USAGE OF CORRESPONDING BANKS

The reason for the implementation of a corresponding bank to front the transaction at hand is as follows:

 

Prime Banks, when engaged to perform these types of transactions, tend to be very restrictive with regard to assisting clients.

 

Logically, all Prime Banks of the world are involved in the discounting of their own Bank Debenture Instruments and obviously do not appreciate individuals transacting in this field.

 

Therefore, generally Prime Banks do not undertake to perform these transactions on behalf of a client directly.

 

This brings us to the point where obviously without the usage of a well-known international bank to act as our Fiduciary Bank, this leads to a situation that obstructs any further developments.

 

Therefore, The objective is to use a small private or commercial bank and in turn this bank would instruct one of their corresponding banks to confirm on their behalf. The private or commercial bank would, in turn, take instructions from the account holders prior to any instructions being transmitted to the corresponding bank.

 

For example:

 

1. Account(s) would be opened on behalf of the clients to lodge the said collateral contracts, this being in the private Commercial bank.

 

2. The said contracts would, in turn be placed in an account held by the private/commercial bank in a corresponding Bank.

 

3. The private/commercial bank would then transmit instructions to the corresponding bank via key tested telex or:

Another agreed form of bank communication to confirm receipt of the said contracts. This communication also confirming on behalf of the private/commercial bank an approximation of a window time when the private/commercial bank was anticipating confirming the first of the Conditional Funding Instruments.

 

4. In turn, the corresponding bank would receive, on behalf of the private/commercial bank confirmation with full bank responsibility, a guarantee to deliver the said collateral against a Conditional Funding Instrument in the agreed form.

 

5. Once received, the corresponding bank would advise to the private/commercial bank what had been received into their account.

 

6. In turn, the private/commercial bank would advise their account holders of what was received.

 

7. The account holders would then instruct the private/commercial bank where to advise the availability of the said collateral and in turn, the private/commercial bank would instruct the corresponding bank.

 

8. The corresponding bank, once the said confirmation was made to the Funding Bank, would then receive a Conditional Funding Instrument in the agreed form for the purchase of a specific Debenture Instrument.

 

9. Once received by the corresponding bank, the corresponding bank again, always on behalf of the client (private/commercial bank), would authenticate the Conditional Funding Instrument.

 

10. Once authenticated the corresponding bank must then issue a Conditional Funding Instrument in the identical format as received from the funding bank, the only difference being: The Corresponding bank would receive the gross amount agreed for the purchased of the said Debenture Instrument. In turn, the corresponding bank would then issue the new Conditional Funding Instrument for the net amount as per contracts in the said banks.

 

For example: The transaction consists of the purchase of Standby Letter of Credit in the amount of: US$500.000.000,00.

 

Agreed invoice price (gross) - 86,25%

Net invoice price            - 82,25%

 

Trading differential:        - 4,00%

 

The corresponding bank would receive the initial Conditional Funding Instrument in the amount of 86,25% of face value. The corresponding bank would then issue to the collateral-supplying bank a Conditional Funding Instrument in the net invoice of 82,25%.

 

The differential after all bank charges, as agreed, for both banks when deducted would be transferred to a parallel account opened in the corresponding bank for and on behalf of the clients who instruct the private/commercial bank.

 

Moving back to procedure

 

11. Once the collateral supplying bank receives the Conditional Funding Instrument, they will authenticate and validate the said Instrument, and in turn confirm the registration numbers, safe keeping receipts and any other applicable screening information relevant to the transaction. They will also submit an invoice for payment.

 

12. In turn, once the corresponding bank receives the verifiable screening information, they in turn will advise to the bank that committed the Conditional Funding Instrument, the verifiable information, along with invoice of payment.

 

13. The funding bank that receives the above-mentioned, then proceeds to authenticate. Upon authentication, the Funding Bank will be requested to make payment as per the invoice, and then release funds.

 

Also arrangements will be made for the delivery of the hard copies by bank-bonded courier. This being between banks only.

 

P.S. Please note all instructions will be given by the account holders, and the steps as indicated above will always be carried out on behalf of the client.

 

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