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 Apr 4, 2016 16:02:37 GMT
I think it would help if we could sell at a smaller discount, say 0.1%. In the previous version a discount of 0.01% was possible.
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oldgrumpy
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Post by oldgrumpy on Apr 4, 2016 16:11:08 GMT
stevet said "The QAA has sale priority over all others (at par) so I assume the QAA is heading up the queue."
Big mistake, chris
We have no idea whatsoever now whether we can sell loan parts or not while QAA can continue placing loan parts on the market whenever it likes. QAA tops up the available parts at the front of the queue while retail sellers may never be able to sell at par.
Please put clear indication on every loan on the secondary market where this situation exists, including a clear figure of how much QAA is at the head of the queue.
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pikestaff
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Post by pikestaff on Apr 4, 2016 16:12:02 GMT
I think it would help if we could sell at a smaller discount, say 0.1%. In the previous version a discount of 0.01% was possible. I suspect this is unlikely, precisely because of the impact it would have on QAA liquidity. oldgrumpy - I don't think it helps knowing how much the QAA has in the queue if anything it adds jumps to the front.
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oldgrumpy
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Post by oldgrumpy on Apr 4, 2016 16:19:38 GMT
I think it would help if we could sell at a smaller discount, say 0.1%. In the previous version a discount of 0.01% was possible. I suspect this is unlikely, precisely because of the impact it would have on QAA liquidity. oldgrumpy - I don't think it helps knowing how much the QAA has in the queue if anything it adds jumps to the front. It'll give some indication whether we are wasting our time trying to liquidate individual loans if we can see on which loans QAA is causing lender selling stagnation. From AC website describing MLIA account: (my emphasis) If you wish to invest in a loan or sell part or all of a loan investment you may set investment targets which initiates buy and sell orders of holdings in that loan and the marketplace will seek to carry out your investment trades as soon as there is demand from other investors to sell to you or buy from you
No mention or warning that QAA activity can nullify this statement so that even if other investors are there to buy from you, you will be actively prevented from selling for an indefinite period of time because buyers will be sold their reqirements from the QAA.
It's time to make the situation on each loan on the secondary market a lot more open. Show investors which loans on the secondary market have QAA tranches blocking investor sales.
Oh,  !
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Post by Butch Cassidy on Apr 4, 2016 16:42:24 GMT
I queried the unfairness of biased algorithm's & giving other accounts priority over MLIA back in Sept 2015 (in the context of lack of current supply) & Chris replied,copied below, with my bolding:
Me "So not only are MLIA lenders at the back of the queue to buy current loans they are also forced into offering a MINIMUM 1% discount to gain priority in sales as well?"
chris "Yes. Giving up something in the region of 1 month's interest in order to gain PRIORITY of sale is not a big ask. On FC you pay the platform 0.25% on any sale and many are paying multiple percent premiums just to buy into loans. On RS you can pay huge amounts to exit a loan early because they've built their market around loan terms. SS to invest in popular loans you don't get to read the loan documentation, you enter blind.
With the MLIA you are keeping the entire interest payment, earning larger returns, and have access to buying and selling for discounts and premiums when that feature is enabled. You get to review the loan documents up front, place hands off buy / sell instructions that then do the heavy lifting for you, even get to earn interest on your idle funds whilst they wait to be deployed. The down side is you don't get provision fund protection and you lose some liquidity at par value. Even then that second point is under continual review as we want to balance the market not cripple the MLIA."
My own view is however well intentioned manipulating the market (any market) is both unfair & a recipe for disaster & ultimately doesn't work - numerous examples over time where it has failed but AC have their own ideas about such things. I am currently in slow withdrawl as AC no longer fits my investment risk profile & the new loans are being launched at rates below the risk level they represent IMHO.
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Post by chris on Apr 4, 2016 17:14:09 GMT
Crumbs, there's always some level of drama isn't there. That the QAA takes sale priority isn't anything new, as Butch Cassidy mentions this has been well discussed in the past and a feature of the account since the day it launched all those months ago.
