October 26, 2017 - On Tuesday, the LSTA hosted 1,000-plus attendees at its 22nd Annual U.S. Loan Market Conference. Executive Director Bram Smith kicked off the day – and his last conference as LSTA Executive Director – exhorting members to be agents of positive change in the loan market.
Indeed the theme of the conference was change. Throughout the day, we asked, “What is change? Is it gradual – or disruptive? Is change caused by you, the market, the government, technology – or something else? Is it accelerating? Can you adapt? Can you – should you – fight it?”
What did we mean by change? At the highest level, Charlie Rose and Former Director of National Intelligence James Clapper had a wide-ranging conversation about the changing global scene and its impact on world and U.S. security. (To be fair, much of the change they discussed was not positive.) The LSTA also hosted experts on innovation and development who debated far-reaching changes that will affect how we will live our lives and run our businesses. Specifically, the Hon. Christine Fox of Johns Hopkins’ Applied Physics Lab discussed how the robotic revolution will change our lives (mostly, but not entirely, to the good). Dr. Michael Recce of Neuberger Berman explained how big data will change investment in a big way. And Dr. Lee Braine of Barclays described how blockchain will revolutionize lending.
And even back down here in industry, we are seeing direct changes every day – in Washington DC, in the loan market itself, and in LIBOR. From Washington, we saw a slew of new rules over the past eight years – and the potential to rationalize them over the past eight months. But what should we do? First, we shouldn’t put our heads in the sand; the loan market did that 10 years ago and it didn’t work out. Ignoring Washington won’t make it go away. We – you! – should engage with regulators and lawmakers. We – you! – should become a trusted source of objective information. Decide what matters; decide what to fight. Recognize that we – you – cannot fight everything.
The loan market itself has seen big changes in the last nine years: Strong lending growth, more secondary market trading, more CLOs and loan mutual funds. But, conversely, settlement hasn’t seen sufficient improvement.
And loan market change will continue. The LSTA and its members should be change agents. Compromises will be needed; thinking of the whole of the market – and not just one’s constituency – is critical for positive change.
So what should happen specifically? Documentation can change to become more efficient. Agency functions at banks need more resources. CUSIPs should be universal. And, as regards trading, the industry needs to strike the balance between the flexibility that borrowers and investors value vs. standardization to speed up settlement. All of this should support the growth of the loan market.
And, longer term, we can expect that LIBOR may be replaced with a new rate that is less susceptible to manipulation. This is a big change – indeed one of the biggest – and it will not be simple or easy. The LSTA has been tapped to be part of the ARRC Committee working on loans and CLOs. We are doing comment letters, and we are working with other trade associations and our members to begin to this long process. Importantly, the LSTA feels that all loan market participants and lenders should have the opportunity to have a say as LIBOR is replaced.
Thus, there are many changes afoot, which range from the mundane to the sublime. The challenge for us – for you! – is to work to make these changes as painless and as effective as possible.
The LSTA would like to thank all the sponsors and exhibitors that made the LSTA Annual Conference possible. So thank you sponsors: S&P Global Market Intelligence, Cortland, Fitch Ratings, IHS Markit, BNY Mellon, Ipreo Debtdomain, US Bank, Virtus Partners, Advantage Data, CUSIP Global Services, Deutsche Bank, Intralinks/DebtSpace, Moody’s Investors Service, Thomson Reuters, Wilmington Trust, Winston & Strawn, Alcentra, Allen & Overy, Ashurt, DLA Piper, Proskauer, Seward & Kissel, and State Street. And thank you exhibitors: Black Mountain, Bloomberg, ClearStructure, DebtX, Finastra, FIS, MarketAxess, S&P Global Ratings, Wells Fargo and XtractResearch.