A significant evolution in the loan market is taking shape as a long-awaited project to assign CUSIP numbers to loans is ready to launch at the beginning of next year. The topic was raised at The Loan Syndications and Trading Association's (LSTA) annual conference in New York, and it was hailed by investors. "The loan market does not have standard identifiers. I would use the analogy of people speaking different languages and CUSIPs will enable us to all speak the same language," said Anthony Clemente, head of the bank loan group at INVESCO.
The standardized identification of loans should have several benefits, chief among them being the electronic settlement for a market that is looking to improve settlement. Electronic settlement would be too cumbersome without a standard identification system, loan pros said. "The CUSIP will allow us to better communicate and this will advance electronic settlement and also [help] accounting to become more standardized," Clemente said. "It is a very powerful beginning to a high degree of standardization and will add to liquidity."
Almost 1800 CUSIP numbers have been assigned to facilities agented by eight banks who have been participating in a pilot program for over a year, noted Jane Summers, general counsel for the LSTA. These numbers will begin to be rolled out to the market in January, and agents who have not been in the pilot are being trained to use the CUSIP system beginning in January as well, she said.
"CUSIPs on loans will have a dramatic positive impact on the loan market," Summers stated. Immediate benefits will be more efficient agent/lender communications and greatly improved delivery of data and analytics, she added. CUSIPs will also add clarity and precision to identifying loans, reducing miscommunication among traders. Clemente said the reason it took so long is due to the sheer size of the project. "It's a trillion dollar market, and everyone is married to their own ways of doing things." But now it is done, Clemente said, this development will be "stamped on a piece of paper as a key evolution of the market."
LSTA Conference Coverage
The Loan Syndications and Trading Association held its annual conference last week at the Hilton New York. Industry players buzzed about growth in the market and the parade of new investors, but there was also a cautionary tone set by loan market veterans. LMW staffers were on hand to file the following stories.
Loan Market's Flexibility Stands Out
Market Players Emphasize Caution