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Is there enough technology in the syndicated loan market?

My niece always tells me she has nothing to play with. Her room, of course, is filled with toys. Being the first child born in the family came with a degree of overindulgence. When I ask her about the things she has, she complains that the toys are old or not fun anymore. The irony here is that she never really played with many of them.

So what does this have to do with loans? Well, syndicated loans generally get a bad rap for inefficient operations, particularly when it comes to settling trades. Like it or not, many view our market as low-tech and while that is an unfortunate misperception, it can be difficult to look past the aesthetics of the 20 day industry average for settling trades. The truth is the loan market is a lot like my niece’s room. It has plenty of unused technology toys as well as people who complain about them.

A few months ago I wrote about how a revolution had begun, a revolution of behavior, of mindset. The pace of adopting technology is also a behavioral phenomenon and the problem we generally observe in the market is an unbridled focus on the mythical promise of straight through processing (STP). What’s wrong with that, you say? Shouldn’t STP be our goal? Well, yes, of course it should. But while technologists see STP as a journey, many in the user community only see it as a destination and have not yet embraced tools that may provide real, yet incremental benefit to existing processes.

In the market today, there are firms still using spreadsheets as their trade blotter and interest calculator, email as their document repository and phone calls for data verification. And if you think I’m only describing small firms, you’re incorrect. If you think this is only one in a hundred, you’re also incorrect. Of course, similar patterns exist in other asset classes but, I suspect, they are not as prevalent.

“But why should I invest in anything now, isn’t blockchain going to solve everything?” Ok, perfect example. The idea of bringing blockchain and distributed ledger technology to the loan market has received a lot of media attention and the excitement surrounding them is, at the very least, worthy of investigation. Leaders in the loan market are already exploring their potential. However, it takes time to fully harness any technology and that often means years. So, are you willing to maintain your status quo for years on the bet that a new technology delivers on the promise of STP, which it may or may not do?

The syndicated loan market has a solid breadth of technology and services that allow you to be efficient in core operations such as portfolio management, compliance validation, asset accounting, asset servicing, document generation/distribution, electronic trade settlement, reference data consumption and quite a few more. Many of these systems have application programming interfaces that allow you to connect them in order to further streamline data entry, improve the velocity of information and reduce risk. Alternately, if you want to completely outsource loan operations, there are a number of providers who would be happy to take care of that for you.

What the loan market needs to do is acknowledge that better is better. Being 10% better is better. You don’t have to completely automate every step in your process to be better, so going from 10 steps to 7 steps is worth the effort. If we all do our best to use available technology, the market will definitely feel the impact. Now let’s see if I can find that those old Star Wars action figures I never got around to playing with…


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