A Tutorial On Managed Buy/Sell Private Placement Programs: Chapter 9

The following is a summary of the process involved for entering a PPOP:

A client with a minimum of €200M applies for a Private Placement Opportunity Program.

This business is entirely private. To get access to these investment programs, the client needs to send his preliminary documentation to a broker whom the client trusts to be in direct contact with the trading group. That means a Client Information Sheet, a copy of their passport, and a bank statement showing the balance of funds being committed for trade. It is generally required that the bank statement be signed by two authorized bank officers to make it full bank responsibility. There is no other way for the client to get contact with the trading group.

After the client has sent his own paperwork (their Passport, Client Information Sheet, and recent bank statement showing cash), the trading group will investigate the applicant. If the response is positive, the program manager in the trading group will contact or meet with the client. If the investigation is not favourable, the program manager will contact the broker and tell him that the client did not qualify.

During the contact with the client, the trader will explain the program terms/conditions to the client, and outline the guarantees and requirements to start the program. The client will get instructions to open a new sole signatory bank account at the trading bank for transferring the funds there.

The client will receive a contract which states the total gross yield, the percentage of the gross profit reserved for projects, the percentage for the trading group and the percentage for profit participation fees to be deducted for brokers/intermediaries. The net return to the client will be wired to another account that can be located in any bank worldwide. If the client accepts the contract, the contract is signed and the program is ready to start.

The trader is now able to leverage the client's reserved money 10 times, and is now able to back up the arbitrage transactions with that money, a credit line that remains in the bank account that is screened before each arbitrage transaction. Trading now continues, and the profit is paid out per the contract terms to the client.

The programs work with cash only or gold bullion. This fact means that the client will only be accepted with liquid funds. Recent rulings by the G20 prohibit the use of an asset other than cash or gold bullion in a bank vault. A line of credit must be established and drawn down into an account at a bank, where it is lodged and blocked.

ANALYSIS OF RISK INVOLVED IN PPOP CONTRACTS

Finalizing PPOP contracts with clients can be a stressful process because of problems encountered along the way.

FROM THE CLIENT'S SIDE

The applicant client will not be able to meet directly with the trader in this business. The main reason why there's a broker-intermediary chain is because the people in the trading groups have no time or interest in meeting all the people who are just fishing for information, and/or who fail to qualify because they don't have enough money, or have useless bank instruments.

If you're a qualifying client, truly connected intermediaries/brokers should be able to place you in contact with a performing trading group. Don't attempt to find a trader on your own: Most so-called traders in the financial world are not involved in this kind of trading and are not educated to their existence. Those few traders who are keep a low profile and would never talk with a client who hasn't been cleared. In fact they cannot until the client passes the international KYC (Know Your Customer) compliance.

When it comes to cases of non-performance, the problem is usually on the client side. The client doesn't qualify for a variety of reasons; he doesn't have enough money, the bank is too small or is located in the wrong country, he cannot move his funds, etc.

Oftentimes deals are killed because the broker and/or intermediary don't understand the process, and inject themselves, more concerned about a fee than about allowing the two principals (Client and Trader) to interact without interference.

Some of the most common reasons why clients are never able to enter this kind of trading are:

-They don't have enough money or workable assets.

- They don't have the money in an acceptable bank.

- They don't have full control of the money (or of the bank instruments).

- They don't have a good explanation of the origin of the money.

- They do not follow the required procedure.

- They do not collaborate enough with the Trading Group.

- They delay the delivery of documents or send fake or non-confirmed documents.

- Their identity cannot be confirmed.

- They are blacklisted or under investigation.

Remember that the trading group does not have to give any explanation why the client doesn't pass through the clearance.

Clients should understand what is required to qualify:

- A minimum of $200 Million EURO or USD in cash located in a major bank in Western Europe, USA, Canada, Hong Kong, Singapore or Australia. Additionally, the money needs to be traceable with a non-criminal history.

- The client, or company if one is represented, should be clearly identified.

- Once cleared, clients are invited to the table, but their acceptance is never guaranteed, regardless of their assets or prominence.

- The client himself must be the one and only person that the trading group deals with. He is not allowed to let his lawyer or any other person perform or act on his behalf, brokers included. If the client does not speak English and needs assistance, then he must sign a Limited Power of Attorney for a translator. The LPOA will only be accepted for communication purposes, and the must still sign all the documents.

Clients who have the least amount of money are always placed last in the queue. A client with €100M will get more attention than an client with €10M. Clients who have assets other than cash or AU bullion in a bank vault will also always be placed last in the queue, if they are accepted at all. Assets other than cash or gold bullion must be monetized to provide cash for the trading account.

It is difficult for any client to ensure that he meets the right people; those few intermediaries and brokers who know the process and who are working with a performing trading group. The best he can do is to educate himself and not be lured by those who claim that their program will give the highest yield. He must also be patient, and trust the legitimate intermediary or broker. There is no way that the client will directly meet with the trade group before he has been cleared.

If for any reason the client is dissatisfied with the broker and/or intermediary, then another one can be obtained.

These are some of the main risks the client can meet:

- Nothing will come out of the trade; no contract and no profit, just frustration after weeks/months of waiting.

- Clients or their intermediaries and/or brokers are "shopping around" with client documents, which sooner or later will result in blacklisting.

- The client is told that he must move his funds out of his own control; to an escrow account, etc.

- The client is told that he must buy or lease a bank instrument for his money. In the worst-case scenario this instrument is a fake, or impossible to use.

- The client is told that he must pay upfront fees, because a leverage of his funds must be done, or some bank instrument must be discounted, or banking fees must be paid, etc. The upfront fees paid are lost, and nothing more will happen.

FROM THE BROKER'S AND INTERMEDIARY'S SIDE

There is a common misuse of such terms as brokers, intermediaries, and facilitators. The fact is, these are not official terms in banking or finance, but such terms are used within trading groups and in their communication between each other. Although a broker or an intermediary can claim that they are in direct contact with a person carrying that title, it is not a guarantee of anything. Any person can fraudulently call himself a trader, or a commitment holder, or whatever. And since such positions cannot be verified (at the first stage), such titles can be meaningless as seen from the clients' point of view.

There is almost always a chain of trading group, a broker and intermediary, and client. This is for two reasons. Firstly, trading groups, brokers, and intermediaries are not allowed to solicit; the Client must start by asking for information.

Secondly, this protects all parties involved with the trading group. Brokers may work through several intermediaries, and vice versa intermediaries. A chain of more than one or two intermediaries connected directly between the two Principals, in general, is not acceptable to some program providers.

A good broker should also screen the potential clients, filtering the most promising applicants and at the same time collecting from them the proper documentation. In this way, the trading group receives workable documentation from the broker.

The most common risks or problems that a broker, an intermediary or a facilitator can meet with in this business are:

- They may need to investigate dozens of clients before finding a qualified applicant.

- They may discover the assets of client to be unworkable after weeks or months of processing.

- They may have difficulty qualifying themselves with new clients because they cannot show any past performance or past contracts. The relationship with the client is just a matter of trust at an early stage.

There could be several levels involved for the intermediaries. The closest one to the trading group (sometimes called also facilitator) is the most important person. This person should have a direct contact with the trading group. Any other broker beneath the facilitator has a lower value in the hierarchy. The broker and/or the intermediary can have problems showing the client his level in the hierarchy at an early stage.

A Tutorial On Managed Buy/Sell Private Placement Programs: Chapter 9

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