What Is an Asset-Backed Commercial Paper (ABCP)?

An asset-backed commercial paper (ABCP) is a short-term investment vehicle with a maturity date that is typically between 90 and 270 days. A bank or other financial institution typically issues the security itself. The notes are backed by the company’s physical assets such as trade receivables. Companies will use an asset-backed commercial paper to fund short-term financing needs.

Understanding Asset-Backed Commercial Paper (ABCP)

Asset-backed commercial paper (ABCP) is a short-term money-market security that is issued by a special purpose vehicle (SPV) or conduit, which is set up by a sponsoring financial institution. The maturity date of an ABCP is set at no more than 270 days and issued either on an interest-bearing or discount basis.

The note is backed by the corporation’s collateral, which might include future payments to be made on credit cards, auto loans, student loans, and collateralized debt obligations (CDOs). These expected payments are collectively known as receivables. The proceeds of an ABCP issue is used primarily to obtain interests in various types of assets, either through asset purchase or secured lending transactions.

Commercial Paper (CP) vs. Asset-Backed Commercial Paper (ABCP)

The primary difference between commercial paper (CP) and asset-backed commercial paper (ABCP) is that commercial paper is not backed by assets. Commercial paper (CP) is a money market security issued by large corporations to raise money to meet short-term obligations. With a fixed maturity of less than one year, the commercial paper acts as a promissory note that is backed only by the high credit rating of the issuing company.

Investors purchase the commercial paper at a discount to face value and are repaid the full face value of the security at maturity. Since standard commercial papers are not backed by collateral, only firms with excellent credit ratings from a recognized credit rating agency will be able to sell commercial papers at a reasonable price. A type of commercial paper that is backed by other financial assets is called an asset-backed commercial paper.

A company or bank looking to enhance liquidity may sell receivables to an SPV or other conduits, which, in turn, will issue them to its investors as asset-backed commercial paper. The ABCP is backed by the expected cash inflows from the receivables. As the receivables are collected, the originators are expected to pass the funds to the conduit, which is responsible for disbursing the funds generated by the receivables to the ABCP noteholders.

ABCP Interest Payments

During the life of the investment, the sponsoring financial institution that set up the conduit is responsible for monitoring developments that could affect the performance and credit quality of the assets in the SPV. The sponsor ensures that ABCP investors receive their interest payments and principal repayments when the security matures.

The interest payments made to ABCP investors originate from the pool of assets backing the security, e.g., monthly car loan payments. When the collateralized paper matures, the investor receives a principal payment that is funded either from the collection of the credit’s assets, from the issuance of new ABCP, or by accessing the credit’s liquidity facility.

Special Considerations

While most ABCP programs issue commercial paper as their primary liability, funding sources have been extensively diversified lately to include other types of debt. This includes medium-term notes (MTNs), extendible commercial paper, and subordinated debt to provide credit enhancement.

One significant concern about ABCPs and related investments stems from the possibility of liquidity risk. If the market value of the underlying assets decreases, then the safety and value of the ABCP might also suffer.

It’s important for ABCP investors to understand the composition of the underlying assets and how the value of those assets might be impacted by market stresses, such as a downturn in the economy. The inability in some circumstances for investors to sell their investments quickly to minimize losses is just one of the risks associated with asset-backed commercial paper.

What Is an Attorney-in-Fact?

An attorney-in-fact, also called an “agent,” is a person who is authorized to act on behalf of another person, known as the “principal,” typically to perform business or other official transactions. The principal usually designates someone as their attorney-in-fact by assigning them power of attorney, although a court may choose to assign it if the person being represented is incapacitated. The rules regulating power of attorney vary from state to state.

An attorney-in-fact is not necessarily a lawyer. Indeed, attorneys-in-fact don’t require any special qualifications at all. They can be a family member or close friend. Power of attorney may also be granted to more than one person. In such a case it should be stated whether a simple majority or unanimity is required for an action to be taken.

Attorney-in-Fact and Power of Attorney

An attorney-in-fact is a person who has been legally appointed to act on behalf of another person in a legal or business matter. The person appointing the attorney-in-fact is called the “principal,” and the attorney-in-fact is sometimes referred to as the “agent.”

