GLOBAL ADVISORS, INC.

The Cutting House is an extension of the Fed Reserve, which sets policy.

 

The Cutting House can sell at such a low amount because its minimum tranche is $500 Million and its Minimum contract is mostly measured in the many billions of greenbacks. It’s the Volume of the transaction which warrants the low price. If the minimum tranching is under $500 Million, Collateral suppliers (which is one level beneath the Cutting House, and which usually buy from the Cutting House) sell at minimum costs in perhaps the 50’s% (for MTN’s ) and 60’s% (for BG’s )

 

The Cutting House is in danger. It places its assets (customarily gold deposits) at risk as security to the issuing banks, to promise that cash or liquid assets exist to honor the deep-discount contract. That is why the Cutting houses prefer buy-sells:  they’re assured that their exit customers (who buy at increments of LESS than $500 Million, but are track-record performers) won’t default. These exit-buyers are wholesalers, who buy in large quantities and then resell to smaller wholesalers or retail consumers in smaller increments. The final end-user is generally a pension or annuity fund, which frequently buys at costs as high as in the low-90's.

 

The 30 point maximum (20 points if the purchaser is USA-based) add-on to the sales price is a range established by the Fed. Not all sellers resell at the maximum spread — it depends on whom they’re reselling to. This "spread" applies only to Fresh Cut sales, not to mark-ups in the secondary (seasoned paper) market.

 

When a customer does a deal, the closing is bank-to-bank. The Client’s bank issues a conditional swift of funds, meaning that its funds are not spent unless and till the other side commits to broadcasting the contracted-for MTNs.  There is not any "trust me" concerned.  IF at any time there’s a non-delivery of the contracted monetary instruments at the contracted price, the whole contract is ended for non-performance.  No Buyer is locked-into stumping up for instruments it won’t receive.

 

The reason the System is meant to aid the "buy and resell" wholesale market rather than the "buy and keep" retail market is perhaps because the Contract typically requires that a portion of the resulting profit is used to fund projects — development, humanitarian, educational, infrastructural, for example. — around the globe. This is one key reason how major capital projects (some with minor profitability and/or high-risks of profitability) are subsidized. This is how many relief efforts and substructure in war-torn areas are financed. The more military conflict and destruction and natural tragedies there are, the more exaggerated is the need for funds – and one important provider of such funds is a portion of the "price spread"  on these funds-first and/or collateral-first purchases and resales.  The purchaser must COMMIT to spending some of its gigantic profits on funding worldwide approved projects or causes. If the Client/ consumer does not have such projects, the Collateral Provider/Cutting House can supply it.

 

The Cutting House can sell EITHER a DIRECT SALE or a BUY-SELL ** Contract ** (Buy-sell implies that the Cutting House provides BOTH the Fresh Cut Instruments, and the exit-Buyer to whom you can straight away resell your instruments.)

 

 

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A Buyer’s funds aren’t AT ANY effective RISK. A Buyer’s funds are ALWAYS used to buy liquid fiscal instruments which are worth seriously more than the applicable price: the purchase is often collateralized at close to a 200% level. Example:  buy at 30% and have a ready wholesale market in the 60s%. Whether the instruments are bought at 31% or 81%:  they are issued by credit-worthy/AA or AA-rated banks, possess market-competitive interest rates, and have a retail market value in the 90s%.   So, as long as their Trader can buy low and sell high, a profit will be made with NO effective risk. The customer is contracting in some cases without delay with the Trading Bank, or other verifiable financial institutions and/or banks. Closings happen at major banks or legal corporations — there isn’t any "coffee table closing" at a restaurant. The quantity of profit is a result of volume — bucks involved and the quantity of times a bank day when a provider is able to buy and resell into the monetary market. Most Cutting houses do one tranche/bank day. The largest traders can do several such tranches — from different sources to different exit-buyers.

 

The CLOSING is finished only AFTER a mutual required research. The provider first checks-out the possible customer. Then the Provider’s officer contacts the client. At that time secret information and reciprocal required groundwork info is shared, so the Client’s fiscal institution and/or advisors can develop an amount of comfort about the transaction and the caliber of the provider establishment. There’s not much "blind faith" concerned. If the Client/Buyer is not comfortable, he only says "thank you, but no thank you" and exits the negotiation or closing.

 

Despite the growing number of people actively participating in the private placement and bank instrument business, there are very few that truly understand what a medium term note is. Since the “MTN” (medium term note) is a major reason the private placement business exists, we felt like it would be a good idea to connect the dots for our readers with less experience.

