The loan market is finally starting to embrace electronification, albeit decades after other asset classes. Both the buyside and sellside are seeking better information and a far more efficient, less manual approach to analyzing, executing and booking trades.
At Coefficient, we believe loans are different—not just in their documentation, but in the very structure of the market. The loan market is comprised of a smaller, more tight-knit community compared to bonds. Trading is more collegial and collaborative, with the sell side and buyside working together to raise new CLOs. The absence of a borrow limits true short selling, and TRACE reporting doesn’t apply.
In other asset classes, electronification started with the premise that dealer bid/offer spreads were the problem preventing improved liquidity. Technological connectivity put dealers into direct competition on trades to reduce spreads and charged dealers for the execution. Over time, buyside clients were connected directly with other buyside clients. Information dissemination, under the banner of transparency, made providing liquidity offline in substantial size even more challenging.
In our opinion, given all its differences, the loan market doesn’t need to follow the same well-worn playbook. Spreads are not the bottleneck in the market but rather the antiquated and analog way in which counterparties exchange information. We think we can help grow volumes and increase profitability for both the sellside and buyside by leveraging relationships without the need for one side to lose for the other to win.
Our solutions are designed from the ground up to benefit all market participants.
· EPIC, our core sellside software, is used to create runs and update them throughout the day, to manage axes, track inquiries and maintain holders’ lists all to enhance dealer productivity and profitability.
· EPIC Mirror, our buyside portal, permissions and aggregates all dealer runs and axes in real time into a single, intuitive interface and can also send them directly to portfolio management systems including Allvue, LevPro, Siepe and Valitana.
· Single Name Trading mimics existing market convention, with a client engaging a single dealer and negotiating bilaterally. Both traders and salespeople can respond to clients as is done today over voice and chat.
· EPIC Mirror Watchlists and Alerts notify the buyside in real time when dealers’ axes fit a watchlist or ramp. The client can then engage directly, rewarding the dealer for having disclosed the axe. This protocol can simultaneously provide best execution by matching the client with the dealer best positioned to execute the trade.
· Portfolio Trading facilitates old school ramp and block trades, where both sides negotiate in partnership to find a mutually beneficial solution as if they were all on a shared Google spreadsheet.
· Voice Confirmations reduce breaks by confirming trades on the same LX used to settle the trade on Clearpar. There is no fee to either side to use them.
· Post Trade Straight Through Processing (STP) sends voice and electronic trades directly to both side’s system of record so everyone can avoid the time and risk of duplicative manual bookings.
Let’s define the digitization of loan trading together.
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