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An Intermediary acts as a full Principal if, even if at Buyer’s request, it purchases an Asset from Seller for its own account (the Principal Purchase). A full Principal may (but need not) also enter a swap contract with Buyer paying the return of the same Asset (Asset Swap).
- Under the Asset Swap, Buyer may take full economic exposure to the Asset;
- Nevertheless the Asset Swap gives Buyer no legal or beneficial title to the Asset.
- A True Principal acts at all times on its own behalf and never on behalf of Buyer.
- There is a contract to purchase the Asset between True Principal and Seller.
- There is no contract to purchase the Asset between Seller and Buyer.
- The True Principal may sell the Asset to Buyer, but not at the price agreed with Seller.
- A True Principal is not remunerated by Buyer for the Principal Contract at all.
- The True Principal will receive all compensation from Buyer under the terms of the Asset Swap (or subsequent principal contract for the sale of the Asset to Buyer).
- There is no commission payable on a True Principal contract.