projects - Save the Rain Forest, Plant Tree Farms, etc.
Other
In principal this is how it works
The client may composite the value of the 'Contract' into a series of transactions utilizing Bank Guarantees (BG's) or similar Bank Instruments, whereby they (the client) do large project amounts ranging in increments of 20 to 100 million US Dollars utilizing corresponding Bank Instrument amounts.
However, the cash value (actual conversion amount) of each BG or Bank Instrument must be paid in full at time of every transaction for each of these larger projects. This is done in phases (stages over a period of time) during a predetermined schedule or life of the project.
The basic criteria would be a project or a series of projects rolled into one entity with a contract value of 200 million US dollars and above.
Example
Since projects are generally time phased for payments, the first payment on a 200 million US Dollar project could be 20m. The client would have issued a Bank Instrument such as a BG for 20m. The 'Bank Instrument', such as a BG, is then converted to real working dollars based on the market value of the instrument at the time.
Sunday, August 29, 2010
Corporate Promissory Notes (Continue....2)
Helpful hints:
CPN's are usually issued by a corporation as collateral or for the sole purpose of raising capital (liquid assets in the form of cash).
CPN's held by individuals are highly questioned by banks throughout the world. It is generally easier to raise a 'Credit Line' than convert this type of instrument into CASH!
Fluctuating World Market Conditions set the pace and determine the trading value, if any.
Usually most every instrument can be converted, however, some are just Not desirable
Trading Instruments on the current World Market.
Substantiated "Documentation' is needed for this type of transaction.
The Following Corporate Promissory Notes are very difficult to do at the present, and only a 'Credit Line' could be raised:
Any CPN issued from any Corporation in Indonesian unless backed by a Major World Bank.
Any CPN issued from any Corporation in Thailand unless backed by a Major World Bank.
Any CPN issued from any Corporation in Philippines unless backed by a Major World Bank.
Any CPN issued from any Corporation in Malaysia unless backed by a Major World Bank.
Any CPN issued from Corporation in Russia unless backed by a Major World Bank.
Any CPN held by an Individual in lieu of a company, trust, corporation, endowment, or
nonprofit entity.
The Following CPN's Are NOT Currently Tradable:
CPN's issued from Vietnam
CPN's issued from Cambodia
CPN's issued from Laos
CPN's issued from Burma
Important Notice:
It is widely considered a trading rule that any securities are deemed NOT Tradable if they originate from a non recognized international public trading exchange. This applied to Any type of Security Note (stock, bond, mutual fund, trust, MTN, debentures, etc.).
CPN's are usually issued by a corporation as collateral or for the sole purpose of raising capital (liquid assets in the form of cash).
CPN's held by individuals are highly questioned by banks throughout the world. It is generally easier to raise a 'Credit Line' than convert this type of instrument into CASH!
Fluctuating World Market Conditions set the pace and determine the trading value, if any.
Usually most every instrument can be converted, however, some are just Not desirable
Trading Instruments on the current World Market.
Substantiated "Documentation' is needed for this type of transaction.
The Following Corporate Promissory Notes are very difficult to do at the present, and only a 'Credit Line' could be raised:
Any CPN issued from any Corporation in Indonesian unless backed by a Major World Bank.
Any CPN issued from any Corporation in Thailand unless backed by a Major World Bank.
Any CPN issued from any Corporation in Philippines unless backed by a Major World Bank.
Any CPN issued from any Corporation in Malaysia unless backed by a Major World Bank.
Any CPN issued from Corporation in Russia unless backed by a Major World Bank.
Any CPN held by an Individual in lieu of a company, trust, corporation, endowment, or
nonprofit entity.
The Following CPN's Are NOT Currently Tradable:
CPN's issued from Vietnam
CPN's issued from Cambodia
CPN's issued from Laos
CPN's issued from Burma
Important Notice:
It is widely considered a trading rule that any securities are deemed NOT Tradable if they originate from a non recognized international public trading exchange. This applied to Any type of Security Note (stock, bond, mutual fund, trust, MTN, debentures, etc.).
Corporate Promissory Notes (Continue....1)
Corporate Promissory Notes (CPN's) - Issued by Major Corporations, usually public listed and underwritten by a Bank or Underwriter. This can be any foreign bank, or a Central Bank from country of origin.
Convert to Cash like handling a BG or raise a Credit Line.
Value conversion depends on many factors, some fixed, some floating such as…
Type of Promissory Note (time, maturity date, ownership, value, etc.)
Issuing Corporate Rating (preferably a Dunn and Bradstreet or similar Credit Rating)
Underwriting or Guarantor Bank and their Rating (Central Bank of a Government, Local in
Country Bank, Foreign Worldwide Bank, etc.)
Agent, Underwriter, Security House, or Bank Holding Promissory Note
What type of ‘Currency’, US Dollars is always preferred, but most others are acceptable
Market Conditions
Bank Policy or Underwriter Policy
Politics
Ownership, and Type of Restrictions, if any
Currency Fluctuation, if not already in US dollars
Client Anticipation of Return
Place Transaction Occurs
What is done with ‘Cash’ after conversion - this is becoming a paramount issue with banks or security houses converting the instrument, the preferred and acceptable method is to deposit a portion of the redeemed funds with the honoring bank or security house, usually as follows...
(1) For a 'Bank' not less than 50% for a period of not less than six (6) months.
(2) For a 'Security Trading House' not less than 30% either reinvested in other
types of asset portfolio management (stocks, bonds, mutual funds, etc.)
or in their money market fund.
Convert to Cash like handling a BG or raise a Credit Line.
Value conversion depends on many factors, some fixed, some floating such as…
Type of Promissory Note (time, maturity date, ownership, value, etc.)
Issuing Corporate Rating (preferably a Dunn and Bradstreet or similar Credit Rating)
Underwriting or Guarantor Bank and their Rating (Central Bank of a Government, Local in
Country Bank, Foreign Worldwide Bank, etc.)
Agent, Underwriter, Security House, or Bank Holding Promissory Note
What type of ‘Currency’, US Dollars is always preferred, but most others are acceptable
Market Conditions
Bank Policy or Underwriter Policy
Politics
Ownership, and Type of Restrictions, if any
Currency Fluctuation, if not already in US dollars
Client Anticipation of Return
Place Transaction Occurs
What is done with ‘Cash’ after conversion - this is becoming a paramount issue with banks or security houses converting the instrument, the preferred and acceptable method is to deposit a portion of the redeemed funds with the honoring bank or security house, usually as follows...
(1) For a 'Bank' not less than 50% for a period of not less than six (6) months.
(2) For a 'Security Trading House' not less than 30% either reinvested in other
types of asset portfolio management (stocks, bonds, mutual funds, etc.)
or in their money market fund.
Corporate Medium Term Notes (MTNs)
"Corporate MTNs", are simple one mechanism available to selling off Corporate Debt. These 'Corporate MTNs' are sold and traded on the Open Market, just like any other stock, security, or bank instrument.
It is often very advantageous for a company to sell off their "Debt."
Some advantages are:
(1) Getting Rid of the Debt
(2) Raising Capital
(3) Better Market Exposure
(4) Freeing Up Assets to Pursue Other Things
IN A FINANCIAL WORLD GONE CRAZY, DEBT IS AN 'ASSET'
Dr. Money's Team is ready to assist You:
(1) Creating the avenue to Sell "New Bonds"
(2) Arranging to Sell "Existing Bonds"
Important Notice:
It is widely considered a trading rule that any securities are deemed NOT Tradable if they originate from a non recognized international public trading exchange. This applies to any type of Security Note (stock, bond, mutual fund, trust, MTN, debentures, etc.).
It is often very advantageous for a company to sell off their "Debt."
Some advantages are:
(1) Getting Rid of the Debt
(2) Raising Capital
(3) Better Market Exposure
(4) Freeing Up Assets to Pursue Other Things
IN A FINANCIAL WORLD GONE CRAZY, DEBT IS AN 'ASSET'
Dr. Money's Team is ready to assist You:
(1) Creating the avenue to Sell "New Bonds"
(2) Arranging to Sell "Existing Bonds"
Important Notice:
It is widely considered a trading rule that any securities are deemed NOT Tradable if they originate from a non recognized international public trading exchange. This applies to any type of Security Note (stock, bond, mutual fund, trust, MTN, debentures, etc.).
Corporate Bonds
"Corporate Bonds", are simple one mechanism available to selling off Corporate Debt. These 'Bonds' are sold and traded on the Open Market, just like any other stock, security, or bank instrument.
It is often very advantageous for a company to sell off their "Debt."
Some advantages are:
(1) Getting Rid of the Debt
(2) Raising Capital
(3) Better Market Exposure
(4) Freeing Up Assets to Pursue Other Things
The Eagle Traders is ready to assist You:
(1) Creating the avenue to Sell "New Bonds"
(2) Arranging to Sell "Existing Bonds"
Important Notice:
It is widely considered a trading rule that any securities are deemed NOT Tradable if they originate from a non recognized international public trading exchange. This applies to Any type of Security Note (stock, bond, mutual fund, trust, MTN, debentures, etc.).
It is often very advantageous for a company to sell off their "Debt."
Some advantages are:
(1) Getting Rid of the Debt
(2) Raising Capital
(3) Better Market Exposure
(4) Freeing Up Assets to Pursue Other Things
The Eagle Traders is ready to assist You:
(1) Creating the avenue to Sell "New Bonds"
(2) Arranging to Sell "Existing Bonds"
Important Notice:
It is widely considered a trading rule that any securities are deemed NOT Tradable if they originate from a non recognized international public trading exchange. This applies to Any type of Security Note (stock, bond, mutual fund, trust, MTN, debentures, etc.).
Bank Guarantees (BG’s)
Bank Guarantees (BG’s) - Raise a Credit Line or Cash them in for real dollars.
Value conversion depends on many factors, some fixed, some floating such as…
Ownership of BG - Corporate or Private - Corporate is Highly Preferred
The Type of BG
Issuing Bank Rating as well as location (branch) of Bank Issuing the BG
Physical Location of the Original BG - Safety Deposit Box, Corporate Office Safe, Home, etc.
If an Agent, Security House, or Third Party Bank is Holding BG’s
BG must be in US Dollars only
Market Conditions
Bank Policy
Client anticipation of return
Place transaction occurS
What is done with ‘Cash’ after conversion - this is becoming a paramount issue with banks
converting the instrument, the preferred and acceptable method is to deposit a portion
of the redeemed funds with the honoring bank, usually not less than 50% for a period
of not less than six (6) months.
Some Helpful Hints Before Starting....
BG's are usually issued by a corporation as collateral.
BG's held by individuals are highly questioned by banks throughout the world.
It is generally easier to raise a 'Credit Line' than convert the instrument to CASH!
Fluctuating World Market Conditions set the pace and determine the trading value, if any.
Usually most every instrument can be converted, however, some are just Not desirable
Trading Instruments on the current World Market.
Substantiated "Documentation' is needed for this type of transaction.
The Following Bank Guarantees are very difficult to do at the present, and only a 'Credit Line' could be raised:
1. Any BG issued from any Indonesian Bank
2. Any BG issued from any Thailand Bank
3. Any BG issued from any Philippine Bank
4. Any BG issued from any Malaysian Bank
Any BG held by an Individual in lieu of a company, trust, corporation, or nonprofit entity
The Following BG's Are NOT Currently Tradable:
1. BG's issued from Russia
2. BG's issued from Vietnam
3. BG's issued from Cambodia
4. BG's issued from Laos
5. BG's issued from Burma
Important Notice:
It is widely considered a trading rule that any securities are deemed NOT Tradable if they originate from a non recognized international public trading exchange. This applies to Any type of Security Note (stock, bond, mutual fund, trust, MTN, debentures, etc.).
Value conversion depends on many factors, some fixed, some floating such as…
Ownership of BG - Corporate or Private - Corporate is Highly Preferred
The Type of BG
Issuing Bank Rating as well as location (branch) of Bank Issuing the BG
Physical Location of the Original BG - Safety Deposit Box, Corporate Office Safe, Home, etc.
If an Agent, Security House, or Third Party Bank is Holding BG’s
BG must be in US Dollars only
Market Conditions
Bank Policy
Client anticipation of return
Place transaction occurS
What is done with ‘Cash’ after conversion - this is becoming a paramount issue with banks
converting the instrument, the preferred and acceptable method is to deposit a portion
of the redeemed funds with the honoring bank, usually not less than 50% for a period
of not less than six (6) months.
Some Helpful Hints Before Starting....
BG's are usually issued by a corporation as collateral.
BG's held by individuals are highly questioned by banks throughout the world.
It is generally easier to raise a 'Credit Line' than convert the instrument to CASH!
Fluctuating World Market Conditions set the pace and determine the trading value, if any.
Usually most every instrument can be converted, however, some are just Not desirable
Trading Instruments on the current World Market.
Substantiated "Documentation' is needed for this type of transaction.
The Following Bank Guarantees are very difficult to do at the present, and only a 'Credit Line' could be raised:
1. Any BG issued from any Indonesian Bank
2. Any BG issued from any Thailand Bank
3. Any BG issued from any Philippine Bank
4. Any BG issued from any Malaysian Bank
Any BG held by an Individual in lieu of a company, trust, corporation, or nonprofit entity
The Following BG's Are NOT Currently Tradable:
1. BG's issued from Russia
2. BG's issued from Vietnam
3. BG's issued from Cambodia
4. BG's issued from Laos
5. BG's issued from Burma
Important Notice:
It is widely considered a trading rule that any securities are deemed NOT Tradable if they originate from a non recognized international public trading exchange. This applies to Any type of Security Note (stock, bond, mutual fund, trust, MTN, debentures, etc.).
Capital Markets
Short-term investments and borrowing are driven by the available rates in the market for these products and services. Likewise, long-term rates in the debt and equity markets will determine the cost of capital for an organization. This section provides sites which offer information to the treasurer on various rates for different segments of the market.
