Just received an email regarding exciting changes to the secondary market to make it more fluid, so loan parts starts selling. If anyone else received the e-mail can they translate it into English for me?
I assume the easiest wat to free up the SM would be to do away with the £25 seller fee.
My thoughts exactly. I read it, read it again, and then .....
Half the problem is in their terminology and trying to put that in the context of the complexity of the secondary market (if feels to me that everything works in reverse to the way my brain does). "Reduce the starting price or raise the maximum bid rate". These are the same thing, right ? Maybe.... deep think...yes it is i.e. reduce the max price which a seller can ask for. Or is it ?
The second part is to introduce a market maker to help drive the prices down (but not below par). Isn't that contra to the above ? Well clearly they wouldn't have done that, so my interpretation above is clearly wrong.
So I'm no longer sure whether they are trying to attract more buyers into the SM to soak up parts, or reduce the number of auctions which complete at a rate/price which is unacceptable to the seller and therefore don't go through, or whatever....
I have to assume they are trying to tackle the 'right problem' but arguable with completely the wrong set of tools: or rather tools that tinker rather than address underlying problems. I barely ever use the SM., so my view of 'underlying problems' may be an uncommon one: or alternatively the fact that I don't use the SM puts me in the majority and therefore my view of the underlying problems which puts me off is the common one.
so for what its worth from my perspective I see the core problems as:
1. The complexity of the terminology and bidding process (see above)
2. The fact that accrued interest goes to the buyer (from the point of listing? Don't think so: I think its 'from the point of last payment received)
3. The fees.
4. Oh, and not to mention: insufficient new lenders. Existing lenders are unlikely to buy on the SM stuff which they either already have their max level of exposure to, or loans they have previously rejected.
Points 1 and 2 make it extremely difficult for a simpleton like me to understand value and fair price, and therefore put me off. Point 3: based on an SM where there is a glut of parts not selling, the fees are not preventing listing, but they are preventing buyer and seller achieving a mutually acceptable price. Ah, this is perhaps where the market maker comes in, to take up slack where there are insufficient buyers. But why would a market maker want to pick up stuff at lower return than they could ?
Surely they need to address the core problems, not play with max price/bid rates and market makers:
1. Make the process more transparent/intuitive (everyone else uses markups/markdowns: not inverse of the Primary Market auctions)
2. Sort out the accrued interest issue so that value is more transparent
3. Cut the fees dramatically: not to encourage parts on (which it will) but make it easier for buyer/seller to achieve mutually acceptable price.
4. Get new lenders in who won't have exposure to the existing loan book.
Of course 1 requires IT and systems change. 2 & 3 requires systems changes and much more automation so that lower fees can be charge without an unacceptable overhead cost to the platform. And 4 requires...marketing and other stuff EDIT: Or a market maker.
