james
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Post by james on Dec 8, 2014 17:51:12 GMT
A P2x platform has today announced that it plans to change the value of existing investments on its secondary market in a few months. Do you have any tips on the best FCA contact within the P2x team to refer this to or the best way to complain to the FCA?
For reasons that I trust are obvious, I think it's a gross breach of a platform's treating customers fairly obligations to change the value of existing investments.
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bugs4me
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Post by bugs4me on Dec 8, 2014 17:59:26 GMT
A P2x platform has today announced that it plans to change the value of existing investments on its secondary market in a few months. Do you have any tips on the best FCA contact within the P2x team to refer this to or the best way to complain to the FCA? For reasons that I trust are obvious, I think it's a gross breach of a platform's treating customers fairly obligations to change the value of existing investments. Care to name names or be more specific about what the changes will be. I assume they will be detrimental to lenders/investors?
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Post by batchoy on Dec 8, 2014 18:30:03 GMT
I'm guessing james is referring to the changes announced in today's Bondora newsletter My emboldening |
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Post by marek63 on Dec 8, 2014 19:00:15 GMT
I would guess they would argue this improves overall investor protection since currently a number of people try to 'flip' loans at un-realistic prices which may have led to different complaints. If the system does the pricing it is perhaps 'fairer'. If you believe the investment is good then you can continue to hold it. If you want liquidity then you have to take the system pricing. Trying to force a platform into a particular form of liquidity and price on a SM in a P2P environment would constrain development and experimentation. This is P2P not consumer banking. They are not treating one customer differently from another, or doing something that purely benefits themselves, just testing how different SM models work should people choose to sell early. But this is all just hypotheses.
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james
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Post by james on Dec 8, 2014 22:02:17 GMT
Care to name names or be more specific about what the changes will be. I assume they will be detrimental to lenders/investors? Whether it is an increase or decrease for each individual loan will depend on how the market prices that loan today and what the imposed price for that loan is. For each investor the change in value of their investments will depend on their particular mixture of loans. I would guess they would argue this improves overall investor protection since currently a number of people try to 'flip' loans at un-realistic prices which may have led to different complaints. If the system does the pricing it is perhaps 'fairer'. A provider has to be fair to each individual investor, as well as to investors collectively. In this situation I'd expect at a minimum that the platform would be required to pay redress based on decreased value if an investment is sold after the change for a lower value than would be likely to be achieved today. A platform should not expect to be able to take money from investors A, B and C making them poorer to make investors E through K richer. That's assuming it's a zero sum change, it may not be and the change might result in a net gain or net loss for the whole universe of existing investments. It's been announced that new loan pricing is to become less favourable to higher risk loans with an expected reduction in the proportion of them. Which would initially imply some reduction in pricing for such loans. However, there seems to be some reluctance to pay prices for loans on the secondary market that reflect what I think their typical their net present value is, so it's possible that the resale price of unimpaired loans may increase overall. Whether that will result in liquidity vanishing as sellers go away or an increase in resale value is something I don't know. For impaired loans, even with slightly late payments, I assume that the price will drop, but no way to know because the pricing formulas are secret. Reducing flipping activity was not a reason given for the change. If you want liquidity then you have to take the system pricing. For investments issued and resold under the new system that would be fine, at least if the pricing calculations were disclosed so people could properly know what they were getting. The new investments would have been acquired based on the new pricing model so there would be no change in their value. Trying to force a platform into a particular form of liquidity and price on a SM in a P2P environment would constrain development and experimentation. I don't think it's acceptable for a platform to go and change the value of existing investments when they want to change a pricing model. No problem at all to do it for future investments, though. This is P2P not consumer banking. That's amusing. The justification for these changes is to switch to a traditional bank pricing model for new investments then later for resale. The platform has also announced that it is to partner with a retail bank which will originate the loans, rather than it being P2P, though the dates and detailed plans for this have not been announced. Markets are useful things but one thing a market provider does not normally get to do without a lot of trouble is tell investors that at the stroke of a pen they have just had the value of all of their investments changed to what the market operator thinks they should be. My guess is that assuming pricing is based on accurately calculated net present values in a bond-like pricing model the value of my own investment mixture will increase overall. While that of those who took more risk will decrease overall.
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Post by batchoy on Dec 8, 2014 23:04:40 GMT
There is also the issue of a conflict of interests with Bondora setting the SM pricing. Given that they charge fees and thus make profits on SM transactions will they be setting the SM pricing to truly reflect the value of the loans and thus protect(?) lenders or will they be skewing the value to generate liquidity thus generating greater funds for themselves.
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Post by davee39 on Dec 9, 2014 10:23:47 GMT
I do hope you do not expect UK taxpayers to be fighting your corner on this.
If you invest in the Wild West you should expect Bandits.
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Post by batchoy on Dec 9, 2014 11:17:06 GMT
I do hope you do not expect UK taxpayers to be fighting your corner on this. If you invest in the Wild West you should expect Bandits. Why not? Despite being based in Estonia, Bondora have chosen to be authorised and regulated by the FCA, therefore as lenders we have recourse to the FCA if we believe Bondora are breaching the FCAs regulations.
