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Blockchain stands to disrupt syndicated loans

Eric Turner is afinancial technology research analyst with S&P Global Market Intelligence.Share your thoughts at eric.turner@spglobal.com.

The technology underpinning syndicated loan trading is aboutto see big changes.

Credit SuisseGroup AG on Sept. 27 announced a partnership with Synaps Loans andfellow R3 consortium members to complete a proof-of-concept using distributedledger technology in the syndicated loan space. Synaps Loans is a recentlycreated joint venture between financial services technology company Ipreo andblockchain-focused Symbiont.

While many parts of the financial system are becoming moreautomated, the leveraged loan business still relies on faxes and manual datainput. At a recent conference in New York, members of the new partnership werejoined by other panelists to discuss the need for new technology and itsimplications.

Paul Woods, a senior vice president at State Street GlobalServices, said this manual entry is done by "folks that have a reasonablelevel of experience, expensive folks." He estimated that 25 million faxesand emails each year are exchanged between participants in the space for"basic record keeping functions."

Joseph Salerno, managing director at Ipreo and CEO of SynapsLoans, put it bluntly to the audience, saying "the market is absolutelyconstrained by the technology we have."

From the perspective of a large custodian like State Street,Woods sees the opportunity to "eliminate the disparate IT infrastructure,eliminate the disparate distribution of information, and then eliminate orsubstantially reduce all the manual tasks. What that will result in, in ourview, is a substantial reduction in the cost of performing operational functionsin the loan space."

Emmanuel Aidoo, who is a director and blockchain specialistat Credit Suisse, noted that faster settlement times were a significantmotivator in the proof-of-concept project.

Settlement times in the industry currently average around 22days, a number many are pushing to move toward six. Some panel members evendiscussed a move toward settlement on the third day after a trade, similar tothe current standard for many other asset classes.

Aidoo also pointed out that faster settlement times couldbring more entrants into the market. In an industry that has seen a recentslump in new issuance, this is surely welcome news.