Trade Matching
Commodity Buy/Sell Joint Participation in Trade Matching with Challenging Returns
Trade Matching is a simple business model which can be applied to any product/commodity by organizing the original purchase of the commodity by a "Re-seller" and the forward sale to an end purchaser done in tandem with each other. When the purchase of any commodity is made there are factors that apply as to the ownership and Proof of the Product, which means the following in the case of most PHYSICAL commodities oil, grain, metals, diamonds, and many other PHYSICAL properties commodities. In most cases, the following applies as Proof of Product:
A) Certificate of Ownership from commodity Producer to confirm the Allocation and the Ownership
B) Registration from Governmental Authority to confirm the Allocation of Ownership and for them to issue the Permit for Export
C) Producer's or Seller's Authority to Sell
D) Confirmation from a transport company, to confirm the delivery schedule and that the transport of the Product to the loading port is secured.
E) Lifting Schedule, confirmed by loading port/terminal
F) Export Declaration of customs
In order to attain "OWNERSHIP" the reseller often uses a partnership type of arrangement to "show" funds of his partner with cash funds. Sometimes these "show of funds" are provided through only an institutional bank relationship and sometimes other sources such as pension funds, unions, or private funds; of course, all these funds are held within the banking system so the institutional banks are always involved in all transactions. In any case, the reseller agent achieves the commodity "ownership" under a PARTICIPATION arrangement with a cash fund holder.
The bank plays an important role in facilitating all money confirmation and funds transfer arrangements either for themselves as an involved "partner," or as a facilitation service for the other participants who hold their participating funds in their bank. When the "OWNERSHIP" is achieved, the reseller agent can now move forward to Proof of Product to arrange the sale of the commodity to a purchaser.
NOTE: There may be more than one reseller involved in some transactions before it reaches the end user - each usually contributes a service or sometimes an upgrade to the product/commodity until the completion of the sale. The purchaser provides a bank letter of credit or other financial instruments from their bank so that when the product is delivered payment is secured and released to the seller (or re-seller agent) when all conditions of sale are met. The profit difference between the purchase to the final sale is then shared between the parties according to their JV participation agreement with each participant having provided a service, whether that service was providing the "financing" or otherwise.
NOTE: There may be more than one reseller involved in some transactions before it reaches the end user - each usually contributes a service or sometimes an upgrade to the product/commodity until the completion of the sale. The purchaser provides a bank letter of credit or other financial instruments from their bank so that when the product is delivered payment is secured and released to the seller (or re-seller agent) when all conditions of sale are met. The profit difference between the purchase to the final sale is then shared between the parties according to their JV participation agreement with each participant having provided a service, whether that service was providing the "financing" or otherwise.
Each participant has a vested interest to see a transaction close as quickly as possible. If your participation was providing the funds to show in the transaction, then the number of times your funds can be shown over and over again in multiple transactions determines the returns for you as a participant.
How Profit is Calculated?
A) The difference between the purchase price and the selling price - commonly called the spread;
B) The time element that exists from point of purchase to the final delivery to the end buyer of the commodity;
C) The commodity bought and sold under a successfully matched trade from producer to end buyer; and
D) The number of funds placed forward to accomplish the buy/sell in the trade match dealing was accepted by the producer and their bank.
Let us review a few examples of buy/sell involving different commodities and evaluate the different time frames from the beginning of the transaction to closing. Then follow through with the anticipated profitable gain on the part of each of the participants. It should be noted that introduction to the persons or corporate that represent your possible PRIVATE involvement in these types of opportunities as a participant, is crucial - you must be introduced to these opportunities by those in the know in order to participate and profit from them under a participation arrangement. Trust Management Services Inc. is knowledgeable and capable enough to make these introductions and receive a pre-arranged portion of the participation arrangement profits for their introductory participation in these ventures.
