Post by srmglobal on Feb 16, 2010 23:23:09 GMT 4
In this forum and in offers and requests my network has come across the term safekeeping receipt often. I want to describe our knowledge about the topic and the reason for our refusal to handle them directly.
A Safekeeping Receipt is not in itself a technical term in the financial world, so it has no fixed customary or defined meaning in our financial sphere.
It seems to possibly describe 2 separate situations:
a. A negotiable, bank-issued certificate representing ownership of stock securities by an investor. An international depository receipt, or IDR, is the non-US equivalent of an American Depository Receipt. These instruments have been used since the 1970's to facilitate international trading in securities. The securities backing the receipt remain in the custody of the issuing bank or a correspondent bank. It usually descibes the securities in their screen features, includes specific terms and conditions as they relay to the bank responsibility and carry a compliance reference number which does allow a direct screening. They, the depositary receipts, are securities.
b. A negotiable or non-negotiable bank-issued certificate representing the holding or ownership of an asset, such as art, precious metal, jewelry, mining rights, specific certified rights, everything a bank can hold. In a negotiable form typically issued for cash value market assets, in a no negotiable form for documentary purpose issued without a value assignement, the bank usually certifies what they hold, the terms and conditions of the holding and for whom they are holding, which insurance is covering risks and their own liability towards the beneficiary.
Under above a. the depositary receipts are not usually a problem as long as they are issued for exchange traded securities, however they do not allow the creation of derivatives easily, so you can not strip the securities, use them for separate call and put structures and can create legal compliance problems in regards of origin if they are the result of a pool facility. The problem starts when they are created for the representation of non-exchange traded securities. You have to look into the basic details of such securities, their handling restrictions and details, possible tax and trade related problems in regards of the relation between the related country and yours and so on. Since the work has to be done anyway, the depositary receipt seems a waste of money and time. If you look at the depositary receipt of a bulk portfolio of secondary bank obligations in a private placement structure which may be linked to a specific project, the whole process can create even more problems than a direct approach.
Depository receipts in relation to the case a. so far make only sense in very restricted circumstances where you would not engage in the country for any services.
In regards of the variation b.) the safe keeping receipt is actually a sort of a bank asset escrow where the bank certifies to hold the asset either for the owner or if negotiable for the owner of the certificate. The problem is here as well that the value of the asset and its modus of transfer does establish the value. Since the bank will refer to a third party for the evaluation and normally includes an insurance such certificate is not "clean". So if you go through the hazzle there you can do it without the bank as well, but cheaper and faster.
For securitization it may make sense to follow such a procedure but even then there are cheaper and easier ways around the paper related problem.
In addition in some countries there are legal problems in regards of transfer, holding and escrow as well as trust facilities which are normally established.
Given this, frankly a safekeeping receipt in my view is not worth the hazzle.
A Safekeeping Receipt is not in itself a technical term in the financial world, so it has no fixed customary or defined meaning in our financial sphere.
It seems to possibly describe 2 separate situations:
a. A negotiable, bank-issued certificate representing ownership of stock securities by an investor. An international depository receipt, or IDR, is the non-US equivalent of an American Depository Receipt. These instruments have been used since the 1970's to facilitate international trading in securities. The securities backing the receipt remain in the custody of the issuing bank or a correspondent bank. It usually descibes the securities in their screen features, includes specific terms and conditions as they relay to the bank responsibility and carry a compliance reference number which does allow a direct screening. They, the depositary receipts, are securities.
b. A negotiable or non-negotiable bank-issued certificate representing the holding or ownership of an asset, such as art, precious metal, jewelry, mining rights, specific certified rights, everything a bank can hold. In a negotiable form typically issued for cash value market assets, in a no negotiable form for documentary purpose issued without a value assignement, the bank usually certifies what they hold, the terms and conditions of the holding and for whom they are holding, which insurance is covering risks and their own liability towards the beneficiary.
Under above a. the depositary receipts are not usually a problem as long as they are issued for exchange traded securities, however they do not allow the creation of derivatives easily, so you can not strip the securities, use them for separate call and put structures and can create legal compliance problems in regards of origin if they are the result of a pool facility. The problem starts when they are created for the representation of non-exchange traded securities. You have to look into the basic details of such securities, their handling restrictions and details, possible tax and trade related problems in regards of the relation between the related country and yours and so on. Since the work has to be done anyway, the depositary receipt seems a waste of money and time. If you look at the depositary receipt of a bulk portfolio of secondary bank obligations in a private placement structure which may be linked to a specific project, the whole process can create even more problems than a direct approach.
Depository receipts in relation to the case a. so far make only sense in very restricted circumstances where you would not engage in the country for any services.
In regards of the variation b.) the safe keeping receipt is actually a sort of a bank asset escrow where the bank certifies to hold the asset either for the owner or if negotiable for the owner of the certificate. The problem is here as well that the value of the asset and its modus of transfer does establish the value. Since the bank will refer to a third party for the evaluation and normally includes an insurance such certificate is not "clean". So if you go through the hazzle there you can do it without the bank as well, but cheaper and faster.
For securitization it may make sense to follow such a procedure but even then there are cheaper and easier ways around the paper related problem.
In addition in some countries there are legal problems in regards of transfer, holding and escrow as well as trust facilities which are normally established.
Given this, frankly a safekeeping receipt in my view is not worth the hazzle.