The 1% minimum discount is there to prevent gaming of the market. That doesn't just apply to the QAA's sale priority but also the balancing algorithm that distributes sales amongst all sellers at any particular premium / discount. If two lenders are selling £100 each in a loan and another lender wants to come along and buy it then each lender gets £50. It shouldn't be based on who guesses at the right 100th of a percent discount to offer.
The QAA has been selling a lot in the last couple of weeks but that will die down over the next week or two as the market rebalances, and I'll also drop in a mechanism for lower priority sales so that the QAA can sell at the same rate as underwriters for loans it's looking to reduce its exposure in but not with any urgency. We've put a lot of loans through to retail lenders over the last few weeks and if it's tipped the market into over supply, as I suspect it has until the new lender marketing kicks in over the next few weeks, then we'll simply send more loans to institutional investors and less to retail until things have rebalanced. As the market swings back at least now we'll have origination in place to much more rapidly address any shortage of new loans for the retail market and we'll send fewer loans to the institutions.
If the new loans aren't for you and you choose to wind down your investment then that's not ideal for us but is happening in too small a number of cases for us to change direction. Our underwriting approach is based on taking less risk in future in preparation for worsening economic conditions as we expect our loan book as a whole to continue performing in a recession. We will be publishing data on that in due course that is being put together now with third party input that shows the detail of that approach, but it necessarily means that as we originate more loans we're aiming for greater expansion in the lower rate lower risk category of loans than in the high risk high chance of loss high interest rate approach of a platform like SS. If you want those loans then they seem to be originating plenty for the market at the moment, that's just not what AC are about.
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Post by chielamangus on Apr 4, 2016 17:55:38 GMT
Crumbs, there's always some level of drama isn't there. That the QAA takes sale priority isn't anything new, as Butch Cassidy mentions this has been well discussed in the past and a feature of the account since the day it launched all those months ago. I'll also drop in a mechanism for lower priority sales so that the QAA can sell at the same rate as underwriters for loans it's looking to reduce its exposure in but not with any urgency. Not exactly a drama, more a great deal of unease over AC tactics. QAA priority may not have changed but the size of the fund has - dramatically - and its impact on the market. And I find it worrying that you will just "drop in" another mechanism to change the way the market operates. Markets used to be about the invisible hand but AC's hand is very visible, clumsy & unpredictable. I see the way AC is going and I don't like it. It's the antithesis of a market, and is increasing risks for investors (with lower returns!). MLIA investors will be an extinct species within a year or two, and AC will have gone for a Wellesley type operation where all investors just have shares in whatever portfolio AC determines upon (like the GBBA, GEIA, QAA). When that happens all risk (and returns) will have been reduced to the lowest possible level. PS. Actually, as an irregular visitor to this forum, I was not even aware that the QAA always took priority in sales, so this news has made me very pessimistic about the platform.
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Post by chris on Apr 4, 2016 18:09:38 GMT
Crumbs, there's always some level of drama isn't there. That the QAA takes sale priority isn't anything new, as Butch Cassidy mentions this has been well discussed in the past and a feature of the account since the day it launched all those months ago. I'll also drop in a mechanism for lower priority sales so that the QAA can sell at the same rate as underwriters for loans it's looking to reduce its exposure in but not with any urgency. Not exactly a drama, more a great deal of unease over AC tactics (have no idea on their strategy). QAA priority may not have changed but the size of the fund has - dramatically - and its impact on the market. And I find it worrying that you will just "drop in" another mechanism to change the way the market operates. Markets used to be about the invisible hand but AC's hand is very visible and very clumsy. I see the way AC is going and I don't like it. It's the antithesis of a market, and is increasing risks for investors (with lower returns!). MLIA investors will be an extinct species within a year or two, and AC will have gone for a Wellesley type operation where all investors just have shares in whatever portfolio AC determines upon. When that happens all risk (and returns) will have been reduced to the lowest possible level. You find it worrying that I'll "drop in" another mechanism that would do away with QAA's priority where it isn't needed so that it operates like any other seller? Isn't that what you're asking for, a completely fair market in more situations. The QAA has grown beyond what it was originally intended for mainly due to the surprising