The move to create an online clearinghouse for loans has been shelved because of a lack of interest among loan market players, according to Operations Management, a Loan Market Week sister publication. The platform was being formulated through a joint venture between The Depository Trust Company and Reuters, but the partnership could not get a solid commitment from banks, said Jeff Reichert, head of business development for Corvalent, the Reuters unit that was developing the platform. "The clearing and settlement side was not a priority for these firms. They were more interested in trading the loans electronically," Reichert said.
Settlement has long been a carping point for loan investors, but efforts by the Loan Syndications and Trading Association have helped. Still, while there has been improvement, respondents to LMW's annual buyside survey last May slammed certain shops for woefully inadequate back office operations. Dealers asked about a new system last week and said though it may be helpful, there were other priorities. "We've got plenty of things to do right now," said one trader, referring to the clean-up in the market following the trade center attacks. "Basically, the advantage provided by something like this is not extensive enough to mitigate the amount of time or dollar capital it would take to get this running."
There is no date scheduled for resuming work on the platform, though it could be ready to go live within a few months if participants sign up. The joint venture was unveiled in March. The goal was to get at least four of the largest six banks and broker/dealers that trade in the $1.8 trillion commercial loan marketplace to commit to the initiative, Reichert noted from New York. All of them participated in the project's advisory board, but none of them would commit to using the technology, he said, declining to name the firms. "We did not feel comfortable continuing to build something without an industry commitment, though we can pick up where we left off when broker/dealers and banks tell us they are ready for the project," he said.
Among the potential benefits gained from using the platform are shorter settlement periods. Typically it takes 10 days in the loan market to settle a par loan, though the system was designed to reduce that to three days and beyond, observed Reichert. That would not happen on day one, but it would happen quickly. The cost savings for some firms could be significant, depending upon how active they are in the market. Steve Letzler, a spokesman for the DTCC, confirmed that the project is on hiatus, but declined to comment further.