2021: What Is Next For Leveraged Loans Settlement?
It's that time of year again when we reflect on the past 12 months and set course for the next year. The pandemic has had a profound impact on society, including our industry. Among other things, it has highlighted to me the drive and focus of our people to continue serving clients despite extremely challenging conditions. Our clients tell us they need us to be there for them more than ever, to help them manage risk and operate at scale - and that is what we are doing. So, wishing a speedy end to 2020, here's what I see us focusing on as we start 2021.
Tools that drive connectivity and
It's worth noting that, contrary to what is often said, there is a high degree of standardization and automation across trades - and not just as it relates to digitization of trade documents and collaboration workflows. There's extensive connectivity between systems such as ClearPar and our clients' environments. We've delivered nearly 5 million trade documents to custodians and trustees via SFTP this year alone, with over 10 thousand funds enabled for this key piece of automation. The volume of electronic, or XML, messages with trade settlement details consumed directly by our clients, as well as by custodians (which automate cash delivery as a result), is on track to reach an astounding 80 million this year.
Tools such as SFTP and XML connect an ecosystem of agents, trade counterparties and custodians and underpin the secure processing of millions of trades. If 2020 is any indication, they will only become more relevant in 2021.
But not every client will benefit from integration; many will continue to log on out of necessity or preference. I'm happy to say that throughout 2021 we will onboard these clients to a fully revamped experience. Our beta client has successfully transitioned to our new site, which we will continue to unify through workflows and connectivity between trades, positions, agent notices, reference data and more. This is an exciting milestone for such a heavily used system and one I am immensely proud of, as is my team. We look forward to more of our clients adopting this functionality over the next year.
Risk management for a global network
As in other areas of financial services, one impact of the pandemic has been that clients have very quickly increased their adoption of risk management tools. As staff went home by the thousands in early spring, banks found themselves in difficult situations. Nothing focuses the mind like doing a callback to a mobile number for a six-figure payment. One of our clients received such callbacks while on a beach vacation!
The need to access verified payment instructions became even more urgent in this new normal. ADFlow, our solution to the problem of administrative details forms that are manually maintained in multiple systems, has gained increased traction as a result. We put our clients in control of their own data, and permission it to relevant parties through our site as well as electronic messages. This means that agents and trade counterparties can now review, track and verify this data and its provenance according to each institution's standards. Verifying payment instructions in an era in which staff members are distributed and have no physical supervision is more important than ever. I am pleased to say we have quadrupled the number of trade accounts we have onboarded in the past year and the figure continues to grow.
The year ahead
What else is in store for next year? Greater transparency, insights and more. Trade proceeds data will at once increase in complexity (yes, the inevitable advent of risk-free-rates) and be easier to consume, as we enrich our XML messages and find ways to display data more seamlessly on our site (join our exclusive ClearPar client webinar on 21 January to learn more about the impact of LIBOR cessation on trade settlement). Lender-of-record (aka position) data will continue to be enriched by additional agents joining our SOC 1-certified Loan Reconciliation portal, already in use by 9 of the top 10 global banks. We will also see increased connectivity and workflows between position, servicing, trade, affiliation, administrative and reference data. Many of these connection points are already leading to efficiencies for our clients across managed and hosted WSO initiatives.
It's not news that we need to continue to reduce friction and fragmentation in our industry, given the myriad, disparate (sometimes ageing) systems that consume and process data on behalf of market participants, as well as the seemingly unending variety of workflows that banks, buysides and their providers follow to close just one trade! However, the good news is that there is also substantial connectivity to be leveraged and real-time data flowing seamlessly. We look forward to working with you throughout 2021 to help you embrace the innovations that are available in our industry today!
Finally, before signing off and wishing you and your loved ones a happy and peaceful holiday season, I want to highlight some exciting developments from across the wider Financial Services division at IHS Markit:
- Adoption of managed services has driven record growth for our WSO team, which now supports loan portfolio administration for clients with a combined AUM of $500 billion.
- Our KYC Services team has been helping clients adapt to remote due diligence processes. You can learn more about this in their latest blog post: 3 Trends Helping KYC Due Diligence Adapt To A Changing World, 2020
- And as firms continue to prepare for the transition from LIBOR, you may be interested to learn more about our LIBOR Replacement Data (LiRD),which provides actionable data regarding fallback provisions on over 12 thousand facilities, and our Risk-Free Rates Calculator, which has become an important part of our clients' toolkits.
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
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