Moody's Ratings’ Post

Moody's, a leading traditional finance ratings agency, interviewed us about the impact of tokenization on private credit and other real-world assets! Here are the key takeaways: 📓 1. Traditional private credit is the top risk-adjusted asset class of the last decade, but is generally only available to professional investors. Tokenization can change this, allowing access to this lucrative asset class to accredited and even retail investors. 2. Tokenization can greatly increase the transparency and efficiency of value transfer throughout the lifecycle of a credit fund, including LP subscription and redemption, loan disbursement, interest payments, and collateral liquidation. This is due to the automation that is possible with smart contracts, along with near-instant settlement of tokens. These could also enable liquid trading of LP shares and individual loans, but this is yet to be seen. 3. Adoption of tokenized private credit is higher in emerging markets with less developed financial systems, where there is a greater need for access to credit. Latin America, Africa, and South-east Asia, are the most common recipients of on-chain, RWA lending. 4. All lending contains risk, and tokenized credit is no different. 4% of on-chain loans experienced a missed payment, compared to 1.5% in traditional markets. Yields were not higher to make up for these defaults: 9.6% in tokenized private credit, and 11.8% measured by the Cliffwater Direct Lending Index. This suggests some degree of adverse selection taking place amongst borrowers. One key to further growth is closing this gap by having higher-quality issuers and originators tokenize their assets 5. Tokenized private credit has largely evaded regulatory scrutiny, with issuers tending to operate under Reg D and S exemptions under the US Securities Act. This mirrors its traditional financial counterpart, which tends to have less oversight than public credit, a much larger market. These were just a few of the insights in a wide-ranging interview, so be sure to check out the full report below!

For our latest piece, Mac Naggar and I had the privilege of being interviewed by Cristiano Ventricelli of Moody's Ratings. Originally published back in May 2024, this interview contains a mix of tokenization market data and an overview of practical elements of blockchains in financial services. As always, a special thanks to Adam Lawrence and Charlie You for letting us represent the RWA.xyz brand (in style 😎). Reach out directly for additional information. #tokenization #privatecredit #blockchain #realworldassets #rwa #crypto #finance

New Vanguard research quantifies how much securities lending income has added to fund returns in recent years, demonstrates the benefits of our value-based approach to lending, and illustrates how much securities lending income can help offset some of the effects of a fund’s expense ratio. Read more: https://vgi.vg/3z20G2a #SecuritiesLending #ExpenseRatios #VanguardInsights

Firms should look offshore to maximize their lending potential, explains our Global Securities Lending Solutions team in a recent Securities Finance Times article. Read the article here 👇 https://lnkd.in/g7b4GNh4

With only three months to go until the US markets move to a T+1 settlement cycle from the current T+2 this May 2024, the window for preparations by asset managers trading in the US, Canadian and Mexican securities across the world is getting narrower. This change will apply to most securities transactions, such as stocks, bonds, exchange-traded funds (ETFs) and other instruments.   Marking one of the most important developments across the global financial markets, shortening the securities settlement cycle, though comes with a set of new challenges, aims to reduce settlement risks, liquidity risks, credit risks and margin required, and this is a crucial step towards streamlining operations and expediting securities transactions. On top of the shortened settlement timeline, the Securities and Exchange Commission (SEC) has also imposed procedural requirements on broker-dealers relating to allocations, confirmations and affirmations, as well as record-keeping requirements for registered investment advisers.   To enable a smooth transition, it is paramount that firms are well prepared and are able to adapt to evolving requirements, which includes familiarising with new operations and ensuring compliance-related processes are current and internal staff are adequately trained to handle the reduced trade lifecycle procedures effectively.   For more information regarding the change, please refer to https://www.dtcc.com/ust1

If you had fully assessed the counterparties creditworthiness you will not encounter much problem in settlement cycle whether it's T + 1 or T + 0 particularly if the counterparties are the highest rating in the regulatory credit classification.It reduces settlement risk.

Inside the latest issue - https://lnkd.in/eZp4xntX Industry Excellence Awards shortlists announced Covering lending, repo, data, regulation, collateral, operations, and trading systems among others. We are excited to announce the shortlists for the upcoming Securities Finance Industry Excellence Awards

You've likely heard that securities lending can boost fund returns and offset a portion of a fund's expense ratio. But by how much? New Vanguard research from Erich Pingel quantifies the value securities lending generated for fund investors in recent years. https://lnkd.in/e4u3P6Du

This survey is worth a read to see the direction firms are taking in relation to challenges of today and the adoption of DLT

A window into investor sentiment Industry participants discuss how investors and issuers can engage in the growing use of #ETF lending and its future in the #securitieslending market. Carmella Haswell of Securities Finance Times reports https://lnkd.in/e7CU6YvC