Information services company Markit has launched a new loan index and has acquired Storm Networks, which operates a syndicated loan operations platform for the settlement of par and distressed loan trades in the U.S.
These two moves could be significant for the loan market because the index, which is the first loan index to use up-to-date data in its calculations, according to Markit, could make the loan market more transparent, while the Storm acquisition could help reduce settlement times.
The Storm acquisition comes only a few months after Markit acquired ACBS ClearPar, another syndicated loan operations platform, from Fidelity National Information Services. “We have invested significantly in our loans business, and the combined acquisitions of Storm and ClearPar allow us to support existing trade processing infrastructure while transitioning the market to an electronic settlement model,” Armins Rusis, global co-head of fixed income at Markit, said in a statement.
With the Storm and ClearPar acquisitions, Markit has cornered the operations platform market. This could be a positive for the loan market because it could help streamline pricing and settlement information. The latter is something that has plagued the loan market for quite some time. Right now, it takes almost three weeks for a loan to settle, which has hindered new investors from entering the loan market, sources say. Markit hopes it can bring settlement times down to seven days.
“The biggest hindrance to getting people into loan market is settlement times, so if there is a way to reduce settlement times it is positive for the loan market,” said a New York-based banker. “It could help attract new entrants and make it more like the high yield bond market.”
However, not everyone is convinced Markit’s acquisitions will help. “I’m also not holding my breath for the settlement times to be reduced,” said a New York-based investor. “The market would like to be more ‘open,’ but the same old hurdles are in place, the fickle self-interested agent banks.”
Market participants had mixed feelings about the new index too. “Depending on how broad the new index is, meaning how many names are on there, I do see [the index] as a positive thing,” the New York-based investor said.
A bank loan trader countered, “I do not think [the index] will have an impact. It is only as good as the data, and that is spotty.”
The index, named the Markit iBoxx U.S. Leveraged Loan Index, is designed to be used as a benchmark for investors with cash loan portfolios. The index, “provides asset managers with a benchmarking tool that will enhance their performance management capabilities,” Rusis said.
The index consists of approximately 800 loans from more than 700 issuers. Markit has various requirements for loans on the index, including minimum size requirements, liquidity measures and weighting caps at the issuer, facility and sector level. This index, Markit says, will serve as the basis for other products during 2010, including European leveraged loan indices, customized leveraged loan indices and performance attribution and analytics products.