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Settlement: A View on Both Sides of the Atlantic

March 15, 2017 - If cocktail hour chatter qualifies as insightful feedback, the buzz following the LSTA/LMA Secondary Market Seminar last week suggests that participants in the European, Middle East and African markets (“EMEA”) are not entirely against implementing delayed comp for secondary trades, at least for some jurisdictions.   And that should not be surprising.  While the settlement numbers in the U.S. still have much room for improvement, the story in EMEA is significantly more challenging.  While LSTA secondary par trades settled with a median of T+11 in 4Q16,  the median for LMA trades was T+31 (vs. a goal of T+20 by 4Q18).  Moreover, it takes an average of 3.6 days to enter an LMA trade into settlement platforms vs. only T+0.5 for LSTA trades.  Finally, on average, LMA trades are sub-allocated by T+7, Buyers sign confirms by T+12 and transfer documents by T+17, and agree that they are ready to settle by T+25. With the implementation of the revised delayed comp protocol in the U.S., Buyers complete all those steps by T+5.   Attendees clearly recognized that a similar standard, admittedly one that would allow for additional lead times given the different currencies throughout the region, could benefit overall settlement times. For more information on operations in the U.S. and Europe, please see the Secondary Market Seminar presentation here.   

Having succeeded in implementing a beneficial delayed comp regime in the U.S. for secondary trades, the LSTA has now set its sights on primary market delayed comp.  This will be one of the main focuses of the LSTA’s upcoming Operations & Settlement Conference.  There, attendees will learn more about how primary delayed comp will be structured.  We will also focus on how an efficient agent bank can make quite a difference in the way the market functions – and what makes one agent better than another.  We will discuss whether we need standard processes for refinancings, dive into the status and development of blockchain technology, and muse over which will benefit our market more – changes in behavior or changes in technology?   Join the conversation on Tuesday, April 4th in NYC.  Buy one ticket, get one free! Help us help you; after all, the more educated everyone is on these topics, the more efficient the loan market will become.

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