Citi, Bank of America lead launch of open-market electronic trading platform

Seven financial services powerhouses, led by Citi and Bank of America, launched an independent company this week to create the first open-market electronic trading platform for syndicated loans and collateralized loan obligations (CLOs).

The new company, Octaura, is working with low-code software development platform Genesis Global to manage syndicated loans and CLOs electronically, in real time.

Currently, bids are accepted over the phone and it takes hours to confirm a winning bid, said Octaura Chief Executive Brian Bejile, who previously served as global head of CLO issuer management at Citi.

“That’s why it takes so long. It doesn’t need to be over the phone. It could be over computer screens,” Bejile said. “The way that we’ll try to fix it is creating automated workflows on the platform. What takes a lot of time in these things is manual processes.”

Feedback to bank investors is also being automated, he added.

Both CLO and high-yield bonds have seen significant growth over the past 12 years, Bejile said. In 2010, the market for CLO and high-yield loans rose to $1 trillion and $1.4 trillion, respectively, in outstanding notionals, according to Finextra.

“There’s a lot of paper that needs to be processed in the secondary markets,” Bejile said. “Of course, when you have increased the amount of stuff in the process, hopefully, you are adapting the processes … but that didn’t change [over time].”

And it wasn’t designed to handle the new levels of volumes, he added.

“When an investor in the CLO space … when they want to get equity, they want to sell their bonds, they come out to do this auction — a typical CLO auction goes for about two to three hours in a given day,” Bejile said.

Traders were previously collecting bids in an Excel spreadsheet as they received calls from different investors. Each bidder received three changes to buy something, which extends the process. That’s a long time for an asset manager to sit on their cash, he explained.

“Citigroup traders spent 60% of their time processing these auctions, but the auctions contribute less than 5% of their revenue,” Bejile said.

Reducing trading to minutes from hours

Octaura’s new platform will handle these bids electronically, which will reduce the time to 10 to 15 minutes from hours, he said. This means there will be more time to bid on other offerings when an investor doesn’t win a bid.

“That way, investors looking to buy something, if they don’t win, it’s better you know after five to 10 minutes than three hours, right?” Bejile said. “So people become a lot more efficient at processing all the volumes in the market.”

Citi co-developed the idea of Octaura, under the code name Project Octopus, with Bank of America. The project has been in the works for a couple of years now, Bejile said. Credit Suisse, Goldman Sachs, J.P. Morgan, Morgan Stanley and Wells Fargo have all joined the effort as well. Moody Analytics is also an active partner and will supply the data and analytics functionality.

Banks collaborated to launch Octaura because they want to expand the investor universe, Bejile said. As the system was, it might take six months for a new investor to join and acquire all the information needed to participate.

“We want that process to be weeks to days,” he said. “That’s why we’re bringing all these components that people are going to need and making it easy for them to procure, to buy these things, to subscribe to services like Moody’s, which is the first partner in terms of analytics and data that we have.”

The plan is to add more banks to the platform, onboarding them as participating dealers with fees charged on the transactions, Bejile said.