Euroclear Bank announces the industry's first and only multi-currency, delivery-versus-payment (DvP) settlement service for secondary market trades in syndicated loans.
Launch of the new LoanReach feature will take place in the first quarter of 2010.
The new, automated DvP settlement service fills a major efficiency gap in the syndicated loan business, reducing costs and risks for secondary market loan trading. DvP settlement means that the cash and loan components of the trade will be exchanged simultaneously, unlike today where movements of loan positions and cash occur manually and asynchronously. DvP settlement is the industry standard for trades in most other asset classes, such as equities and bonds.
Euroclear Bank's extended LoanReach service will eliminate most of the credit and settlement risks, and substantially reduce the counterparty risks, associated with the settlement of syndicated loans.
Furthermore, Euroclear Bank's initiative aims to significantly shorten the length of the settlement cycle. Today, syndicated loan transactions settle on a T+20-25 basis. Euroclear Bank's service targets the benchmarks set by the Loan Market Association (LMA) and the Loan Syndications and Trading Association (LSTA) of T+10 and T+7, respectively, for conventional trades. Shorter settlement cycles will reduce counterparty default risk and increase liquidity.
Jurgen De Weghe, Director, LoanReach Product Management, said: "We are proud to deliver the benefits of automation and standardisation to syndicated loan investors. In close collaboration with agent banks, the introduction of multi-currency trade matching and DvP settlement is critical in this cost- and risk-conscious environment. Euroclear Bank's LoanReach service is the most comprehensive in the market, with more features, such as E-messaging and collateral management, to come in the near future."
"We strongly support the development of market platforms for syndicated loans," said Martin Lelong, Project Director at Société Générale Corporate & Investment Banking (SGCIB). "We are particularly interested by Euroclear's announcement, as their service offer fits very well with the specificities of the European market, which is of key importance to us: a tool working seamlessly and with all major currencies from trade matching to final settlement. We are convinced that these types of solutions will bring operational risk reductions, increased liquidity and productivity gains to the whole sector."
LoanReach was launched in June 2008, offering a service to allocate unique identification codes for syndicated loans, a centralised loan database, as well as agent and lender portfolio reporting systems.
With the launch of its second phase in September 2008, LoanReach introduced a portfolio reconciliation service enabling lenders to reduce their operational workload by reconciling their portfolios against balances uploaded by their agents in the centralised loan database maintained by Euroclear Bank. This service feature significantly reduces the number of reconciliation failures between agents and lenders, resulting in more efficient and accurate processing of cash-related operations, such as interest payments.