Ai technology for the loan market.
June 27, 2024
Ai technology for the loan market.
June 27, 2024

White Paper on Loan Settlement

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Longer settlement times are coming in 2025

We could have called this article “Ground hog day” or “Winter is coming”. The reality the future for loan settlement is looking pretty bleak. Nothing happens without change.

As the Loan Market Association (LMA) notes in it’s Challenging the Timeline article settlement times have come down in the past year but it’s from a high of 64+ days in 2021 and quite honestly moving from 60 to 40 days isn’t much to brag about.

The simple fact is that the only way these times have been lowered is because loan primary markets were shut for the best part of 12 months following the Russian invasion of Ukraine so there was nothing but backlog to deal with! Today we are still seeing a market hindered by a long tail of delayed trades, with 35% still settling after 51 days.

Record CLO issuance is a settlement nightmare

In 2024, Collateralized Loan Obligation (CLO) issuance reached record highs in both the EU and US markets. Historically, such surges have driven significant inefficiencies, with settlement times increasing by 50% during past issuance peaks. Given very little new infrastructure has been adopted by the large agent banks in Europe there is no reason to believe that anything other than a massive spike in loan settlement times is coming.

The Challenge: Inefficiencies in Loan Settlements

Market Trends

The leveraged loan market relies heavily on efficient operations for both primary and secondary settlements. Surging CLO issuance in 2024 has exacerbated settlement inefficiencies. While the LMA and Loan Syndications and Trading Association (LSTA) have set a goal of reducing settlement times to T+25 days, systemic inefficiencies persist due to:

  • Fragmented Processes: Loan settlement and accounting functions are often siloed, making coordination difficult.
  • Inadequate Technology: Limited adoption of advanced digital tools results in manual, time-consuming workflows.
  • KYC Gaps: Late-stage KYC checks often disrupt the settlement timeline.

The Cost of Delays

Settlement inefficiencies are not just operational headaches; they have real financial impacts. Delayed settlements increase risk, strain liquidity, and tie up valuable resources. For a market that sees billions in daily trading volumes, the inefficiencies translate to significant costs for all participants.

The LedgerComm Solution

LedgerComm introduces a groundbreaking, fully integrated loan settlement and accounting system that addresses the root causes of delays. By embedding Know Your Customer (KYC) verification into the earliest stages of the loan settlement process, LedgerComm ensures that all participants—buyers, sellers, and agents—are pre-verified. This approach drives down settlement times, improves efficiency, and facilitates compliance in an increasingly complex market landscape.

LedgerComm’s integrated platform transforms the loan settlement process by addressing its critical pain points:

1. Integration of Loan Settlement and Accounting

LedgerComm’s system uniquely integrates loan settlement and accounting into a single platform. This means loan ownership can be checked pre trade in a zero trust environment and guaranteed delivery is finally possible.

2. Early-Stage KYC Integration

The platform embeds KYC verification at the start of the settlement process. LedgerComm ensures that buyers, sellers, and agents have completed all necessary KYC checks on trading risks before the settlement process begins. This proactive approach:

  • Prevents delays caused by late-stage compliance checks.
  • Reduces the risk of trade cancellations or rework.
  • Enhances trust and transparency among participants.

3. Automated Compliance and Risk Management

By leveraging advanced technology, including machine learning and automation, LedgerComm’s platform automatically verifies compliance with legal and regulatory requirements. This reduces human error and frees up resources for higher-value activities.

4. Scalability for Market Demands

LedgerComm’s architecture is designed to handle the growing volume and complexity of the loan market. Whether for primary or secondary trades, the platform provides robust solutions that scale with market needs.

Industry Alignment: LedgerComm and LMA Goals

The LMA’s “Challenging the Timeline” initiative aims to reduce settlement times to T+25 through a combination of technological and behavioral changes. LedgerComm is uniquely positioned to support this vision by:

  • Reducing Settlement Times: Early KYC integration and process automation align directly with the LMA’s focus on efficiency.
  • Enabling T+0 Use Cases: LedgerComm’s end-to-end digital journey has resulted in the execution to T+0 loan trades on our platform, proving it can be done with new infrastructure.
  • Driving Behavioral Change: By simplifying workflows and reducing friction points, LedgerComm encourages adoption of best practices across the market.

A Vision for the Future

LedgerComm is not just a solution for today’s challenges but a partner in shaping the future of the loan market. By addressing both technological and operational gaps, the platform sets the stage for a truly digital, efficient, and resilient market. With its ability to integrate settlement and accounting processes and embed KYC early, LedgerComm accelerates the journey toward T+25 and beyond.

Call to Action

As CLO issuance and trading volumes continue to grow, the market must act decisively to overcome settlement inefficiencies. LedgerComm invites market participants to join the transformation. Together, we can achieve faster settlements, better compliance, and a stronger, more competitive loan market.

Here’s Bill Murray to get you in the mood…….

For more information or to schedule a demonstration, visit www.ledgercomm.io or contact us at wn@ledgercomm.com.