The Federal Reserve Bank of New York provides one of the better sites for daily rates on commercial paper (CP) and foreign exchange (FX). Daily rates are available for dealer-placed and direct-placed commercial paper plus 36 foreign currencies. These are the noon buying rates "as certified by the New York Federal Reserve Bank for customs purposes." All of the rates shown are expressed in terms of foreign currency values (e.g., 118.33 yen/dollar) except for U.K. Sterling rates which are shown in terms of U.S. dollars per pound. In addition, you can access the New York Federal Reserve's 10:00 A.M. midpoint (between buying and selling rates) foreign exchange rates daily for major currencies expressed in foreign currency units:
1. Pound Sterling (expressed in US$ equivalents)
2. Canadian Dollar
3. French Franc
4. German Mark
5. Swiss Franc
6. Japanese Yen
7. Dutch Guilder
8. Belgian Franc
9. Italian Lira
10. Swedish Krone
11. Norwegian Krone
12. Danish Krone
The Federal Reserve Bank of New York provides one of the better sites for daily rates on commercial paper (CP) and foreign exchange (FX). Daily rates are available for dealer-placed and direct-placed commercial paper plus 36 foreign currencies. These are the noon buying rates "as certified by the New York Federal Reserve Bank for customs purposes." All of the rates shown are expressed in terms of foreign currency values (e.g., 118.33 yen/dollar) except for U.K. Sterling rates which are shown in terms of U.S. dollars per pound. In addition, you can access the New York Federal Reserve's 10:00 A.M. midpoint (between buying and selling rates) foreign exchange rates daily for major currencies expressed in foreign currency units:
1. Pound Sterling (expressed in US$ equivalents)
2. Canadian Dollar
3. French Franc
4. German Mark
5. Swiss Franc
6. Japanese Yen
7. Dutch Guilder
8. Belgian Franc
9. Italian Lira
10. Swedish Krone
11. Norwegian Krone
12. Danish Krone
Section 1109.32
A BANK MAY INVEST IN ANY OF THE FOLLOWING:
(1) BONDS, BILLS, NOTES, OR OTHER DEBT SECURITIES OF THE UNITED STATES OR FOR WHICH THE FULL FAITH AND CREDIT OF THE UNITED STATES IS PLEDGED FOR PAYMENT OF PRINCIPAL AND INTEREST;
(2) BONDS, NOTES, OR OTHER DEBT SECURITIES ISSUED BY THIS STATE, OR ANY STATE OF THE UNITED STATES, THAT ARE THE DIRECT OBLIGATION OF THE ISSUER AND FOR WHICH THE FULL FAITH AND CREDIT OF THE ISSUER IS PLEDGED TO PROVIDE PAYMENT OF THE PRINCIPAL AND INTEREST;
(3) BONDS, NOTES, OR OTHER DEBT SECURITIES OF ANY COUNTY, MUNICIPAL CORPORATION, TOWNSHIP, SCHOOL DISTRICT, IMPROVEMENT DISTRICT, SEWER DISTRICT, OR OTHER SUBDIVISION OF THIS STATE OR ANY OTHER STATE OF THE UNITED STATES, THAT ARE THE DIRECT OBLIGATION OF THE COUNTY OR THE SUBDIVISION ISSUING THEM AND FOR WHICH THE FULL FAITH AND CREDIT OF THE ISSUING COUNTY OR SUBDIVISION IS PLEDGED TO PROVIDE PAYMENT OF PRINCIPAL AND INTEREST;
(4) BONDS OR OTHER DEBT OBLIGATIONS ISSUED OR GUARANTEED BY AGENCIES OR INSTRUMENTALITIES OF THE UNITED STATES, REGARDLESS OF THE GUARANTEE OF PAYMENT OF PRINCIPAL AND INTEREST BY THE UNITED STATES;
(5) SUBJECT TO CONDITIONS AND RESTRICTIONS THE SUPERINTENDENT OF FINANCIAL INSTITUTIONS MAY PRESCRIBE, BONDS, DEBENTURES, AND OTHER DEBT SECURITIES ISSUED BY ANY COUNTRY OR MULTINATIONAL ORGANIZATION THAT ARE THE DIRECT OBLIGATION OF THE ISSUING
(1) BONDS, BILLS, NOTES, OR OTHER DEBT SECURITIES OF THE UNITED STATES OR FOR WHICH THE FULL FAITH AND CREDIT OF THE UNITED STATES IS PLEDGED FOR PAYMENT OF PRINCIPAL AND INTEREST;
(2) BONDS, NOTES, OR OTHER DEBT SECURITIES ISSUED BY THIS STATE, OR ANY STATE OF THE UNITED STATES, THAT ARE THE DIRECT OBLIGATION OF THE ISSUER AND FOR WHICH THE FULL FAITH AND CREDIT OF THE ISSUER IS PLEDGED TO PROVIDE PAYMENT OF THE PRINCIPAL AND INTEREST;
(3) BONDS, NOTES, OR OTHER DEBT SECURITIES OF ANY COUNTY, MUNICIPAL CORPORATION, TOWNSHIP, SCHOOL DISTRICT, IMPROVEMENT DISTRICT, SEWER DISTRICT, OR OTHER SUBDIVISION OF THIS STATE OR ANY OTHER STATE OF THE UNITED STATES, THAT ARE THE DIRECT OBLIGATION OF THE COUNTY OR THE SUBDIVISION ISSUING THEM AND FOR WHICH THE FULL FAITH AND CREDIT OF THE ISSUING COUNTY OR SUBDIVISION IS PLEDGED TO PROVIDE PAYMENT OF PRINCIPAL AND INTEREST;
(4) BONDS OR OTHER DEBT OBLIGATIONS ISSUED OR GUARANTEED BY AGENCIES OR INSTRUMENTALITIES OF THE UNITED STATES, REGARDLESS OF THE GUARANTEE OF PAYMENT OF PRINCIPAL AND INTEREST BY THE UNITED STATES;
(5) SUBJECT TO CONDITIONS AND RESTRICTIONS THE SUPERINTENDENT OF FINANCIAL INSTITUTIONS MAY PRESCRIBE, BONDS, DEBENTURES, AND OTHER DEBT SECURITIES ISSUED BY ANY COUNTRY OR MULTINATIONAL ORGANIZATION THAT ARE THE DIRECT OBLIGATION OF THE ISSUING
A brief history of bond valuation
The value of any bond is the present value of its expected cash flows. This sounds simple: Determine the cash flows and then discount those cash flows at an appropriate rate. In practice, it’s not so simple for two reasons. First, holding aside the possibility of default, it is not easy to determine the cash flows for bonds with embedded options. Because the exercise of options embedded in a bond depends on the future course of interest rates, the cash flow is a priori uncertain. The issuer of a callable bond can alter the cash flows to the investor by calling the bond, while the investor in a putable bond can alter the cash flows by putting the bond. The future course of interest rates determines when and if the party granted the option is likely to alter the cash flows.
A second complication is determining the rate at which to discount the expected cash flows. The usual starting point is the yield available on Treasury securities. Appropriate spreads must be added to those Treasury yields to reflect additional risks to which the investor is exposed. Determining the appropriate spread is not simple, and is beyond the scope of this article. The ad hoc process for valuing an option-free bond (i.e., a bond with no options) once was to discount all cash flows at a rate equal to the yield offered on a new full-coupon bond of the same maturity. Suppose, for example, that one needs to value a 10-year option-free bond. If the yield to] maturity of an on-the-run 10-year bond of given credit quality is 8%, then the value of the bond under consideration would be taken to be the present value of its cash flows, all discounted at 8%.
According to this approach, the rate used to discount the cash flows of a 10-year current-coupon bond would be the same rate as that used to discount the cash flow of a 10-year zero-coupon bond. Conversely, discounting the cash flows of bonds with different maturities would require different discount rates. This approach makes little sense because it does not consider the cash flow characteristics of the bonds. Consider, for example, a portfolio of bonds of similar quality but different maturities. Imagine two equal cash flows occurring, say, five years hence, one coming from a 30-year bond and the other coming from a 10-year bond. Why should these two cash flows have different discount rates and hence different present values?
Given the drawback of the ad hoc approach to bond valuation, greater recognition has been given to the fact that any bond should be thought of as a package of cash flows, with each cash flow viewed as a zero-coupon instrument maEagle Tradersg on the date it will be received. Thus, rather than using a single discount rate, one should use multiple discount rates, discounting each cash flow at its own rate.
One difficulty with implementing this approach is that there may not exist zero-coupon securities from which to derive every discount rate of interest. Even in the absence of zero-coupon securities, however, arbitrage arguments can be used to generate the theoretical zero-coupon rate that an issuer would have to pay were it to issue zeros of every maturity. Using these theoretical zero-coupon rates, more popularly referred to as theoretical spot rates, the theoretical value of a bond can be determined. When dealer firms began stripping of full-coupon Treasury securities in August 1982, the actual prices of Treasury securities began moving toward their theoretical values.
Another challenge remains, however—determining the theoretical value of a bond with an embedded option. In the early 1980s, practitioners came to recognize that an option-bearing bond should be viewed as a package of cash flows (i.e., a package of zero-coupon instruments) plus a package of options on those cash flows. For example, a callable bond can be viewed as a package of cash flows plus a package of call options on those cash flows. As such, the position of an investor in a callable bond can be viewed as:
Long a Callable Bond = Long an Option-Free Bond + Short a Call Option on the Bond.
In terms of the value of a callable bond, this means:
Value of Callable Bond = Value of an Option-Free Bond - Value of a Call Option on the Bond.
But this also means that
Value of an Option-Free Bond = Value of Callable Bond + Value of a Call Option on the Bond.
An early procedure to determine the fairness of a callable bond’s market price was to isolate the implied value of its underlying option-free bond by adding an estimate of the embedded call option’s value to the bond's market price. The former value could be estimated by applying option pricing theory as applied to interest rate options.
This insight led to the first generation of valuation models that sought to value a callable bond by estimating the value of the call option. However, estimation of the call option embedded in callable bonds is not that simple. For example, suppose a 20-year bond is not callable for five years after which time it becomes callable at any time on 30-days notice.
A second complication is determining the rate at which to discount the expected cash flows. The usual starting point is the yield available on Treasury securities. Appropriate spreads must be added to those Treasury yields to reflect additional risks to which the investor is exposed. Determining the appropriate spread is not simple, and is beyond the scope of this article. The ad hoc process for valuing an option-free bond (i.e., a bond with no options) once was to discount all cash flows at a rate equal to the yield offered on a new full-coupon bond of the same maturity. Suppose, for example, that one needs to value a 10-year option-free bond. If the yield to] maturity of an on-the-run 10-year bond of given credit quality is 8%, then the value of the bond under consideration would be taken to be the present value of its cash flows, all discounted at 8%.
According to this approach, the rate used to discount the cash flows of a 10-year current-coupon bond would be the same rate as that used to discount the cash flow of a 10-year zero-coupon bond. Conversely, discounting the cash flows of bonds with different maturities would require different discount rates. This approach makes little sense because it does not consider the cash flow characteristics of the bonds. Consider, for example, a portfolio of bonds of similar quality but different maturities. Imagine two equal cash flows occurring, say, five years hence, one coming from a 30-year bond and the other coming from a 10-year bond. Why should these two cash flows have different discount rates and hence different present values?
Given the drawback of the ad hoc approach to bond valuation, greater recognition has been given to the fact that any bond should be thought of as a package of cash flows, with each cash flow viewed as a zero-coupon instrument maEagle Tradersg on the date it will be received. Thus, rather than using a single discount rate, one should use multiple discount rates, discounting each cash flow at its own rate.
One difficulty with implementing this approach is that there may not exist zero-coupon securities from which to derive every discount rate of interest. Even in the absence of zero-coupon securities, however, arbitrage arguments can be used to generate the theoretical zero-coupon rate that an issuer would have to pay were it to issue zeros of every maturity. Using these theoretical zero-coupon rates, more popularly referred to as theoretical spot rates, the theoretical value of a bond can be determined. When dealer firms began stripping of full-coupon Treasury securities in August 1982, the actual prices of Treasury securities began moving toward their theoretical values.
Another challenge remains, however—determining the theoretical value of a bond with an embedded option. In the early 1980s, practitioners came to recognize that an option-bearing bond should be viewed as a package of cash flows (i.e., a package of zero-coupon instruments) plus a package of options on those cash flows. For example, a callable bond can be viewed as a package of cash flows plus a package of call options on those cash flows. As such, the position of an investor in a callable bond can be viewed as:
Long a Callable Bond = Long an Option-Free Bond + Short a Call Option on the Bond.
In terms of the value of a callable bond, this means:
Value of Callable Bond = Value of an Option-Free Bond - Value of a Call Option on the Bond.
But this also means that
Value of an Option-Free Bond = Value of Callable Bond + Value of a Call Option on the Bond.
An early procedure to determine the fairness of a callable bond’s market price was to isolate the implied value of its underlying option-free bond by adding an estimate of the embedded call option’s value to the bond's market price. The former value could be estimated by applying option pricing theory as applied to interest rate options.
This insight led to the first generation of valuation models that sought to value a callable bond by estimating the value of the call option. However, estimation of the call option embedded in callable bonds is not that simple. For example, suppose a 20-year bond is not callable for five years after which time it becomes callable at any time on 30-days notice.
Model for valuing bonds and embedded options
Background
One can value a bond by discounting each of its cash flows at its own zero-coupon ("spot") rate. This procedure if equivalent to discounting the cash flows at a sequence of one-period forward rates. When a bond has one of more embedded options, however, its cash flow is uncertain. If a callable bond is called by the issuer, for example, its cash flow will be truncated.
To value such a bond, one must consider the volatility of interest rates, as their volatility will affect the possibility of the call option being exercised. One can do so by constructing a binomial interest rate tree that models the random evolution of future interest rates. The volatility-dependent one-period forward rates produced by this tree can be used to discount the cash flows of any bond in order to arrive at a bond value.
Given the values of bonds with and without an embedded option, one can obtain the value of the embedded option itself. The procedure can be used to value multiple or interrelated embedded options, as well as stand-alone risk control instruments such as swaps, swaptions, caps and floors.
Introduction
In the good old days, bond valuation was relatively simple. Not only did interest rates exhibit little day-to-day volatility, but in the long run they inevitably drifted up, rather than down. Thus the ubiquitous call option on long-term corporate bonds hardly ever required the attention of the financial manager. Those days are gone. Today, investors face volatile interest rates, a historically steep yield curve, and complex bond structures with one or more embedded options. The framework used to value bonds in a relatively stable interest rate environment is inappropriate for valuing bonds today. This article sets forth a general model that can be used to value any bond in any interest rate environment.
One can value a bond by discounting each of its cash flows at its own zero-coupon ("spot") rate. This procedure if equivalent to discounting the cash flows at a sequence of one-period forward rates. When a bond has one of more embedded options, however, its cash flow is uncertain. If a callable bond is called by the issuer, for example, its cash flow will be truncated.
To value such a bond, one must consider the volatility of interest rates, as their volatility will affect the possibility of the call option being exercised. One can do so by constructing a binomial interest rate tree that models the random evolution of future interest rates. The volatility-dependent one-period forward rates produced by this tree can be used to discount the cash flows of any bond in order to arrive at a bond value.
Given the values of bonds with and without an embedded option, one can obtain the value of the embedded option itself. The procedure can be used to value multiple or interrelated embedded options, as well as stand-alone risk control instruments such as swaps, swaptions, caps and floors.
Introduction
In the good old days, bond valuation was relatively simple. Not only did interest rates exhibit little day-to-day volatility, but in the long run they inevitably drifted up, rather than down. Thus the ubiquitous call option on long-term corporate bonds hardly ever required the attention of the financial manager. Those days are gone. Today, investors face volatile interest rates, a historically steep yield curve, and complex bond structures with one or more embedded options. The framework used to value bonds in a relatively stable interest rate environment is inappropriate for valuing bonds today. This article sets forth a general model that can be used to value any bond in any interest rate environment.
The mechanics of bank SLCS and guarantees
The driving force behind the financial instruments under discussion in this paper is the U.S. government through its monetary agency, the Federal Reserve Board. The U.S. dollar is the basis of the world's liquidity system since all other currencies base their exchange rate on it. Quite simply this means that the U.S. is the world's central banker. As the world's central banker, the U.S. has an enormous responsibility to maintain stability in the world's monetary system. As well, the U.S. as the most powerful nation has accepted the role as the champion and promoter of democracy in all of its endeavors. While the U.S. has many tools to do this, one in particular is relevant for the purposes of this discussion.
The Federal Reserve Board (Fed) uses two financial instruments to control and utilize the amount of U.S. dollars in circulation internationally: Standby Letters of Credit (SLC) and Bank Guarantees (BG).
The Fed's domestic tools to control credit creation are interest rate policy, open market operations, reserve ratio policy and moral persuasion. In the domestic context, these tools are not always as effective as the Fed would like them to be. Part of the reason for the less than perfect effectiveness is due to the substantial stock of U.S. dollars in foreign jurisdictions. Several of the Fed's domestic tools cannot be used by it in other countries. For examples, the Fed cannot change foreign reserve ratios.
