Fintech backed by Citi, BofA takes on 'antiquated' syndicated loan trading

Octaura, an electronic trading and data platform backed by seven global banks, is rolling out a beta version of its syndicated loan trading venue in a move to revamp a decades-old process in the credit market.

Earlier this month, the company completed its first fully electronic syndicated loan trades, offering data and analytics, execution and booking with straight-through processing on a single web-based portal. 

The syndicated loan market has grown to more than $1 trillion, but the process for these deals is notoriously archaic, with some participants still communicating via fax machine. 

"The real reason why we decided to do this now is because there's been so much growth in the last 10 years," said Octaura CEO Brian Bejile, who previously spent nearly two decades in loan trading at Citigroup. "The syndicated loan market has more than doubled. But the processes, the systems which transact in those markets are still the same. It's exactly like it was 20 years ago. The infrastructure is no longer fit for purpose. If you really want to take it to the next step, you have to change the infrastructure." 

Octaura was founded last year after a consortium of global banks combined their syndicated loan trading initiatives and partnered with low-code software developer Genesis Global to build the technology. The banks, led by Citi and Bank of America, included Goldman Sachs, JPMorgan Chase, Morgan Stanley, Credit Suisse Group and Wells Fargo. Moody's Analytics contributed data tools.

Bejile said he wants to condense what can be an hours-long game of phone tag into a 15-minute auction on one venue by putting the sell side and buy side on Octaura. He added that the company also offers straight-through processing so sellers and buyers don't have to manually book trades.

Syndicated loan trading entails a spate of emails and phone calls across institutions: Investors call agents with bids, agents contact traders about the bids, traders call agents back with counteroffers and agents call investors back. The line of communications is "infamous for being manual," said Chris Pruszko, a vice president of product management at Deloitte, which also offers collateralized loan obligation (CLO) administration and analytics.

Rebecca Willey, a fixed income trader at T. Rowe Price Associates, said traders should be able to focus on making money for clients, instead of spending energy on outmoded communication. She added that smaller trades, like those between $500,000 and $3 million, can take a lot of time because of inefficiencies in the process and technology.

"The leveraged loan market is a very antiquated asset class," Willey said. "It's been a long time coming. It'll free up traders' time, it will make them more efficient, it will make the sell-side more efficient. It will just give everyone an opportunity to move at a quicker pace and get things done."

T. Rowe Price is one of the buy-side firms beta testing the Octaura system and was one of 10 investors involved in the company's first trades this month. Other buy-side investors that participated in the initial trades included funds advised by Invesco; Lord, Abbett and Co.; Investcorp Credit Management and Steele Creek.

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Octaura isn't the only company trying to streamline a clunky process. MarketAxess, a company familiar to Wall Street, offers a leveraged loan platform, and Kopentech, a newer player, has begun offering CLO trading and refinancing in the last few years. Willey said having multiple options is important for enhancing leveraged loan trading technology. 

Octaura will launch its syndicated loan trading venue more broadly later this year, after using its beta version to find how to best serve clients, Bejile said. He added the company plans to roll out a CLO venue next.

Bejile said he thinks onboarding and training market participants will be the biggest challenge for the company, but that having liquidity and support from seven major banks, plus 20 to 30 additional likely sell-side participants, will give Octaura a strong market share. Deloitte's Pruszko said innovating the industry takes a lot of buy-in from market participants. Projects like these have begun gaining momentum, he said, but still have a ways to go. Willey said traders are excited about the prospect of more efficient processes.

Octaura began as a joint effort between Citi and Bank of America, overseen by Bejile, who was leading CLO trading at Citi at the time. Its mission was to find a better syndicated loan trading option. The solution took inspiration from Citi's Velocity eBidding platform and Bank of America's Instinct Loan Match Platform. The initiative became Project Octopus several years ago and, last year, Octaura. 

Other banks have worked on different technologies to innovate syndicated loan trading. In 2018, BBVA completed a $150-million syndicated loan on a distributed ledger, which the bank called the first of its kind. BBVA used its own distributed-ledger technology to handle the loan agreement, between borrower Red Electrica and two other participants, BNP Paribas and MUFG.