2. Innovative Derivative Based Financial Products
CréditStocks™Loans Gain Liquidity - Protect Your Holdings - Realize Potential Stock Appreciation
Features and Benefits
Provides Liquidity – Minimizes Downside Exposure – Protects value of portfolio while borrowing against it
Provides Liquidity turn stock into cash
• A non recourse loan against a fully hedged portfolio of stocks • No payments due until maturity
• Provides up to 85.5% of the portfolio value • No margin calls (typical concern with volatile stocks)
• Converts portfolio into a fixed asset • All dividends credited against interest, with no limit
• Non-callable, unlimited upside portfolio growth to borrower • All growth in portfolio to borrower at loan maturity
• Utilizes privately underwritten, investment-grade options¹ • Fully hedged against loss insuring return to borrower
Protects Downside Exposure – protect your asset while realizing potential future stock appreciation
3. Innovative Derivative Based Financial Products
CréditStocks™Loans The Optimum Liquidity Providers
Strategy
• Term is fixed for 2 to 20 years; (3 to 5 years most common)
• Interest can be paid quarterly or accrued
• Dividends credited against interest (0% effective interest possible)
• Prepayments unavailable → hedged portfolio stock lending requires
fixed contracts to maximize value to borrowers
4. Innovative Derivative Based Financial Products
CréditStocks™Loans Gain Liquidity - Protect Your Holdings - Realize Potential Stock Appreciation
Advantages
• Provides a new tax deferral mechanism¹ for tax and estate
planning, and other tax sensitive situations.
• Enables insiders prompt exit strategy without necessitating
insider transaction reporting ²
• Affiliate Eligible: Open to insiders within SEC regulation
¹ Consult with a local licensed tax professional before determining if this applies to your particular
case, as indicated in our legal disclaimer (Appendix A). Not a tax shelter.
² Consult your securities lawyer for applicability to your personal situation (SEC, FSA etc.)
5. Innovative Derivative Based Financial Products
CréditStocks™Loans The Optimum Liquidity Providers
Stock Eligibility Qualification Parameters
– Minimum share price of (US) $ 5
– Consistent trading with a daily minimum trading volume of (US) $ 200,000
– Listing on major US and international exchanges
– Public options market not required
– Shares must be unencumbered and free and clear of liens
6. Innovative Derivative Based Financial Products
CréditStocks™Loans Gain Liquidity - Protect Your Holdings - Realize Potential Stock Appreciation
Exiting your CreditStock™ Loan
Multiple exit options
Out of the Money Exit Option
Money Exit Option
(Stocks worth less than loan payoff amount at loan maturity)
(Stocks worth more than loan payoff at loan maturity)
1. Surrender stock, retain loan cash and walk away
1. Repay out of pocket
(Nonrecourse loan, 1099 issued).
2. Direct CreditStock™ Loan to sell shares, payoff 2. Renew loan
loan and remit remaining cash
7. Innovative Derivative Based Financial Products
CréditStocks™Loans The Optimum Liquidity Providers
- Diversify Portfolio
- Free cash for other uses while stocks continue appreciating
Added Value → Immediately unlocks the value of your portfolio
-
without selling or relinquishing future appreciation
8. Appendix A
CréditStocks™Loans
Legal Disclaimer
Financial transactions involve risks of variation in interest rates, exchange rates, securities, commodities or indices. In view of these
risks Credit Securities’ clients should have the requisite knowledge and experience to assess the characteristics and risks associated
with each contemplated financial transaction. Credit Securities will provide any additional information, reasonably requested by the
client, in order to enable it to assess the risks and characteristics of the transaction. Accordingly, when the client enters into the
contemplated financial transaction, he will be deemed to understand and accept the terms, conditions and risks associated with
it. The client will also be deemed, to have made its own independent decision to enter into that financial transaction and to declare
that such transaction is appropriate or proper for it based upon it’s own judgement and upon advice from such advisers as it has
deemed necessary. Credit Securities’ clients are finally required to undertake a detailed analysis of all financial, legal, regulatory,
accounting and tax issues raised by any transaction they are contemplating, so as to evaluate the merits and suitability of the
transaction and should not rely on crdit securities for this. The information contained herein is provided to you by Credit Securities
on a strictly confidential basis. Any possible transactions contained in this document are set out for illustrative purposes only and do
not constitute any form of offer from Credit Securities to trade on such terms or constitute an indication that it is possible to trade
on those precise terms. It is also understood that all information given by Credit Securities related to the terms and conditions of a
financial transaction shall not be considered investment advice or as a recommendation to enter into that transaction. Actual prices
will depend on market conditions at the time the transaction is concluded. Credit Securities will not assume any responsibility for
the financial consequences of the client trading in the financial transactions described in this document.