Furthermore, a significant amount of credit creation occurs in U.S. dollars in foreign countries, particularly in the Eurodollar market.
The Federal Reserve Board (Fed) uses two financial instruments to control and utilize the amount of U.S. dollars in circulation internationally: Standby Letters of Credit (SLC) and Bank Guarantees (BG).
The Fed's domestic tools to control credit creation are interest rate policy, open market operations, reserve ratio policy and moral persuasion. In the domestic context, these tools are not always as effective as the Fed would like them to be. Part of the reason for the less than perfect effectiveness is due to the substantial stock of U.S. dollars in foreign jurisdictions. Several of the Fed's domestic tools cannot be used by it in other countries. For examples, the Fed cannot change foreign reserve ratios.
Furthermore, a significant amount of credit creation occurs in U.S. dollars in foreign countries, particularly in the Eurodollar market.
ICC endorsement of the UNCITRAL Convention on Independent Guarantees and Stand-by Letters of Credit
On the unanimous consent of its Commission on Banking Technique and Practice, the International Chamber of Commerce endorses the United Nations Convention on Independent Guarantees and Stand-by Letters of Credit.
Since its earliest years, ICC has provided important international leadership in the field of international banking operations, particularly as a forum for developing rules of practice. Since 1933, the Uniform Customs and Practice for Documentary Credits (UCP), in its various revisions, has become a universally recognized standard, stating and establishing custom and practice for letters of credit.
In this process, the United Nations Commission on International Trade Law (UNCITRAL), by its endorsement of the subsequent UCP versions, provided an important bridge to those countries who were at the time unable to participate directly in the work of ICC. Other ICC rules, such as Incoterms, have also been endorsed by UNCITRAL, which has contributed to their international acceptance.
ICC rules cannot be fully effective in all countries without their being recognized under local law. In this respect, the recent work of UNCITRAL on the United Nations Convention on Independent Guarantees and Stand-by Letters of Credit provides an important impetus to attain this objective. The Convention sets forth the basic principles of law for independent undertakings in a manner which fully assures their independent nature, which guarantees widest possible party autonomy and which establishes a uniform international legal standard for limits to the exception for fraudulent or abusive drawings.
ICC appreciates that the Convention was drafted in full recognition of the role of the various ICC rules in this field, that the UNCITRAL Working Group was directly and indirectly influenced by, and in turn influenced, the revision of the UCP, ICC's Uniform Rules for Demand Guarantees (URDG) and its recently adopted rules on International Standby Practices (ISP 98). ICC also notes that the UN Convention expressly defers to international banking practice as represented by ICC rules.
Since its earliest years, ICC has provided important international leadership in the field of international banking operations, particularly as a forum for developing rules of practice. Since 1933, the Uniform Customs and Practice for Documentary Credits (UCP), in its various revisions, has become a universally recognized standard, stating and establishing custom and practice for letters of credit.
In this process, the United Nations Commission on International Trade Law (UNCITRAL), by its endorsement of the subsequent UCP versions, provided an important bridge to those countries who were at the time unable to participate directly in the work of ICC. Other ICC rules, such as Incoterms, have also been endorsed by UNCITRAL, which has contributed to their international acceptance.
ICC rules cannot be fully effective in all countries without their being recognized under local law. In this respect, the recent work of UNCITRAL on the United Nations Convention on Independent Guarantees and Stand-by Letters of Credit provides an important impetus to attain this objective. The Convention sets forth the basic principles of law for independent undertakings in a manner which fully assures their independent nature, which guarantees widest possible party autonomy and which establishes a uniform international legal standard for limits to the exception for fraudulent or abusive drawings.
ICC appreciates that the Convention was drafted in full recognition of the role of the various ICC rules in this field, that the UNCITRAL Working Group was directly and indirectly influenced by, and in turn influenced, the revision of the UCP, ICC's Uniform Rules for Demand Guarantees (URDG) and its recently adopted rules on International Standby Practices (ISP 98). ICC also notes that the UN Convention expressly defers to international banking practice as represented by ICC rules.
History and Development of Bank Instruments (Continue....2)
Marshall plan - lMF - World Bank and Bank of International Settlements
The Bretton Woods Convention produced the Marshall Plan, the Bank for Reconstruction and development known as the World Bank. the International Monetary Fund (IMF) and the Bank of International Settlements (BIS). These four would re-establish and revitalize the economies of the western nations. The World Bank would borrow from rich nations and lend to poorer nations. The IMF working closely with the World Bank, with a pool of funds, controlled by a board of governors. would initiate currency adjustments and maintain the exchange rates among national currencies within defined limits. The Bank of International Settlements would then function as a "central bank" to the world.
The International Monetary Fund was to be a lender to the central bank of countries which were experiencing a deficit in the balance of payments. By lending money to that country's central bank, the IMF provided currency, allowing the underdeveloped country to continue in business. building up is export base until it achieved a positive balance of payments. Then, that nation's central bank could repay the money borrowed from the lMF, with a small amount of interest and continue on its own as an economically viable nation. If the country experienced an economic contraction, the IMF would be standing ready to make another loan to carry it through.
Bank of International Settlements
The Bank of International Settlements (BIS) was created as a new central bank to the central banks of each nation. It was organized along the lines of the U.S. Federal Reserve System and it's principally responsible for the orderly settlement of transactions among the central banks of individual countries. In addition, it sets standards for capital adequacy among the central banks and coordinates the orderly distribution of a sufficient supply of currency in circulation necessary to support international trade and commerce.
The Bank of International Settlements is controlled by the Basel Committee which is comprised of ministers sent from each of the G-10 nations central banks.
The Bretton Woods Convention produced the Marshall Plan, the Bank for Reconstruction and development known as the World Bank. the International Monetary Fund (IMF) and the Bank of International Settlements (BIS). These four would re-establish and revitalize the economies of the western nations. The World Bank would borrow from rich nations and lend to poorer nations. The IMF working closely with the World Bank, with a pool of funds, controlled by a board of governors. would initiate currency adjustments and maintain the exchange rates among national currencies within defined limits. The Bank of International Settlements would then function as a "central bank" to the world.
The International Monetary Fund was to be a lender to the central bank of countries which were experiencing a deficit in the balance of payments. By lending money to that country's central bank, the IMF provided currency, allowing the underdeveloped country to continue in business. building up is export base until it achieved a positive balance of payments. Then, that nation's central bank could repay the money borrowed from the lMF, with a small amount of interest and continue on its own as an economically viable nation. If the country experienced an economic contraction, the IMF would be standing ready to make another loan to carry it through.
Bank of International Settlements
The Bank of International Settlements (BIS) was created as a new central bank to the central banks of each nation. It was organized along the lines of the U.S. Federal Reserve System and it's principally responsible for the orderly settlement of transactions among the central banks of individual countries. In addition, it sets standards for capital adequacy among the central banks and coordinates the orderly distribution of a sufficient supply of currency in circulation necessary to support international trade and commerce.
The Bank of International Settlements is controlled by the Basel Committee which is comprised of ministers sent from each of the G-10 nations central banks.
History and Development of Bank Instruments (Continue....1)
Introduction
Picture the world at war in 1944. All of Europe, except for Switzerland, is pounding its infrastructure, manufacEagle Tradersg base and population into rubble and death. Asia is locked into a monumental straggle which is destroying Japan, China, and the Pacific Rim countries. North Africa, the Baltic's, and the Mediterranean countries are clutched in a life and death struggle in the fight to throw off the yoke of occupation. A world gone mad! Economic destruction, mad, human misery and dislocation exists on a scale never before experienced in human history. What went wrong? How could the world rebuild and recover from such devastation? How could another war be avoided?
Keynes, Harry White and Bretton Woods
This was the world as it existed in July 1944 when a relatively small group of 130 of the western worlds most accomplished economic, social and political minds met in upstate New Hampshire at a small vacation town called Bretton Woods. John Maynard Keynes, the man who had predicted the current catastrophe in his book, The Economic Consequences of the Peace, written in 1920, was about to become the principal architect of the post-World War II reconstruction Keynes presented a rather radical plan to rebuild the worlds economy, and hopefully avoid a third world war. This time the world listened, for Keynes and his supporters were the only ones who had a plan that in any way seemed grand enough in foresight and scope to have a chance at being successful. Yet Keynes had to fight hard to convince those rooted in conventional economic theories and partisan political doctrines to adopt his proposals. In the end, Keynes was able to sell about two-thirds of his proposals through sheer force of will and the support of the United States Secretary of the Treasury, Harry Dexter White.
At the hart of Keynes proposals were two basic principals: first the Allies must rebuild the Axis Countries, not exploit them as had been done after WW 1; second, a new international monetary system must be established, headed by a strong international banking system and a common world currency not tied to a gold standard.
Keynes went on to reason that Europe and Asia were in complete economic devastation with their means of production seriously crippled, their trade economies destroyed and their treasuries in deep dept. If the world economy was to emerge from its current state, it obviously needed to expand. This expansion would be limited if paper currency were still anchored to gold.
The United States, Canada, Switzerland and Australia were the only industrialized western countries to have their economies, banking systems and treasuries intact and fully operational. The enormous issue at the Bretton Woods Convention in 1944 was how to completely rebuild the European and Asian economies on a sufficiently solid basis to foster the establishment of stable, prosperous pro-democratic governments.
At the time, the majority of the world's gold supply, hence its wealth, was concentrated in the hands of the United States, Switzerland and Canada. A system had to be established to democratize trade and wealth; and redistribute, or recycle, currency from strong trade surplus countries back into countries with weak or negative trade surpluses. Otherwise, the majority of the world's wealth would remain concentrated in the hands of a few nations while the rest of the world would remain in poverty.
Keynes and White proposed that the United States supported by Canada and Switzerland would become the banker to the world, and the U.S. Dollar would replace the pound sterling as the the medium of international trade. He also suggested that the dollar's value be tied to the good faith and credit of the U.S. Government not to gold or silver, as had traditionally been the support for a nation's currency.
Keynes concept of how to accomplish all of this was radical for its time, but was based upon the centuries old framework of import/export finance. This form of finance was used to support certain sectors of international commerce which did not use gold as collateral, but rather their own good faith and credit, backed by letters of credit, avals, or guarantees.
Keynes reasoned that even if his plans to rebuild the world's economy were adopted at the Bretton Woods Convention, remaining on a Gold standard would seriously restrict the flexibility of governments to increase the money supply. The rate of increase of currency would not be sufficient to insure the continued successful expansion of international commerce over the long term. This condition could lead to a severe economic crisis, which, in turn, could even lead to another world war. However, the economic ministers and politicians present at the convention feared loss of control over their own national economies, as well as, run-away inflation, unless a "hard-currency" standard were adopted.
The Convention accepted Keynes' basic economic plan, but opted for a gold-backed currency as a standard of exchange. The "official" price of gold was set at its pre-WW II level of $ 35.00 per ounce One U.S. Dollar would purchase 1/35 an ounce of gold. The U.S. dollar would become the standard world currency, and the value of all other currencies in the western. non-communist world would be tied to the U.S. dollar as the medium of exchange.
Picture the world at war in 1944. All of Europe, except for Switzerland, is pounding its infrastructure, manufacEagle Tradersg base and population into rubble and death. Asia is locked into a monumental straggle which is destroying Japan, China, and the Pacific Rim countries. North Africa, the Baltic's, and the Mediterranean countries are clutched in a life and death struggle in the fight to throw off the yoke of occupation. A world gone mad! Economic destruction, mad, human misery and dislocation exists on a scale never before experienced in human history. What went wrong? How could the world rebuild and recover from such devastation? How could another war be avoided?
Keynes, Harry White and Bretton Woods
This was the world as it existed in July 1944 when a relatively small group of 130 of the western worlds most accomplished economic, social and political minds met in upstate New Hampshire at a small vacation town called Bretton Woods. John Maynard Keynes, the man who had predicted the current catastrophe in his book, The Economic Consequences of the Peace, written in 1920, was about to become the principal architect of the post-World War II reconstruction Keynes presented a rather radical plan to rebuild the worlds economy, and hopefully avoid a third world war. This time the world listened, for Keynes and his supporters were the only ones who had a plan that in any way seemed grand enough in foresight and scope to have a chance at being successful. Yet Keynes had to fight hard to convince those rooted in conventional economic theories and partisan political doctrines to adopt his proposals. In the end, Keynes was able to sell about two-thirds of his proposals through sheer force of will and the support of the United States Secretary of the Treasury, Harry Dexter White.
At the hart of Keynes proposals were two basic principals: first the Allies must rebuild the Axis Countries, not exploit them as had been done after WW 1; second, a new international monetary system must be established, headed by a strong international banking system and a common world currency not tied to a gold standard.
Keynes went on to reason that Europe and Asia were in complete economic devastation with their means of production seriously crippled, their trade economies destroyed and their treasuries in deep dept. If the world economy was to emerge from its current state, it obviously needed to expand. This expansion would be limited if paper currency were still anchored to gold.
The United States, Canada, Switzerland and Australia were the only industrialized western countries to have their economies, banking systems and treasuries intact and fully operational. The enormous issue at the Bretton Woods Convention in 1944 was how to completely rebuild the European and Asian economies on a sufficiently solid basis to foster the establishment of stable, prosperous pro-democratic governments.
At the time, the majority of the world's gold supply, hence its wealth, was concentrated in the hands of the United States, Switzerland and Canada. A system had to be established to democratize trade and wealth; and redistribute, or recycle, currency from strong trade surplus countries back into countries with weak or negative trade surpluses. Otherwise, the majority of the world's wealth would remain concentrated in the hands of a few nations while the rest of the world would remain in poverty.
Keynes and White proposed that the United States supported by Canada and Switzerland would become the banker to the world, and the U.S. Dollar would replace the pound sterling as the the medium of international trade. He also suggested that the dollar's value be tied to the good faith and credit of the U.S. Government not to gold or silver, as had traditionally been the support for a nation's currency.
Keynes concept of how to accomplish all of this was radical for its time, but was based upon the centuries old framework of import/export finance. This form of finance was used to support certain sectors of international commerce which did not use gold as collateral, but rather their own good faith and credit, backed by letters of credit, avals, or guarantees.
Keynes reasoned that even if his plans to rebuild the world's economy were adopted at the Bretton Woods Convention, remaining on a Gold standard would seriously restrict the flexibility of governments to increase the money supply. The rate of increase of currency would not be sufficient to insure the continued successful expansion of international commerce over the long term. This condition could lead to a severe economic crisis, which, in turn, could even lead to another world war. However, the economic ministers and politicians present at the convention feared loss of control over their own national economies, as well as, run-away inflation, unless a "hard-currency" standard were adopted.
The Convention accepted Keynes' basic economic plan, but opted for a gold-backed currency as a standard of exchange. The "official" price of gold was set at its pre-WW II level of $ 35.00 per ounce One U.S. Dollar would purchase 1/35 an ounce of gold. The U.S. dollar would become the standard world currency, and the value of all other currencies in the western. non-communist world would be tied to the U.S. dollar as the medium of exchange.
Sunday, June 6, 2010
Historical Bonds: Names You Should Know
Historical bonds
Bonds that were once valid obligations of American entities but are now worthless as securities and only collected and traded as memorabilia -- are quickly becoming a favorite tool of scam artists. Here are several things that you should know about them:
Three Lies Used to Perpetrate Historical Bond Fraud:
Lie 1 : Historical bonds are payable in gold.
Lie 2: Historical bonds are backed by the Treasury Department.
