ABS Vegas Bondholder Communications Panel
DealVector was excited to participate on the lead-off panel for ABS Vegas 2015, discussing Improving Bondholder Communications. Since DealVector was created to improve Bondholder Communications, we had a lot to say!
The discussion was wide ranging, starting with a history of DTC and the legacy of the Street Name System that first divorced issuers from their investors. The Street Name system created several structural problems inhibiting ease of communication among market participants. First, assets were no longer held directly but rather were held in the name of custodians (hence “street name”). Second, each custodian and only each custodian, could access information about the beneficial owners within its particular system, resulting in fragmented sets of data. Moreover, the right to send messages through the custodial system was limited to only issuers, not investors or other interested parties. Additionally, no mechanisms were put in place to facilitate bilateral or responsive communication; messages could go in but not come out. And such in-bound messages would need to go through multiple layers of parties (ie — sender, trustee, custodian, sub-custodian, client representative, client). Worse, there would be no method for determining which clients actually had received such message. If they did, several weeks might have passed by, leaving little time to respond if a deadline were looming. (At DealVector, we have provided solutions for all of these mechanical issues).
The panel then moved on to discuss the types of functions that an effective communication system would serve. Bondholders might want to be able to identify holders, notify them of events, verify their roles in deals, and facilitate actions such as votes. DealVector pointed out that very few of these functions actually rise to the level of what would be needed in order to, for example, facilitate a $10 million money transfer with a medallion guarantee. (We also noted that at present DealVector services like InvestorLink, validation and compliance oversight, proactive outreach, and deal verification have served customers on billions of dollars worth of transactions with respect to all of these functions).
Finally, the panel discussed the difference between “technological” challenges and “business case” challenges. DealVector and the rest of the panel seemed to agree that technology was not the primary challenge; a variety of well architected but straightforward applications could serve to improve communications. But the business cases, where so many different types of entities have different purposes, were more complicated. Tensions that exist among different types of investors in a deal, or between trustees and investors (think of the record law RMBS suits), or other players, mean that different players want different types of communication at different times. So designing a system from the perspective of only one type of player would not be successful. For this reason DealVector has been designed as a flexible and open platform, designed to accommodate messaging that may cover a wide variety of communications in an agnostic way. No type of entity is privileged over another in our eco-system.
In the end, the large audience size made us realize that these issues are on the minds of many investors. And the questions they asked made it clear they are ready for solutions. Thanks for sponsoring the panel, IMN!
