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Post by chris on Jul 17, 2015 17:52:07 GMT
Following on from pepperpot's excellent post regarding the automated nature of the MLIA once targets are set, I think it needs to be recognised that once a credit event has been triggered the news flow both from AC and from lender due dilligence can alter the risk perception very quickly. So we have the situation that once the initial credit event has been digested over 3 days lenders re-establish targets and trading resumes. The consensus view on a particular loan is that it's a flash in the pan, and minimal trading volume occurs, with many buy targets remaining unfulfilled. Two days later a major negative piece of info comes to light, and alert lenders key in sell targets off-loading to those who haven't been able to cancel their targets in time. The more I think about it, the more convinced I am that trade in distressed loans should be an entirely manual process. If there's a change like that then we'll suspend the loan again for another 3 days. If lenders somehow find out about it before the platform then that's no different to how things would be before the first credit event whereby some fast fingered lenders may get a jump because they've received information before we've been able to suspend the market.
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Post by chris on Jul 17, 2015 17:52:36 GMT
If I understand correctly the only current automatic investment mechanism is the GEIA. Holders of this are partially protected by the provision phund - this compensates for the inability to selectively sell out of a particular loan. I can see why AC would not want to add to the GEIA's holdings in that loan - it would make it more likely for the provision fund to fail to cover losses on the account (and reduces AC's windfall if the account is ever run down). Apart from the potential impact on liquidity and diversity (if the deal flow was too low) I don't see any cause to object to the GEIA selling it down in favour of other eligible loans, provided there are willing buyers. My understanding is that distressed loans are automatically removed from GEIA eligibility eg CWT That's one option open to us. It's not automatic but it is something we can flag on a loan.
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Post by mrclondon on Jul 17, 2015 18:03:46 GMT
Disappointing that sales at a discount are not yet implemented. Hopefully soon... Also it's not clear how it will work for loans already in suspense (many of which have been there for months). Will there be a letter to lenders on all these, with 3 days from the date of the letter? My understanding is any already suspended laons will remain suspended regardless of this annoncement. I'll re-read to check again  - could you confirm the current AC thinking with regard to the current back catalogue of suspended loans ? Thanks
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SteveT
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Post by SteveT on Jul 17, 2015 18:07:21 GMT
Simple answer to both is for AC to just change the invest button to disable on suspended loans. Then its up to the lender to re-enable following any revisions to their targets That's what we'll do - either remove the target completely or pause investments so the lender has to unpause it. Currently debating which is preferable. I'd still want to be able to see what target I'd set for the loan previously (which occasionally was based on more than the flip of a coin) so I'd prefer you go with the "pause investments" option.
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Post by chris on Jul 17, 2015 18:12:53 GMT
My understanding is any already suspended laons will remain suspended regardless of this annoncement. I'll re-read to check again - could you confirm the current AC thinking with regard to the current back catalogue of suspended loans ? Thanks They'll all be considered for trading in accordance with the new guidance being put in place by the credit team. There's a couple that I know are planned to be opened up to trading but I don't have the full picture across all the loans.
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Post by jevans4949 on Jul 17, 2015 22:39:23 GMT
IMHO, disabling lenders' (so-called) manual investment targets should be the action on the occurrence of a credit event, and they should be left in that state until re-enabled by the lender. Zeroising targets just means the whole loan is dumped on the aftermarket - not a good idea, nor necessarily what lenders want to do. However, it could transpire that, as part of the regularisation process, the borrower sells some of his assets and makes a partial repayment. If targets were left as was, after the suspensioon was lifted, lenders would then pick up a larger share of the now-smaller loan (which still has a shadow over it), which they probably wouldn't want to do either. It also avoids the problem of lenders not being able to take action because they are "away from keyboard" swimming down the Amazon, or on a trip to Mars.
