Sector developments and company hires

VanEck has launched an actively managed CLO ETF, dubbed CLOI, which is sub-advised by PineBridge Investments. The fund aims to invest at least 80% of its total assets in investment grade-rated debt tranches CLOs of any maturity.

The fund intends to invest primarily in CLO securities that are US dollar denominated, although it has the ability to invest up to 30% of its net assets in CLO securities that are denominated in foreign currencies. CLO securities may be purchased both in the primary and secondary markets.

The fund may also invest up to 10% of its net assets in affiliated or non-affiliated ETFs, as well as a portion of its assets in cash or other short-term instruments while deploying new capital, for liquidity management purposes, managing redemptions or for defensive purposes, including navigating unusual market conditions.

In other news…

CRA settles conflict of interest charges

The US SEC has charged Egan-Jones Ratings Company with violating conflict of interest provisions. The SEC also charged the company’s founder and ceo, Sean Egan, with causing certain of those violations.

The SEC’s order finds that in 2019, Egan – who, at the time, headed Egan-Jones’s ratings group - became involved in business and marketing activities concerning a client and was influenced by sales and marketing considerations while participating in determining a credit rating for that client, which created a prohibited conflict of interest. The order finds that by issuing and maintaining a rating for the client under those circumstances, Egan-Jones violated the SEC’s NRSRO conflict of interest rules and, further, that Egan caused the company’s violations. 

The SEC’s order also finds that in 2018, Egan-Jones violated another conflict-of-interest provision by continuing to issue and maintain ratings for another client, even though that client had contributed 10% or more of the company’s net revenues during the prior fiscal year. Finally, the order finds that Egan-Jones failed to establish, maintain and enforce policies and procedures reasonably designed to manage such conflicts of interest. 

Without admitting or denying the SEC’s findings, Egan-Jones agreed to settle the matter by paying a US$1.7m penalty and more than US$146,000 in disgorgement and interest. It also committed to conduct training, retain an independent consultant to assess its policies and procedures concerning conflicts of interest, and prohibit Egan from - among other things - participating in determining or monitoring credit ratings issued or maintained by Egan-Jones or developing or approving procedures used for determining credit ratings.

Separately, and also without admitting or denying the SEC’s findings, Egan agreed to pay a US$300,000 penalty to settle the SEC’s charges against him. 

EMEA

Deerpath Capital has announced the launch of its latest international office which is set to open in London, England. The North American private credit manager hopes to expand further into Europe and enhance their offering to existing European clients. The new office will be led by Tania Kutner as head of European investor partnerships and joins the firm from Aerius Associates where she worked as associate director. The firm hopes the new office will not just increase their presence in Europe, but allow them to better meet the rising institutional demand for differentiated private credit solutions.

Reed Smith welcomes new structured finance lawyer, Tariq Zafar, to its global finance practice as a partner. Zafar joins the firm’s financial industry group in London from Bryan Cave Leighton Paisner, where he served as head of its derivatives practice and assisted in the firm’s growth of its derivatives team. He brings extensive experience across derivatives and other structured products to the new role, having also advised several leading investment banks on securitised derivative transactions. The firm hopes Zafar’s arrival will help bolster its existing global structured finance practice and expand its derivatives offerings to specifically prime brokers and fund clients.

North America

KopenTech has announced the launch of new trading protocol, KTX DirectBidding, which aims to offer a streamlined and direct peer-to-peer approach to CLO trading. The new trading protocol will allow buy-side investors to trade CLOs anonymously and directly with one another, offering access to buy-side and sell-side liquidity in a single trading session. The platform offers private bidding and negotiations, and ensures the confidentiality of all investors’ bidding histories, with only matched trades made visitable to the settlement agent. DirectBidding opened for trading last month, with the first buy-side to buy-side trade negotiated on the platform in June. KopenTech Capital Markets will serve as the settlement agent, with MIRAE Asset Securities contracted on a non-exclusive basis offering trade clearing services.

UMBS TBA futures prepped

CME Group is set to offer the first-ever 30-year Uniform Mortgage-Backed Securities (UMBS) TBA futures contracts from 3 October, pending regulatory review. The new futures contracts will be fulfilled by delivery of TBAs cleared by the Fixed Income Clearing Corporation's MBS division, a subsidiary of the DTCC.

The objective is to offer mortgage lenders, issuers, servicers and other participants an exchange-traded and centrally cleared tool for price discovery and risk transfer. For each delivery month, futures will be listed for delivery of specified active mortgage coupon rates 2%, 2.5%, 3%, 3.5%, 4%, 4.5% and 5%.

The three nearest calendar months will be listed at any given time, beginning with the November 2022 contract.