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Post by westonkevRS on Jun 12, 2015 19:43:02 GMT
A blog was published today to confirm that on the 24th June 2015 the calculation of the Market Rate and how the Your Rate functions will be changing for the better. Regular forumites will know that I don't like Your Rate because it has the chance of leaving money "stranded" at higher rates than subsequent Market Rates or the Your Rate chosen. It was rare, but it did happen. The code could have been changed to act as a floor, but the simplest option was just to lend at Your Rate with no complicatipn or interaction with the Market Rate. The Market Rate is changing because this was based on lender offers, and not real loans matched. Markets work on real transactions to set prices, not theoretical offers (which could, in theory, be manipulated). Some keen forum lender watchers of the markets always complain when low offers are placed. This change will ensure only real deals influence the Market Rate. Full details are in the blog: www.ratesetter.com/blog/article/the_way_we_calculate_the_market_rate_is_changing" How is the "Market Rate" changing?
From 24th June 2015, it will be calculated as:
The weighted average of all the rates transacted during the previous day between 6am and 10pm.
The purpose of this change is to make the “Market Rate” simpler, based on actual transactions as opposed to quotes. We hope this makes it easy to understand and transparent. In due course, as the RateSetter market becomes even higher volume and even more liquid, it might make sense to tighten the sample period but for now we felt a 24 hour period was sensible. The latest “Market Rate” is always the one published on the RateSetter website.
Change to “Your Rate”
At the same time, “Your Rate” will become exactly that – those lenders who choose to re-invest at “Your Rate” will have their funds put on the market at that rate, with no other change made." @ westonkevRSwww.linkedin.com/profile/view?id=19236219 |
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sl75
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Post by sl75 on Jun 12, 2015 22:21:58 GMT
Change to “Your Rate”
At the same time, “Your Rate” will become exactly that – those lenders who choose to re-invest at “Your Rate” will have their funds put on the market at that rate, with no other change made." From the "reinvestment" page as it stands at present (my emphasis): RateSetter have explicitly agreed with users who selected "your rate" that the order will be submitted at "Market Rate" if this is higher. It would thus seem to me a breach of contract for them to fail to do this as agreed. Especially so for any users who may have selected a significantly below-market "your rate" under the explicit understanding that this would act as a "floor" so that they don't need to constantly monitor the market from day to day in order to avoid lending at uneconomical rates if the market were to shift against them.
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Post by westonkevRS on Jun 12, 2015 22:27:35 GMT
The blog was an early notification of a future change for people lending new money. This description will change when the technical change is implemented. Up to the 24th June (planned date) these instructions are valid and true. So there will be no breach of contract.
Kevin.
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locutus
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Post by locutus on Jun 12, 2015 22:54:18 GMT
This is one step forwards and one step backwards. The loss of a floor rate is obviously a negative for investors. What was the thinking behind this? This means investors will have to be much more active in monitoring their reinvestments.
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gnasher
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Post by gnasher on Jun 13, 2015 6:24:49 GMT
The weighted average of all the rates transacted during the previous day between 6am and 10pm. Calculated to how many decimal places? I assume it will be rounded to the nearest, or up?, or down? .1%. I think your announcement should make this clear.
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Post by westonkevRS on Jun 13, 2015 6:35:29 GMT
This is one step forwards and one step backwards. The loss of a floor rate is obviously a negative for investors. What was the thinking behind this? This means investors will have to be much more active in monitoring their reinvestments. The Your Rate worked in conjunction with the Market Rate to give the higher rate. However if someone with a Your Rate set didn't have their money matched within that day, and then the Market Rate dropped, their money was "stranded" at the previous days Market Rate Even if it was still above the chosen Your Rate. Approximately 25% of money sitting in the markets is "stranded" due to the Your Rate setting and the Market Rate dropping before their money was lent. And some customers didn't realise this was or could happen. Basically even though a new Market Rate was higher than their Your Rate, money wasn't being lent. I pushed for something to change as this wasn't good functionality or a lender experience (I'm an "active" lender). And then there was further confusion because the Market Rate works to two decimals, yet screen reporting and choice of rates is one decimal So some very active and engaged lenders watching the Market could sometimes be wondering why their money wasn't nearer the front of the queue and being lent. Therefore in the interests of simplification and things doing as they are named, the functionality of Your Rate is being changed to be exactly that, the rate at which you want to lend. You are effectively choosing to opt out of the Market Rate and set your own price. In time a Floor Rate might be introduced without the element of stranding that works more like a minimum, similar to a buy-order floor on the stock market (although this can be abused my market makers, although that's another discussion). But in the meantime it was considered better just to make Your Rate more simple and straightforward, and actually just be a "Your Rate". Albeit I concur that a more sophisticated solution could be developed, and hopefully will. westonkevRSwww.linkedin.com/profile/view?id=19236219
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Post by p2plender on Jun 13, 2015 6:56:28 GMT
I've always found it baffling that people complain about not always having time to look and adjust etc especially given proliferation of smart phones. I'd have thought it takes about the same time as nipping for a pee to sort out your rate. In fact you could even multi task....
sent from my Iphone on the toilet.
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agent69
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Post by agent69 on Jun 13, 2015 7:01:18 GMT
This is one step forwards and one step backwards. But are both steps the same size? Anyway, getting back to more important things, I see that the last matches in the longer markets were 6% and 6.9%. Time to rummage down the back of the sofa again.