Lie 3: The Treasury Department has established a federal sinking fund to retire historical bonds.
How Scam Artists Use Bogus Third-Party Valuations to Trick Investors
Scam artists are selling historical bonds to unsophisticated investors at inflated prices far exceeding their fair value as collectibles. They often use third-party valuations, which state that the bonds are worth million or billions of dollars each, to do so. These valuations or authentications, which are often referred to as "hypothecated" or "hypothetical," are completely bogus. A typical valuation will falsely overstate the value of these bonds by assuming erroneously that, notwithstanding the unenforceability of the gold clauses contained in the bonds, as well as the defunct and bankrupt status of most of the bonds' issuers, some person or entity is obligated to redeem the bonds in gold bullion.
Scam artists using such valuations may also make the false assertion that while perhaps not payable today in gold or in money, the bonds are used in high-yield trading programs in the United States, offshore and in Europe. In several cases, the third parties issuing the valuations appear to be working in conjunction with the scam artists. All of these false assertions have been used to defraud investors into paying as much as $150,000 for historical bonds that regularly trade for $25.
Fraudulent Cash and Railroad Bond Program Operator List
Part I consists of those individuals who, through their own words and deeds, have proven themselves cons to unwary investors and have been reported to the various authorities for their Securities Violations. Part II consists of the business names through which these individual have been known to operate. Pertinent notes are sometimes annotated to clarify level of involvement in the fraud and how interconnected.
Extreme caution should be exercised in transactions that may utilize these individuals. Deception has been utilized to cover their involvement in many a transaction by hiding behind other parties. Latest is to, now more than ever, hide under a completely new "front man" and place their "Program" with parties published herein. This list is not all-inclusive and should not be viewed as such.
The author of this publication, Henry R. Wentworth, has spent years developing the database contained herein. His second publication, Bank Debentures: Names You Should Know, contains a database with a focus on the market for ‘bank Debentures.’
Bonds that were once valid obligations of American entities but are now worthless as securities and only collected and traded as memorabilia -- are quickly becoming a favorite tool of scam artists. Here are several things that you should know about them:
Three Lies Used to Perpetrate Historical Bond Fraud:
Lie 1 : Historical bonds are payable in gold.
Lie 2: Historical bonds are backed by the Treasury Department.
Lie 3: The Treasury Department has established a federal sinking fund to retire historical bonds.
How Scam Artists Use Bogus Third-Party Valuations to Trick Investors
Scam artists are selling historical bonds to unsophisticated investors at inflated prices far exceeding their fair value as collectibles. They often use third-party valuations, which state that the bonds are worth million or billions of dollars each, to do so. These valuations or authentications, which are often referred to as "hypothecated" or "hypothetical," are completely bogus. A typical valuation will falsely overstate the value of these bonds by assuming erroneously that, notwithstanding the unenforceability of the gold clauses contained in the bonds, as well as the defunct and bankrupt status of most of the bonds' issuers, some person or entity is obligated to redeem the bonds in gold bullion.
Scam artists using such valuations may also make the false assertion that while perhaps not payable today in gold or in money, the bonds are used in high-yield trading programs in the United States, offshore and in Europe. In several cases, the third parties issuing the valuations appear to be working in conjunction with the scam artists. All of these false assertions have been used to defraud investors into paying as much as $150,000 for historical bonds that regularly trade for $25.
Fraudulent Cash and Railroad Bond Program Operator List
Part I consists of those individuals who, through their own words and deeds, have proven themselves cons to unwary investors and have been reported to the various authorities for their Securities Violations. Part II consists of the business names through which these individual have been known to operate. Pertinent notes are sometimes annotated to clarify level of involvement in the fraud and how interconnected.
Extreme caution should be exercised in transactions that may utilize these individuals. Deception has been utilized to cover their involvement in many a transaction by hiding behind other parties. Latest is to, now more than ever, hide under a completely new "front man" and place their "Program" with parties published herein. This list is not all-inclusive and should not be viewed as such.
The author of this publication, Henry R. Wentworth, has spent years developing the database contained herein. His second publication, Bank Debentures: Names You Should Know, contains a database with a focus on the market for ‘bank Debentures.’
Warning from the IMF against financial schemes misusing its name
In view of widespread and continuing inquiries from individuals and companies who have been approached by parties in connection with offers of participation in various financial instruments and schemes promising high returns and unauthorizedly using the name of the International Monetary Fund (IMF), the Treasurer of the IMF today again warned potential investors to beware of such schemes. He had already issued warnings in the past (see News Brief Number 94/5, published February 23, 1994 and News Brief Number 94/11, published May 13, 1994). Today he reiterated that the IMF does not issue or guarantee any obligations called "Prime Bank Notes," "Prime Bank Guarantees," "Bill of Exchange," or "Bill of Equity," or extend any credit lines through commercial banks or other agencies. Moreover, the IMF does not guarantee debentures or other financial instruments issued by a member country or any other entity. It does not sponsor investment programs, "high-yield financial programs," or issue to countries or to outside parties an "IMF Number," "IMF Country Registration Number," or an "IMF Approval Number for Projects."
Other examples of bogus instruments often featured in such schemes which unauthorizedly use the name of the IMF are:
* fictitious stand-by letters of credit--falsely portrayed as risk-free and sanctioned by the IMF;
* securities allegedly backed by the IMF; and
* bonds supposedly issued by the IMF.
The IMF is an intergovernmental organization whose financial transactions and operations are carried out directly with its member countries and only through a fiscal agency designated by each member for this purpose (such as the member's Central Bank or its Ministry of Finance). The IMF does not operate through other agents and it does not endorse the activities of any bank, financial institution, or other public or private agency.
Other examples of bogus instruments often featured in such schemes which unauthorizedly use the name of the IMF are:
* fictitious stand-by letters of credit--falsely portrayed as risk-free and sanctioned by the IMF;
* securities allegedly backed by the IMF; and
* bonds supposedly issued by the IMF.
The IMF is an intergovernmental organization whose financial transactions and operations are carried out directly with its member countries and only through a fiscal agency designated by each member for this purpose (such as the member's Central Bank or its Ministry of Finance). The IMF does not operate through other agents and it does not endorse the activities of any bank, financial institution, or other public or private agency.
Standby Letters of Credit: The Private Primary Market
Designed to provide much of the information required for conducting a due diligence investigation.
Lender/Investors are skeptical of opportunities that offer above-market returns. If significant capital is required, little information is readily available with which to conduct a due diligence investigation, there is little motivation for committing funds.
Issues Covered
* A letter from the Securities and Exchange Commission, (S.E.C) stating that letters of credit are exempt from registration under the Securities Act of 1933.
* An opinion from the U.S Supreme Court stating that letters of credit, when acquired for cash, are the equivalent of a deposit liability.
* A legal historical example of a clean standby letter of credit, the text of which is clean of any requirements of documentation of nonperformance or default for the beneficiary to obtain payment.
* A discussion of the role of the International Chamber of Commerce in encouraging more equitable practices in the area of standby letters of credit.
* A discussion of case law and legal writing showing that pertaining law has developed away from domestic concepts and structures, and that it is a fallacy to think in terms of a comprehensive body of domestic law on LOC and especially in terms of diversity of national laws.
* A discussion of transmission, authenticity and the operative instrument; how it is determined when a transmission is authentic and legal.
* The issuance of standby LOC involves the separation of many of the services associated with lending, such as credit risk evaluation and underwriting, from funding.
* Banks argue that they are in the risk management business - whether on or off the balance sheet.
* An important difference between a standby LOC and conventional financing with uninsured depositors is that a standby LOC beneficiary retains the loan in the event of bank failure as opposed to having to stand in line with the FDIC and other creditors to recover the remaining assets of the bank.
* The greatest motivation for off-balance sheet banking is the opportunity cost of funding assets with reservable deposits without a binding capital constraint.
* In issuing an off-balance sheet instrument, the bank acts as a third party in a commercial transaction, substituting the bank's credit worthiness for that of its customer to facilitate exchange while sharing some of its risk with the lender/investor.
* In effect, banks are willing to rent their credit standing or borrow credit analysis to lender/investors by guaranteeing the payment of principal and interest-which may be of value to a bank customer who is not well known or established. This enables a bank to receive an underwriting fee that can bolster current profits without tieing up capital.
* A bank may not be asked to issue a guarantee unless it is perceived by the market to be strong.
* How a standby LOC is similar to an uninsured deposit and subordinated note in that it's value varies inversely with the credit risk of the bank.
* The incentive to the lender/investor? The return on this arrangement is likely to be greater than that of a deposit while still maintaining insurance against loss.
* The types of entities who acquire standby LOC.
* A discussion of repurchase programs and credit-enhanced loan transactions.
EVERY STATEMENT IN THESE REFERENCES EITHER A LEGAL PRECEDENT, REPORT OR LETTER ISSUED BY A GOVERNMENT AGENCY, TRADE PUBLICATION OR KNOWN ENTITY IN BANKING AND FINANCE.
Lender/Investors are skeptical of opportunities that offer above-market returns. If significant capital is required, little information is readily available with which to conduct a due diligence investigation, there is little motivation for committing funds.
Issues Covered
* A letter from the Securities and Exchange Commission, (S.E.C) stating that letters of credit are exempt from registration under the Securities Act of 1933.
* An opinion from the U.S Supreme Court stating that letters of credit, when acquired for cash, are the equivalent of a deposit liability.
* A legal historical example of a clean standby letter of credit, the text of which is clean of any requirements of documentation of nonperformance or default for the beneficiary to obtain payment.
* A discussion of the role of the International Chamber of Commerce in encouraging more equitable practices in the area of standby letters of credit.
* A discussion of case law and legal writing showing that pertaining law has developed away from domestic concepts and structures, and that it is a fallacy to think in terms of a comprehensive body of domestic law on LOC and especially in terms of diversity of national laws.
* A discussion of transmission, authenticity and the operative instrument; how it is determined when a transmission is authentic and legal.
* The issuance of standby LOC involves the separation of many of the services associated with lending, such as credit risk evaluation and underwriting, from funding.
* Banks argue that they are in the risk management business - whether on or off the balance sheet.
* An important difference between a standby LOC and conventional financing with uninsured depositors is that a standby LOC beneficiary retains the loan in the event of bank failure as opposed to having to stand in line with the FDIC and other creditors to recover the remaining assets of the bank.
* The greatest motivation for off-balance sheet banking is the opportunity cost of funding assets with reservable deposits without a binding capital constraint.
* In issuing an off-balance sheet instrument, the bank acts as a third party in a commercial transaction, substituting the bank's credit worthiness for that of its customer to facilitate exchange while sharing some of its risk with the lender/investor.
* In effect, banks are willing to rent their credit standing or borrow credit analysis to lender/investors by guaranteeing the payment of principal and interest-which may be of value to a bank customer who is not well known or established. This enables a bank to receive an underwriting fee that can bolster current profits without tieing up capital.
* A bank may not be asked to issue a guarantee unless it is perceived by the market to be strong.
* How a standby LOC is similar to an uninsured deposit and subordinated note in that it's value varies inversely with the credit risk of the bank.
* The incentive to the lender/investor? The return on this arrangement is likely to be greater than that of a deposit while still maintaining insurance against loss.
* The types of entities who acquire standby LOC.
* A discussion of repurchase programs and credit-enhanced loan transactions.
EVERY STATEMENT IN THESE REFERENCES EITHER A LEGAL PRECEDENT, REPORT OR LETTER ISSUED BY A GOVERNMENT AGENCY, TRADE PUBLICATION OR KNOWN ENTITY IN BANKING AND FINANCE.
The Prime Bank Instrument Raises Its (Ugly) Head Again
May 8, 1998 - The Vancouver Sun newspaper ran a story about a couple who lost $70,000 Canadian in a prime bank instrument program. Their's is not an isolated case.
Selling the sizzle is what these fraudsters are good at, and the good ones ply their trade with all the finesse and confidence of Wall Street promoters. The prime bank note or bank roll program has been around for years, but like the Nigerian Scam, it continues to catch new victims. According to the International Chamber of Commerce's commercial crime bureau, it involves $10 million US daily in North America alone.
The Sun story explained how Bob and Robin Blanchard borrowed the money to invest in the program in 1995 after signing a non-disclosure statement to prevent them from talking about the deal with anyone, including lawyers, financial advisors because they were joining " a priviledged group getting in on a very exclusive investment" which relies on secrecy.
What makes gives the scam it's allure is the idea that those who partake are joining an elite group of investors with access to extremely valuable and highly confidential information. Although there are a number of variations, the principle is the same. The big banks around the world lend each other money by issuing notes with face values of $100 million or more. These notes can be re-sold number of times at a discount (profit) to other lenders so that the original issuer can reap a handsome profit in a relatively short time. The figure commonly bandied about is 30% per month. The term of the notes vary from 30 days to a year or more.
Small investors must pool their money to build it up to a minimum $10 to $100 million so brokers get involved. Often a tax haven country is used to add to the intrigue and no tax need be paid by the shrewd investor, or at least that is what they are told.
To make the story more believeable, the names of large, well-known international banks like Barclays, Lloyds Bank and Chase Manhatten are used.
To the scrupulous investor there are some danger signals that should tip you off.
1. You are told as an investor and not a principle (you don't have $10 million US) you have no personal security. The broker will tell you that there is no need to worry because every penny is secured by an LC (Letter of Credit) or other guaranteed bank certificate.
2. You are told not to phone the bank who's name you are given because they cannot acknowledge the existence of such an arrangement unless you are the principle.
3. There is a high degree of trust necessary. The broker will tell you that he has no interest in stealing your money because he makes enough from the deal already, and besides, he wants to have you participate in the next program so you and he can get rich together.
4. You are told not to seek professional advice because the information is reserved only for those who participate in the program. Strangely few if any lawyers or professional advisors are invited into the program.
Often exotic sounding banking terms are bandied around that are confusing to all but the professional banker or investor. This is done to intentionally confuse and intimidate the victim so that they feel too self-conscious to ask questions. You might even be shown what appear to be high quality documents purporting to be from genuine lending institutions but there is no way to check their authenticity. Usually they are either worthless or forged.
The sad part is that the victim may not fully appreciate their true fate until years later. The brokers will keep the dream alive by saying that the profits have been re-invested and may even attempt to lure the victim into another scheme before they realize what they are into.
Selling the sizzle is what these fraudsters are good at, and the good ones ply their trade with all the finesse and confidence of Wall Street promoters. The prime bank note or bank roll program has been around for years, but like the Nigerian Scam, it continues to catch new victims. According to the International Chamber of Commerce's commercial crime bureau, it involves $10 million US daily in North America alone.
The Sun story explained how Bob and Robin Blanchard borrowed the money to invest in the program in 1995 after signing a non-disclosure statement to prevent them from talking about the deal with anyone, including lawyers, financial advisors because they were joining " a priviledged group getting in on a very exclusive investment" which relies on secrecy.
What makes gives the scam it's allure is the idea that those who partake are joining an elite group of investors with access to extremely valuable and highly confidential information. Although there are a number of variations, the principle is the same. The big banks around the world lend each other money by issuing notes with face values of $100 million or more. These notes can be re-sold number of times at a discount (profit) to other lenders so that the original issuer can reap a handsome profit in a relatively short time. The figure commonly bandied about is 30% per month. The term of the notes vary from 30 days to a year or more.
Small investors must pool their money to build it up to a minimum $10 to $100 million so brokers get involved. Often a tax haven country is used to add to the intrigue and no tax need be paid by the shrewd investor, or at least that is what they are told.