9. Appendix B
CréditStocks™Loans
Apply only to a person subject to registration under regulation U (US Securities for US and non US residence)
UNITED STATES OF AMERICA total gross fees of $107,000. B. APPLICABLE LAW IT IS FURTHER ORDERED that FABC shall pay disgorgement in the amount
Before the SECURITIES AND EXCHANGE COMMISSION of $107,000, plus reasonable interest of $15,918.84 to the United States
3. Settlement through FABC 1. Section 7(d) of the Exchange Act prohibits the extension of credit: Treasury. The $122,918.84 shall be paid within 10 days after the entry
Securities Exchange Act of 1934 Release No. 36333 / October 4, 1995 for the purpose of purchasing or carrying any security, in contravention of of this Order and shall be paid to the Treasury by postal money order,
a. On or about September 29, 1992, The Funds opened a custodial such rules and regulations as the Federal Reserve Board shall prescribe certified check, bank cashier’s check or bank money order, payable to
Administrative proceeding File No. 3-8863 clearing account at FABC with an initial deposit of $150,000. Before to prevent the excessive use of credit for the purchasing or carrying of the order of the United States Securities and Exchange Commission. The
the account was closed in or about July 1993, The Funds deposited an or trading in securities in circumvention of the other provisions of this payment shall be transmitted to the Comptroller, Securities and Exchange
In the Matter of : ORDER INSTITUTING : PROCEEDINGS PURSUANT TO additional $51,129 in cash into the account. section. Commission, 450 Fifth Street, N.W., Washington D.C. 20549, under cover
FRENCH AMERICAN : SECTION 21C OF BANKING CORPORATION, : of a letter identifying the name of and number of this administrative
THE SECURITIES EXCHANGE ACT : OF 1934, MAKING FINDINGS, AND b. Between September 1992 and July 1993, The Funds’ account 2. Regulation U promulgated by the Board of Governors of the Federal proceeding. A copy of the cover letter and payment shall be simultaneously
Respondent. : IMPOSING REMEDIAL SANCTIONS purchased over $37 million dollars worth of securities for which the Reserve System, 12 C.F.R. Sections 221 et seq. provides: transmitted to Richard H. Walker, Esq., Regional Director, Securities and
account did not have sufficient funds to pay. Virtually all of these securities Exchange Commission, 7 World Trade Center, New York, New York 10048,
I. purchases were offset by a series of matching same-day sales of the No bank shall extend any purpose credit, secured directly or indirectly by Attn: Lamond W. Kearse, Esq.
The Securities and Exchange Commission (“Commission”) deems same securities. margin stock, in an amount that exceeds the maximum loan value of the
it appropriate and in the public interest that a public administrative collateral securing the credit. 12 C.F.R. Section 221.3. IT IS FURTHER ORDERED, that FABC shall comply with the undertakings
proceeding be instituted pursuant to Section 21C of the Securities c. To settle The Funds’ trades, FABC in many instances extended credit set forth in its Offer of Settlement:
Exchange Act of 1934 (“Exchange Act”) to determine whether French to make payments to the executing brokers for The Funds’ securities 3. “Purpose credit” is defined as any credit for the purpose of buying or
American Banking Corporation (“FABC”) violated Section 7(d) of the purchases. Upon settlement of the matching sales of the same carrying margin stock, 12 C.F.R. Section A. FABC shall maintain policies and procedures reasonably designed to
Exchange Act and Regulation U promulgated by the Board of Governors of securities, FABC delivered the securities to brokers in exchange for the 221.2(k), and “margin stock” includes, among other things, equity ensure that FABC complies with Regulation U. In particular, FABC shall
the Federal Reserve System, 12 C.F.R. Sections 221 et seq. sale proceeds. FABC then debited The Funds’ accounts for the cost of securities traded on national stock exchanges and in the over- the- maintain policies and procedures reasonably designed to ensure that
purchases and credited the Funds’ account with the proceeds from the counter market. 12 C.F.R. Section 221.2(h). “Maximum loan value” of purchases of securities in FABC’s custodial accounts are not paid for with
II. sales.-[2]- In many instances, the sale proceeds and the balance in The the collateral securing the credit means the percentage of current market proceeds from sales of the same securities in violation of Regulation U.