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Post by easteregg on Dec 9, 2014 12:39:20 GMT
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james
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Post by james on Dec 9, 2014 21:36:34 GMT
There is also the issue of a conflict of interests with Bondora setting the SM pricing. Given that they charge fees and thus make profits on SM transactions will they be setting the SM pricing to truly reflect the value of the loans and thus protect(?) lenders or will they be skewing the value to generate liquidity thus generating greater funds for themselves. I agree that this risk exists. Personally I expect that the price achieved for loans that are not in any way impaired will increase to a premium higher than the highest currently permitted premium. Assuming a true net present value is used, adjusted for the various risks including early repayment risk. However, sales activity is mostly for impaired loans and I expect prices there to drop, hence reducing the value of the loans where it's relevant. I do hope you do not expect UK taxpayers to be fighting your corner on this. If you invest in the Wild West you should expect Bandits. I expect the FCA to act to ensure that its rules and regulations are followed. FCA-regulated P2x is not supposed to be the Wild West. In particular, I do not believe that investors should expect to have the values of their existing investments arbitrarily changed by any P2x platform.
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pikestaff
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Post by pikestaff on Dec 10, 2014 17:01:17 GMT
james Value and market price are two different things. The intrinsic value is not being changed, but I take your point. It's an interesting one, though. FC changing minimum bid rates for new loans, with an immediate knock-on effect on liquidity and market prices for old loans, is (almost certainly) OK, but acting directly to change how the SM works may not be... To batchoy's conflict of interest point, I think that if Bondora were to set prices to maximise liquidity that would almost certainly be seen by the FCA as a good thing, even if it did have the side-effect (purely accidental  ) of maximising their fees!
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james
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Post by james on Dec 11, 2014 14:41:17 GMT
james Value and market price are two different things. The intrinsic value is not being changed, but I take your point. I don't agree that the intrinsic value is not changing. At least for me that value includes both the income stream until it becomes impaired then the sale price after it becomes impaired. Changing the sale price has a pretty significant effect even if the interest rate and term didn't change. Beyond just fixing the price the description of the creditworthiness of the borrower is also being changed, as are the estimated recovery levels. This is pretty much like a normal bond. Priced into it is the potential for default and the anticipated sale price after whatever adverse things happen. At least I hope bond buyers allow for this and would be very annoyed if a market provider told them that they were going to reprice impaired bonds using a lower than historic recovery rate and that for a different country from the real country and you have to just accept the resulting loss in value. Loans previously (and with concurrent running still today) described as the best out there are now being variously described as having at least three different credit grades, with each having a different issue price. It's an interesting one, though. FC changing minimum bid rates for new loans, with an immediate knock-on effect on liquidity and market prices for old loans, is (almost certainly) OK, but acting directly to change how the SM works may not be... Assuming it's solely related to market competition that seems OK. It's a different story if loans already made that used to be described as A creditworthiness are now described as C and priced as C. To batchoy's conflict of interest point, I think that if Bondora were to set prices to maximise liquidity that would almost certainly be seen by the FCA as a good thing, even if it did have the side-effect (purely accidental ) of maximising their fees! I'd say it depends how it's done. If it's done by forcibly changing selling prices of already made loans lower by changing their credit grades even with no change in the borrower's details I'd say it's not acceptable. Same if as appears may be the case it's partly done by treating loans to one set of borrowers as having the recovery rate of a much more risky set of borrowers. But something like changing the minimum quantity sold to a lower value so loans can be split would be entirely fine.
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Post by batchoy on Dec 11, 2014 16:08:22 GMT
Looking at the revamped site there are some real anomalies on the credit ratings on the PM:
Finland: Income Verified Old Rating: A1000 New Rating: E 31%
Finland: Fully Verified Old Rating: A1000 New Rating: F 19%
Finland: Unverified Old Rating: A1000 New Rating: HR 34%
Finland: Unverified Old Rating: A1000 New Rating: B 34%
Estonia: Fully Verified Old Rating: A1000 New Rating: C 15%
Spain: Fully Verified Old Rating: A1000 New Rating: E 26%
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Post by wiseclerk on Dec 11, 2014 16:22:37 GMT
Looking at the revamped site there are some real anomalies on the credit ratings on the PM: Finland: Income Verified Old Rating: A1000 New Rating: E 31% Finland: Fully Verified Old Rating: A1000 New Rating: F 19% Finland: Unverified Old Rating: A1000 New Rating: HR 34%
Estonia: Fully Verified Old Rating: A1000 New Rating: C 15%
Spain: Fully Verified Old Rating: A1000 New Rating: E 26%
What "anomalies"? The interest rates are from the "old system" before new credit scores started. Interest rates for new listings assessed under the new score will be priced different the newsletter says. The old 1000 rating, only means that there were no negative entries in the credit history (meaning their could have been no entries at all). I manually clicked through some of the loans rated B or C under the new score yesterday evening and found that many of them have high income, long work experience with some of them previous Bondora loans. That is not to say that the switch to new credit system is not confusing everybody the way it is done on live site.
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sl75
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Post by sl75 on Dec 11, 2014 21:33:00 GMT
Whilst I'm not familiar with the particular P2P site in question, surely no P2P site will guarantee a sale at any particular price.
There's also a precedent - Zopa have repriced the secondary market for some loans - those below an arbitrary rate that they set have to be sold at an effective discount, including many loans which would previously have been able to have been sold at par value.
Other markets such as FC's secondary market allow the market itself to set the price.
It would appear from your description that you've even had advance notice of the change in pricing, so have ample opportunity to sell off at the current price before the price changes if you don't like it... or have I misunderstood?
A system where "old" loans are sold at a completely different price to "new" ones of otherwise identical risk seems to me more likely to cause "unfairness" issues (in particular for the buyers) than imposing a consistent pricing structure across all loans.
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) of maximising their fees!