To make the story more believeable, the names of large, well-known international banks like Barclays, Lloyds Bank and Chase Manhatten are used.
To the scrupulous investor there are some danger signals that should tip you off.
1. You are told as an investor and not a principle (you don't have $10 million US) you have no personal security. The broker will tell you that there is no need to worry because every penny is secured by an LC (Letter of Credit) or other guaranteed bank certificate.
2. You are told not to phone the bank who's name you are given because they cannot acknowledge the existence of such an arrangement unless you are the principle.
3. There is a high degree of trust necessary. The broker will tell you that he has no interest in stealing your money because he makes enough from the deal already, and besides, he wants to have you participate in the next program so you and he can get rich together.
4. You are told not to seek professional advice because the information is reserved only for those who participate in the program. Strangely few if any lawyers or professional advisors are invited into the program.
Often exotic sounding banking terms are bandied around that are confusing to all but the professional banker or investor. This is done to intentionally confuse and intimidate the victim so that they feel too self-conscious to ask questions. You might even be shown what appear to be high quality documents purporting to be from genuine lending institutions but there is no way to check their authenticity. Usually they are either worthless or forged.
The sad part is that the victim may not fully appreciate their true fate until years later. The brokers will keep the dream alive by saying that the profits have been re-invested and may even attempt to lure the victim into another scheme before they realize what they are into.
So-called "Prime" Bank and Similar Financial Instruments
The Securities and Exchange Commission is alerting investors to the recent rise in possibly fraudulent schemes involving the issuance, trading or use of so-called "prime" bank, "prime" European bank or "prime" world bank financial instruments. These instruments typically take the form of notes, debentures, letters of credit, and guarantees. Also typical in the offer of these instruments is the promise or guarantee of unrealistic rates of return, for example, a 150 percent annualized rate of "profits." Common targets of these schemes include both institutional and individual investors, who may also be induced to participate in possible "Ponzi" schemes involving the pooling of investors' funds to purchase "prime" bank financial instruments.
On October 21, 1993, federal financial institution supervisory agencies issued an Interagency Advisory to their regulated financial institutions. The Interagency Advisory warned of the use of schemes involving "prime" bank financial instruments and noted that:
* Individuals have been improperly using the names of large, well-known domestic and foreign banks, the World Bank, and central banks in connection with their "Prime Bank" schemes.
* The named institutions "had no knowledge about the unauthorized use of their names or the issuance or anything akin to 'Prime Bank'-type financial instruments."
* The staffs of the federal supervisory agencies are unaware of the legitimate use of any financial instrument called a "Prime Bank" note, guarantee, letter of credit, debenture, or similar type of financial instrument.
* Financial institutions should watch for the attempted use of traditional types of financial instruments that are referred to in an unconventional manner, "such as a letter of credit referencing forms allegedly produced or approved by the International Chamber of Commerce."
As to this latter point, the Interagency Advisory referred to examples of "bogus schemes involving the supposed issuance of an 'ICC 3034' or an 'ICC 3039' letter of credit by a domestic or foreign bank."
The Interagency Advisory also noted that many of the illegal or dubious schemes "appear to involve overly complex loan funding.
These schemes do not involve the offer or sale of financial instruments issued by any financial institution having the word "prime" in its name; rather, that word (or a synonym, as in the phrase "top fifty world banks") is used to refer, generically, to financial institutions of purportedly high repute and financial soundness. These agencies are the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
In the eyes of an unsophisticated investor, this complexity may make a questionable investment appear worthwhile. The SEC warns investors and those who may advise them, particularly broker-dealers and investment advisors, of this possible hallmark of fraud and reminds them of a basic rule for avoiding securities fraud, "If it looks too good to be true, it probably is!"
On October 21, 1993, federal financial institution supervisory agencies issued an Interagency Advisory to their regulated financial institutions. The Interagency Advisory warned of the use of schemes involving "prime" bank financial instruments and noted that:
* Individuals have been improperly using the names of large, well-known domestic and foreign banks, the World Bank, and central banks in connection with their "Prime Bank" schemes.
* The named institutions "had no knowledge about the unauthorized use of their names or the issuance or anything akin to 'Prime Bank'-type financial instruments."
* The staffs of the federal supervisory agencies are unaware of the legitimate use of any financial instrument called a "Prime Bank" note, guarantee, letter of credit, debenture, or similar type of financial instrument.
* Financial institutions should watch for the attempted use of traditional types of financial instruments that are referred to in an unconventional manner, "such as a letter of credit referencing forms allegedly produced or approved by the International Chamber of Commerce."
As to this latter point, the Interagency Advisory referred to examples of "bogus schemes involving the supposed issuance of an 'ICC 3034' or an 'ICC 3039' letter of credit by a domestic or foreign bank."
The Interagency Advisory also noted that many of the illegal or dubious schemes "appear to involve overly complex loan funding.
These schemes do not involve the offer or sale of financial instruments issued by any financial institution having the word "prime" in its name; rather, that word (or a synonym, as in the phrase "top fifty world banks") is used to refer, generically, to financial institutions of purportedly high repute and financial soundness. These agencies are the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
In the eyes of an unsophisticated investor, this complexity may make a questionable investment appear worthwhile. The SEC warns investors and those who may advise them, particularly broker-dealers and investment advisors, of this possible hallmark of fraud and reminds them of a basic rule for avoiding securities fraud, "If it looks too good to be true, it probably is!"
Paper Trading
What percentage of new clients paper trade before actually risking real money in the futures markets?
Not surprisingly a lot of new traders get their feet wet by first taking trades on paper and recording theoretical results. Probably half of all new traders that we work with take this approach in the beginning. Often though, success on paper looks easy and these traders are tempted to risk real dollars before they have really had their confidence tested.
Before their confidence has been tested? In your opinion what's a reasonable amount of time for someone to get this sort of confidence?
Trading on paper can be deceptive, and after a few profitable trades in a row (on paper), people tend to feel like they are missing out by not having actual dollars in the market(s). Unfortunately a really important part of being a good trader has to do with keeping your perspective when you go through losing periods, which are inevitable. Unless you have seen yourself and your trading methods go through a number of these profit/loss cycles, it is hard to have this perspective.
For most people, it is probably a good idea to paper trade for at least 3-6 months before risking real money. Some people get bored with this, of course, and simply choose to “pay their tuition up front.” This trial-by-fire approach will help hold your interest, but obviously, it can be expensive.
Not surprisingly a lot of new traders get their feet wet by first taking trades on paper and recording theoretical results. Probably half of all new traders that we work with take this approach in the beginning. Often though, success on paper looks easy and these traders are tempted to risk real dollars before they have really had their confidence tested.
Before their confidence has been tested? In your opinion what's a reasonable amount of time for someone to get this sort of confidence?
Trading on paper can be deceptive, and after a few profitable trades in a row (on paper), people tend to feel like they are missing out by not having actual dollars in the market(s). Unfortunately a really important part of being a good trader has to do with keeping your perspective when you go through losing periods, which are inevitable. Unless you have seen yourself and your trading methods go through a number of these profit/loss cycles, it is hard to have this perspective.
For most people, it is probably a good idea to paper trade for at least 3-6 months before risking real money. Some people get bored with this, of course, and simply choose to “pay their tuition up front.” This trial-by-fire approach will help hold your interest, but obviously, it can be expensive.
The International Bank Debenture Trading
Introduction
The following document has been prepared based upon all the available information and is largely a hypotheses, due to the fact that much of the information is hearsay and unsubstantiated. The basis in fact, however, is strong and several documents which re attached as appendices give a detailed summary of the information and reasoning behind this document.
Basic history of specific types of credit instruments
The issuance of bank (credit) instruments dates back to the early days of "banking" when private wealthy individuals used their capital to support various trade orientated ventures. Promissory Notes, Bills of Exchange, Bankers Acceptances and Letters of Credit have all been a part of daily "bank" business for many years.
There are three types of Letters of Credit which are issued on a daily basis. These are Documentary Letters of Credit, Standby Letters of Credit and Unconditional Letters of Credit or Surety Guarantees.
The issuance of a "Letter of Credit" usually takes place when a bank customer (Buyer) wishes to buy or acquire goods or services from a third party (Seller). The Buyer will cause his bank to issue a Letter of Credit which "guarantees" payment to the Seller via the Seller's bank conditional against certain documentary requirements. In other words, when the Seller via his bank represents certain documents to the Buyer's bank the payment will be made. These documentary requirements vary from transaction to transaction, however, the normal type of documents will usually comprise of:
- Invoice from Seller (usually in triplicate)
- Bill of Lading (from Shipper)
- certificate of Origin (from the Seller)
- Insurance documents (to cover goods in transit)
- Export Certificate (if goods are for export)
- Transfer of Ownership (from the Seller)
These documents effectively "guarantee" that the goods were "sold" and are "en route" to the Buyer. The Buyer is secure in the fact that he has "bought" the items or services and the Seller is secure in the fact that the Letter of Credit, which was delivered to him prior to the loading or release of the goods, will "guarantee" payment if he complies with the terms of the Letter of Credit.
This type of transaction takes place every day throughout the world, in every jurisdiction and without any fear that the issuing bank will not "honour" its obligation, providing that the bank if of an acceptable stature.
The Letter of Credit is issued i a manner which has been recognised by the Bank for International Settlements (B.I.S.) and the International Chamber of Commerce (I.C.C), and is subject to the uniform rules of collection for documentary credits (ICC 400, 1983).
This type of instrument is normally called a Documentary Letter of Credit ("DLC") and is always trade or transaction related, with an underlying sale of goods or services between the applicant (Buyer) and the Beneficiary (Seller).
During the evolution of the trade related Letters of Credit, a number of institutions began to issue Standby Letters of Credit )"SLC's"). These credit instruments were effectively a surety or guarantee that if the applicant (Buyer) failed to pay or perform under the terms of a transaction, the bank would take over the liability and pay the beneficiary (Seller).
In the United States banks are prohibited by regulation from providing formal guarantees and instead offer these instruments as a functional equivalent of a guarantee.
A conventional Standby Letter of Credit (CSLC) is an irrevocable obligation in the form of a Letter of Credit issued by a bank on behalf of its customer. If the bank's customer is unable to meet the terms and conditions of its contractual agreement with a third party, the issuing bank is obligated to pay the third party (as stipulated in the terms of the CSLC) on behalf of its customer. A CSLC can be primary (direct draw on the Bank) or secondary (available in the event of default by the customer to pay the underlying obligation). [Extracts from "recent Innovations in International Banking - April 1986 prepared by a study group established by the Central Banks of the Group of Ten Countries and published by the Bank for International Settlements.]
As these Standby Letters of Credit were effectively contingent liabilities based upon the potential formal default or technical default of the applicant, they are held "off balance" sheet in respect to the bank's accounting principles.
This type of Letter of Credit is commonly referred to in the market place as a short form format. This number is not found as a specific ICC 400 (1983) reference and is purported to be a federal court docket reference number which is related to a law suit involving such instrument, no details are available to the author.
The following document has been prepared based upon all the available information and is largely a hypotheses, due to the fact that much of the information is hearsay and unsubstantiated. The basis in fact, however, is strong and several documents which re attached as appendices give a detailed summary of the information and reasoning behind this document.
Basic history of specific types of credit instruments
The issuance of bank (credit) instruments dates back to the early days of "banking" when private wealthy individuals used their capital to support various trade orientated ventures. Promissory Notes, Bills of Exchange, Bankers Acceptances and Letters of Credit have all been a part of daily "bank" business for many years.
There are three types of Letters of Credit which are issued on a daily basis. These are Documentary Letters of Credit, Standby Letters of Credit and Unconditional Letters of Credit or Surety Guarantees.
The issuance of a "Letter of Credit" usually takes place when a bank customer (Buyer) wishes to buy or acquire goods or services from a third party (Seller). The Buyer will cause his bank to issue a Letter of Credit which "guarantees" payment to the Seller via the Seller's bank conditional against certain documentary requirements. In other words, when the Seller via his bank represents certain documents to the Buyer's bank the payment will be made. These documentary requirements vary from transaction to transaction, however, the normal type of documents will usually comprise of:
- Invoice from Seller (usually in triplicate)
- Bill of Lading (from Shipper)
- certificate of Origin (from the Seller)
- Insurance documents (to cover goods in transit)
- Export Certificate (if goods are for export)
- Transfer of Ownership (from the Seller)
These documents effectively "guarantee" that the goods were "sold" and are "en route" to the Buyer. The Buyer is secure in the fact that he has "bought" the items or services and the Seller is secure in the fact that the Letter of Credit, which was delivered to him prior to the loading or release of the goods, will "guarantee" payment if he complies with the terms of the Letter of Credit.
This type of transaction takes place every day throughout the world, in every jurisdiction and without any fear that the issuing bank will not "honour" its obligation, providing that the bank if of an acceptable stature.
The Letter of Credit is issued i a manner which has been recognised by the Bank for International Settlements (B.I.S.) and the International Chamber of Commerce (I.C.C), and is subject to the uniform rules of collection for documentary credits (ICC 400, 1983).
This type of instrument is normally called a Documentary Letter of Credit ("DLC") and is always trade or transaction related, with an underlying sale of goods or services between the applicant (Buyer) and the Beneficiary (Seller).
During the evolution of the trade related Letters of Credit, a number of institutions began to issue Standby Letters of Credit )"SLC's"). These credit instruments were effectively a surety or guarantee that if the applicant (Buyer) failed to pay or perform under the terms of a transaction, the bank would take over the liability and pay the beneficiary (Seller).
In the United States banks are prohibited by regulation from providing formal guarantees and instead offer these instruments as a functional equivalent of a guarantee.
A conventional Standby Letter of Credit (CSLC) is an irrevocable obligation in the form of a Letter of Credit issued by a bank on behalf of its customer. If the bank's customer is unable to meet the terms and conditions of its contractual agreement with a third party, the issuing bank is obligated to pay the third party (as stipulated in the terms of the CSLC) on behalf of its customer. A CSLC can be primary (direct draw on the Bank) or secondary (available in the event of default by the customer to pay the underlying obligation). [Extracts from "recent Innovations in International Banking - April 1986 prepared by a study group established by the Central Banks of the Group of Ten Countries and published by the Bank for International Settlements.]
As these Standby Letters of Credit were effectively contingent liabilities based upon the potential formal default or technical default of the applicant, they are held "off balance" sheet in respect to the bank's accounting principles.
This type of Letter of Credit is commonly referred to in the market place as a short form format. This number is not found as a specific ICC 400 (1983) reference and is purported to be a federal court docket reference number which is related to a law suit involving such instrument, no details are available to the author.
Wednesday, June 2, 2010
Trade Execution: What Every Investor Should Know
The graphic below shows your broker's options for executing your trade:
Your Broker Has a Duty of “Best Execution”
Many firms use automated systems to handle the orders they receive from their customers. In deciding how to execute orders, your broker has a duty to seek the best execution that is reasonably available for its customers' orders. That means your broker must evaluate the orders it receives from all customers in the aggregate and periodically assess which competing markets, market makers, or ECNs offer the most favorable terms of execution.
The opportunity for "price improvement" – which is the opportunity, but not the guarantee, for an order to be executed at a better price than what is currently quoted publicly – is an important factor a broker should consider in executing its customers' orders. Other factors include the speed and the likelihood of execution.
Here's an example of how price improvement can work: Let's say you enter a market order to sell 500 shares of a stock. The current quote is $20. Your broker may be able to send your order to a market or a market maker where your order would have the possibility of getting a price better than $20. If your order is executed at $20 1/16, you would receive $10,031.25 for the sale of your stock – $31.25 more than if your broker had only been able to get the current quote for you.
