Afternoon,
Thoughts on premiums and discounts
There has been a lot of discussion on the forum recently regarding premiums and discounts. Lender's opinions appear to be polarised on this issue with some advocating the introduction of premiums and discounts and others preferring the current system of 'at par' sales.
While we have considered all the points raised in private messages/ emails and on this forum, we have decided we will not be introducing premiums and discounts for the time being.
That position is based on the following:
- We believe in keeping things simple as far as possible. Introducing premiums and discounts adds a layer of complexity and particularly regarding tax and the introduction of the IFISA.
- The regulation around secondary markets is changing with the implementation of the Markets in Financial Instruments Directive II (MiFiD II) in January 2018. At present, our secondary market is basically a bulletin board where lenders can offer loan parts for sale and we do not play a role in the transaction. Any changes to allow premiums and discounts could be seen as offering a multilateral trading facility under MiFiD II, which would have far reaching regulatory and capital implications for us as a firm. We plan to wait for guidance from the FCA on the new MIFID II rules to be published and we can then make an informed assessment of the impact of these rules on a premium/discount market.
- There is no clear, overriding customer demand at present. Lenders are polarised in their views and as such there is no clear advantage at this time.
We are not discounting (pardon the pun), the option entirely and forever. We thought some input from us is timely. We very much value the input given by lenders and we will continue respond to lender demand as we grow.
As a related point, we do not see secondary market availability as a necessarily negative factor. Lenders place loan parts for sale for a wide variety of reasons and it is not necessarily a result of general lack of confidence in us as a platform or a loan in particular. We recently saw high availability (as a result of the recent cashback offer and other events). It has now reduced back to more typical levels.
Kind regards,
Ed