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pikestaff
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Post by pikestaff on Jun 13, 2015 7:39:16 GMT
...Approximately 25% of money sitting in the markets is "stranded" due to the Your Rate setting and the Market Rate dropping before their money was lent. And some customers didn't realise this was or could happen. Basically even though a new Market Rate was higher than their Your Rate, money wasn't being lent. I pushed for something to change as this wasn't good functionality or a lender experience (I'm an "active" lender)... I do not understand how the new "Your Rate" is supposed to change this. Money will still be stranded if the Market Rate drops. The change makes using "Your Rate" very unappealing to me. I was using it as a sensible floor to avoid being caught out by downward spikes. Used this way, there was no need to log in constantly to check the market. Now, all users of "Your Rate" will need to log in constantly. Some will, but others will give up and use market rate. It seems to me that the real reason for the change is obvious. When "Your Rate" works as a floor, those lenders choosing "Your Rate" can only ever drive the rate up, not down. RS don't like the upward drift in rates, so they are changing this. The new method will tend to drive rates down, because low "Your Rate" offers will be accepted and will be included in the calculation of the day's "market rate", but high "Your Rate" offers will tend not to be accepted. Which will work fine for RS if lenders don't revolt or they can find enough new lenders from their marketing campaign. I'm also worried that with fewer lenders setting their own rate the real market will get very thin. Until now, I have not suspected "manipulation" but the move to a weighted average Market Rate, combined with the change to Your Rate, will make it trivially easy to gently manipulate the rate down over time. I think we can expect further refinement to "Your Rate", to restore the option of a floor, when (and only when) rates have got as low as RS want them to go.
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bigfoot12
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Post by bigfoot12 on Jun 13, 2015 7:58:15 GMT
I am not one of them but look on the forum I remember many people who complained that they had tried to lend money at x%, because x% was lower than the market rate their money had been placed on the market at a higher rate and hadn't been matched but money at x% would have been matched. I have some sympathy with this view and the change is clear and straightforward.
The change from LIBOR style pricing to SONIA style pricing is welcome. (If you haven't heard of SONIA it is probably because there hasn't been a scandal to my out of date knowledge.)
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Post by pepperpot on Jun 13, 2015 10:18:19 GMT
I agree with pikestaff that money will still be stranded if MR drifts down. The only way to stop that is to introduce a time limited order - Your repayments will be set at MR for a period of 'x'days (3? or preferably, user defined?) then if it isn't matched it will be re-set at that days current MR.
I'm undecided as to whether this change will have an effect of pressuring MR downwards, I think supply and demand will still work to set the direction of rate change.
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spiral
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Post by spiral on Jun 13, 2015 10:25:08 GMT
Mmm, so the problem before was that in the event of rate drops, money at MR could be stranded at too high a rate and not match.
At YR, this will still happen if you set it too high.
The difference now is if you have YR too low, no one will let you know. Before, MR would step in to correct this.
I think the very least that RS should do with this change is send an e-mail notifying you if YR has gone on offer below MR.
The real issue with MR could have been solved (as discussed previously on this forum) if MR money always tracked MR so if MR today was 6.8 and tomorrow was 6.6, the MR money not lent today would move to 6.6 tomorrow not stay at 6.8.
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oldgrumpy
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Post by oldgrumpy on Jun 13, 2015 11:35:33 GMT
"Mmm, so the problem before was that in the event of rate drops, money at MR could be stranded at too high a rate and not match...."I thought MR does this already ... MR lowers the rate of existing unmatched MR money the next day if rates have fallen. I don't feel grumpy. YR should be exactly that with no frills. When I choose YR at 6.7% I accept that I may be stranded at 6.7% if rates fall. What I have not asked for is RS deciding to lend my cash at 6.8% because market rate has risen, then leaving me stranded on 6.8% which I did not choose when market rate falls. That was stupidity. YR should (and will be) exactly what it says on the tin*, not YR unless RS computer says no! * with no yes but no but yes but no but etc!!!!!! Oy, westonkevRS ....have a banana on me!
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bob2014
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Post by bob2014 on Jun 13, 2015 12:58:31 GMT
I will be disappointed to see Your (minimum) Rate going. I have not changed this for many months and been very happy with the automatic process. Occasionally I have lost a few days interest by funds being stuck at a high rate and required my intervention but its mainly been a hands off process. Guess I am going to have to spend more time adjusting my rate. My 5y rate is been set at 6.0% and I have been happy to occasionally lend at this rate as I also get the occasional 6.8, I suspect If I set it at 6.4 I would have a large increase in lost interest days. Watch out for a big dip in rates on the 24th as lots of people will suddenly be lending at their minimum.
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spiral
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Post by spiral on Jun 13, 2015 12:58:43 GMT
I thought MR does this already ... MR lowers the rate of existing unmatched MR money the next day if rates have fallen. When I choose YR at 6.7% I accept that I may be stranded at 6.7% if rates fall. What I have not asked for is RS deciding to lend my cash at 6.8% because market rate has risen, then leaving me stranded on 6.8% You have contradicted your own belief here because the 6.8% would be MR and you get stranded because it never returns to 6.7% when rates fall.
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