One night in the summer of 1995, Jonathan Calder, then head of loan trading at Citicorp, met 14 rival traders at the swanky Water Club on the east side of Manhattan. Their mission: to thrash out ideas for speeding up the time it took to close transactions. Back then closing a distressed-loan trade could take several months; on the par side, a close took a couple of weeks. By the end of that year, the traders had formed the ten-member Loan Syndications and Trading Association.
The LSTA now has 228 member firms, and last month they elected Calder, 48, chairman. “We had glimpses back then of what the future market growth could be,” says Calder, now head of loan sales and trading for the Americas at Citigroup. “But the actual growth has realized every bit of the potential we imagined.”
Banks in the U.S. issued a record $1.67 trillion of new loans last year; more than 500 firms, including hedge funds and the proprietary trading desks of banks, actively trade loans. Calder is still focused on speeding up the settlement process, which remains antiquated and paper-based, but there has been some improvement: A typical distressed trade will close in 20 days, whereas about one third of all par trade settlements now take one week. A bigger challenge lies in managing the surge of entrants, such as hedge funds, that are new to the asset class and its rules for trading private bank loans, which include nonpublic information. “The main challenge for the market is to handle the tremendous amount of growth that has occurred and continue to deliver a liquid, tradable, flexible product,” says Calder.