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Post by pepperpot on Jul 18, 2015 12:56:44 GMT
Whilst you are right that the MLIA is automatic in how it lends, the decision to lend and the amount to lend are manually set so we consider it a manual mechanism when it comes to risk assessment. GEIA and any future accounts we launch remove that manual choice on a per loan basis hence considered fully automatic. When it comes to risk and the decision to lend or not I personally don't think it matters if you are choosing which loan units to buy from whom or if a system is doing that for you. <snip> As ever, your input on the forum is gratefully appreciated, however I have a slightly different view of MLIA - a car analogy would be; A manual car; all driver inputs have a direct effect on what the car does. An automatic car; whist the mechanics are the same i.e. gears are physically being changed, I have only set parameters of 'forwards' or 'backwards'. The resultant action of what the car does is the same but there is a disconnect between driver and car in much the same way as investor and MLIA account. W&Co and GEIA are completely hands off and fully automatic as you say. FC, SS and Ablrate are manual. I would put MLIA somewhere in between (an auto gearbox). It was the line in the AH email of - " When the loan is suspended all existing manual investment targets will be removed." which worried me (removing targets is AC altering my instructions) and agree with others that if anything changes in the risk profile of a loan it should just be dealt with as jevans4949 said to give people an opportunity to re-evaluate. Thinking of #92 L'pool Elec, the risk profile is clearly different but it's not enough to cause immediate drastic action - change all targets to 'disabled' and let people then come back in of their own accord after reading a banner to point out the recent info. #146 Plumber was a 'dirty fan' event and clearly warrants full suspension, but I believe all loans have a price and if someone wants to make an immediate 40p in the £ recovery by selling at a 60% discount rather than waiting an uncertain amount of time for an uncertain level of recovery then I would be compelled to look at it and evaluate whether I wanted in and if that discount was sufficient, thereby making a working marketplace. Discounts are the key on AC to investors comfort, there are a lot of loans currently with small amounts available that I would expect to disappear quickly if there was an alternative to the black and white scenarios of 'running smoothly' and 'locked in'. (PS, andrewholgate, I wasn't shouting, honest!)
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Post by chris on Jul 18, 2015 14:56:49 GMT
IMHO, disabling lenders' (so-called) manual investment targets should be the action on the occurrence of a credit event, and they should be left in that state until re-enabled by the lender. Zeroising targets just means the whole loan is dumped on the aftermarket - not a good idea, nor necessarily what lenders want to do. However, it could transpire that, as part of the regularisation process, the borrower sells some of his assets and makes a partial repayment. If targets were left as was, after the suspensioon was lifted, lenders would then pick up a larger share of the now-smaller loan (which still has a shadow over it), which they probably wouldn't want to do either. It also avoids the problem of lenders not being able to take action because they are "away from keyboard" swimming down the Amazon, or on a trip to Mars. Don't think we've ever said we'd zero a target. Our only possible action would be to leave the system in a state whereby it won't do anything without further input from the lender, be it buy or sell or top up after a repayment. We can do that by either removing any existing target or, the currently proposed option, by freezing the lender's MLIA on that loan. The point of the exercise is to ensure that lenders have to review the loan and make a choice about their chosen investment level before the system will do anything.
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rogerbu
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Post by rogerbu on Jul 18, 2015 15:28:16 GMT
Following on from pepperpot's excellent post regarding the automated nature of the MLIA once targets are set, I think it needs to be recognised that once a credit event has been triggered the news flow both from AC and from lender due dilligence can alter the risk perception very quickly. So we have the situation that once the initial credit event has been digested over 3 days lenders re-establish targets and trading resumes. The consensus view on a particular loan is that it's a flash in the pan, and minimal trading volume occurs, with many buy targets remaining unfulfilled. Two days later a major negative piece of info comes to light, and alert lenders key in sell targets off-loading to those who haven't been able to cancel their targets in time. The more I think about it, the more convinced I am that trade in distressed loans should be an entirely manual process. If there's a change like that then we'll suspend the loan again for another 3 days. If lenders somehow find out about it before the platform then that's no different to how things would be before the first credit event whereby some fast fingered lenders may get a jump because they've received information before we've been able to suspend the market. Your comment above triggered a hypothetical thought. In the shares and bonds world, 'insider trading' is illegal. Would it also be illegal in the P2P world if someone used 'non public' borrower or market information to gain an advantage? And if so, if you became aware of it happening, how would AC react?
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Post by Deleted on Jul 18, 2015 16:06:06 GMT
"When the loan is suspended all existing manual investment targets will be removed" worries me a lot. All seems like a lot of effort to manage a problem that might go away if the borrowers were managed more affectively. Something like "a better way to shut the stable door after the horse had bolted". So we will now have a better way to un-target assets after we lost control of the borrowers. Still not really clear what happens to my target 3 days after the lender is warned of a problem, or does it just happen out of the blue as far as the lender is concerned? Is the targer cancelled, put on pending or what? May be a flow diagram from the lender's point of view might help..... Have a great weekend  |
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sqh
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Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
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Post by sqh on Jul 18, 2015 16:06:53 GMT
Selling at a discount could be a complex software procedure, requiring an MLIA calculation for every fraction of discount offered.
