HOUSTON – Virtus Trade Settlement (VTS), a wholly owned subsidiary of Virtus Partners Group, led the syndicated loan market with the release of its Delayed Compensation engine on July 22 , 2016. The engine addresses the first of two phases of the new LSTA delayed compensation regime.
The first phase of the new regime is scheduled to become effective on September 1, 2016. Subject to certain exceptions such as Know Your Client (KYC), force majeure or material errors, Phase 1 moves from nofault delayed compensation to a requirements based model. It requires buyers to execute the Trade Confirmation and Assignment Agreement within 6 days after trade date (T+6), select a Settlement Date of T+7 or earlier, and continue efforts to settle trades until the actual Settlement Date. Between September 1, 2016 and November 1, 2016, buyers will not be penalized if they have designated lead times.
VTS’ functionality was completed early in March; similar to the rest of market, VTS was awaiting the LSTA board’s approval of final rules. In an early launch of the platform, prior to the September 1, 2016 effective date, users were provided with a preliminary view of the possible impact of the new rules without actually forfeiting delayed compensation. The engine also assists in preparing users for the September 1, 2016 GoLive date by highlighting operational gaps needing attention to avoid loss of delayed compensation. Reports are readily available on the platform, advising users of the amount that would have been forfeited should the new rules not be satisfied.
Phase 2, scheduled to go live on November 1, 2016, requires the buyer of a bank loan to complete all basic requirements for executing the Trade Confirmation and Assignment Agreement by T+5. It also permits a buyer to designate up to a 1 day Lead Time requirement for settlement. For those that have designated a 1 day Lead Time requirement, the buyer will lose only one day of delayed compensation if the Agent signs the form of Assignment between 6:01 PM and 11:00 PM ET. So far, the prelaunch results indicate that the market is not yet ready. We estimate that approximately 42% of the trades (between buyers and Broker Dealers) would have lost delayed compensation.
Clients using Virtus’ loan settlement outsourcing services and the VTS platform already meet the buyer requirement of T+3. Thus, the November 1 (Phase 2) T+5 rule is not expected to have any financial impact. Other buyer clients settling on the VTS platform will benefit from enhanced status reports and email alerts which flag trades at risk of losing delayed compensation.
About Virtus Partners Holdings, LLC
With more than $250 Billion of Assets under Administration (AUA), Virtus provides alternative asset administrative, middle office services and data to funds and various investment vehicles, including hedge and private equity funds, separate accounts, total return swaps and collateralized loan obligations (CLOs). Virtus specializes in providing tailored solutions to credit, fixed income managers, broker dealers and Agent banks. Virtus clients are served by more than 200 employees located in Houston, Austin, New York, Shanghai and London. For more information please visit: www.virtusllc.com.
Virtus Partners LLC
Joe Elston – Partner