Of course, the additional time it takes some markets to execute orders may result in your getting a worse price than the current quote – especially in a fast-moving market. So, your broker is required to consider whether there is a trade-off between providing its customers' orders with the possibility – but not the guarantee – of better prices and the extra time it may take to do so.
You Have Options for Directing Trades
If for any reason you want to direct your trade to a particular exchange, market maker, or ECN, you may be able to call your broker and ask him or her to do this. But some brokers may charge for that service. Some brokers now offer active traders the ability to direct orders in Nasdaq stocks to the market maker or ECN of their choice.
In a recent speech, SEC Chairman Arthur Levitt emphasized that investors have the right to know where and how their firms execute their orders and what steps they take to assure best execution.
Ask your broker about the firm's policies on payment for order flow, internalization, or other routing practices – or look for that information in your new account agreement. You can also write to your broker to find out the nature and source of any payment for order flow it may have received for a particular order.
If you're comparing firms, ask each how often it gets price improvement on customers' orders. And then consider that information in deciding with which firm you will do business.
Your Broker Has a Duty of “Best Execution”
Many firms use automated systems to handle the orders they receive from their customers. In deciding how to execute orders, your broker has a duty to seek the best execution that is reasonably available for its customers' orders. That means your broker must evaluate the orders it receives from all customers in the aggregate and periodically assess which competing markets, market makers, or ECNs offer the most favorable terms of execution.
The opportunity for "price improvement" – which is the opportunity, but not the guarantee, for an order to be executed at a better price than what is currently quoted publicly – is an important factor a broker should consider in executing its customers' orders. Other factors include the speed and the likelihood of execution.
Here's an example of how price improvement can work: Let's say you enter a market order to sell 500 shares of a stock. The current quote is $20. Your broker may be able to send your order to a market or a market maker where your order would have the possibility of getting a price better than $20. If your order is executed at $20 1/16, you would receive $10,031.25 for the sale of your stock – $31.25 more than if your broker had only been able to get the current quote for you.
Of course, the additional time it takes some markets to execute orders may result in your getting a worse price than the current quote – especially in a fast-moving market. So, your broker is required to consider whether there is a trade-off between providing its customers' orders with the possibility – but not the guarantee – of better prices and the extra time it may take to do so.
You Have Options for Directing Trades
If for any reason you want to direct your trade to a particular exchange, market maker, or ECN, you may be able to call your broker and ask him or her to do this. But some brokers may charge for that service. Some brokers now offer active traders the ability to direct orders in Nasdaq stocks to the market maker or ECN of their choice.
In a recent speech, SEC Chairman Arthur Levitt emphasized that investors have the right to know where and how their firms execute their orders and what steps they take to assure best execution.
Ask your broker about the firm's policies on payment for order flow, internalization, or other routing practices – or look for that information in your new account agreement. You can also write to your broker to find out the nature and source of any payment for order flow it may have received for a particular order.
If you're comparing firms, ask each how often it gets price improvement on customers' orders. And then consider that information in deciding with which firm you will do business.
Trade Execution: What Every Investor Should Know (continue.....)
When you place an order to buy or sell stock, you might not think about where or how your broker will execute the trade. But where and how your order is executed can impact the overall costs of the transaction, including the price you pay for the stock. Here's what you should know about trade execution:
Trade Execution Isn’t Instantaneous
Many investors who trade through online brokerage accounts assume they have a direct connection to the securities markets. But they don't. When you push that enter key, your order is sent over the Internet to your broker—who in turn decides which market to send it to for execution. A similar process occurs when you call your broker to place a trade.
While trade execution is usually seamless and quick, it does take time. And prices can change quickly, especially in fast-moving markets. Because price quotes are only for a specific number of shares, investors may not always receive the price they saw on their screen or the price their broker quoted over the phone. By the time your order reaches the market, the price of the stock could be slightly – or very – different.
No SEC regulations require a trade to be executed within a set period of time. But if firms advertise their speed of execution, they must not exaggerate or fail to tell investors about the possibility of significant delays.
Your Broker Has Options for Executing Your Trade
Just as you have a choice of brokers, your broker generally has a choice of markets to execute your trade:
* For a stock that is listed on an exchange, such as the New York Stock Exchange (NYSE), your broker may direct the order to that exchange, to another exchange (such as a regional exchange), or to a firm called a "third market maker." A "third market maker" is a firm that stands ready to buy or sell a stock listed on an exchange at publicly quoted prices. As a way to attract orders from brokers, some regional exchanges or third market makers will pay your broker for routing your order to that exchange or market maker—perhaps a penny or more per share for your order. This is called "payment for order flow."
* For a stock that trades in an over-the-counter (OTC) market, such as the Nasdaq, your broker may send the order to a "Nasdaq market maker" in the stock. Many Nasdaq market makers also pay brokers for order flow.
* Your broker may route your order – especially a "limit order" – to an electronic communications network (ECN) that automatically matches buy and sell orders at specified prices. A "limit order" is an order to buy or sell a stock at a specific price.
* Your broker may decide to send your order to another division of your broker's firm to be filled out of the firm's own inventory. This is called "internalization". In this way, your broker's firm may make money on the "spread" – which is the difference between the purchase price and the sale price.
Trade Execution Isn’t Instantaneous
Many investors who trade through online brokerage accounts assume they have a direct connection to the securities markets. But they don't. When you push that enter key, your order is sent over the Internet to your broker—who in turn decides which market to send it to for execution. A similar process occurs when you call your broker to place a trade.
While trade execution is usually seamless and quick, it does take time. And prices can change quickly, especially in fast-moving markets. Because price quotes are only for a specific number of shares, investors may not always receive the price they saw on their screen or the price their broker quoted over the phone. By the time your order reaches the market, the price of the stock could be slightly – or very – different.
No SEC regulations require a trade to be executed within a set period of time. But if firms advertise their speed of execution, they must not exaggerate or fail to tell investors about the possibility of significant delays.
Your Broker Has Options for Executing Your Trade
Just as you have a choice of brokers, your broker generally has a choice of markets to execute your trade:
* For a stock that is listed on an exchange, such as the New York Stock Exchange (NYSE), your broker may direct the order to that exchange, to another exchange (such as a regional exchange), or to a firm called a "third market maker." A "third market maker" is a firm that stands ready to buy or sell a stock listed on an exchange at publicly quoted prices. As a way to attract orders from brokers, some regional exchanges or third market makers will pay your broker for routing your order to that exchange or market maker—perhaps a penny or more per share for your order. This is called "payment for order flow."
* For a stock that trades in an over-the-counter (OTC) market, such as the Nasdaq, your broker may send the order to a "Nasdaq market maker" in the stock. Many Nasdaq market makers also pay brokers for order flow.
* Your broker may route your order – especially a "limit order" – to an electronic communications network (ECN) that automatically matches buy and sell orders at specified prices. A "limit order" is an order to buy or sell a stock at a specific price.
* Your broker may decide to send your order to another division of your broker's firm to be filled out of the firm's own inventory. This is called "internalization". In this way, your broker's firm may make money on the "spread" – which is the difference between the purchase price and the sale price.
About Settling Trades In Three Days: Introducing T+3
Beginning on June 7, 1995, investors must settle their security transactions in three business days rather than five. This shortened settlement cycle is known as "T+3" - shorthand for "trade date plus three days."
This new rule means that when you buy securities, your payment must be received by your brokerage firm no later than three business days after the trade is executed. And if you sell securities, your brokerage firm must receive your securities certificate no later than three business days after you authorized the sale.
The U.S. Securities and Exchange Commission developed this brochure to address frequently asked questions about why the settlement cycle was shortened and to highlight issues you should consider in preparing for three-day settlement.
"Why the change?"
Unsettled trades pose risks to our financial markets, especially when market prices plunge and trading volumes soar. This happened when the stock market fell by over 500 points on October 19, 1987. In the hours and days following this drop, our financial markets were threatened by doubts about whether securities firms and investors hit by sizable losses would be able to pay for their transactions. By reducing the settlement cycle from five to three business days, the SEC has lessened the amount of money that needs to be collected at any one time, and strengthened our financial markets for times of stress.
"What security transactions are covered?"
Most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a broker, and limited partnerships that trade on an exchange, must settle in three days. Government securities and options will continue to settle as they have in the past - one day following a purchase or sale.
This new rule means that when you buy securities, your payment must be received by your brokerage firm no later than three business days after the trade is executed. And if you sell securities, your brokerage firm must receive your securities certificate no later than three business days after you authorized the sale.
The U.S. Securities and Exchange Commission developed this brochure to address frequently asked questions about why the settlement cycle was shortened and to highlight issues you should consider in preparing for three-day settlement.
"Why the change?"
Unsettled trades pose risks to our financial markets, especially when market prices plunge and trading volumes soar. This happened when the stock market fell by over 500 points on October 19, 1987. In the hours and days following this drop, our financial markets were threatened by doubts about whether securities firms and investors hit by sizable losses would be able to pay for their transactions. By reducing the settlement cycle from five to three business days, the SEC has lessened the amount of money that needs to be collected at any one time, and strengthened our financial markets for times of stress.
"What security transactions are covered?"
Most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a broker, and limited partnerships that trade on an exchange, must settle in three days. Government securities and options will continue to settle as they have in the past - one day following a purchase or sale.
Tips for Online Investing: What You Need to Know About Trading In Fast-Moving Markets
The price of some stocks, especially recent "hot" IPOs and high tech stocks, can soar and drop suddenly. In these fast markets when many investors want to trade at the same time and prices change quickly, delays can develop across the board. Executions and confirmations slow down, while reports of prices lag behind actual prices. In these markets, investors can suffer unexpected losses very quickly.
Investors trading over the Internet or online, who are used to instant access to their accounts and near instantaneous executions of their trades, especially need to understand how they can protect themselves in fast-moving markets.
You can limit your losses in fast-moving markets if you
* know what you are buying and the risks of your investment; and
* know how trading changes during fast markets and take additional steps to guard against the typical problems investors face in these markets.
Online trading is quick and easy, online investing takes time
With a click of mouse, you can buy and sell stocks from more than 100 online brokers offering executions as low as $5 per transaction. Although online trading saves investors time and money, it does not take the homework out of making investment decisions. You may be able to make a trade in a nanosecond, but making wise investment decisions takes time. Before you trade, know why you are buying or selling, and the risk of your investment.
Investors trading over the Internet or online, who are used to instant access to their accounts and near instantaneous executions of their trades, especially need to understand how they can protect themselves in fast-moving markets.
You can limit your losses in fast-moving markets if you
* know what you are buying and the risks of your investment; and
* know how trading changes during fast markets and take additional steps to guard against the typical problems investors face in these markets.
Online trading is quick and easy, online investing takes time
With a click of mouse, you can buy and sell stocks from more than 100 online brokers offering executions as low as $5 per transaction. Although online trading saves investors time and money, it does not take the homework out of making investment decisions. You may be able to make a trade in a nanosecond, but making wise investment decisions takes time. Before you trade, know why you are buying or selling, and the risk of your investment.
Internet Fraud: How to Avoid Internet Investment Scams
Introduction
The Internet serves as an excellent tool for investors, allowing them to easily and inexpensively research investment opportunities. But the Internet is also an excellent tool for fraudsters. That's why you should always think twice before you invest your money in any opportunity you learn about through the Internet.
On October 28, 1998, the SEC announced charges against 44 stock promoters caught in a nationwide enforcement sweep to combat Internet fraud. These promoters failed to tell investors that more than 235 companies paid them millions of dollars in cash and shares in exchange for touting their stock on the Internet.
Not only did they lie about their own independence, some of them lied about the companies they featured, then took advantage of any quick spike in price to sell their shares for a fast and easy profit," said SEC Director of Enforcement Richard H. Walker.
This alert tells you how to spot different types of Internet fraud, what the SEC is doing to fight Internet investment scams, and how to use the Internet to invest wisely.
Navigating the Frontier: Where the Frauds Are
The Internet allows individuals or companies to communicate with a large audience without spending a lot of time, effort, or money. Anyone can reach tens of thousands of people by building an Internet web site, posting a message on an online bulletin board, entering a discussion in a live "chat" room, or sending mass e-mails. It's easy for fraudsters to make their messages look real and credible. But it's nearly impossible for investors to tell the difference between fact and fiction.
Online Investment Newsletters
Hundreds of online investment newsletters have appeared on the Internet in recent years. Many offer investors seemingly unbiased information free of charge about featured companies or recommending "stock picks of the month." While legitimate online newsletters can help investors gather valuable information, some online newsletters are tools for fraud.
Some companies pay the people who write online newsletters cash or securities to "tout" or recommend their stocks. While this isn't illegal, the federal securities laws require the newsletters to disclose who paid them, the amount, and the type of payment. But many fraudsters fail to do so. Instead, they'll lie about the payments they received, their independence, their so-called research, and their track records. Their newsletters masquerade as sources of unbiased information, when in fact they stand to profit handsomely if they convince investors to buy or sell particular stocks.
Some online newsletters falsely claim to independently research the stocks they profile. Others spread false information or promote worthless stocks. The most notorious sometimes "scalp" the stocks they hype, driving up the price of the stock with their baseless recommendations and then selling their own holdings at high prices and high profits. To learn how to separate the good from the bad, read our tips for checking out newsletters.
Bulletin Boards
Online bulletin boards – whether newsgroups, usenet, or web-based bulletin boards – have become an increasingly popular forum for investors to share information. Bulletin boards typically feature "threads" made up of numerous messages on various investment opportunities.
While some messages may be true, many turn out to be bogus – or even scams. Fraudsters often pump up a company or pretend to reveal "inside" information about upcoming announcements, new products, or lucrative contracts.
Also, you never know for certain who you're dealing with – or whether they're credible – because many bulletin boards allow users to hide their identity behind multiple aliases. People claiming to be unbiased observers who've carefully researched the company may actually be company insiders, large shareholders, or paid promoters. A single person can easily create the illusion of widespread interest in a small, thinly-traded stock by posting a series of messages under various aliases.
E-mail Spams
Because "spam" – junk e-mail – is so cheap and easy to create, fraudsters increasingly use it to find investors for bogus investment schemes or to spread false information about a company. Spam allows the unscrupulous to target many more potential investors than cold calling or mass mailing. Using a bulk e-mail program, spammers can send personalized messages to thousands and even millions of Internet users at a time.
How to Use the Internet to Invest Wisely
If you want to invest wisely and steer clear of frauds, you must get the facts. Never, ever, make an investment based solely on what you read in an online newsletter or bulletin board posting, especially if the investment involves a small, thinly-traded company that isn't well known.
The Internet serves as an excellent tool for investors, allowing them to easily and inexpensively research investment opportunities. But the Internet is also an excellent tool for fraudsters. That's why you should always think twice before you invest your money in any opportunity you learn about through the Internet.
On October 28, 1998, the SEC announced charges against 44 stock promoters caught in a nationwide enforcement sweep to combat Internet fraud. These promoters failed to tell investors that more than 235 companies paid them millions of dollars in cash and shares in exchange for touting their stock on the Internet.
Not only did they lie about their own independence, some of them lied about the companies they featured, then took advantage of any quick spike in price to sell their shares for a fast and easy profit," said SEC Director of Enforcement Richard H. Walker.
This alert tells you how to spot different types of Internet fraud, what the SEC is doing to fight Internet investment scams, and how to use the Internet to invest wisely.
