When three ex-Deutsche trade-finance bankers decided to set up LTPTrade in 1999 they had a simple aim. At least it sounded simple. “We started LTPTrade because we believed there was a better way to do trade finance,” says James Parsons, managing director and co-founder of the platform.
He’s right. At the time, secondary market trading in trade-finance assets relied on faxes, phone calls, and knowing the right people. The task for LTPTrade was to make it open and electronic – more like the bond market. It has been a long, slow process but the platform continues to make excellent progress.
It is difficult to make such a bold change in the way the secondary market works. Competitors have found that out the hard way, running out of funds before they could launch or make a significant impact. That has left LTPTrade to lead the way in trying to drag an inefficient, paper-heavy industry into an electronic environment.
Secondary market distribution of trade-finance assets has traditionally stuck to the old method of bankers phoning around their contacts and selling to the highest bidder. And this practice still dominates. Even when a trade is agreed, it is usually subject to approval of documentation, so thick wads of paper often have to be couriered from one firm to another and deals can take much longer to complete than in more commoditized markets. LTPTrade claims that both banks and sellers reduce the time needed for trade-finance transactions by 30% to 50%, with an average cost saving of 12% on their financing using its platform.
TradeEdge, the trading platform, is at the core of what the site does. It covers a broad range of trade-finance instruments such as LCs, promissory notes and payment guarantees. Aside from that, LTPTrade also has its own research team producing notes to assist clients on company and country risk. It also created the first independent pricing index.
There are 169 trade-finance institutions from 33 countries signed up to the platform. Parsons says: “[Within that 169] there are four classes of users: issuers, traders, exporters and banks.” State Street is also involved in the venture to offer optional custody services of the documentation after transactions have been completed. The total number of transactions on the site to date is 49 with a total volume of over $400 million.
To put a deal up for auction, or for sale on a first-come-first-served basis, a corporate goes into the site and fills in a customizable template to explain the basic terms of the deal. The seller then chooses which banks it wants the details to be sent to, double checks the details and enters a password to launch the invitation to the banks. This control over the process by the client is a new feature. Until the end of 2001, LTPTrade filled in the term sheet on behalf of clients. Banks can then go into the site and search for relevant deals or see lists of pending deals.
