Markit and Euroclear Team Up to Automate Loans Processing
December 19, 2011
Valuations and swaps processing giant Markit and international securities depository Euroclear Bank have teamed up to offer Euroclear’s members collateral management, settlement and other post-trade processing services for syndicated loans next year .
Corporations hire agent banks to record the terms of the loan and keep track of the transfer of the loan between counterparties in the secondary market. Syndicated loans represent loans made by lenders – typically banks and fund manager lenders – to cash strapped corporations or borrowers.
“Our shared goals are to help the market grow through new solutions such as using loans as collateral, and to reduce risks and inefficiencies by automating trade and cash settlement,” says Joe Widner, managing director and global head of loan processing and portfolio management at Markit.
Buyers and sellers have historically communicated with each other and agent banks through faxes and emails while matching the terms of their trades through physical documents. Such a process can lead to settlement delays and errors.
The new partnership with Markit will allow members of Euroclear Bank to use syndicated loans as collateral in their financing transactions – including triparty repurchase agreements. Using the loans as collateral lets banks, broker dealers and central banks to reduce the capital on their books. Markit will value the syndicated loans while Euroclear Bank maintains collateral positions.
Yet another initiative: Markit and Euroclear will jointly offer a delivery versus payment settlement process that will simultaneously transfer cash and loan assets through Euroclear and Markit’s settlement systems. Such a settlement process follows the matching of terms of the transactions which would occur through Markit’s ClearPar platform.
Markit inked a similar agreement with Depository Trust & Clearing Corp which offers a competitive service to Euroclear. DTCC’s Loan/Serv and Euroclear’s LoanReach services allow agent banks and lenders to view and reconcile data on syndicated loans on a daily basis in an electronic fashion.
Markit and Euroclear also plan to improve reconciliation of portfolios in syndicated loans by linking Markit’s loan messaging hub with Euroclear’s event reporting, payment execution and LoanReach platform. The messaging hub automates communications between agent banks and lenders using messages in the Fpml format.