 

For those of you who understood bank instruments prior to this writing, we hope this provides additional insight to educate you further. For the rest of our readers, this information will open the door to a new understanding of wealth, while providing facts to help remove uneducated brokers from your network and consideration.

 

By definition, Medium Term Notes (MTN’s) are debt instruments which are created by banks and sold to investors, having a predefined face value, date of maturity, and annual interest rate.

 

For example, you may have a 10 year note issued from Barclays Bank worth 100M, collecting a coupon (interest) of 6.5% per year. Each year you would receive 6.5M until the date of its maturity, where you may cash it in for its full face value.

 

Though an MTN has similar characteristics to other debt notes, it is completely unique due to its flexibility, price, resale potential, and ability to be purchased at a discount from face. Now that you know what a medium term note is, let’s see why they have become so popular recently.

 

Over 50 years ago, when medium term notes (MTN) started to become available, there were very few passive investments which could compete with the benefits of owning a bank instrument. Given the high annual interest rate, possible discount from face value, and solid backing by top 25 banks, many flocked toward those who issued and owned the notes, looking for ways to financially capitalize. Once the idea of “trading bank instruments” caught on in the secondary market, the private placement business grew steadily, until the entire business changed with the introduction of the internet.

 

With the explosion of the internet, the secondary market has been flooded with tons of new brokers trying to broker buy/sells of medium term notes, and bank guarantees. The real discussions about bank instruments, at least for those who are successful, revolve around private placement programs.

 

Bank instruments, such as medium term notes and bank guarantees, are the lifeblood to any private placement program. Since these notes can be purchased at a discount from top banks, traders can earn quite a hefty profit, all while being risk free due to a prior contractual obligation they had with an “exit buyer”. 

 

As we all know, an “exit buyer” is the entity which purchases the MTN/BG at a slightly higher value, but still discounted from face. Once the first exit buyer purchases the note from the trader, the process repeats itself several times until a final buyer purchases it to hold until maturity. By that time, the note has a very small discount (ex. 93% of face), but many conservative buyers are happy with the remaining spread and annual interest.

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The Mechanics 
of a MTN Private Trading Program


Considering that top major banks issue Medium Term Notes (known as MTNs and Mid-Term Notes) to raise funds in both U.S. and Euro dollars, we can better understand that they are for the purpose of generating Operating Loans and issuing Letters of Credit to businesses which wish to buy material and products from other business organizations in other countries. To further expand on this in laymen terms, this therefore results in an International Treaty whereby the U.S. Dollar (or the Euro) becomes the common Medium of Exchange for International Trading.

By Federal Law, a European bank is not allowed to sell such Medium Term Notes directly to the Public. They must be issued and sold through a Federal Reserve Licensed Trader; just as in the same context a Corporation or a Municipality must sell Bonds through a Dealer or Underwriter.

The Trader, aiding in the distributional sales of newly issued MTNs from the major sized Bank will have a $50B (Billion) contract (or of equivalent amounts) with the Issuing Bank to purchase MTNs for immediate resale. This Trader would instigate the following:

A Non-Revocable Contract (see further explanation in Paragraph A) with an Exit Buyer, such as a Pension Fund, to buy those MTNs from them immediately, and with a contract with a Participating Investor, acting as the Trader's 'Associate' to furnish the Proof Of Funds (POF) required, simply as a formality, to start and continue the Purchase and Resale series of Transactions.

The Trader also makes contractual arrangements with their own bank, through their bank's 'Back Room'Trading Department, to act for them during the Transactions of $100M (Million) or greater. This $100M amount is the minimum set by the U. S. Federal Reserve for this type of Bank issued MTN Distribution.

The 'Associate' thereby arranges for their own bank to issue to themselves a POF using $100M in Cash Funds, which are wholly owned by them, in their account at their own bank. This enacts the ability to obtain cash credit of $100M for the POF. This POF is then sent to the Trader in accordance with the contract between Trader and their 'Associate'.

It is important to note that Medium Term Note Trading is a very specific process. When less than experienced Associates expect absolute perfection and "up-to-the-minute" communication, these immediate reactions inevitably cause more delays, short-comings and frustrations on behalf of not only the Associate but the Trade Platform as well.

Several factors influence the timing of entering a trade; the current availability of Medium Term Notes, which can easily be in short supply, the timing of the trade submission and the specific programs that cancel without notice. On occasion, these unexpected market trends give a false illusion resulting in the sophisticated MTN Trading Platform to appear chaotic. Nothing is further from the truth.

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