The Depository Trust & Clearing Corporation (DTCC) has launched its Loan/SERV Cash on Transfer service, coupled with Markits loan settlement platform, giving the global syndicated loan market its first delivery-versus-payment (DVP) platform for secondary loan trading.
The service is a major advance in reducing settlement risk in the loan market.
Cash on Transfer links the buyer, seller, agent bank, trade processing platform and counterparty accounts, allowing for cash and legal ownership of an asset to move simultaneously on the agreed trade settlement date.
An additional important benefit of Cash on Transfer is that it provides for net funding on all trade-related payments, reducing the total amount of cash moved by all counterparties, says Mathew Keshav Lewis, DTCC vice president of Global Loans Product Management. For example, if a bank is selling ten loans for $100 million and buying 12 loans for $130 million, the net funding would be $30 million, and the bank would make one single payment of $30 million. By paying DTCC one netted figure, rather than multiple counterparties, Cash on Transfer simplifies the settlement process, reduces fees involved with multiple payments, and boosts a companys overall capital efficiency and cash utilization. Given that large lenders may be settling significant trade volume each day, this streamlines the process and represents substantial savings.
The service went live this week after a four-month pilot that included BNY Mellon, Citi, J.P. Morgan, MJX Asset Management and Sankaty Advisors, LLC.
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