Fintech backed by Citi, BofA takes on ‘obsolete’ 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 platform in a move to revamp a decades-old process in the credit market.

Earlier this month, the company completed its first fully electronic syndicated loans, offering data and analytics, execution and booking with direct processing on a single online 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 we decided to do this now is because there’s been so much growth over the last 10 years,” said Octaura CEO Brian Bejile, who previously spent nearly two decades trading loans at Citigroup. “The syndicated loan market has more than doubled. But the processes, the systems that carry out transactions in these markets are still the same. It’s just like it was 20 years ago. The infrastructure is no longer fit for purpose. If you really want to take that 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 could be an hour-long game of phone tag into a 15-minute auction in one place by putting the sell-side and buy-side on Octaura. He added that the company also offers direct processing so that sellers and buyers do not have to manually book trades.

Syndicated loan trading involves a series of e-mails and phone calls across institutions: Investors call agents with bids, agents contact traders about the bids, traders call agents back with counter offers, and agents call investors back. The line of communication is “notoriously manual,” said Chris Pruszko, a vice president of product management at Deloitte, which also offers collateralized loan (CLO) management and analysis.

Rebecca Willey, a fixed-income trader at T. Rowe Price Associates, said traders should be able to focus on making money for clients, rather than expending energy on outdated communications. She added that smaller trades, such as those between $500,000 and $3 million, can take a lot of time due to inefficiencies in the process and technology.

“The leveraged loan market is a very outdated asset class,” Willey said. “It’s been a long time coming. It’s going to free up traders’ time, it’s going to make them more efficient, it’s going to make the sell-side more efficient. It’s just going to give everybody an opportunity to move at a faster 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 trade this month. Other buy-side investors participating in the initial trades included funds advised by Invesco; Lord, Abbett and Co.; Investcorp Credit Management and Steele Creek.

Octaura isn’t the only company trying to streamline a clunky process. MarketAxess, a company familiar to Wall Street, offers a leveraged lending platform, and Kopentech, a newer entrant, has begun offering CLO trading and refinancing in recent years. Willey said it is important to have more options to improve leveraged loan trading technology.

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

Bejile said he believes onboarding and training market participants will be the biggest challenge for the company, but that having the liquidity and backing of seven major banks, plus 20 to 30 additional likely sell-side participants, will give Octaura a strong market share. Deloitte’s Pruszko said that innovating the industry requires a lot of buy-in from market participants. Projects like these have started to gain momentum, he said, but still have a way 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 led CLO trading at Citi at the time. Its mission was to find a better alternative for syndicated loans. The solution drew 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 with 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.