An attorney-in-fact is usually appointed through a legal document called a power of attorney (POA). This document gives the attorney-in-fact the authority to make decisions and take actions on behalf of the principal in a variety of legal and financial matters. For example, an attorney-in-fact might be given the power to sign documents, manage a bank account, or sell property on behalf of the principal.

The attorney-in-fact is not required to be an actual lawyer, but they must act in the best interests of the principal and follow any instructions or guidelines set forth in the power of attorney. The attorney-in-fact is also required to keep the principal’s affairs confidential and to keep records of all actions taken on behalf of the principal.

It’s important to note that an attorney-in-fact is not the same as a lawyer or an attorney. A lawyer is a professional who is licensed to practice law, while an attorney-in-fact is simply a person who has been given the authority to act on behalf of another person.

Types of Power of Attorney

There are two basic types of power of attorney (POA) granted to attorneys-in-fact.

• General – General power of attorney grants the attorney-in-fact not only the right to conduct any business and sign any documents on behalf of the principal, but to make decisions, including financial decisions, on their behalf.
• Limited – Under a limited power of attorney assignment, also sometimes known as “special power of attorney,” the attorney-in-fact can be authorized to conduct certain transactions and make some decisions but not others. They are limited to the topics specified in the assigning document.

The Powers and Duties of an Attorney-in-Fact

If the attorney-in-fact is designated as a general power of attorney, they are allowed to conduct any actions that the principal would reasonably take. This means an attorney-in-fact would be able to open and close bank accounts, withdraw funds, trade stocks, pay bills, and cash checks—all on behalf of the principal.

With a limited power of attorney, the attorney-in-fact is granted broad powers in one or more areas but not others. For example, the attorney-in-fact could be authorized to carry out transactions at the direction of the principal but not to make business or financial decisions. It could also be narrower, such as only granting the right to sign documents related to the pending sale of a specific piece of property.

Attorney-in-Fact vs. Attorney-at-Law

As noted above, an attorney-in-fact need not be a lawyer. And another term for “lawyer” is “attorney-at-law.” If you have passed a state bar exam and are thus legally qualified in that state to prosecute and defend actions in a court on behalf of a client who has retained you, then you are an attorney-at-law.

Their functions are also different. An attorney-in-fact must make decisions for their principal, while an attorney-at-law makes no decisions for their client. Instead, they offer advice to their client and can represent them in the courtroom.

Durable Power of Attorney

A power of attorney generally terminates when a person dies, becomes incapacitated, or consciously chooses to revoke it via a notice filed in court. It can also end if it has a set date or its purpose has been accomplished. However, if it has been designated as a “durable” power of attorney, the attorney-in-fact retains the power of attorney should a principal become incapacitated. In such a situation the attorney-in-fact can continue to make decisions for the principal, including in matters of finance and healthcare.

Durable power of attorney can be granted ahead of time on condition that it only takes effect due to a triggering event, such as when the principal becomes incapacitated. This is also called a “springing” power of attorney. In this case it is a good idea to name one or more successors, as the original designee may be unavailable or, due to changed circumstances, be unwilling to assume the responsibility of becoming an attorney-in-fact.

The Bottom Line

An attorney-in-fact is someone who is granted authority to make decisions on behalf of another person, known as the “principal.” Such authority is granted via a written document providing power of attorney to the attorney-in-fact. Power of attorney can be either general or limited to certain specified transactions and topics. Typically, it only lapses if the principal dies, becomes incapacitated, or consciously revokes it through a notice filed in court. However, if it is a durable power of attorney, the attorney-in-fact will continue to serve if the principal becomes incapacitated.

Making a decision to appoint an attorney-in-fact should not be done lightly, and the person so designated should be a person or persons (you can appoint more than one) whom you trust. Family members and close friends are popular choices. If you appoint more than one, be sure to specify if decisions can be made by majority vote or must be unanimous.

What Is the Aroon Oscillator?

The Aroon Oscillator is a trend-following indicator that uses aspects of the Aroon Indicator (Aroon Up and Aroon Down) to gauge the strength of a current trend and the likelihood that it will continue.

Understanding the Aroon Oscillator

Aroon oscillator readings above zero indicate that an uptrend is present, while readings below zero indicate that a downtrend is present. Traders watch for zero line crossovers to signal potential trend changes. They also watch for big moves, above 50 or below -50 to signal strong price moves.

