Expert Tips on Buying and Selling Medium Term Notes

Expert Tips on Buying and Selling Medium Term Notes

While we discuss the importance of understanding MTNs (Medium-term Notes), we would like to preface with saying that much of this is personal opinion, observation, experience and activities that are none other than our research from Investor Earth. There is much more to learn on the dynamics of the emanation of MTNs, how MTNs culminated and where they are going that we can’t cover in this article. That is for another day; today, we will be giving you a simple overview of the life of a MTN. This article will be comprised of certain inalienable truths and falsehoods. We’d like to review those one by one. In much of this unique world of MTNs, CMOs and BGs, there is a seemingly generation full of passed down protocols. Something that we hear quite often is that there is no need and no such requirement for a POFs (Proof of Funds) Contract. 

While this may appear to be so for those more experienced in this genre of offerings, when the procedures are read, you will see that MT103/23, MT760′s, MT799/999′s, et. Cetera are etched within. These “MT-derivative” instruments are forms of POFs. Should you run across a client, buyer or representative colloquially bragging that they will not be providing POF’s upfront; kindly and softly discourage further relations and discussion. We hear it from others and it mystifies us continually when it is said that pension fund “Acquisition Groups” are prolific buyers.

Where this idea has emanated from is beyond us but this is not the case. These pension fund managers are actually attempting to buy paper without any type of VOF (verification of funds) and are in reality attempting to use someone else’s liquidity or in essence, “flip invoices”. Steer clear of these groups as well as you will typically find yourself running on a wheel spindle inside a cage. During a spot buy, the buyer/client is entitled to see the ISIN/CUSIP of the instrument. This however does not mean that they are entitled to see it for a contract. Some clients may ask you for the ISIN/CUSIP. 

Advise the client that they will have the opportunity to verify the instrument before paying and it does not follow protocol nor will they be allowed to view it ahead of time. We are amused with the frequency of how often we hear six simple words; “I am direct to the Buyer” or, “I am the Buyer’s Mandate”. Ask if they are contracted or chartered by the client to get them paper. Do they directly correspond with the client or do they go through someone else. Typically, we find out that this wording means that they know someone who knows somebody who can get in touch of someone somehow. The key question is to ask how many people are involved to get “them” direct. The job does not fall on us to be your shoppers. Be sure to ask lots of specific, hard questions that require specific answers and don’t be blinded by generalities in your excitement of getting a deal done. 

There are those who profess to buy paper and then there are those who propose to buy paper. Two little words make a huge difference. When a week goes by and you hear, “The buyer is working on the paperwork”, the reason the LOR/FPA hasn’t been returned is typically conjunctive with the fact that “I have not found anyone who will follow along with the procedures”. When a LOR/FPA isn’t returned within a few hours, we know that this more than likely is a “dead buyer”. For this reason, we do not forward any documents to anyone other than the client or his direct representative. Clients buy paper. That is what they do and how they realize phenomenal returns and continue to do so. When they are searching for more fresh cut and seasoned paper, it is because their appetite is larger than their available sources. It is also heard that “brokers” can determine the amount of the split on the FPA. 

Broker’s greed can more often than not kill the deal and result in the involved brokers being blacklisted. The Client determines ultimately the actions of the FPA. As always in our case, we usually see one, sometimes two available slots out of three that are proportionately shared in the fees. Many groups never make it past this phase. The timeframe for an MTN to close is roughly a week when due diligence, compliance and verification of funds are fulfilled. Deals do not close in a day. One snag that holds up transactions is that the client wants to talk to the platform trader. This usually means that the client is a broker. Trade platforms never talk to a client until compliance has been met. Another hiccup is when the client wants to modify a trade contract to further cater to his wishes. This never materializes and typically results in the client no longer being able to work with the trading platform. Remember that LORs and RWA’s are guidelines only and are not set in stone. 

It is ultimately up to the trade platform and program being offered. Remember in the world of MTNs and BGs, the seller drives the boat, not the client. These are the main cliff notes, so to speak, of the progression of MTN’s. While vague and not too involved, there are articles we have explaining it in much greater details that are available at InvestorEarth.com and are available upon an invitation to review our detailed educational reports. InvestorEarth.com is pleased to be educators on these and other high yield investment matters and welcomes further questions. To your success.

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