Example #1 - Oil and Petroleum Products:
The sequence of events that take place from exploration to production then on to distribution and refining, to finished products is a long-term investment, but as with most commodities, there is a consumable element that has many opportunities to profit at each stage of product deliveries. Let's start with crude oil and realize that similar circumstances are applicable to all petroleum-related productivity. Once crude oil is available, the re-seller makes the purchase and forward sells to the refinery. The time element for JV participants, especially the Funds holder participant, is crucial.Fund holder participants must be prepared to see the funds tied up probably for weeks and possibly months until delivery to the refinery is made. Scheduling, shipping risks, insurance issues, and many other factors come into play and may increase the risk. However, the Letter of Credit remains the safety of the buy/sell that funds will not be lost, but realization to profit may vary under different elements and circumstances including the time element. In a business dealing a buyer, seller, and possibly a private funds participant, investment banker, or sometimes just the business' banker seeks a fast turnaround time for the use of their funds to maximize their profit.
BE AWARE:
These opportunities for private funds participation in commodities may be set for a one spot buy/sell or have the funds standing for a longer-term contract, as the long-term contract stands the risk factors of consideration are minimized. However, a refinery has a preset for deliveries of their intake crude and exit refined product because they can not start and stop, they must have a steadily purchasing client making a JV participation opportunity difficult to secure for a longer period of time because they already have sales secured. The same issues apply either to crude oil supply or too refined product sales for the private participant, similar issues of risk and delays to see the return in the JV exist, but when found and sought out to be real can be lucrative.Example #2 - Diamonds:
Here the same investment opportunities take place. However, the delivery of product/commodity is much simpler as the diamonds can be carried in one's person under security measures yet the time for a transaction to close is much less - hence more turnover for more profit.
The re-seller takes ownership as previously explained, the diamonds are brought to a "tabletop" meeting through the person or much simpler security measures, the assessment of value is performed on the product, the money exchanged for the product as delivered on the spot, and the transaction closes. The time element is much less, and the number of transactions using the same participant funds more frequently occurs, so the number of times to payout profit is much more frequent resulting in a better return to the JV participants overall. Improved cash flows make it very lucrative, but it should be understood that the diamond mines do not open to produce without knowing they have buyers in place to purchase. This being the case, seeking out a placement for JV participants with funds within the industry has its challenges as well.
Example #3 - Electronically Traded Commodities:
When applied to an electronic securities product, also a commodity, such as Medium Term Notes (MTNs) or mortgages, or Standby Letters of Credit instead of a physical commodity, additional benefits result, including certainty of profit commitments from all banks involved in the transaction, speed of transactions to close, and protection of capital via a secured and specified custodial security account that maintains participant funds at an initial level of deposit within the account.
Below is a summary of how financial paper buy/sell matched trading works and how a licensed trade group partner, to whom the fund participant is introduced for the business JV participation relationship, creates profits from client participation funds. The basic premise is to create a margin of profit, at an average of 5% to 20% per transaction, in the buying and selling of a product. The advantage of financial paper trading over physical commodity trading is:
A) It is easier to match both buy and sell trade in tandem with full commitments by all banks involved (issuing, trading, and exit) in the transaction PRIOR to executing the transaction.
B) The above commitments from all banks ensure that there is no trading risk in being unable to sell a product that is purchased.
C) The electronic nature of the transactions, allows the transaction to be conducted via a custodial transactional account. With capital under a non-depletion status in the account, the risk to capital is removed, as this is guaranteed by the bank holding the funds itself.
D) There is no delay in physical shipment, as it is not a physical product. This allows a greater number of transactions to complete within shorter time periods, and possibly more than one per day when organized appropriately.
It is this speed of transaction which magnifies the margins to amounts that cannot be possible with physical product transactions. The licensed trade group to whom we make an introduction is a holder of "financial paper" under contract with numerous issuing banks and has long-standing relationships with the issuing banks having been involved in this field for many decades. In addition, exit relationships for the purchasing are already established, making it easy to organize the sale and buy agreements to be executed simultaneously. As such, they are in a position to utilize their relationships, to purchase "financial paper" commitments and exits with both buyer and seller using their monies and additional monies from participating JV clients. Clients place their funds forward and a new Business Venture is created with new matched trading agreements dividing the profits with the new client as a JV participant.
The Client is recognized as a business partner associate and the dealings are transparent at each stage of the buy/sell trade process, including disclosure of the profit margins being made via the buy/sell contracts. This is all to establish and develop a long-term relationship between the licensed trade group and the participating business partners within the JV.
PROCEDURE SUMMARY
When applied to an electronic securities product, also a commodity, such as Medium Term Notes (MTNs) or mortgages, or Standby Letters of Credit instead of a physical commodity, additional benefits result, including certainty of profit commitments from all banks involved in the transaction, speed of transactions to close, and protection of capital via a secured and specified custodial security account that maintains participant funds at an initial level of deposit within the account.