The Aroon Oscillator was developed by Tushar Chande in 1995 as part of the Aroon Indicator system. Chande’s intention for the system was to highlight short-term trend changes. The name Aroon is derived from the Sanskrit language and roughly translates to “dawn’s early light.”

The Aroon Indicator system includes Aroon Up, Aroon Down, and Aroon Oscillator. The Aroon Up and Aroon Down lines must be calculated first before drawing the Aroon Oscillator. This indicator typically uses a timeframe of 25 periods, however, the timeframe is subjective. Using more periods garners fewer waves and a smoother-looking indicator. Using fewer periods generates more waves and a quicker turnaround in the indicator. The oscillator moves between -100 and 100. A high oscillator value is an indication of an uptrend while a low oscillator value is an indication of a downtrend.

Aroon Up and Aroon Down move between zero and 100. On a scale of zero to 100, the higher the indicator’s value, the stronger the trend. For example, a price reaching new highs one day ago would have an Aroon Up value of 96 ((25-1)/25)x100). Similarly, a price reaching new lows one day ago would have an Aroon Down value of 96 ((25-1)x100).

The highs and lows used in the Aroon Up and Aroon Down calculations help to create an inverse relationship between the two indicators. When the Aroon Up value increases, the Aroon Down value will typically see a decrease and vice versa.

When Aroon Up remains high from consecutive new highs, the oscillator value will be high, following the uptrend. When a security’s price is on a downtrend with many new lows, the Aroon Down value will be higher resulting in a lower oscillator value.

The Aroon Oscillator line can be included with or without the Aroon Up and Aroon Down when viewing a chart. Significant changes in the direction of the Aroon Oscillator can help to identify a new trend.

Aroon Oscillator Formula and Calculation

The formula for the Aroon oscillator is:

$\begin{aligned} &\text{Aroon Oscillator}=\text{Aroon Up}-\text{Aroon Down}\\ &\text{Aroon Up}=100*\frac{\left(25 – \text{Periods Since 25-Period High}\right)}{25}\\ &\text{Aroon Down}=100*\frac{\left(25 – \text{Periods Since 25-Period Low}\right)}{25}\\ \end{aligned}$​Aroon Oscillator=Aroon Up−Aroon DownAroon Up=100∗25(25−Periods Since 25-Period High)​Aroon Down=100∗25(25−Periods Since 25-Period Low)​​

To calculate the Aroon oscillator:

1. Calculate Aroon Up by finding how many periods it has been since the last 25-period high. Subtract this from 25, then divide the result by 25. Multiply by 100.
2. Calculate Aroon Down by finding how many periods it has been since the last 25-period low. Subtract this from 25, then divide the result by 25. Multiply by 100.
3. Subtract Aroon Down from Aroon Up to get the Aroon Oscillator value.
4. Repeat the steps as each time period ends.

Aroon oscillator differs from the rate of change (ROC) indicator in that the former is tracking whether a 25-period high or low occurred more recently while the latter tracks the momentum by looking at highs and lows and how far the current price has moved relative to a price in the past.

Aroon Oscillator Trade Signals

The Aroon Oscillator can generate trade signals or provide insight into the current trend direction of an asset.

When the oscillator moves above the zero line, the Aroon Up is crossing above the Aroon Down and the price has made a high more recently than a low, a sign that an uptrend is beginning.

When the oscillator moves below zero, the Aroon Down is crossing below the Aroon Up. A low occurred more recently than a high, which could signal that a downtrend is starting.

Limitations of Using the Aroon Oscillator

The Aroon Oscillator keeps a trader in a trade when a long-term trend develops. During an uptrend, for example, the price tends to keep achieving new highs which keep the oscillator above zero.

During choppy market conditions, the indicator will provide poor trade signals, as the price and the oscillator whipsaw back and forth.

The indicator may provide trade signals too late to be useful. The price may have already run a significant course before a trade signal develops. The price may be due for a retracement when the trade signal is appearing.

The number of periods is also arbitrary and there is no validity that a more recent high or low within the last 25-periods will guarantee a new and sustained uptrend or downtrend.

The indicator is best used in conjunction with price action analysis fundamentals of long-term trading, and other technical indicators.

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