MT760
This is a Swift class 7: Bank Guarantee and Letter of Credit procedure,
Procedure 60: Blocked Funds.
The Course of Action When Your Bank Issues An MT-760:
When an MT-760 is issued, the issuing bank puts a hold on the client's funds,
blocking the client from using them. The funds are then at the disposal of the
person the MT-760 was issued in favor of. For this reason it is not wise to
issue an MT-760 before being absolutely certain as this can mean a large
financial loss for absolutely no gain. In some cases, unscrupulous traders will
use the MT-760 to open a line of credit, which they then default on, leaving
the issuer of the MT-760 liable.
What A MT-760 Looks Like:
It is important to remember that an MT-760 is actually an interbank
communication, so one never really sees an MT-760. You may need a special
account to be able to use this procedure.
The Cost of A MT-760:
The cost of an MT-760 varies greatly from bank to bank. Be aware however, that
due to the amount of risk involved for a bank in guaranteeing payment, a MT-760
is normally fairly expensive, with the usual bank fee for issuing a MT-760
being between 0.5% and 1.5% of the total value of the funds blocked.
Potential of Negotiation Once A MT-760 is Sent:
Once a MT-760 has been issued, it is not negotiable. For this reason, many
traders prefer a Letter of Credit, which is negotiable and can be amended in
response to unforeseen changes in circumstances, such as a delayed shipping
schedule, lower production than anticipated, and other such events.
How You Get A MT-760:
A MT-760 can be obtained from a bank on the international SWIFT bank network.
So no broker or financial institution other than a bank can help you with
blocking funds. The bank underwrites the blocked funds with the funds in the
client's account, and if this is not fully funded, they will make other banks
"confirm" their guarantee, spreading the risk.
Swift MT 760 and MT 799
If you have been in the private placement business for a while, you probably know that there are plenty of acronyms associated with trade programs. As someone new to the business, you may hear phrases like: “MTN”, “BG”, “SBLC”, “PPP”, “DTC”, “CIS”, “POF”, and say, “what the heck are they talking about”? Well, though it is good to know private placement lingo, cool sounding terms do NOT close deals. If you want to protect yourself and succeed in private placement, you MUST understand the 2 most important acronyms of all, the “MT 760” and “MT 799”.
Whether you are a client, broker, consultant, or even just a beginner, the MT 760 and MT 799 are two terms that are critical to learn inside and out!. Many times, if you speak to brokers who claim to have trade programs, you can tell if their investment is real by asking just one question, “Explain the MT 760 and MT 799, what are the risks and fees?” If you get an answer that sounds similar to the explanation we give below, then you may want to dig a little deeper! If you don’t, recognize that these people are less educated than they claim, and may not be the best option. First things first, let’s explain the definition and application of these terms in the modern day private placement business.
The MT 799 is a swift message used between banks to communicate in written form, and is usually referred to as “pre-advice”. For example, Bank “A” may send a MT 799 to Bank “B” stating: “We confirm “XXX” amount on deposit and are ready to block this amount via MT 760 in favor of account “XXX” at your bank. Please confirm readiness and receipt.” Typically, the MT 799 will be needed directly before the MT 760 is issued, and there may be small fees. Despite what most brokers may claim, the MT 799 is NOT used as collateral, and can NOT be used to enter a private placement program. Now that we know about the MT 799, let’s take a look at it’s cousin, the Swift MT 760.
The MT 760 is a swift message used to block funds in favor of someone other than the owner, collateralizing the asset via this message, while allowing for loans and liens against it. For example, most private placements require the investor to send a MT 760 to the trader’s account, allowing the trader to use this swift as a collateral guarantee for their bank. Again, despite what many brokers may claim, this is NOT everything you need to know about the MT 760. Now that you do know the definitions and applications, let’s cover the key points no one ever brings up about the MT 760: the FEES, and the RISKS…
First and foremost, the fees for blocking a large amount of funds via MT 760 can be more than you would expect. In most cases, your bank will charge 1-2% of the value being blocked for this service. For example, on a 100M bank instrument this can be 1-2M that the owner must come out of their pocket with, unless they have a special relationship with their bank. You may say to yourself, “Wow that is a lot to spend on fees for something I’m not sure will work”! Well, even more importantly, let’s take a look at the risks if you did move forward.
If you complete the MT 760 and pay the fees, you should observe everything very closely from that point on. Once the MT 760 has hit the account of the trader, the line of credit should become available within 72 hours. At that time, the trader should be able to make their first bank instrument purchase, and give you a DEFINITE TIMELINE for your first profit disbursement. You may say, “Why do I need to watch this process so closely?” Well, here is the part that most brokers don’t tell their clients…
When blocked in someone’s favor, the MT 760 collateralizes assets in the form of a swift guarantee, and by doing so, allows the beneficiary to draw credit against it. This means, if the loan to the “trader” was defaulted on, the bank would seize the collateral and you would be out of your money! Though this scenario is possible, I would consider it rare for two reasons… In today’s world, no bank will loan Millions of dollars to someone they haven’t vetted, no matter what collateral is on hand. Second, the MT 760 is quite rare, and this usually draws attention to the beneficiary of the swift.
In summary, the MT 760 can be safe, or it can
blow up in your face. As always, the key is having a real trader and most
importantly, getting your payments as scheduled. If the trader makes a
statement about yields and a time line, they must ALWAYS keep in line with
their promises. Over the THOUSANDS of transactions we have been involved
in, the only ones that have closed have been smooth from the start, with NO
hiccups.
Remember, both RISK and FEES are a part of blocking funds via MT 760!!!! In
addition, by understanding the MT 760 and MT 799, you can clear out the TIME
WASTING brokers from your network, and work MORE EFFICIENTLY towards your
goals.
Let’s face it, very few people know as much as you do after reading this article. Use it to your advantage to qualify the private placement investments you come across, and it will make life a lot easier. Ask yourself; if someone can’t explain the MT 760 and MT 799 in thorough detail do you think they have ever closed a deal? Then ask yourself, do I want to risk Millions with someone that has NEVER been successful? It’s not hard to see, education is the key!
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