When you understand how the trading process works, and the regulations required of the traders, you can quickly decide if the asset you have will qualify for a line of credit to be placed into trade.
In order to prevent being fined for illegal arbitrage, each trader-- prior to making a buy-- must be able to demonstrate that the underlying asset is liquid. This is like a safety-valve just in case a deal goes south, and the trader must pay for the buy out of his own line of credit.
Most traders abhor the idea of putting up their personal lines of credit to cover a buy order, so prior to making a trade of bank instruments, there must be a satisfactory outside line of credit (i.e. not the trader's LOC) which can show the cash was in the account prior to initiating the buy order.
In order for an outside lender (we'll call them 3rd party) to justify extending a LOC to a trader for use in his program, the lender also wants assurance that, in the event the worst happens and they need to go to the underlying asset (a BG, Cash, MTN, Gold, or other easily sold asset), they won't be caught with an unmarketable or slow-to-monetize asset.
The starting foundation for building a trade program on behalf of a client must be the liquid asset underneath everything... the originating LOC from the lender, the second LOC to the trader based on the originating LOC with full bank responsibility.
In the case of so many of the assets that are floating around, you will know very quickly if it is worth the time to try to find a home for it. The fastest way is to ask the question, "Is this asset something that really can be sold in a very fast way if it is necessary?".
IBOE's, LTN's, Tiger Bonds, Promissory Notes, Venezuelan, Chinese and other Historic bonds do NOT qualify, because of their illiquidity.
The assets that can be used for monetization are:
AU (in a Top 25 bank EXCEPT UBS and ABN AMRO) with a complete Bank-issued SKR Top 25
Bank Guarantees Top 25
Medium Term Notes
Top 25 Bank drafts (most of these are fake to begin with)
In some cases, Precious Gems that are IN A BANK VAULT, NOT A SECURITY WAREHOUSE, may be considered if the bank issues a full Safe Keeping Receipt.
To learn more about the monetization of an asset for trade, contact the author.
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