level of demand. The large number of lending opportunities currently on the site are also in large part due to the QAA and the strategies it has allowed us to follow. The MLIA is a central part of our strategy and I have had it minuted in a board meeting not long ago that it remains a core part of our strategy and is not to be deprioritised, as it is important to me personally that it remains a strong part of our offering. There have been three instances whereby the market has been disrupted to the disadvantage of the MLIA: the GBBA and GEIA were given buy and sell priority over the MLIA during the dry spell of loans due to limited availability; the QAA was able to create sell orders that would sell to only the MLIA or the GBBA/GEIA to control supply; and the QAA has absolute priority over all other accounts when buying or selling. Those mechanisms were all put in place when the platform was running dry of loans, a situation that was always intended to be temporary. The GEIA retains a small purchase priority due to the limited supply of green loans, although that is blended so the MLIA still gets a good portion of purchases. All prioritisation of the GBBA has been removed, it is absolutely equal to the MLIA. And the QAA no longer has instructions that sell to only one type of account, although I wouldn't be surprised if that were still used to some small degree on the green loans. The exception is the retention of the QAA sale priority and the suggestion I just made was to start relaxing that too where we can, although because of the nature of the account it will always retain some measure of priority where it's needed. In an ideal world everything would operate at parity and as we scale we should be trending towards that, rather than the marginalisation of the MLIA.
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Post by chielamangus on Apr 4, 2016 18:17:27 GMT
The worry is about ad hoc fixes for ad hoc problems from previous ad hoc decisions. It does not smack of long term stability or a (fairly) virtuous market
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oldgrumpy
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Post by oldgrumpy on Apr 4, 2016 18:21:01 GMT
"...but it necessarily means that as we originate more loans we're aiming for greater expansion in the lower rate lower risk category of loans..."
Can (we) I assume the whole loans which are doled out directly to your institutional partners are in the same range 6% to 12% with the emphasis on sub 9%? Do they reject any, like on Frilly Chilly, which are then thrown to the retail hoards?
Being relatively dim, I can't see a reason for investing in a BTL loan over 60 months at a rate of 6% (look at the upcoming list), with no provision fund (remember how Andrew used to dismiss provision funds?), rather than in the GBBA at 7% with provision fund (which might just be my preferred choice for IF ISA). Do I foresee that AC will soon be deciding that 7% is too high for the GBBA, and might reduce this to nearer 6%?
Mmm!
However, I dropped my banana when I saw this. Come on Chris, enough is enough 
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Post by chris on Apr 4, 2016 18:30:12 GMT
The worry is about ad hoc fixes for ad hoc problems from previous ad hoc decisions. It does not smack of long term stability or a (fairly) virtuous market When we launched the QAA last September / October we said it was part of a long term plan to fix our origination issues, and in October we said it was working as planned and that origination was booming. We predicted that this origination would hit the platform around February / March time this year but were poo pooed for making more empty promises. We made some mistakes in our long term strategy in early 2015 that with hindsight led to many of the origination problems last year, and we have systematically resolved them all and put in place a very strong plan moving forward. The huge increase in both the number and total value of loans hitting the platform in the last two months has not been an accident, nor has the increase in lender activity. However there was a known lag in the system as it takes 4 - 6 months for loans to draw down, on average, from the time we first receive the enquiry. These "ad hoc" fixes you mention were planned in advance knowing that this lag would be in place but also knowing that we needed to manage the market to keep as many lenders as possible happy whilst that origination increased. Now those plans have come to fruition we can roll back those measures. That started with the roll back of the GBBA priorities earlier this year, and this latest change will address most instances where lenders are noticing the QAA priority - a priority designed last May when the idea for the account was first floated. That will just leave the skew towards the GEIA which can be removed once a long term origination fix is in place for that account.
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Post by chris on Apr 4, 2016 18:40:40 GMT
"...but it necessarily means that as we originate more loans we're aiming for greater expansion in the lower rate lower risk category of loans..."
Can (we) I assume the whole loans which are doled out directly to your institutional partners are in the same range 6% to 12% with the emphasis on sub 9%? Do they reject any, like on Frilly Chilly, which are then thrown to the retail hoards?
