Changing Market Dynamics

Mindsets and priorities around the use of technology in the EMEA broadly syndicated space (and now private markets) have certainly changed in the past three to five years. Much of this has been a case of catching up with practises of the U.S. market and relying more heavily on the likes of S&P Global Market Intelligence’s (“Market Intelligence’s”) ClearPar for settlement and Loan Reconciliation to access direct Agent data. These two powerful systems have enabled volumes to grow and supported positive strides with settlement times. Equal importance has been placed on security and eliminating risk. The use of SOC-verified platforms, such as ClearPar, Loan Reconciliation and more recently ADFlow (an online portal to self-manage, approve and publish Administrative Details Form (ADF) data), have supported the necessary shift away from manual activities, including managing trade documents, data and payment instructions via email. 

There is now a market wide shift to integrating clients’ systems with those of Market Intelligence, taking efficiency, automation and risk reduction to the next level. Today, there are over 200 institutions electronically integrated with ClearPar that send and receive trade data and complete a variation of trade actions automatically. As this number has grown so too have Market Intelligence’s capabilities. The recent development of multistream messaging is a great example of this – real-time delivery of ClearPar messaging to multiple downstream systems for the same trade account. Additionally, over this summer multiple Agent/Dealer institutions in EMEA will go live with Loan Processor, a custom-built cloud-hosted middleware solution supporting real time trade and position integration with Finastra’s Loan IQ platform. 

There is also a direct correlation between integration and faster settlement times, initially with trade entry and buyside fund allocation and then throughout the settlement lifecycle. Four of the top five performing EMEA dealers in terms of volume and settlement times are electronically integrated with ClearPar, so it is hard to ignore the trend. Focusing on buyside institutions, 40% of trades year-to-date that were fund allocated without human intervention overall settled almost four days faster than those handled manually.

To be among the top performers in the market and facilitate business growth, it has become clear that organizations need to be electronically integrated. Institutions that do not yet benefit from such functionality can reach out to myself get more information. 

Challenging the Settlement Timeline

In June I had the privilege to speak at the Loan Market Association’s (LMA) annual Loan Operations conference, discussing settlement metrics from the ClearPar platform to analyse activities and trends in the secondary market. For the first time, the conference had a focus on the trade settlement timeline, revealing where and what challenges exist and how, together, organizations can promote greater efficiency and subsequent liquidity. What is clear is the resilience of this market following some challenging years and the commitment to address issues and continue the positive evolution. 

Earlier this year, our 2023 review blog spoke about how LMA secondary trade volumes continue to grow and that average settlement times have been falling, but that is only half the story. Between 2019 and 2023, trade volumes grew by 80%, while the market average settlement time (referred to as T+) increased by 12% to mid T+40 in 2023. Yes, there were some tumultuous years in between while institutions adapted, largely through the growing use of technology and automation, and recognition that the T+ average is still far too high. However, this foundation continues to be built upon in 2024, with the settlement average falling to T+35 in Q2 and secondary trade volumes continuing to rise. 

Despite this progress, there are still opportunities to promote further efficiency through changed behaviours, practises and automation. By analysing the settlement timeline and when key landmarks are reached in the trade lifecycle, there would appear to be avoidable delays throughout. This includes trade entry, readiness of buyers/sellers to settle and complete their necessary due diligence and Agent turnaround times. The recent addition of the Agent Status function in ClearPar will provide much needed transparency and data behind the delay period between parties submitting trades for settlement and the actual settlement date (currently around 40% of the timeline). This part of the timeline remains the priority given opportunity that exists to remove a significant number of days by using already existing technology, as well as changing behaviours and adopting market best practises. 

Looking Ahead

For the second half of 2024, the focus will remain on supporting the continued growth and efficiency of these markets – both in terms of technology and tools, plus through Market Intelligence’s vastly experienced operations team. Our group looks forward to continuing the collaboration with the LMA to help achieve its recently announced target of reducing settlement times this year by 25%. Whether the LMA market goes the same route as the Loan Syndications and Trading Association (LSTA) and, in time, introduces fault-based delayed compensation to incentivize parties is yet to be seen. While there is still further progress needed, the perception that the loan market is manual and outdated has largely gone away as the availability of technology and, importantly, adoption, has grown to the point where it is now the standard instead of just an option.

Market Intelligence’s Loan Platforms team has a full roadmap of key deliverables over the next 12+ months to further enable the market and power clients’ operations and settlement teams. Be on the lookout for announcements on ClearPar, including tax utility integration, participation workflows and  position to settle automation with Loan Reconciliation data to help streamline settlement decisions for Agents and Lenders

One final item to note is that from September 1st all trading entities in ClearPar will be required to digitally manage their ADFs and Standard Settlement Instructions (SSI) through the ADFlow tool. This is a landmark step forward for the loan market to eliminate manual activities and associated risk. Please be sure to join our upcoming webinar series to ensure readiness, the first of which will be held on July 17th, 2024. 

Author: James Irwin, Executive Director