June 22, 2021 | Stamford, CT — The sudden switch to digital workflows caused by the global COVID-19 pandemic could bring electronic trading to one of the last holdouts in financial markets: syndicated loans.

Past attempts to inject technology into syndicated loan trading have largely failed. By most accounts, today’s loan market resembles the corporate bond market 20 years ago. Only one multi-dealer platform run by MarketAxess and one single dealer platform offered by Bank of America exist to facilitate electronic loan trading, which Coalition Greenwich estimates accounts for only 1-2% of total secondary market activity on a notional basis.

However, the technology surge triggered by work-from-home requirements last year could bring long-awaited change. 

“Based on our research and conversations with loan market participants, we believe the willingness to transform this market exists and the technology needed to improve the end-to-end workflow is ready for prime time,” says Kevin McPartland, Head of Research in the Coalition Greenwich Market Structure and Technology group and author of Syndicated Loan Markets Poised for Technology Adoption.

The past 18 months have created an e-trading tailwind for a large portion of the fixed-income market, with traders and investors accepting the benefits of more technology as they worked from home. U.S. high-yield corporate bond markets, for example, saw e-trading volumes jump 50% from the beginning of 2020 through the end of the year. 

Markets do not, of course, become electronic overnight. Even with the right technology and market participant willingness, such behavioral change takes time. Loans markets bring their own set of market structure complexities that require solutions not found in other fixed-income markets—incentives to trade with the loan agent, two-week settlement times and a lack of consistent market data. All-to-all trading for corporate bonds took nearly 10 years as market participants wrapped their head around the idea and the technology improved. Today, it is growing rapidly. 

“Ultimately a bank still needs to intermediate every syndicated loan trade, but why not let investors, and even dealers, find one another in an anonymous pool?” asks Kevin McPartland.