By Vanessa Spiro and Susan Altman
Loan market participants may soon be able to use blockchain technology and tokenized cash to achieve swifter settlement of loan trades. Both Synaps Loans and Finastra plan to introduce new blockchain-based platforms next year. They join the platform created by ClearPar and HIS Markit, which plans to reduce or eliminate wire transfers by promoting tokens that can ultimately be exchanged for cash.
The main objective of the technology is to reduce settlement time. Long settlement times result in costly use of capital and render the market less liquid in the eyes of regulators. The time between the agreement on material terms of the trade and the trade settlement date for syndicated loans is much longer–the median recently was 12 days- than that for other asset classes, such as equities. Several processes, such as implementation of the “delayed compensation” rules to incentivize quick settlement, have attempted to reduce settlement time. However, market protocol requires an exchange of finalized assignment documents among buyer, seller and agent bank, collection of “know-your-customer” information by agent bank, borrower consent, receipt of underlying loan documentation, agent bank verification of loan ownership and transfer of ownership on the loan registry. Even under the best circumstances there are inadvertent delays, including those caused by blackout dates for amendments and absences by workers processing requests.