For example:
A lender might want to buy distressed loans purely because they are offered at a 5% discount but not want to buy at 2% discount let alone par. Another lender might be prepared to buy at 4% discount but not 2.5%. Another lender might be prepared to buy at 0.5% discount but not 0.1%.
The previous software version allowed discounts to 2 decimal places, that's 10000 different levels of discount. WT loans would be further complicated by adjustments in the GEIA.
Therefore, I think selling at a discount should be a purely manual process.
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SteveT
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Post by SteveT on Jul 18, 2015 16:15:12 GMT
Something akin to Ablrate's new SM functionality would work well. This allows sellers to post "offers" to sell up to A units at B%, and buyers to bid to buy up to C units at D%. The system ranks both sides of the market to show the "best available" buying and selling prices. When a potential buyer (or seller) is happy to accept the "best available" price, they can instantly buy (or sell) the quantity they want, leaving any remainder on the market.
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Post by chris on Jul 18, 2015 16:29:05 GMT
If there's a change like that then we'll suspend the loan again for another 3 days. If lenders somehow find out about it before the platform then that's no different to how things would be before the first credit event whereby some fast fingered lenders may get a jump because they've received information before we've been able to suspend the market. Your comment above triggered a hypothetical thought. In the shares and bonds world, 'insider trading' is illegal. Would it also be illegal in the P2P world if someone used 'non public' borrower or market information to gain an advantage? And if so, if you became aware of it happening, how would AC react? Asking the wrong guy as I haven't a clue on the legal side. andrewholgate is better placed to give guidance on that.
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Post by chris on Jul 18, 2015 16:34:04 GMT
Selling at a discount could be a complex software procedure, requiring an MLIA calculation for every fraction of discount offered. For example: A lender might want to buy distressed loans purely because they are offered at a 5% discount but not want to buy at 2% discount let alone par. Another lender might be prepared to buy at 4% discount but not 2.5%. Another lender might be prepared to buy at 0.5% discount but not 0.1%. The previous software version allowed discounts to 2 decimal places, that's 10000 different levels of discount. WT loans would be further complicated by adjustments in the GEIA. Therefore, I think selling at a discount should be a purely manual process. The matching isn't that difficult a problem, akin to buying and selling shares for which there are published algorithms and approaches. The investment accounts make things a little more complex for us which is why we're not committing to a problem just yet, as there are some conflicts with our plans for various accounts that we need to resolve. The previous version's granularity in discount rate offered is overkill as well so that will be restricted to tenths of a percent at most but perhaps just integer percentages.
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Post by chris on Jul 18, 2015 16:39:28 GMT
"When the loan is suspended all existing manual investment targets will be removed" worries me a lot. All seems like a lot of effort to manage a problem that might go away if the borrowers were managed more affectively. Something like "a better way to shut the stable door after the horse had bolted". So we will now have a better way to un-target assets after we lost control of the borrowers. Still not really clear what happens to my target 3 days after the lender is warned of a problem, or does it just happen out of the blue as far as the lender is concerned? Is the targer cancelled, put on pending or what? May be a flow diagram from the lender's point of view might help..... Have a great weekend I think it's a bit disingenuous to suggest that all loans could be managed without ever having a credit event worthy of lender intervention. Our main goal is to minimise the chance that someone who happens to get earlier access to information than someone else has opportunity to get a jump on the market. Not all lenders have equal opportunity to trade at all times of the day nor want to invest the same amount of time micromanaging their portfolio. On top of that there will always be someone with a quicker finger, such as investment accounts or API based trading once we allow it. Therefore a period of suspension where information can be circulated, questions can be asked and answered, and decisions taken before the market opens again seems sensible to me. At the beginning of that period all lender manual investments will be frozen, so the system will not buy or sell anything upon the reopening of the market. During those three days lenders will be able to review their targets and tell the system if they want to invest more or sell some or all of their holdings in that loan. After the three days trading will commence for all those lenders who have updated their targets.
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