Being relatively dim, I can't see a reason for investing in a BTL loan over 60 months at a rate of 6% (look at the upcoming list), with no provision fund (remember how Andrew used to dismiss provision funds?), rather than in the GBBA at 7% with provision fund (which might just be my preferred choice for IF ISA). Do I foresee that AC will soon be deciding that 7% is too high for the GBBA, and might reduce this to nearer 6%?
Mmm!
However, I dropped my banana when I saw this. Come on Chris, enough is enough
If an institution rejects a loan and it is sent to the retail market instead then it will be clearly flagged on the loan, same as if we cannot underwrite a given loan it can go back the other way and be offered to the institutions. The origination is the same and the randomised distribution is based on a percentage of loans going to each channel. We can vary that percentage so if retail are saturated we'll increase the percentage going to institutions and when retail require more loans we'll reduce that percentage. Those BTL loans will have a different risk profile during a recession and will attract different lenders. We've always said that there will be other investment accounts in time so if we feel another is needed for that segment then we'll create another. GBBA may drop in rate, may also increase or we could launch another account offering a higher rate. The MLIA gives you the choice to lend where you see fit, if the BTL loans at that rate (which is typical for the market) don't appeal then don't invest in them. You're not exactly struggling for choice at the moment. AH was dismissive of provision funds replacing asset security. By RateSetter's own pretty graph in the middle of their provision fund page shows that in a 2008 sized recession their provision fund would be depleted and a resolution event may (used to be would but they've changed it) be called which in turn they used to say would be the end of the platform. I suspect the softening of the language around this is because it's a possible event in the next few years. Our provision funds are offered on top of the asset security. We're working on a big data piece with a couple of third parties that will show how this affects the risk profile of our offering. Edit: Just saw your attachment. I suspect someone's entered a monthly figure in there rather than an annualised one. I'm sure it'll be spotted and corrected soon.
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Mike
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Post by Mike on Apr 4, 2016 20:17:23 GMT
When QAA was invented noone minded the priority in selling because the account cap as so small, new QAA investment queue bought what was sold.
Now the QAA appears to be limitless in size, I think it is worrying that the market makers are able to manipulate the physics of the market to give their own product an advantage on everyone else. Asking us to pay 1% fee to get the same* treatment as their own product is the wrong way round --- if that is the desired outcome then the 1% discount to jump the queue should be built into the interest rate for the QAA when sales are needed (rather than any Easter bonus, at the expense of those outside the QAA).
This is a conflict of 'interest' if every I saw one. Shrink the QAA cap is the answer, maintain a queue for the QAA and that solves the problem.
*edit: this should say 'marginally better'
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Mike
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Post by Mike on Apr 4, 2016 20:24:03 GMT
I think the biggest problem with the current situation is:
The QAA makes AC [extra] money (in theory)
The QAA has priority over people who do not make AC [extra] money
The QAA priority has a value, dictated by AC (currently <1%)
In order to beat the QAA priority, we must pay a fee (in which case the QAA can gobble our offerings? [making AC money])
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Post by chris on Apr 4, 2016 21:25:24 GMT
I think I'll believe that MLIA has a long term future for me when and if AC can explain how it make them more money than the other accounts. Can I also say that I'm pretty horrified that AC can arbitrarily adjust the rules and priorities for the buying and selling performed by my MLIA at any time as they see fit. We make the same fee income on all loans regardless of which investment account, MLIA included. The only way we can make more money from the other accounts than the MLIA is when their respective provision funds are above a certain threshold and AC are able to reclaim the excess. That is currently set at 5% of invested holdings on all the provision funds although we're looking at making it a formal multiple of expected losses rather than an arbitrary percentage. So there is the potential for those accounts to make AC a small amount of additional income but it's equally true that if one of the provision funds was depleted then AC may choose to recapitalise the fund so in those conditions the MLIA may give AC a larger return. The rules and priorities were adjusted when the QAA was launched over 6 months ago, and were publicly disclosed, so it's somewhat surprising they're now causing a fuss. Since then we've been reducing the priorities given over time not increasing them.
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