Brian Bejile, founder and ceo of Octaura Holdings, answers SCI's questions

Q: After launching the platform last year, Octaura reported the completion of its first fully electronic syndicated loan trade last month (SCI 2 February). What has Octaura been working on since then?
A: Since we launched last June, we have covered a lot of ground. We have spent a lot of time recruiting and bringing people into the ranks, with the goal of operationalising the company and the platform itself.

We launched the first part now, which is the beta version on the loan side of the market, to a limited number of customers on the buy-side and sell-side last December. This step was about putting functionality into the marketplace for our clients to use and interact with, to then deliver some meaningful feedback for us to take into consideration before we officially launch the platform.

We expect the formal launch to be done in the early-side of the second quarter this year. We have already completed transactions with 10 buy-side counterparties and four dealers, and we are well on our way to add additional dealers in the next few months.

The buy-side and sell-side names we have on board are some of the most significant participants in the loan and fixed income spaces, which speaks to the seriousness at which the market is taking this platform. It is clear that the market is responding to the solution we have put together, which isn’t a surprise to us because we initially started by asking these key participants precisely which issues they wanted solving in the market.

Currently, people are trialling a beta version of our platform which works to replace the current workflows where dealers are having to manually message clients and sift through the volume of messages to find the right price for the loan. Dealers can instead simply stream this price into our system directly and the buy-side can see if they are looking for a particular loan.

They can see all the bids and offers all at once on their screen, and don’t have to second guess that they have seen all the messages with all the offers. It is all right there.

So, instead of picking up a phone, they can negotiate with a click of a button and consummate the transaction directly on the platform. In today’s existing construct of the trading process, there is a lot of room for human error, and Octaura reduces much of it.

Our new platform is a huge evolution for the loan space, as the use of technology is usually taken for granted in things like trading stocks on an app on your phone. However, this digitisation is not trivial when it comes to the fixed income market, so we are absolutely delighted that this is happening and getting such a positive response.

Q: Is the market ready for this kind of digital innovation?
A: For one, it is needed. One of the questions we were asking ourselves three years ago was: is the market ready for the electronification of the loan and CLO market?

This is a structured space, which has always operated the way that it has. When I worked on the CLO desk at Citi, we launched the precursor to Octaura – Velocity – which automated how bidders communicated. So, instead of having individuals calling their associates, they could be put into the system and receive instant feedback.

In the first week, we had a 50% jump in bidding activity from clients. This was beyond my own wildest expectations because I really thought it was going to take people time to get used to things. This is where we learned that if you make good technology that is simple and easy to use, people will just get it.

Good technology is just intuitive and electronically trading loans should not need to be that complex. So, yes, the market is very much ready and they are hungry for this type of solution.

Q: And how is the market reacting to this change?
A: Change is difficult, even when people can philosophically understand the need for it. So, first and foremost, we have to recognise, understand and empathise, and acknowledge that the main challenge with technology is the fear of the unknown.

This doesn’t eliminate what we are doing, because when it comes down to actually using our platform, traders realise that we are really solving for the manual, menial things, that they don’t enjoy doing. For instance, no one on the buy-side or sell-side likes booking trades, because it is just clerical work that doesn’t really add a lot of value to what they are doing and does leave a lot of room for human error. Traders really value our systems, they love the ease of use and efficiency - but it does take some time for people to be able to see that.

Q: What is the significance of the completion of the first fully electronic syndicated loan trade, both to Octaura’s mission and to the wider market?
A: I think this is a seminal moment in the loan market. This market has more than doubled in size in the last 10-12 years from around US$600bn to US$1.5trn, but the systems and processes used within it were designed more than 20 years ago and are really no longer fit for purpose.

We are making that jump in the infrastructure which resolves the question for buy-side and sell-side participants asking ‘how do I continue to trade in this new and much larger environment?’ The market needs someone who is not just going to make it more efficient, but really make it possible to do more trades in one go – which is a massive change to the existing process.

I think you’re going to see a rapid evolution of the infrastructure in this market over the next few years. Investors have chosen to invest in our project precisely because they want to see this transformation.

In doing this, Octaura may even bring more people into the space as our technology can make it easier for different participants to trade. While before if you wanted to trade CLOs or loans, you would need significant resources within a firm to handle the process, automation would allow some shops to participate in this market without the need for such manpower.

Q: What is in store for Octaura prior to the official launch of the syndicated loan trading platform?
A: Between now and the launch, we are testing the first protocols that we are going to launch with. We are going to be adding further protocols later this year, including the very important innovation of portfolio trading capabilities, as we see a shift away from current constructs geared more towards individual loan issues towards a more basket approach – where you can trade maybe 50 loans at a time.

The buy-side is growing in terms of AUM and they are needing to do a lot more with the same channels they were using before. Portfolio trading can make scaling-up like this possible, especially with a platform like Octaura, as they can issue with 100 loans at a time without making any mistakes they may have made manually. Automating the movement of information from the platform and into peoples’ trading systems like this makes it so much easier and more realistic to operate at scale.

When you start showing people these things that are possible under a new construct, with new workflows, they are able to see how much more they can do. Everybody is being asked to do more with less or more with the same, and we are providing the means for people to do that and boost their productivity.

Q: Which other products are you looking to expand into next?
A: We are working towards deepening our bench of structured products - including in CLOs, ABS and CMBS - and we are also looking to expand into Europe in the coming years. Right now, we are going through some registration processes with the regulators, which we hope can be finished in the next few months, which will offer some clarity about the innovations we want to bring to the CLO market.

While there are a lot of similarities in ABS and CMBS markets just by the nature of them both being structured, and by how investors analyse the bonds, there are significant differences as well. We are going to respect the local nuances unique to CLOs, CMBS and ABS - because if you can get something to work, you still have to adapt it to that local market.

Q: How do you expect the upcoming recession to impact Octaura’s business?
A: It’s always challenging for both us and our customers when we go through rough patches like this. There are a lot of headlines about substantial lay-offs happening in the finance and technology industries. Banks aren’t retrenching and moving away from this market; they are still trading and showing up for clients, but they are reducing their headcounts.

This again speaks to the view that the market is being asked to continue to do more with less, which Octaura can assist with. Octaura can offer another way for these banks to engage with their client base more efficiently. We’re using this moment to bring in additional banks - we are getting a lot of enquiries from additional banks right now, even from the European market, which is on the cards to enter some time in 2024.

There is an underlying theme here about the efficiency of workflows in terms of STP, trade booking, minimising search, reducing search costs, etc. On an infrastructure level, there are two things we are looking to solve.

On a fundamental level, the first thing is to increase the convenience of the customer on the buy-side and sell-side – which we have already directly proven. The other piece you’re going to see us working on later this year is the expansion of our data and analytics products – providing more tools to clients that they need before they’ve completed the trade and help them to make sure they are trading at the right price.

This idea of confidence is going to be very important for a lot of the stuff that we are doing at Octaura, as what we are doing really comes down to two things – convenience and confidence. Convenience, as in understanding the pain points for clients and resolving them; and confidence, as in giving them the information that helps them be very clear and motivated about the prices at which they are actually executing transactions.

Claudia Lewis