Challenging the Timeline Issue No. 3  

 By Paul Taylor, Head of Operations, Loan Market Association  

Welcome to the third edition of Challenging the Timeline – the LMA newsletter dedicated to primary and secondary operations. A heartfelt thank you for your continued feedback and support, which has been invaluable in shaping this publication. Our community has grown significantly since the first edition which demonstrates the shared drive across the market to enhance efficiency, liquidity, and transparency in our loan markets. Onwards and upwards!

In this edition, we’ll cover:

1. Secondary settlement times and recent trends.
2. Efficiency wins and challenges in the lifecycle of a trade.
3. Reflections on 2024 and plans for 2025.
4. Your thoughts: Where do you see the settlement times?

Let’s dive in!

A Quick Look at Secondary Settlement Times

Let’s start with numbers. At the core of this newsletter is to look at the lifecycle of a transaction, promoting efficiency and determining what good looks like. So, seems like a good place to start. However before we get into this lets spend a moment to look at how Par / Near par Secondary settlement times have been doing (a reminder Par / distressed and historical settlement times can be found on the LMA website.

A Rollercoaster Journey Since COVID-19

As you may have witnessed, secondary settlement times for par/near-par have had their ups and downs, particularly since COVID-19 disrupted markets. Encouragingly, Q2 2024 marked a major milestone, with settlement times returning to pre-COVID levels—historically, only one quarters has been better in terms of the median (25.1 Q1 2017), and Q2 posted the best-ever average since the LMA started to collate this data at the start of 2015.   This achievement is even more impressive considering that transaction volumes have increased by over 275% when comparing Q1 2017 to Q1 2024.  

So, it was slightly disappointing to see the reversal of the positive trend in Q3 as the market was well on its way to beat all records and continue to be on target for the anticipated 25% reduction in settlement times. That was until I started to look at this a bit deeper and I realised there’s more to the story:

i) Q3 statistically is the worst performing quarter

ii) Despite the dip, Q3 2024 settlement times are still well below those seen in 2023.

iii) A strong suggestion that in Q3 a lot of the aged trades have been addressed which somewhat skewed the average.

With this context, I’m optimistic that Q4 will see us back on track and provide great foundations to reduce settlement times further in 2025

Technology is a key player in the journey. One thing that really stands out to me is how far we’ve come in leveraging technology. Transaction volumes have been rising steadily year-on-year since 2016, and 2024 is no different. Without technology driving efficiency and scalability, I doubt we’d have been able to manage the increasing demands on the market as effectively as we have.

From more reliable systems to streamlined processes, technology has undoubtedly played a vital role in keeping things moving.

Breaking Down the Lifecycle of a Trade

There has been a lot of talk, meetings around how to improve efficiency and reduce settlement times, a theme that was front and centre at the Operations Conference in June 2024. This year, I’ve seen encouraging progress as firms take steps to evaluate and improve their processes, challenge inefficiencies, and educate teams on what "good" looks like. During our last Agency Working Group meeting, there was a general sense that some—though, unfortunately, not all—market participants have embraced this approach. Agents have noted improvements in the standard of documentation provided, contributing to nearly two days saved for agent banks. Lenders, too, appear to be getting documents to agents faster, building momentum toward better overall practices.

Fundamental to all of this is breaking down the key states of a trade lifecycle:  

Firms need to be continuously breaking this down and asking themselves “can I/ where can I do better?”

2024 Reflections and 2025 Goals

2024 was focused on driving engagement and creating a shared purpose to reduce settlement times and introduce best practices. We've made significant strides in addressing historical challenges, particularly with the introduction of fault-based primary delayed compensation (published in April). However, we know there's more work to do to ensure broader market adoption, and we are committed to ongoing improvements. The guidance document is a good start point and provides a solid platform to push on from and we look forward to what can be achieved in 2025. 

As we have seen above metrics are in as good a position as they have been historically. But it’s not the time to ease of as more can be and should be done as we turn the verbalisation into action points for 2025 where self-mediation has not had the desired impact.

The LMA is now focusing on “Secondary Fault-Based Delayed Compensation.” Together with a group of market experts, we’re examining its feasibility and design, with a view to taking it to the broader membership group in 2025. The goal is to ensure settlements are only delayed for technical reasons. If a counterparty chooses not to settle when they could, they should be the first to fail, and if you're the buyer, you could risk surrendering delayed compensation.

Looking ahead to 2025, the LMA and the market need to capitalise on the strong foundations built in 2024. We're also working to achieve longer-term objectives with our members, including:

These are just a few key areas we’ll focus on in 2025. As always, new challenges and objectives will emerge from ongoing discussions and member engagement.

On a personal note, a big thank you to those who’ve contributed their time, views, and expertise throughout 2024. Strong partnerships between loan closing, loan agents, loan settlements, and administration are vital to driving the market forward. Along with our technology partners, the loan market is lucky to have such talented individuals.

Where do you see settlement times in 2025? What do you think is needed to make a sustainable difference? Take a moment to share your thoughts with me at paul.taylor@lma.eu.com

Thank you,

Paul

Head of Operations