October 26, 2017 - The afternoon ended full circle as settlement challenges raised at the onset of the conference were addressed.  In Sizing up the Situation, a majority placed the responsibility for current delays with the Agents, recognizing that “buyers” have met the T+5 requirements.  As volumes fluctuate, current staffing levels and systems are hard pressed to meet a T+7 goal.  47% of the audience said improvements could be made through further standardization of existing processes while 39% favored technology advancements to allow for interoperability between systems.  A winning formula is no doubt a mix of the two.  In fairness, should some of the agent’s dilemma be attributed to managing balance sheets?  How can a trade in which the dealer is the buyer, the agent is the same bank as the dealer, and the seller has the position, not settle by T+7?

From a pure processing view, it is difficult to say that Settlement Date Coordination (“SDC”) is complete without the Agent knowing when a buyer is affiliated or needs borrower consent.   It would alleviate some of the delays if buy-side structures could support reasonable dollar limitations per sub-allocation, perhaps in the neighborhood of $50,000 as sub-allocations can be far lower. .Agent teams could and should segregate responsibilities to maximize overall efficiency.  The onboarding process must be automated to allow information to be consumed systemically into the agents’ systems; rekeying data is inefficient and produces inaccuracies.  Agent systems must be enabled to transmit individual notices rather than notices to an entire lending group in order to limit agent freezes around rollovers, resets and payments to 1 business day per month and 3 business days at quarter end.  Amendments and cashless rolls should be accompanied with CUSIPs to facilitate not only settlement, (i.e. what is it that one is receiving/purchasing?) but also the daily pricing of public NAV funds.  Once made effective, trades should remain effective.  Referential data should be systemically available to lenders of record, perhaps through the usage of the FpML standard form of messaging.

The second settlement panel shared how blockchain/distributed ledger technology could be specifically used in the loan market on a permissioned basis – to share data –to originate, syndicate and settle loan trades – to move cash.  When polled, 49% of the audience said they believed that DLT, e.g. blockchain, would have the greatest impact on the loan market in the next 5 years.   Time will tell but it is entirely possible that this will be how we eventually reach our goals.    One thing is for certain though ….bottom line costs and budgets will be scrutinized as entities weigh in on their appetites for change.  And when all is said and done, remember, “It’s not how fast you mow.   It’s how well you mow fast.”

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