A) There must be a Request – Clients must ALWAYS be the account holder and signatory, and appropriate documentation is requested.
B) Confirmation of Funds - they are confirmed, compliance completed, and accepted as genuine, then contact and contract are initiated to move forward.
Once acceptance of the request is granted by the industry group chosen under recommendation, then Private JV trade agreements are issued to the signatory and account holder ONLY. Please do not ask for private contract or trade group details to be released to any third party or client representatives/intermediaries, as this is against the trade group's in-house attorney's strict instructions - this is a PRIVATE introduction of a business JV arrangement.
Required Items to Establish the JV Participation
There are some items necessary to establish the JV Participation beginning with the usual bank "Know Your Client" information requirements to create a usable protected capital scenario for transactions through a custodial account with provision for non-depletion of capital funds deposited at the designated trade group recommended bank. The steps include
1) Preparation of Sale and Buy contracts;
2) Issuing bank compliance confirms funds are held in JV trade bank;
3) Execution of daily transactions by providing the trade bank back office with buy/sell Euro clear tickets to organize banking commitments for each transaction. Then, the pay-out profits as agreed weekly, bi-weekly, monthly, or as underlined in the JV business agreement - this is common to designate profits to project funding if those criteria are approved.
PROCEDURE DETAIL - *On the application documentation purchased from our application page.*
A) Trade Request
The client requests to be taken forward to a matched buy/sell trading opportunity by providing initial documentation including 1) A Letter of Request from the Client 2) A tear sheet of the account statement indicating cash funds available 3) A Letter of authorization to verify the funds in the bank on a bank to bank communication 4) List of the project(s) to be funded with maximum anticipated cost estimate 5) Client Information statement providing compliance disclosure to "Know Your Client" to address the appropriate banking and finance regulations 6) Full-color copy of account holder's Passport and 7) Letter of Attestation if the account holder client is a Corporation then the trade group will additionally require the following: i.) Corporate Resolution naming appointment of the authorized signatory; ii) Certificate of Incorporation; and iii.) Passport copies of primary Directors and Shareholders of the CorporationNOTE:
A draft of these documents is available from our application page identified as Trade Matching Request Application documents.
B) Funds Confirmation
Before accepting or honoring a new client request as genuine, the trade group must check that both the funds/asset are recognized by the client's custodial banker holding the funds/asset. There is no exception to this requirement, regardless of the title or position of the new client. The trade group's reputation with their issuing banks and exits is more important than any single transaction or new client, and they will not jeopardize these relationships.
The initial procedure for checking the funds/asset is very simple and varies as to procedure - different depending on the transaction being anticipated. The bank officer, upon instruction by the participant partner, would be asked to invite the trade group representative to come forward to the bank and sign documents to become a restricted signatory on the participant partner's account.
This authorization permission would carry restrictive activity by the trade group representative. These restrictions would be 1) To request from the bank from time to time; 2) To be able to instruct the bank officer to issue an MT199 Proof of Funds via SWIFT to be sent where instructed; 3) To be able to instruct the bank officer to issue an MT799 Confirmation of Funds via SWIFT procedures to be sent where instructed, and 4) UNDER NO CIRCUMSTANCES will the restricted signatory, as the authorized restrictive signatory on the account, be able to REMOVE or DEPLETE funds from the participation Partner's account EVER.
NOTE: The Participating Client Is Further Protected By The Bank Itself As They Only Adhere To What The Restrictions Are To The Restrictive Signatory.
The client-participating funds for financial commodity transactions under a joint commodity participation relationship are commonly set at a minimum of One Hundred Million USD and/or Euros. This minimum may be lowered at the discretion of the particular trade group under specific acceptable circumstances, in some cases, the trade group will accept less. However, this is determined depending on the circumstances. PLEASE ASK, there are other options available; sometimes as low as One Million USD/Euro is sufficient depending on the trade structure with which the trader is working.
