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Octaura Sets Roadmap to Automate Structured Credit

Industry consortium Octaura aims to automate syndicated loans this year, collateralized loan obligations next year and then expand further into asset-backed securities and other securitized markets.

Brian Bejile, chief executive of Octaura, told Markets Media the consortium was set up to attack problems that exist across markets with persistent inefficiencies in workflows and too much time spent on processes which have remained manual.

For example, the CLO market is still traded by voice on phones despite advances in technology. Bejile said: “It is like booking a flight in the 1990s when you had to walk into an agent and they may have a ticket for you, but you had no choices.”

On 14 June Citi and Bank of America were joined by Credit Suisse, Goldman Sachs, J.P. Morgan, Morgan Stanley, Wells Fargo, and Moody’s Analytics to  announce the launch of Octaura Holdings, an independent company whose goal is to create the first open market electronic trading platform for syndicated loans and CLOs. The platform is being built in collaboration with Genesis Global, the low-code software development platform for financial markets.

Bejile said: “Banks realized this was an important piece of infrastructure for a functional efficient market so they were very eager to participate as opposed to going down the route of building single-dealer platforms.”

He previously spent more than 18 years with Citi, rising to global head of CLO issuer management. Citi developed an internal Velocity CLO eBidding platform within its SPRINT (Spread Products Investment Technologies) team, which was an inspiration for Octaura alongside BofA’s Instinct Loan Match platform.

Brian Carosielli, co-head of global credit trading at Bank of America, said in a statement: “As a major player in the credit markets, we are able to innovate across the credit ecosystem, a continuation of the tried-and-true technology that we used with Instinct Loans in 2016 as the first and only dealer led trading platform for syndicated loans.”

When Citi Velocity launched CLO eBidding, there was a 50% jump in bid volume in the first week. 

“You hope for the best but the increase in bids on Citi’s Velocity CLO eBidding platform exceeded our expectations for two reasons,” added Bejile. “It takes time for people to get used to new technology so we were surprised at the quick adoption for a complex product.”

In addition, he said Citi Velocity showed that the industry needed to build simple technology that is intuitive, does not need a manual to use, and that the platform hit a nerve by solving a real problem.

One of the problems is that CLO auctions can take three hours as they are conducted by phone. Bejile explained that if an investor needs to put $50m to work and each auction takes three hours, there are just three chances in a given day to participate. In contrast, Octaura’s electronic auctions take between 10 and 15 minutes. 

“However, if that process is compressed to 10 or 15 minutes, you suddenly have 10 times more opportunities to participate, and participants can get real-time feedback during the auction,” he said. “That is a huge gain in terms of efficiency and putting capital to work.”

Increasing efficiency has also become critical as CLO and syndicated loan markets have doubled in size over the last decade to more than $1 trillion and $1.4 trillion in outstanding notionals, respectively. 

Bejile also believes Octaura will help attract new investors by making it easier for them to trade, ultimately increasing liquidity and lowering the cost of borrowing for issuers. 

 Brian Bejile, Octaura

“New investors are attracted during huge sell-offs but that opportunity probably only lasts three to four months,” added Bejile. “We want to make acquiring analytics take weeks or days, as opposed to months, and lowering the barriers to entry will bring additional investors into the ecosystem which is a big win for the industry.”

In addition Octaura will provide real-time data and analytics, which is critical during volatile market conditions as investors need a venue where they are confident in pricing and their ability to execute.

“We are going to meet clients where they are  – we would love to integrate into OMSs [order management systems] but we will also have a GUI interface,” said Bejile. “We are putting in straight-through processing so there will be a pipe for trades to be brought directly into your system, which is also a huge win for the market because nobody wants to manually book trades.”

Octaura has performed  demos to more than 400 buy-side partnerships and Bejile believes there is incredible enthusiasm which can translate into participation. 

Jennifer Doyle, co-head of structured products group, Wells Fargo Corporate & Investment Bank, said in a statement: “We support the benefits this brings to trading in the syndicated loan and CLO markets and beyond, including improved efficiency, liquidity and transparency.”

Bejile said Octaura is establishing relationships with all the market participants and there are a lot of moving parts. 

“We are very cognizant of the lessons we have learnt of making the technology simple, convenient and solving problems,” he added. “These three ingredients make me believe Octaura is going to be very successful.”

Genesis Global

Bejile said the main reason for picking Genesis Global to build the platform was speed to market. He said: “Technology is evolving very quickly so it is important to get to market quickly, and then keep evolving and adapting.”

Stephen Murphy, chief executive Genesis Global, told Markets Media that the application development platform built a proof of concept for Octaura in two weeks.

 Stephen Murphy, Genesis

He said: “It is a great validation of why we built the only low-code application specifically for financial markets, which can be used to build a new electronic trading platform all the way through to replacing spreadsheets. It’s great to see how the industry can launch a consortium and it can be very successful because the platform accelerates speed to market in a highly effective manner.”

In addition to building a proof of concept quickly, Murphy said Genesis made new releases every week in an agile and iterative manner. The consortium members provided feedback each Tuesday and could see the changes on their desktops on Thursday.

“I think everyone can see that this is real innovation in a complex environment with a number of parties, so this is a game changer,” added Murphy. 

Octaura was built by Genesis but the consortium has the choice of continuing this process or to start building on the low-code platform themselves . Murphy described this as a shift from the old world of ‘buy versus build’ to ‘buy-to-build.’ 

“Genesis was built for developers so we can build for clients ourselves, they can build or we can be consulting partners,” he said. 

Murphy continued that financial firms want to focus on where they can add value. 

“Their value add is not building a component which distributes data very quickly ,”he added. “Their value add is building functionality to change the way they work internally or to change the way the industry works.”