Reshaping the Debt Capital Markets
We’ve already seen the early payoff of digitization operations. COVID-19 put a spotlight on the ability to deliver business as usual under unforeseen circumstances. It also accelerated a trend to a contactless world connected more by data than physical presence. Within DCMs, several examples help illustrate how digitization enabled a nearly seamless resumption of business as usual:
I believe we are now at an inflection point where a different sort of payoff from investments in operational improvement will start to benefit DCMs. Leaner, faster operations are well-positioned to start bringing benefits to issuers, other stakeholders, and the market overall.
The following three digitization scenarios help show this connection. Our current technology roadmap for servicing DCMs includes connectivity and efficiency, seamless data access, and digitized workflows.
1. Connectivity and Efficiency
A case-in-point may seem somewhat unexciting on the surface—the digitization of document flows prior to issuance. While digital documents may seem like an expected norm in many areas of business, within the context of a Medium-Term Note, for example, digitizing document flow with making it easier to exchange data can potentially accelerate issuance down to as little as one day.
BNY Mellon has developed workflow tools and automation that eliminate intermediary PDF document exchanges between stakeholders that previously had to be transcribed. Not only does this remove manual handling and error-prone transcriptions, but also it can transform DCMs themselves. It massively increases market liquidity.
We are also using digital connectivity to streamline other processes that previously had a manual component—for example, automation of trade settlement and payments on debt instruments rather than handling payment requests via emails from clients and processing them separately. This automation may seem more like an administrative benefit to us as Paying Agents, but the impact is more fundamental. It also improves the effectiveness of the market by delivering payments to investors faster and without error. Our reliability and expertise as a Paying Agent are built into the capabilities of a system that allows investors to realize returns more easily.
2. Seamless Data Access
Machine-to-machine processing and underlying digitization have transformative potential within other DCM asset classes as well by making data more accessible. With our LoanArc platform, we deliver seamless and real-time loan-level data for securitized loans. Such access streamlines the role of asset managers. LoanArc initially focused on delivering this data to human users. Now, using Application Programming Intrefaces (APIs)1, data can be directly ingested without a human user in between, taking this one step further by generating cash, custody, and compliance data for bank loan deals and eliminating the turnaround time for daily reports.
For example, within the CLO space, the LoanArc Cash API gives clients access to real-time reconciled cash balances, cash movements, projected cash balances, and unaccounted cash, delivering the data from our Global Cash Management system directly to client systems and platforms. It provides a straightforward means to reconcile and monitor liquidity within a CLO.
Other APIs that support CLOs are available for compliance data and analysis of bank loan deals, custody data, and new issuances. The LoanArc APIs reduce manual touchpoints and queries between all parties, thereby reducing the overall risk profile while achieving faster time to market. Having this spectrum of digital capabilities in place creates huge potential for issuers and CLO managers to manage their loan portfolios more effectively and deliver value to investors more efficiently.
APIs embed Trustee and Agent expertise into the way data and assets are transferred within DCMs. They enable a shift in thinking by allowing technology to deliver market speed and resilience as well as processing efficiency. We have also just recently opened BNY Mellon Marketplace, our API and application store, so that DCM stakeholders and other market intermediaries can directly access our capabilities and seamlessly link them with those of leading industry providers.
3. Digitized Workflows
Even bigger transformation lies ahead, by integrating connectivity with data access. Environmental, Social, and Governance (ESG) considerations offer an excellent example of how these two opportunities come together.
Across all markets and asset classes, ESG is reshaping stakeholder expectations. While the will is there, data standards have not yet emerged with widespread market consensus. It will take some time to settle on taxonomies and frameworks that markets generally believe to be reliable. This challenge has many dimensions, including, of course, data.
To address the data challenges and the lack of standards for investment objectives for environmental, social, and other categories of green bonds, BNY Mellon is developing a centralized platform. This product will support a secure and digitized workflow that will help issuers align with green bond standards more easily, so that they can execute on their ESG agenda.
Simply put, data will play an essential role for debt market funding of sustainability goals. Green bond investors need the ability to evaluate their ESG investments, have access to credible green bonds, and diversify their risk by accessing a broad pool of issuers. These needs add complexity to both the issuance and administration of bonds, including ESG ratings and ongoing testing of assets along the tenor of a green bond.
By integrating those capabilities into workflows for sustainable finance, our goal is to streamline and optimize the pre-issuance stage and automate the post issuance reporting obligations for issuers, with greater transparency and greater integrity.
I believe that providing more granular access to pieces of DCM functionality creates opportunities for everyone in the market to innovate. Clients and their stakeholders are able to access what they need in the ways that make the most sense for them. Similarly, technology innovators can quickly develop new capabilities, working with us in formats such as hackathons and accelerator programs to build a better market that works for all stakeholders. What we are building represents more than a powerful advancement of our own capabilities. It fuels market-wide innovation.
The potential use cases for machine-to-machine connectivity and seamless data exchange among DCM stakeholders are limited only by human creativity. I’m excited to see where it all leads.
1An API, or Application Programming Interface, is code that allows data to be transmitted between one product or platform and another.
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