In anticipation of the institution of this administrative proceeding pursuant Funds’ account were insufficient to cover the cost of the purchases, and value assigned by the Federal Reserve Board under Section 221.8 of
to Section 21C of the Exchange Act, FABC has submitted an Offer of The Funds’ account became overdrawn. Even while The Funds’ account Regulation U. 12 C.F.R. Section 221.2(i). B. In the event that FABC determines to resume extending purpose credit
Settlement (“Offer”) which the Commission has determined to accept. was overdrawn, FABC continued to settle The Funds’ securities purchases, to custodial customers, FABC shall promptly notify the Commission by
Solely for the purposes of this proceeding, and any other proceeding in many instances, by financing 100% of the purchase price. Section 221.8 of Regulation U provides that the maximum loan value letter to the
brought by or on behalf of the Commission or to which the Commission of any margin stock, except options, is fifty percent (50%) of its current
is a party, and without admitting or denying the findings set forth below, d. For example, on October 21, 1992 The Funds’ clearing account had market value. 12 C.F.R. Section 221.8(a). “Indirectly secured” includes -[3]- Reliance on the proceeds from the sale of a security as collateral is
except Paragraph III.A.1., which is admitted, FABC consents to the a balance of $150,688.76, which included the proceeds from the sale any arrangement between the bank and its customer under which “the the same as reliance on the security itself. SEC v. Hansen, 726 F. Supp.
issuance of this Order and the entry of the findings and the imposition of of a long position during the day. That day, FABC settled purchases of customer’s right or ability to sell, pledge, or otherwise dispose of margin 74, 79 n.21 (S.D.N.Y 1989).
the remedial sanctions set forth below. $459,130 worth of securities matched by stock owned by the customer is in any way restricted while the credit
remains outstanding.” 12 C.F.R. Section 221.2(g)(1)(i). Commission’s Northeast Regional Office, 13th Floor, New York, New York
Accordingly, IT IS ORDERED that an administrative proceeding pursuant -[1]- The findings herein are solely for the purposes of these proceedings 10048, to the attention of Lamond W. Kearse, Esq. (the “Notification”)
to Section 21C of the Exchange Act be, and hereby is, instituted against and are not binding on any other person or any respondent in any other 4. The credit that FABC extended to The Funds to purchase securities before resuming those operations. In that event, FABC shall also retain
FABC. proceeding. was secured by the proceeds from the offsetting sale of these same an independent consultant not unacceptable to the Commission’s staff,
securities.-[3]- who shall review FABC’s clearing operations and who shall make such
III. -[2]- Offsetting trades settled almost simultaneously through the Depository recommendations as are necessary with respect to FABC’s policies and
Trust Company’s computerized book entry system.offsetting sales in 5. FABC violated Regulation U by extending “purpose credit,” in excess of procedures so that they may be reasonably designed to ensure that FABC
On the basis of this Order and the Respondent’s Offer, the Commission The Funds’ account. On the morning of October 22, 1992, The Funds’ the amounts permitted under Regulation U for purchases of securities by complies with Regulation U in connection with such operations. The
finds -[1]- the following: clearing account was overdrawn by $290,026.24, because the account The Funds. The purchased securities were principally exchange-listed or independent consultant shall issue a final report setting forth its findings
had not timely received the proceeds from the prior day’s matching sales. OTC-traded “margin stocks,” within the meaning of Regulation U. and recommendations and shall forward the same to the Commission’s
A. FACTS Notwithstanding the overdraft, FABC settled purchases during the day, and New York Regional Office, 13th Floor, New York, New York 10048, to the
credited The Funds’ account with proceeds received from the prior day’s IV. attention of Lamond W. Kearse, Esq. To the extent FABC disagreed with
1. Respondent sales and with proceeds that it received from offsetting sales, raising the any of the consultant’s preliminary recommendations, the final report shall
balance in the account to $75,095.06 at the end of the day. The next day, Based on the above, the Commission finds that FABC violated Section 7(d) describe such disagreements. Before resuming extending purpose credit
FABC is a domestic banking subsidiary of Banque Nationale de Paris. Its October 23, 1992, the balance in the account rose to $84,095.06, after of the Exchange Act and Regulation U in connection with its securities to custodial customers, FABC shall implement all of the recommendations
headquarters are located in New York. receiving proceeds from the sale of a long position, and FABC settled clearing operations. contained in the independent consultant’s final report.
purchases for The Funds costing $384,700. These purchases were also
2. Background matched with offsetting sales of the same securities. V. By the Commission.
a. From at least September 1992 until January 1994, FABC provided e. By settling trades in this fashion, FABC unlawfully extended credit in ORDER Jonathan G. Katz Secretary
securities clearing services for custodial customers. excess of the amounts permitted under Regulation U.
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the
b. From September 1992 through July 1993, FABC settled securities f. Since January 1994, FABC has ceased extending credit to any of its Exchange Act, that FABC cease and desist from committing or causing
transactions on a Delivery versus Payment/Receipt versus Payment custodial customers for the purpose of purchasing or carrying securities. any violation, and any future violation, of Section 7(d) of the Exchange
(“DVP/RVP”) basis for a custodial customer called The Funds and received Act and Regulation U.