Temporary global notes: Overview, definition, and example
What are temporary global notes?
Temporary global notes are a type of debt instrument used in the issuance of securities, typically in the form of bonds, that are initially issued in a "temporary" format before they are replaced by permanent, definitive securities (such as certificates or permanent global notes) at a later date. Temporary global notes are typically used in the early stages of a security issuance, particularly for securities that are being offered internationally or in multiple jurisdictions.
These notes are often issued in electronic form, and they serve as placeholders for the definitive securities. They allow for the initial distribution of securities, enabling investors to begin trading or transferring their holdings before the final, definitive notes are available. The temporary notes are generally replaced by permanent ones after certain conditions, such as regulatory requirements, have been met.
Why are temporary global notes important?
Temporary global notes are important because they provide a mechanism for the efficient and timely issuance of securities, particularly in cross-border or complex transactions. They allow for securities to be distributed and traded quickly while waiting for the formal, final issuance of permanent securities. Temporary global notes are also often used to comply with specific regulations and facilitate the ease of trading in the early stages of an offering, particularly in markets where physical certificates are not always required or preferred.
For issuers, temporary global notes help streamline the process of security issuance, reducing delays and administrative overhead. For investors, they provide early access to securities and the ability to trade them before the final, permanent securities are issued.
Understanding temporary global notes through an example
Imagine a company, XYZ Corp., issues a new series of bonds to raise capital. The bonds are offered internationally, and the company opts to issue the bonds in the form of temporary global notes. These notes are electronic and represent the bonds during the early stages of the offering. Investors purchase the bonds and can begin trading them in the secondary market using these temporary notes.
After several weeks, XYZ Corp. fulfills the necessary regulatory requirements and finalizes the bond issuance. The temporary global notes are then replaced with permanent global notes, which are officially registered and can be delivered to investors in physical or electronic form, depending on the terms of the offering.
In another scenario, an investment bank may issue temporary global notes for a new series of corporate bonds as part of a larger international offering. These temporary notes allow the bonds to be traded across various markets until the permanent notes are issued, ensuring liquidity during the interim period.
An example of a "temporary global note" clause
Here’s how a "temporary global note" clause might appear in a bond offering document:
“The Bonds will initially be represented by one or more temporary global notes, which will be deposited with a common depositary for the benefit of the holders. The temporary global notes will be exchanged for permanent global notes once all regulatory and legal requirements have been satisfied, and the Bonds will be available in definitive form to investors.”
Conclusion
Temporary global notes are a key component of the securities issuance process, especially in international or complex transactions. They serve as placeholders for permanent securities, allowing for early distribution and trading of bonds or other debt instruments before the final, definitive notes are issued. This process helps streamline the issuance timeline, ensuring that investors can access and trade securities while awaiting the completion of all formalities and regulations. Temporary global notes are especially useful in global markets, offering flexibility and efficiency during the initial stages of a security offering.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.