Liquidity and unsold loan parts

I think that the reason for your uneasiness, mijewen, is that FC is not a market at all, it is an auction house. People bring goods (loans which are rights to an income stream) to be sold , FC evaluates the goods and holds an auction among its registered bidders. It sets the rules (and changes them when it wishes without consultation), it sets minimum and maximum bids, and it takes a commission from seller and buyer. As with an auction, provided the goods were not mis-described, the risk lies with the buyer. Would you call a single auction house a market?
The point is that only FC can control the number of buyers an sellers through its auction platform and therefore it has responsibility for maintaining a reasonable and stable balance between the two over time. It is not sufficient to just say that liquidity on the secondary market, which operates only through the FC platform, is simply was it turns out to be, and to just change the words on the site to reflect the current reality. The statements made in 'how it works' are part of the proposition that FC makes to lenders, or buyers, and only FC can and should manage the balance of buyers and sellers, though promotional activity, to ensure that generally the statements which were made remain generally true. These are medium to long term loans, and FC has clear responsibilties to provide the secondary 'market' over the period.
If FC make statements to induce consumer lenders to treat, and then think they can just change the statements if it does not turn out as they proposed, then the new regulatory regime will likely find some work to do. Especially as a loss-free secondary market is supposed to remove the need for a cooling off period for new lenders.

I think that the large loans are from people who don't know what they are doing.
Only being able to sell what you bought makes the process of bidding a bit difficult - and must play havoc with the system.
In the past I've put £5,000 on a single auction in £20-£120 chunks - along with other bidders - all in a few seconds/minutes.
Would I prefer to bid a single £5,000 chunk and then split it up as required?  YES!
But that's FC.

Regarding liquidity and unsold loan parts:
I've been lending for over 3 years and over 5 years on ZOPA (which doesn't have this same problem exactly with the Rapid Return).
The rates now have been the highest for years!
You can pick up dozens of loans which will yield you 8%+ after fees, bad debts.

I had stopped lending on FC for the reason that loans were just too low to justify it and it takes up a bit of time.
But I've stepped back into the market because I like the rates.

How long will it continue?  Nobody knows.

BUT:  I had about £5,000 of a B Loan at 10.5% - which I sold off a bit at a time ~2x£100 per month at 3% premium.
I didn't need the cash but wanted to reduce my exposure - this was when I was making no bids on other loans and was running down my loan book.
That loan now at 10.5% at 1% premium would fail to sell - Hell, at par it would probably fail to sell.
But in 6 months again it might fetch 3% again - who knows?

What might be a problem is that loans can only be sold at up to 3% premium.  Which means that loans at 14% at 3% premium - say 12% will all have to be traded/sold/not put up for sale - before my 10.5% stalwart gets a look in.

Not quite: its a bit like the difference pre and post the stock exchange shake up ? While prices may go up or or down on the stock market, the stock market has market makers. So its virtually always possible to sell, its only the price which is in question.

FC on the other hand is only a broker. Therefore the market can suffer real liquidity fluctuations, not just price impacts.

Spot on, Bracknellboy! Also add the very large proportion of IPOs which have to be filled compared with the far more mature stock market.
Consider the fact that when selling on the FC secondary market, if parts do not sell at par then if you offer a lower price then you immediately halve the number of potential purchasers. The other half tend to know what they are doing - and so if you need to sell and have to discount then you really have to discount. This is not what FC intended - par should be the normal floor, as it was up to the end of last year.

Yes, Autobid only buys at par and Autosale only sells at par. That tends to support the contention that FC consider par as the normal floor for sales. They take 0.25% from the seller, so there is a small cost.

Yes I agree that fire sales should be possible - and below -3%. But that has not been necessary before. Last year I sold the odd decent £1000 loan part at par.

Crisis? What crisis? I think that is the first ever (in my time with FC). The flippers always used to take loans at 15% in the sure knowledge that the secondary market (broken) works. Currency dealing is too risky for me to lend - no real assets, just a customer base who get a fresh choice any time they want it. 
There was a discussion on the other (broken) forum recently about the max rate. If I posted there I would suggest that the max should be automatically twice the MBR. No more arbitrary FC numbers please. Agree a max of 15 is silly when the min is 11.6.

A cashback promo could work well if they only redeem it following a set lock-in period; say 3 months.

If they follow previous cashback templates, the secondary market would more likely choke up even further with the loan parts of people trying to flip to release the money so thry can churn it through yet another cashback round. This would be self-defeating in the short term under the current circumstances.

I have no idea if FCs system is set up to work for a lock-in related cashback offer though, so please take this speculation on my part with a pinch of salt. I have no idea what they'll do. I just think the present illiquidity in the SM will force them to try something in the new tax year.