The Depository Trust & Clearing Corporation (DTCC) announced today that five global banks will support DTCC´s launch of Loan/SERV, a new suite of services that will help automate and streamline the processing of syndicated commercial loans.
The banks, whose representatives will serve on the initial advisory committee for Loan/SERV, include The Bank of New York Mellon, Barclays Capital, Citi, Deutsche Bank and The Royal Bank of Scotland.
"As an agent bank in the syndicated loan market, we know firsthand the future challenges the industry faces in processing and tracking syndicated loans," said Atilla Karasapan, managing director, Citi. "If we intend to grow the market and boost efficiencies at the same time, we need an automated solution. We´re pleased to be consulting with DTCC and the other leading banks on this important initiative."
Syndicated loans are complex structures involving multiple lenders for each borrower, with an agent bank acting as the liaison, transmitting information back and forth among parties. The primary loan transactions can be made in multiple currencies, may include more than one borrower, often consist of a combination of term and revolving loans, and are routinely traded in the secondary market.
"Today, loan processes are essentially manual. For example, information is faxed between market participants," said Tony DeAngelo, vice president, The Bank of New York Mellon. "As a major service provider in the syndicated loan market, we believe Loan/SERV will help streamline loan processing and begin to eliminate potential problems."
"We´re delighted to have these leading financial institutions advising us on Loan/SERV," said Christopher Childs, vice president, DTCC Product Manager for Syndicated Loans. "Their support, expertise and input will be invaluable. We are particularly pleased that the banks reflect both a strong European and U.S. presence.
"Automating and streamlining the processes will help agents, as well as borrowers and lenders, track changes in loans and help ensure that all participants are on the same page," said Childs.
Global syndicated lending reached US$4.5 trillion in 2007, up 13.4% from 2006 and a 32% increase over 2005, according to industry estimates.
"Loan/SERV will be an evolving suite of services that we´ll develop by consulting closely with the industry and the banks," said Michael C. Bodson, executive managing director, Business Management, Strategy & Marketing for DTCC. "In this way, we will be able to plan and develop new services to support the expansion of the syndicated loan market.
"Our goal is to evolve and deliver a broad range of automated and value–added services in this market sector in the same manner as we did with Deriv/SERV in the over–the–counter (OTC) derivatives market," Bodson said.
DTCC´s Loan/SERV platform will start with the introduction of two services in 2008, including a Loan Commitment Position Reconciliation service, which will enable agents to reconcile lender positions on individual loans every day. This is scheduled to launch in the third quarter of 2008. A second service, scheduled for release in the fourth quarter of 2008, will be an automated, secure communication network through which agent banks can transmit standard loan messages to market participants.
The new reconciliation tool to be introduced later this year will enable lenders and agents to detect errors earlier in the process and prior to cash payments occurring.
"Agents and lenders have to update their records each time a loan is traded or loan attributes change," said Childs. "Currently, these changes are updated by agents and lenders independently of each other. With the reconciliation application, agents and lenders will know that changes to loan commitment records are updated correctly."
DTCC´s Loan/SERV messaging tool, scheduled to launch in the fourth quarter of 2008, will use the FpMLTM (Financial products Markup Language) standard. DTCC will leverage existing technology to build a secure network for the syndicated loan market and incorporate the new standard messages to be established by the participating industry members. Messages will either be routed directly to lenders or they can obtain the information by accessing a Web–based message hub.
DTCC´s operating business model is unique because it is a user–owned and user–governed organization that operates on an "at–cost" basis. This means that as it gains economies of scale from volume growth, excess revenues are returned to DTCC members in the form of rebates, discounts and fee reductions. In 2007, DTCC returned $984 million to its customer firms.
Loan/SERV is a service offering of DTCC Solutions LLC, a wholly–owned subsidiary of DTCC.
About DTCC
DTCC, through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage–backed securities, money market instruments and over–the–counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC´s depository provides custody and asset servicing for more than 3.5 million securities issues from the United States and 110 other countries and territories, valued at $40 trillion. In 2007, DTCC settled more than $1.86 quadrillion in securities transactions. DTCC has operating facilities in multiple locations in the United States and overseas.