Navigating the Frontier: Where the Frauds Are
The Internet allows individuals or companies to communicate with a large audience without spending a lot of time, effort, or money. Anyone can reach tens of thousands of people by building an Internet web site, posting a message on an online bulletin board, entering a discussion in a live "chat" room, or sending mass e-mails. It's easy for fraudsters to make their messages look real and credible. But it's nearly impossible for investors to tell the difference between fact and fiction.
Online Investment Newsletters
Hundreds of online investment newsletters have appeared on the Internet in recent years. Many offer investors seemingly unbiased information free of charge about featured companies or recommending "stock picks of the month." While legitimate online newsletters can help investors gather valuable information, some online newsletters are tools for fraud.
Some companies pay the people who write online newsletters cash or securities to "tout" or recommend their stocks. While this isn't illegal, the federal securities laws require the newsletters to disclose who paid them, the amount, and the type of payment. But many fraudsters fail to do so. Instead, they'll lie about the payments they received, their independence, their so-called research, and their track records. Their newsletters masquerade as sources of unbiased information, when in fact they stand to profit handsomely if they convince investors to buy or sell particular stocks.
Some online newsletters falsely claim to independently research the stocks they profile. Others spread false information or promote worthless stocks. The most notorious sometimes "scalp" the stocks they hype, driving up the price of the stock with their baseless recommendations and then selling their own holdings at high prices and high profits. To learn how to separate the good from the bad, read our tips for checking out newsletters.
Bulletin Boards
Online bulletin boards – whether newsgroups, usenet, or web-based bulletin boards – have become an increasingly popular forum for investors to share information. Bulletin boards typically feature "threads" made up of numerous messages on various investment opportunities.
While some messages may be true, many turn out to be bogus – or even scams. Fraudsters often pump up a company or pretend to reveal "inside" information about upcoming announcements, new products, or lucrative contracts.
Also, you never know for certain who you're dealing with – or whether they're credible – because many bulletin boards allow users to hide their identity behind multiple aliases. People claiming to be unbiased observers who've carefully researched the company may actually be company insiders, large shareholders, or paid promoters. A single person can easily create the illusion of widespread interest in a small, thinly-traded stock by posting a series of messages under various aliases.
E-mail Spams
Because "spam" – junk e-mail – is so cheap and easy to create, fraudsters increasingly use it to find investors for bogus investment schemes or to spread false information about a company. Spam allows the unscrupulous to target many more potential investors than cold calling or mass mailing. Using a bulk e-mail program, spammers can send personalized messages to thousands and even millions of Internet users at a time.
How to Use the Internet to Invest Wisely
If you want to invest wisely and steer clear of frauds, you must get the facts. Never, ever, make an investment based solely on what you read in an online newsletter or bulletin board posting, especially if the investment involves a small, thinly-traded company that isn't well known.
What are investment advisers?
What is an investment adviser?
Investment advisers are in the business of giving advice about securities to clients. For instance, if they receive compensation for giving advice to a specific person on investing in stocks, bonds, or mutual funds, they are investment advisers. Some investment advisers manage portfolios of securities.
What is the difference between an investment adviser and a financial planner?
Most financial planners are investment advisers, but not all investment advisers are financial planners. Some financial planners assess every aspect of your financial life-including saving, investments, insurance, taxes, retirement, and estate planning-and help you develop a detailed strategy or financial plan for meeting all your financial goals.
Others call themselves financial planners, but they may only be able to recommend that you invest in a narrow range of products, and sometimes products that aren't securities.
Before you hire any financial professional, you should know exactly what services you need, what services the professional can deliver, any limitations on what they can recommend, what services you're paying for, how much those services cost, and how the adviser or planner gets paid.
Investment advisers are in the business of giving advice about securities to clients. For instance, if they receive compensation for giving advice to a specific person on investing in stocks, bonds, or mutual funds, they are investment advisers. Some investment advisers manage portfolios of securities.
What is the difference between an investment adviser and a financial planner?
Most financial planners are investment advisers, but not all investment advisers are financial planners. Some financial planners assess every aspect of your financial life-including saving, investments, insurance, taxes, retirement, and estate planning-and help you develop a detailed strategy or financial plan for meeting all your financial goals.
Others call themselves financial planners, but they may only be able to recommend that you invest in a narrow range of products, and sometimes products that aren't securities.
Before you hire any financial professional, you should know exactly what services you need, what services the professional can deliver, any limitations on what they can recommend, what services you're paying for, how much those services cost, and how the adviser or planner gets paid.
Monday, May 3, 2010
Trading with GFS Platform (You trade yourself)
Synopsis
GFS provides a Forex Trading Platform with unique properties to facilitate real time trading. GFS immediately offsets all client trades with a bank or institutional liquidity provider and therefore they will never trade "against" their clients, GFS offers traders a high level of execution that is unmatched in the marketplace.
The following section provides more information on the advantages and workings of the OperaFX trading platform. Once you have read through the information why not try out their live demo account?
Execution
GFS offers traders the highest possible level of price transparency using real time streaming quotes, and a speed of execution that is unmatched in the marketplace. Clients simply click on the current bid or offer, deals are confirmed instantaneously, and all trading activity is tracked on screen in real time, including current open positions, real time profit and loss, margin availability, account balances, and all historical transaction details.
One of the primary reasons GFS has captured such a large institutional client base is the reliability of our prices and our fills. Our relationships with the world’s largest FX banks and liquidity providers allow our clients to directly access the global currency markets. This deep liquidity pool attracts those who require the ability to execute institutional size deals. With straight through processing (STP) even the largest orders are almost always filled at the displayed price.
Competitive Spreads and STP
Straight Through Processing (STP) - No Dealing Desk execution combines the benefits of direct access to the interbank market with the convenience and speed of GFS’s proprietary platform, OperaFX. GFS does not trade against our clients. We offer every client, including both retail and institutional, equal access to the interbank market. GFS does not have a need to know your positions, so stop and limit orders are never targeted or “hunted”. Traders rarely receive a “requoted” price on our STP platform, with the exception of extreme market volatility. Knowing that GFS only generates revenue off of the spread of the currency pair, and never takes the other side of any trades, our clients can be confident that we share an interest in their success.
Basically, we don't have a dealing desk and we don’t trade against our clients. When you want to buy or sell, the price that you see on the screen is the price that you will get. All your orders go straight to our liquidity providers like Goldman Sachs, Bank of America and Deutsche Bank, etc.
However, when you are dealing with a dealing desk firm. You are trading against them. They're going to process the orders that are more favorable to them, because they profit from you losses and the spreads. All your losses go straight to the broker and all you profit goes to the liquidity providers. When you could have lost 50$, you might have lost 80$. When you could have won $100, you might have won $60. There is a CONFLICT OF INTEREST when your broker is trading against you.
The fact that unlike most of our competitors we use STP has resulted in us having 0 complaints in our 10 year history. To have background information on our firm and other firms I recommend you visit the NFA (National Futures Association) website at: http://www.nfa.futures.org/basicnet/
Full Back Office
GFS has a highly sophisticated yet simple to use back office system for both retail and institutional clients. GFS handles all administrative and account management responsibilities including; real time trading activity, month end reporting, order history, floating P&L, rebate accumulation, multiple account management, accepting and approving all new customer account applications, fund transfers, and account inquiries. GFS provides access to a real-time Back Office reporting system 24 hours a day. In addition, OperaFX software eliminates individual trade overhead costs including trade confirmation, account statement processing, and margin control. Customers of IBs can login to their own trading account and view all account details at any time. While GFS takes care of all of your service and back office needs, you will be able to focus your energies on the areas that will grow your business.
Client Support
With 24 hour access to our customer and technical support team, through our website, live chat, email, and telephone, you will receive immediate service and support whenever you need it. Our multilingual Customer Service Department is on hand to answer any account questions you may have. IBs can utilize our IT, Sales, Back Office and Marketing teams’ expertise at any time. GFS Forex & Futures supports its clients, Introducing Brokers, and partners through every of stage of business development which includes set up, launch, and continuous training and marketing. For partners seeking co-branding, we can package the trading platform with your own corporate image, customizing your front end setup, website integration and hosting.
OperaFX – Spot Market Trading Platform
Our unwavering commitment to technological innovation has driven us to create OperaFX Pro – one of the most advanced products on the market. A friendly and sophisticated platform that caters to beginners as well as experienced traders and professionals, OperaFX provides unrivaled electronic trading tools and 24 hour access to the Forex market with superior execution.
As a proprietary platform, GFS can customize OperaFX to meet the requirements of your specific trading style. With numerous built-in customizable options and the ability to add, remove, or create features according to your specifications, OperaFX meets the needs of every Spot market trader.
Platform Features
A. View live streaming quotes of our STP prices
B. Multiple workspaces allow you to save different configurations of your trading setup
C. Orders can be placed directly from the quote list, the advanced price display, or directly off the chart
D. Select from a wide variety of drawing tools to insert Fibonacci levels, trend lines, and more, right onto your charts
E. All open positions are labeled on the charts so that you can easily follow the progress of your trades
F. Our customizable menu allows you to choose the color, layout, and style. You can also insert onto the charts numerous studies and indicators that are pre-installed on the platform. If you have a proprietary or specific indicator that you want to trade with, GFS will add it onto the platform for your own customized version.
G. Easily adjust the size of your orders. With 100:1 leverage, the number of lots you trade at a time gives you the ability to manage your risk
H. Follow your open positions, floating P/L, and add stop or limit orders with ease
I. The real time Dow Jones news source will keep you on top of the latest information related to the Forex market
J. The Historical Trading Log helps you manage your positions and review your past performance
What do I have to know and do to trade in Forex?
To become a successful Forex Trader we recommend the following:
Maximize Your Tools
It is of the utmost importance to know your tools. The varius brokers offers an array of tools that are used for trading the Forex markets. Be sure to test any demo accounts offered and use the opportunity to "learn" the tool.
Risk Management
Every successful trader should know how much risk he is willing to take, and what profits should result from the trade. This is the basis of every realistic trading strategy.
Two Ways to Trade
There are two types of traders, technical and fundamental. Both have a radically different approach to making trading decisions.
The Basics of Technical Analysis
All technical analysis starts with a few basic building blocks. With these as a foundation, you can start to make sound trading decisions.
Fundamentals Everyone Should Know
All Traders should understand why economic releases, interest rates, and international trade are important to movements in the currency market.
Psychology of Trading
The biggest enemy to most traders is not the market, but themselves. Study and learn all you can about Forex trading.
Maximize Your Tools
It is of the utmost importance to know your tools. The varius brokers offers an array of tools that are used for trading the Forex markets. Be sure to test any demo accounts offered and use the opportunity to "learn" the tool.
Risk Management
Every successful trader should know how much risk he is willing to take, and what profits should result from the trade. This is the basis of every realistic trading strategy.
Two Ways to Trade
There are two types of traders, technical and fundamental. Both have a radically different approach to making trading decisions.
The Basics of Technical Analysis
All technical analysis starts with a few basic building blocks. With these as a foundation, you can start to make sound trading decisions.
Fundamentals Everyone Should Know
All Traders should understand why economic releases, interest rates, and international trade are important to movements in the currency market.
Psychology of Trading
The biggest enemy to most traders is not the market, but themselves. Study and learn all you can about Forex trading.
Forex Trading - Abbreviations [......3]
Point
0.0001 of a unit; for instance, if the GBP/USD is 1.5220, then 1.5219 is one point lower
Political Risk
The potential for losses arising from a change in government policy.
Premium
In options, the price of a call or a put, which the buyer initially pays to the option writer.
Price Risk (Market Risk)
The risk of a fall in the market value of a foreign investment (as measured in the domestic currency of the investor) due to an adverse change in the value of the currency of the investment.
Principal
The counterparty that sells and buys currencies for his own account as opposed to a broker who introduces a buyer to a seller and vice versa.
Purchasing Power Parity
The proposition that over the long term, changes in the exchange rate between two currencies are the result of differences in the relative rate of inflation in the two countries concerned.
Put
In options, the buyer of a put has the right to acquire a short position in the underlying contract at the strike price until the option expires; the seller (writer) of a put obligates himself to take a long position in the contract at the strike price if the buyer exercises his put.
Resistance
A price level at which you would expect selling to take place due to technical analysis. The resistance level of one currency is the support level for the other.
Risk Neutrality
An attitude that risks should neither be sought nor avoided, but should be accepted whenever they arise.
Rollover
Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies.
Settlement
Actual exchange of base currency and currency between principal and client.
Short
A market position where the client has sold a currency he does not already own. Normally expressed in base currency terms, e.g. short US dollars (long Deutsch marks).
Soft Currency
A currency which is expected to devalue or depreciate against other currencies, or whose exchange rate must be supported by central bank intervention or exchange controls.
Speculation
Buying or selling currency in expectation of an exchange rate movement, so as to make a profit, either in the same market or between two different markets, e.g. forex cash markets and derivatives markets.
Spot
Spot means that the settlement date of a deal is two business days forward.
Spread
The difference in prices between bid and offer rates.
Stop Loss Order (or Stop)
An order to buy or sell when a particular price is reached, either above or below the price that prevailed when the order was given.
Strike Price
For call options, the specified price at which the buyer has the right to purchase the underlying contract.
Structural Hedging
The process of reducing or eliminating currency exposure by matching receivables and payables in each currency or currency bloc to minimise the net exposure.
Support
Price level at which you expect buying to take place. See resistance.
Swap
An agreement between two parties to exchange a series of future payments. In a currency swap, the exchange of payments (cash flow) are in two currencies, one of which is often the US dollar.
Swift
The society for Worldwide International Fund Transfers is a multinational facility for fund transfers based in Belgium and the Netherlands.
Technical Analysis
Analysis based on market action through chart study, moving averages, volume, open interest, oscillators, formations, stochastics and other technical indicators.
Thin Trading
When the volumes of currency bought and sold are low.
Time Value
In options, the value of the premium is based on the amount of time left before the contract expires and the volatility of the underlying contract. Time value represents that portion of the premium in excess of intrinsic value. Time value diminishes as the expiration of the option draws near and/or if the underlying contract's price development becomes less volatile.
Two-Way Price
Rates for which both a bid and offer are quoted.
US Prime Rate
The rate at which US banks will lend to their prime corporate customers.
Value Date
Settlement date of a spot or forward deal.
Volatility
A measure of price fluctuation.
0.0001 of a unit; for instance, if the GBP/USD is 1.5220, then 1.5219 is one point lower
Political Risk
The potential for losses arising from a change in government policy.
Premium
In options, the price of a call or a put, which the buyer initially pays to the option writer.
Price Risk (Market Risk)
The risk of a fall in the market value of a foreign investment (as measured in the domestic currency of the investor) due to an adverse change in the value of the currency of the investment.
Principal
The counterparty that sells and buys currencies for his own account as opposed to a broker who introduces a buyer to a seller and vice versa.
Purchasing Power Parity
The proposition that over the long term, changes in the exchange rate between two currencies are the result of differences in the relative rate of inflation in the two countries concerned.
Put
In options, the buyer of a put has the right to acquire a short position in the underlying contract at the strike price until the option expires; the seller (writer) of a put obligates himself to take a long position in the contract at the strike price if the buyer exercises his put.
Resistance
A price level at which you would expect selling to take place due to technical analysis. The resistance level of one currency is the support level for the other.
Risk Neutrality
An attitude that risks should neither be sought nor avoided, but should be accepted whenever they arise.
Rollover
Where the settlement of a deal is rolled forward to another value date based on the interest rate differential of the two currencies.
Settlement
Actual exchange of base currency and currency between principal and client.