Where the client is wanting to bring forward an asset, the credit line value of the asset would be a percentage of the face value (if the asset is a bank instrument) and the credit line amount can only be determined after discussions with the trade group's trade banks that MAY provide the credit line loan depending on how the THEN lender evaluates the asset offered as collateral security. The trade group ONLY discusses the amounts after fully confirming that the asset is genuine and owned by the client. Trades are all done only with CASH FUNDS all assets must be made to cash - this is usually another party used to monetize against asset holdings.
Other assets of varied commodities such as diamonds, gold, oil reserves, and/or varied commodity supply contracts may also be structured so that they could be held as security for a loan or credit line value - either through a client's own bank relationships or with assistance from the trade group and their banking LENDER relationships.
Where the potential participating business partner client does not have the One Hundred Million USD or Euro, the trade group may be able to initiate and arrange buy/sell matched commodity trading transactions for clients with a much lower minimum - although rare, it may be possible.
The account would be placed through the assistance of the trade group bank with the client; this account would work under a client custodial account structure with funds deposited under a non-depletion clause (restrictive signatory), thus providing comfort to the client that their capital stands safe. The trade group through their trade relationships is suited for the buy/sell matched trade activities.
The structure is very similar to the trade group buy/sell matched electronic trading, with the difference being in the number of transactions that can be conducted per time scale, as additional real-world delays of shipping and verifying need to be taken into account. Other than the physical delays, the participating client capital is again confirmed as protected by the bank itself to the participating client and returns are commonly substantial under this joint arrangement.
C) Trade Agreement
Once the client request is confirmed as a genuine request, the file is identified as LIVE and the trade group will provide every resource to make the participating business trade relationship a successful one.
The option that the trade group will utilize to create usable protected capital for trade must be agreed upon with the client in principle, this is the reason for the joint participation business relationship - each party has a contribution to make for the success of the business at hand.
At this point, if another associate trade group besides Trust Management Services Inc. themselves is identified, the trade group provides their private trading participation business contract to the participating account holder directly, with their full corporate details. Prior to this, Trust Management Services Inc. will require a consultant participation agreement arrangement to be in place. This is usually completed when the first request documents are first received. The trade group does not honor requests for copies of their private participation contract(s) to be released to any third party, including representatives or intermediaries to the account holder – this is against strict policy enforced by the in-house attorney for the trade group preparing and issuing the agreements.
The trading group participation contract is a very simple document stating that the trade group will utilize the participant's funds in their buy/sell matched trading activities for a set agreed to term, dividing their profits as negotiated and outlined in their agreement.
The in-house attorney for the trade group is able to negotiate and organize any required amendments to the trade JV contract, but they like to keep the contract as straightforward and simple as possible so the focus is given on the business JV trading activity itself.
Please note that the trading entity group(s) have different incorporated entities in Europe, Hong Kong, Singapore, the USA, and around the world!
D) Create Usable Protected Capital for Trade
The structure of this stage varies from client to client, as each client has their own unique funding position and level of matched trading experience, together with their new JV relationship with the trade group. Matched trading itself can only be executed with cash funds. Where an asset is proposed by the client, then additional steps need to be taken to monetize the asset into usable cash funds. Requests to utilize an "Administrative Hold" against cash only reveal a lack of understanding of the funding process. A trade bank MAY OR MAY NOT release a credit line to the trade group secured against an "administrative hold" of the funds, as this is may not be recognized as a viable security.
Any client making such a request is in fact trying to protect their capital without creating a lien on their funds by way of a blocked funds bank confirmation of the funds being able to be utilized by a confirming MT760 guarantee financial instrument. The trade group's first investment option described below achieves all of these goals for all the investment clients in a way that is both efficient and secure.
Where the client comes with cash funds from the beginning, an account structure still is needed to be agreed upon to ensure that the cash funds are both:
1) Usable by the trade group and
2) Protected by the JV participation partner.
Funds in a participating client's own account may fail compliance by the issuing bank when signing off on the financial paper buy contract, as the participating client is not the holder of the product under contract, as is the trade group. The cash funds, therefore, have to be invested into a structure that allows both;
1) The funds usable for the trade group and
2) The funds to be protected for the participating partner.
Several potential strategies and funds/assets scenarios can exist to allow the creation of usable capital for trading. Please note that under all of the identified scenarios, the client remains as owner of the funds. The structuring of the funds to be made usable to a trade contract is discussed and consulted through Trust Management Services Inc. and/or directly with the Trade Partner of the Client.