Stupid Trading terms, REBCO, SWIFT MT-103 Madness, and MandatesKamal Southall
August 23, 2011 — 8,648 views
One: REBCO and Urals Blends: if you are a broker and being offered physical delivery of REBCO then run, do not walk but run for the hills !
REBCO is not used in Physical Crude Oil trading and has not been for some time. REBCO financial futures contracts do exist on financial commodity exchanges, but the term isn't used in physical trading. So if you get a REBCO offer you should be very very suspicious.
Check with Platts and Argus directly and their published specifications and methodologies and pdf versions of the document are readily available. Under its Russian and Urals Crude Oil blends are a few newer specific assessments . The closest assessment to what REBCO used to be is Urals (RCMB). RCMB is a Urals Mediterranean assessment that recombining certain market differentials for Urals product.
Watch out for fraud: If you do manage to get a Urals offer under the current specification (and always check Platts to be certain of the current assessment) you MUST check API and other details to make sure what you are offered matches current Spot market methodology definitions. If anything doesn't match this is a red flag for possible fraud
Two: SWIFT MT103 and Bad Trade Procedures:
It's important to understand what SWIFT messages are and are not for, and how to refer to them. Mistakes here can be red flags for fraud.
To illustrate this, take this example of a really BAD set of payment procedures for intermediaries and traders:
Quote"..... Payment terms BUYER asks his Bank to send an MT-103/23 to the
account of the Seller in the exact amount in metric tons of the
shipment.. amounting to exactly... for payment in 7 (seven) days,
100% at sight against presentation of the shipping documents of the
shipment made. Approval condition All existing documents will be void
in case of non-approval of payment document by Seller's Bank..."
Sounds impressive? Well not really. A SWIFT MT-103 is, in essence, a wire transfer. No more. Indicating "payment by bank wire transfer" would suffice. So why refer to a specific SWIFT message format?
The term MT-103 is almost never used by corporate traders, purchasers, category managers, and buyers. No one needs to. MT-103 is a bankers term only and everyone who has done business with a bank knows what a "bank wire" or "wire transfer" or "cable transfer" or "TT" or "KTT" refer to.
Problem 2: though not explicitly stated, what the broker above is trying describing is, technically, a kind of a conditional wire transfer; one based on certain conditions being met.
The problem is that there is no such thing as a conditional wire transfer in this sense.
Lets break it down:
/23 stands for field 23, which is a comment field for additional requests and instructions to receiving institutions.
It is not possible to stipulate a conditional release of these funds in field 23. If you request it your request will be ignored, if a SWIFT operator puts it in anyway the receiving institution will ignore it. Many new and experienced brokers will deny this but this is the truth, talk to any banker at a major International bank.
What does /23 designate?
Here are some examples. Field 23 can be used to specify something like "Golly gee, could you please telephone beneficiary on the good ol blower when you get this"
However Field 23 cannot be used to conditionally specify - say "pay beneficiary against
his presentation of shipping documents upon document approval by your bank."
These instructions will be ignored. Conditional documentary payments are the domain
of Cash against Documents or Letters of Credit. NOT Wire transfers initiated by a MT-103/23
The only thing an MT-103 is, is an unconditional and authenticated transfer of funds from one account to another. "No strings attached".
The only procedures involving conditional presentation of shipping documents are those involving documents against collections, or documentary letters of credit.
Finally no one outside of a SWIFT terminal room would even need to or dream of using the term MT-103. Otherwise it's a sign of unprofessionalism or fraud.
Conclusion: Traders, Intermediaries and brokers must never in a bulk export deal resort to conditional payment methods outside of UCP600 documentary letters of credit.
There is almost no useful exception to this rule, the DLC is the most mutually safe form of payment instrument and even though someone could employ a wire transfer, and structure a deal in which a supplier and buyer both were comfortable with it, if one party defaults and fails to perform, and a wire transfer has been made, you could find yourself in an awkward legal situation.
With a DLC all risk is mitigated, most importantly yours. The DLC ameliorates many uncomfortable contingencies.
For more reference on SWIFT codes see: http://www.swift.com/index.cfm?item_id=60004
About the Author: Kamal Southall
K.J. Southall is an independent consultant and trader who strictly adheres to FTN Exporting/SMICE/WAPI trading doctrines and procedures. he enjoys old books, sunny days, and local small town Ice Cream brands.
Kamal is Author of a guide and manual to International Business Due Diligence at www.importexportscam.com
Kamal's free report explaining Proof of Product (POP) and Proof of Funds(POF) is at www.wellgroomedtrader.com