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Let us say a bond issuer is expecting to raise a million pounds, and wishes to make arrangements with its own settlement agent to hold those issued but as yet unsubscribed securities, pending remittance of funds for them by the betrothed subscriber. With all the will in the world, there can be unforeseen delays and so on, so this is not uncommon. | Let us say a bond issuer is expecting to raise a million pounds, and wishes to make arrangements with its own settlement agent to hold those issued but as yet unsubscribed securities, pending remittance of funds for them by the betrothed subscriber. With all the will in the world, there can be unforeseen delays and so on, so this is not uncommon. | ||
The settlement agent is happy to act, for a suitable fee, but wants the certainty of some end point to its commitment. | The settlement agent is happy to act, for a suitable fee, but wants the certainty of some end point to its commitment. Now, ''should'' it care? Not really; it costs almost nothing to hold an unissued security in a settlement account, and one can extract a fat fee for it. But that is as may be. | ||
To | To quell its beloved agent’s misgivings, the issuer presents a draft. It says: | ||
{{quote|“If I have not paid you in 10 days, at your absolute discretion you may cancel the transaction immediately by notice at any time.”}} | {{quote|“If I have not paid you in 10 days, at your absolute discretion you may cancel the transaction immediately by notice at any time.”}} | ||