Short
A market position where the client has sold a currency he does not already own. Normally expressed in base currency terms, e.g. short US dollars (long Deutsch marks).
Soft Currency
A currency which is expected to devalue or depreciate against other currencies, or whose exchange rate must be supported by central bank intervention or exchange controls.
Speculation
Buying or selling currency in expectation of an exchange rate movement, so as to make a profit, either in the same market or between two different markets, e.g. forex cash markets and derivatives markets.
Spot
Spot means that the settlement date of a deal is two business days forward.
Spread
The difference in prices between bid and offer rates.
Stop Loss Order (or Stop)
An order to buy or sell when a particular price is reached, either above or below the price that prevailed when the order was given.
Strike Price
For call options, the specified price at which the buyer has the right to purchase the underlying contract.
Structural Hedging
The process of reducing or eliminating currency exposure by matching receivables and payables in each currency or currency bloc to minimise the net exposure.
Support
Price level at which you expect buying to take place. See resistance.
Swap
An agreement between two parties to exchange a series of future payments. In a currency swap, the exchange of payments (cash flow) are in two currencies, one of which is often the US dollar.
Swift
The society for Worldwide International Fund Transfers is a multinational facility for fund transfers based in Belgium and the Netherlands.
Technical Analysis
Analysis based on market action through chart study, moving averages, volume, open interest, oscillators, formations, stochastics and other technical indicators.
Thin Trading
When the volumes of currency bought and sold are low.
Time Value
In options, the value of the premium is based on the amount of time left before the contract expires and the volatility of the underlying contract. Time value represents that portion of the premium in excess of intrinsic value. Time value diminishes as the expiration of the option draws near and/or if the underlying contract's price development becomes less volatile.
Two-Way Price
Rates for which both a bid and offer are quoted.
US Prime Rate
The rate at which US banks will lend to their prime corporate customers.
Value Date
Settlement date of a spot or forward deal.
Volatility
A measure of price fluctuation.
Forex Trading - Abbreviations [2......continued]
Fed
Abbreviation for Federal Reserve System of the United States. In the domestic context Fed usually refers to its board of governors or to the Federal Reserve Bank of New York; in the foreign exchange context it usually refers to the latter.
Federal Open Market Committee
Key decision making committee of the Federal Reserve System. The minutes of its meeting are published about a month later, and show the current stance of US monetary policy.
Figure
Dealers' slang meaning "00" and denoting and.
Fixed Exchange rate
Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower intervention points.
Flat/Square
Where a client has not traded in that currency or where an earlier deal is reversed thereby creating a neutral (flat) position.
Floating Exchange Rate
When the value of a currency is decided by supply and demand.
Forex
An abbreviation for foreign exchange also FX.
Forward Points
The interest rate differential between two currencies expressed in exchange rate points. These forward points are added to or subtracted from the spot rate to give the forward or outright rate.
Forward Rate
The rate at which a foreign exchange contract is struck today for settlement at a specified future date.
Fundamental Analysis
Analysis based on economic factors.
Future
A contract giving the obligation to buy or sell an asset at a set date in the future.
GTC "Good Till Cancelled"
An order left with a dealer to buy or sell at a fixed price. It holds until cancelled.
Hard Currency
A currency whose value is expected to remain stable or increase in terms of other currencies.
Hedging
A hedging transaction is one which protects an asset or liability against a fluctuation in the foreign exchange rate.
IMF
International Monetary Fund
Initial Margin
The deposit required before a client can transact a deal.
Interest Parity
The interest parity theory is if there are two financial instruments in different currencies but identical in risk and maturity (e.g. three month UK gilts and Us Treasury bills), then a difference in the interest rate on the instruments will be reflected in the premium or discount for the forward exchange rate.
In-the-Money
In call options, when the strike price is below the price of the underlying contract. In put options, when the strike price is above the price of the underlying contract. In-the-Money options are the most expensive options because the premium includes intrinsic value.
Intrinsic Value
For in-the-money call and put options, the difference between the strike price and the underlying contract price.
Leads and Lags
Process of accelerating (leads) or slowing up (lags) foreign exchange payments or receipts when a change in exchange rates is expected.
Leverage
Facility whereby a small margin deposit can control a much larger total contract value, a mechanism which determines the ability to make extraordinary profits at the same time as keeping the risk capital to a minimum.
Limit Order
An order given which has restrictions upon its execution. The client specifies a price and the order can be executed only if the market reaches that price.
Lombard Rate
German term for the rate of interest charged for loans against the security of pledged paper. Particularly used by Bundesbank, which normally maintains its Lombard rate at about 1/2% above its discount rate.
London Interbank Offered Rate (LIBOR)
The interest rate at which banks in London are prepared to lend funds to first-class banks.
Long Position
A position where the client has bought a currency he does not already own. Normally expressed in base currency terms, e.g. long US dollars (short Deutsch marks).
Margin
Cash or guarantee deposited by a client wishing to trade.
Maturity
Date for settlement
Not Held Basis Order
An order whereby the price may trade through or even better than the client's desired level, but the principal is not held responsible if the order is not executed.
Offer
The rate at which a dealer is willing to sell the base currency.
One Cancels Other (OCO) Order
Where the execution of one order automatically cancels a previous order.
Open Position
Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.
Option
The right, but not the obligation, to buy or sell an asset, such as currency, on or before a set of future date.
Out-of-the Money
Option calls with strike prices above the price of the underlying contracts, and puts with strike prices below the price of the underlying contracts.
Outright Forward
Foreign Exchange transaction involving either the purchase or the sale of a currency for settlement at a future date.
Outright Rate
The forward rate of a foreign exchange deal.
Overnight Trading
Refers to a purchase or sale between 9:00 pm and 7:00 am.
Over-the-Counter Transaction (OTC)
A transaction arranged by direct negotiation, usually by telephone, rather than on an exchange.
Abbreviation for Federal Reserve System of the United States. In the domestic context Fed usually refers to its board of governors or to the Federal Reserve Bank of New York; in the foreign exchange context it usually refers to the latter.
Federal Open Market Committee
Key decision making committee of the Federal Reserve System. The minutes of its meeting are published about a month later, and show the current stance of US monetary policy.
Figure
Dealers' slang meaning "00" and denoting and.
Fixed Exchange rate
Official rate set by monetary authorities for one or more currencies. In practice, even fixed exchange rates are allowed to fluctuate between definite upper and lower intervention points.
Flat/Square
Where a client has not traded in that currency or where an earlier deal is reversed thereby creating a neutral (flat) position.
Floating Exchange Rate
When the value of a currency is decided by supply and demand.
Forex
An abbreviation for foreign exchange also FX.
Forward Points
The interest rate differential between two currencies expressed in exchange rate points. These forward points are added to or subtracted from the spot rate to give the forward or outright rate.
Forward Rate
The rate at which a foreign exchange contract is struck today for settlement at a specified future date.
Fundamental Analysis
Analysis based on economic factors.
Future
A contract giving the obligation to buy or sell an asset at a set date in the future.
GTC "Good Till Cancelled"
An order left with a dealer to buy or sell at a fixed price. It holds until cancelled.
Hard Currency
A currency whose value is expected to remain stable or increase in terms of other currencies.
Hedging
A hedging transaction is one which protects an asset or liability against a fluctuation in the foreign exchange rate.
IMF
International Monetary Fund
Initial Margin
The deposit required before a client can transact a deal.
Interest Parity
The interest parity theory is if there are two financial instruments in different currencies but identical in risk and maturity (e.g. three month UK gilts and Us Treasury bills), then a difference in the interest rate on the instruments will be reflected in the premium or discount for the forward exchange rate.
In-the-Money
In call options, when the strike price is below the price of the underlying contract. In put options, when the strike price is above the price of the underlying contract. In-the-Money options are the most expensive options because the premium includes intrinsic value.
Intrinsic Value
For in-the-money call and put options, the difference between the strike price and the underlying contract price.
Leads and Lags
Process of accelerating (leads) or slowing up (lags) foreign exchange payments or receipts when a change in exchange rates is expected.
Leverage
Facility whereby a small margin deposit can control a much larger total contract value, a mechanism which determines the ability to make extraordinary profits at the same time as keeping the risk capital to a minimum.
Limit Order
An order given which has restrictions upon its execution. The client specifies a price and the order can be executed only if the market reaches that price.
Lombard Rate
German term for the rate of interest charged for loans against the security of pledged paper. Particularly used by Bundesbank, which normally maintains its Lombard rate at about 1/2% above its discount rate.
London Interbank Offered Rate (LIBOR)
The interest rate at which banks in London are prepared to lend funds to first-class banks.
Long Position
A position where the client has bought a currency he does not already own. Normally expressed in base currency terms, e.g. long US dollars (short Deutsch marks).
Margin
Cash or guarantee deposited by a client wishing to trade.
Maturity
Date for settlement
Not Held Basis Order
An order whereby the price may trade through or even better than the client's desired level, but the principal is not held responsible if the order is not executed.
Offer
The rate at which a dealer is willing to sell the base currency.
One Cancels Other (OCO) Order
Where the execution of one order automatically cancels a previous order.
Open Position
Any deal which has not been settled by physical payment or reversed by an equal and opposite deal for the same value date.
Option
The right, but not the obligation, to buy or sell an asset, such as currency, on or before a set of future date.
Out-of-the Money
Option calls with strike prices above the price of the underlying contracts, and puts with strike prices below the price of the underlying contracts.
Outright Forward
Foreign Exchange transaction involving either the purchase or the sale of a currency for settlement at a future date.
Outright Rate
The forward rate of a foreign exchange deal.
Overnight Trading
Refers to a purchase or sale between 9:00 pm and 7:00 am.
Over-the-Counter Transaction (OTC)
A transaction arranged by direct negotiation, usually by telephone, rather than on an exchange.
Forex Trading - Abbreviations [1....continued]
Arbitrage
Dealing in two or more markets at the same time (or in similar products in the same market) to take advantage of temporary mispricing in order to make a profit.
At-the-Money
In options, when the strike price equals the price of the underlying contract.
Bear
A person who believes that prices will decline.
Bear Market
A market characterized by declining prices.
Bid
The rate at which a dealer is willing to buy the vase currency.
Big Figure
The first three digits of an exchange rate, e.g. USD 1.62 per pound or DEM 1.49 per dollar.
Bull
A person who believes that prices will rise.
Bull Market
A market characterized by rising prices.
Cable
Dealer's slang for the UK sterling/US dollar exchange rate.
Call
An option that gives the buyer the right to long a position in the underlying contract at a specific price; the call writer (seller) may be assigned a short position in the underlying contract if the buyer exercises his call.
Call Rate
The overnight interest rate.
Cash Market
The market for the purchase and sale of physical currencies.
Convertible Currency
Currency which can be exchanged for other currencies of gold without authorization from the central bank.
Counterparties
The parties on either side of a transaction.
Cross Rate
Exchange rate that does not involve the US dollar.
Currency Clause
A clause in an export contract in which the sum payable is denominated in the buyer's currency; but the amount payable will vary with the exchange rate for the buyer's currency against the seller's currency.
Day Trading
Refers to opening and closing the same position or positions within one day's trading.
Delta
For options, also called the neutral hedge ratio. Expresses the expected change in the option price, given a one-unit change in the price of the underlying contract.
Derivative
Financial instruments, such as futures and options, which derive their value from underlying securities including bonds, bills, currencies, and equities.
Discount
Cheaper than the spot price, e.g. forward discount.
Dollar Rate
When a variable amount of a foreign currency is quoted against one unit of the US dollar, regardless of where the dealer is located or in what currency he is requesting a quote. The major exception is the UK sterling/US dollar rate cable which is quoted as units of the US dollar to UK sterling.
EMS
European Monetary System
ERM
Exchange Rate Mechanism
Eurobond
Marketable debt security issued outside the country in whose currency the debt is denominated.
Eurodollar
A dollar deposit acquired by a person or bank not residing in the United States and held outside the United States and therefore not subject to US reserve restrictions.
European Currency Unit
The currency unit in the EMS, where the unit is defined by the sum of quantities of each of the national currencies of the members of the EMS, so the value of the ECU changes in terms of third currencies, such as e.g. the US dollar.
Exchange Control
Government regulations restricting or forbidding certain types of foreign currency transactions including purchases from abroad, payment abroad of interest or dividends, and investing abroad.
Exchange Rate Depreciation
Currency which loses in value against one or more other currencies, especially if this happens in response to natural supply rather than by an official devaluation.
Exchange Rate Risk
The potential loss that could be incurred from a movement in exchange rates.
Exposure
A financial risk facing a business, which can be categorized according to its cause or source. Currency exposures are exposures to exchange rate risk.
Dealing in two or more markets at the same time (or in similar products in the same market) to take advantage of temporary mispricing in order to make a profit.
At-the-Money
In options, when the strike price equals the price of the underlying contract.
Bear
A person who believes that prices will decline.
Bear Market
A market characterized by declining prices.
Bid
The rate at which a dealer is willing to buy the vase currency.
Big Figure
The first three digits of an exchange rate, e.g. USD 1.62 per pound or DEM 1.49 per dollar.
Bull
A person who believes that prices will rise.
Bull Market
A market characterized by rising prices.
Cable
Dealer's slang for the UK sterling/US dollar exchange rate.
Call
An option that gives the buyer the right to long a position in the underlying contract at a specific price; the call writer (seller) may be assigned a short position in the underlying contract if the buyer exercises his call.
Call Rate
The overnight interest rate.
Cash Market
The market for the purchase and sale of physical currencies.
Convertible Currency
Currency which can be exchanged for other currencies of gold without authorization from the central bank.
Counterparties
The parties on either side of a transaction.
Cross Rate
Exchange rate that does not involve the US dollar.
Currency Clause
A clause in an export contract in which the sum payable is denominated in the buyer's currency; but the amount payable will vary with the exchange rate for the buyer's currency against the seller's currency.
Day Trading
Refers to opening and closing the same position or positions within one day's trading.
Delta
For options, also called the neutral hedge ratio. Expresses the expected change in the option price, given a one-unit change in the price of the underlying contract.
Derivative
Financial instruments, such as futures and options, which derive their value from underlying securities including bonds, bills, currencies, and equities.
Discount
Cheaper than the spot price, e.g. forward discount.
Dollar Rate
When a variable amount of a foreign currency is quoted against one unit of the US dollar, regardless of where the dealer is located or in what currency he is requesting a quote. The major exception is the UK sterling/US dollar rate cable which is quoted as units of the US dollar to UK sterling.
EMS
European Monetary System
ERM
Exchange Rate Mechanism
Eurobond
Marketable debt security issued outside the country in whose currency the debt is denominated.
Eurodollar
A dollar deposit acquired by a person or bank not residing in the United States and held outside the United States and therefore not subject to US reserve restrictions.
European Currency Unit
The currency unit in the EMS, where the unit is defined by the sum of quantities of each of the national currencies of the members of the EMS, so the value of the ECU changes in terms of third currencies, such as e.g. the US dollar.
Exchange Control
Government regulations restricting or forbidding certain types of foreign currency transactions including purchases from abroad, payment abroad of interest or dividends, and investing abroad.
Exchange Rate Depreciation
Currency which loses in value against one or more other currencies, especially if this happens in response to natural supply rather than by an official devaluation.
Exchange Rate Risk
The potential loss that could be incurred from a movement in exchange rates.
Exposure
A financial risk facing a business, which can be categorized according to its cause or source. Currency exposures are exposures to exchange rate risk.
Subscribe to:
Posts (Atom)