In most every case, the trading done in the private placement business is based on a line of credit obtained against whatever cash or other acceptable asset which is brought forward by the client. Generally speaking, cash is not brought forward by the client then and invested directly into the operation. When the client has cash in his account, this is used as the basis for the line of credit to be used for trading. and the original cash in the clients account never moves. This is the quickest and easiest option and will be discussed further in the next issue.
As for bank instruments, there are many cases where clients bring forward bank instruments of one kind or another, such as Bank Guarantees, Stand By Letters of Credit (SBLCs) or Safe Keeping Receipts (SKR).
Unfortunately, there are many misconceptions floating around that need to be corrected as it relates to various instruments. Many people purport to 'have' an instrument which they'd like to monetize or leverage for such an operation. However, in the end, we all too often find that they don't own the instrument and so they certainly don't control it. This leads to an immediate dead end and everything falls apart. If you don't own or control the instrument, then obviously there is very little you can do with it. If you 'Do' own or control the instrument, provided that it is a) valid, b) negotiable, c) issued by a good bank who is ready willing and able (RWA) to deliver it with full bank responsibility, then you have something to work with and getting the line of credit against it is a matter of routine provided that everything checks out.
The quickest way to cut to the quick with your client who comes to you with any kind of instrument is to ask him for a bank letter addressed to the client signed by one or two bank officers, verifying the instrument and that upon instructions from the client the instrument can be delivered with full bank responsibility. Ask for this up front from the client and you will save yourself untold man hours of back and forth with people who are not holders in due course.
There are many purported providers out there on the internet claiming to be able to monetize or lend against various instruments. This is typically done in the major financial houses and banks, as you might imagine, due to the large amounts usually involved. Any offers that come from outside of this venue, I would be very skeptical of. In any normal situation, you will be asked to become a client of the bank first before they offer those services. They typically do not make this service available to folks just coming in off the street.
Even if you had a legitimate private party offering to buy or monetize your instrument for $100M or more, with today's KYC and AML regulations, the transaction would certainly be held up by the processing bank unless or until they had full disclosure of everybody and everything involved. And even when this is accomplished, in today's competitive banking environment and turbulent financial waters where survival is not even assured to many banks, we've even heard of banks playing some underhanded tricks and coming up with all sorts of excuses to freeze the funds (so they can sit on them and use them).
But by being a client of the bank, they will have done their due diligence on you in that account opening process and will feel more comfortable in dealing with you on this level. Plus, the client relationship will bring into play additional possible solutions which might not otherwise exist under different circumstances.
Further to this idea, there are methods for using funds in an account without taking those funds from the bank itself and this makes your banker very happy and much more inclined to process your transaction.
So this begs the question: "if you are the actual owner of 'xyz instrument', issued by 'your' bank, and they already know you, why wouldn't you be dealing with your own bank to get your funding needs met? Why are you talking to a 'broker' you found on the internet ?"
So you can see that with some simple logic, you can easily bust through so much of the BS that's floating around and wasting so many peoples' time.
Most of the folks you'll find wanting to monetize an instrument are not the owners of the instrument and unfortunately they have spent a lot of money to 'lease' the instrument only to find that they cannot do what they intended to do with it.
In our next issue, we'll talk about using cash, blocked accounts and some of the myths and realities of using the MT760 or other reserved funds mechanisms.
Next week we'll get into a little more detail about : 
