This is an excerpt from an article originally published by FinOps Report a financial services industry commentary website.
Nineteen days and counting.
That’s the average time it takes to settle a US syndicated loan. It’s a far cry from the two or three days for other asset classes, but fund managers, broker-dealers, agent banks and even regulators are waking up to the fact the gap must be closed to reduce risks and costs.
Markit’s latest acquisition of a middleware application from JP Morgan, one of the leading agent banks for syndicated loans, represents an important milestone in the industry leader’s multi-year effort to provide straight through-processing to the syndicated loans market. Its far smaller rival, Trade Settlement Inc. purchased by Virtus Partners in December 2014, claims support from fund managers, which are among the largest investors in syndicated loans. By some industry estimates, buy-side firms hold over a third of the value of US outstanding loans…
“We believe that investors in the loan space have seen the need for alternatives, understand the risks of a single-player option and are aggressively voicing their support for competition,” says Robert Tomicic, a partner at Virtus. “If market competition is completely eliminated and the ability to settle electronically is ruled by a single for-profit body, we are at risk of creating a monopolistic environment that shuns innovation, while controlling pricing.”
However, the support of fund managers alone may not be enough to move marketshare over to VTS. Sell-side firms and agent banks generally call the shots on which platform is used. Regardless of any gripes with Markit, they are still sticking with the larger provider that they use for other services, such as swaps processing. Tomicic remains hopeful that the tide will eventually change in his firm’s favor.
“While it is true that buy-side firms have been more open to the adoption of the new VTS platform, we have had acceptance from some progressive and forward-thinking sell-side institutions, and their feedback has been extremely positive,” he says. “We are also committed to work with any institution to leverage its existing technology to minimize or eliminate any tech spend it may have to incur to establish more STP on its end.”
Rhetoric aside, just what functionality and cost benefit does VTS bring to the table that could attract users away from Markit? Tomicic would not comment on Markit Clear’s capabilities, but insists VTS has operational benefits over ClearPar because of its better workflow that “allows the two counterparties to the trade to work with each other directly to amend, update, execute and settle all aspects of both par and distressed loans.” He also claims that the VTS interface offers better reporting and visibility into all aspects of the trade lifecycle. Kostyra vehemently disputes Virtus’ claims of any technological superiority to ClearPar.
Read the full article on the Fin Ops website