September 22, 2020

Volume X, Number 266

September 22, 2020

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September 21, 2020

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New Technology Targeting U.S. Loan Market in Attempt to Increase Liquidity

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.

Technology promises to eat around the edges of these delays. Distributed ledger technology could ease administrative burdens by reducing manual reviews and data entry as to loan ownership in the loan registry maintained by agent banks. Smart contracts with algorithms to determine assignee eligibility could quicken the agent bank’s verification and approval of a buyer. Tokens could replace wire transfers to pay loan assignment purchase prices and assignment fees.

Copyright 2020 K & L GatesNational Law Review, Volume VII, Number 332


About this Author

Vanessa Spiro, KL Gates Law Firm, Banking and Finance Attorney

Vanessa Spiro is a partner in the firm’s Pittsburgh office, where she is a member of the banking & asset finance practice group. She has substantial experience in leveraged finance and represents financial institutions and other creditor entities and borrowers (corporates, sponsors and other capital end-users) in connection with the acquisition financings, cash flow and asset-based transactions and other finance matters. She also has significant experience in restructurings, workouts, distressed debt matters and debtor-in possession and exit financings.

Susan Altman, KL Gates Law Firm, Commercial Transactions and Outsourcing Attorney

Susan Altman navigates businesses through the complexities of today’s technology-enabled commercial transactions in order to help lower costs and improve revenues. Ms. Altman helps clients properly structure contracts in ways that foster long-term, positive commercial relationships, whether through subscription agreements, licensing, strategic alliances, or outsourcing transactions. For example, she recently structured all of the commercial contracts to launch a digital exchange through which institutional investors, banks, broker-dealers, and registered advisors may access model investment portfolios and other investment products and services.

Ms. Altman brings to bear a substantial background as a transactional lawyer serving clients in a broad array of commercial needs. In addition to assisting clients with IT and business process outsourcing activities, Ms. Altman has negotiated commercial contracts across the breadth of global supply chain networks, from manufacturing to distribution and retail, and has supported the commercial launch of numerous cloud-based services.