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A Transparent Market Place for the Exchange of Trade Finance

By Aarti Rao, Managing Director, LiquidX

Aarti Rao, Managing Director, LiquidX

LiquidX Inc. is the largest electronic marketplace for the exchange of Trade Finance and Working Capital assets. Through its leading auction-based protocol and technology it provides a transparent market place for the exchange of Trade Finance and Working Capital assets, including receivables and supply chain finance solutions.

"The technology interface is global, providing corporates with global reconciliation and access, as well as the ability to work with multiple investors via one portal"

Our seller base is diverse and deep with credits from the largest global companies, and our buyer base ranges from the largest global banks to community banks, hedge funds, endowments, and global asset managers. The trading platform has executed over $10.3 billion of traded volume and processed over $42 billion in post-trade settlement to date.

The Trade Finance and Working Capital asset class has evolved over the years, but the market is still a private, non-competitive, documentation-heavy and opaque. Given the lack of a seamless global platform, corporate treasurers are forced to pick a single bank to meet their needs, or a multi-bank technology platform that does not provide transparency and competitive pricing.

Our solution is simple—to bring a capital markets approach to Trade Finance and Working Capital. The technology interface is global, providing corporates with global reconciliation and access, as well as the ability to work with multiple investors via one portal. The auction-based technology provides a competitive transparent market price; a single agreement to transact with all parties cuts down on documentation, legal costs, and set-up time.

In addition to the cost savings, LiquidX solves three major issues for a corporate treasurer. Firstly, the ability to access multiple banks via a single portal means a company can share their banking wallet across their entire bank group and does not have to go down the route of a time consuming RFP process to select a single bank. Secondly, counter-party risk associated with being reliant on a single bank. Today’s regulatory environment is driving banks to constantly change behavior, their product offering and the geographies they offer them in. As banks struggle with new operating models, they may become unpredictable partners. The risk associated with this is high, especially when it affects something as critical as access to working capital. Thirdly, doing more with less– treasury teams are stretched as corporate objectives grow, so having a solution that does not restrict corporates to specific amounts, credits and tenors provides a treasurer with the flexibility to grow their capital base quickly and efficiently.

All working capital structures contemplated on the platform are off-balance sheet, thereby offering large corporations a smarter, faster and more cost-effective way of managing risk and balance-sheet metrics in conjunction with working capital.

As corporates use Fintech platforms to drive efficiencies and cost savings, we see banks and investors changing their behavior to realize the benefits LiquidX and other Fintechs provide. Two broad themes have emerged that are driving investors to embrace technology platforms and the solutions LiquidX offers put us at the forefront of meeting these needs. For the larger, global money center banks, the regulatory challenges require cost cutting while continuing to grow revenues and returns. A number of our buyers have used us to side-step these pressures. As an example, large international banks can now work with, and originate from the US corporate market, without having to build their own technology and operations support. In addition, being able to originate in the primary market is key for banks as it allows them to generate an improved return on capital, and forego the costs associated with the secondary market. The second theme revolves around investors outside the traditional Trade Finance banks, these investors comprise of community banks, specialty finance companies, asset managers, endowments and hedge funds, all of whom have large sums of capital to invest. Now, via LiquidX they have an option to deploy this capital into the Trade Finance and Working Capital asset class.

Given that the credits, currencies and geographies traded on the platform are diverse, the LiquidX marketplace offers investors a free and strategic option that bodes well with bespoke buying criteria. The over-arching concept buyers embrace is the ability to decide when and what portion of an asset they buy; buyers aren’t locked into specific amounts and prices which allows them a considerable amount of flexibility–this concept is specific to LiquidX and is not offered anywhere else.

In 2016, one of our top priorities was to build a strong scalable foundation that is not burdened with high legal fees. We have achieved this by setting up a legal structure allows for relevant disclosures when needed, and considers the umbrella term ‘Financial Asset’ under a single agreement. This is extremely powerful for market players as it, firstly, allows them to grow with us globally, across different asset classes, without the need to contemplate a new agreement. Secondly, it provides the option to access all participants via one agreement. Thirdly, it cuts down on legal costs associated with signing multiple bilateral agreements to achieve the scale available on LiquidX–this expense is often a minimum of $50k per agreement. Conceptually speaking, a buyer or seller wanting to trade with ten counterparties could save up to $500k of legal fees.

Our team of seasoned bankers and financial technology professionals that enables us to fully understand our client’s needs and deliver solutions that are efficient and effective. Our platform is built on a secure and robust funds flow and KYC structure that is designed to protect all players in our marketplace, and our growth is driven by our clients—we believe in structuring new products and solutions to meet real world needs by putting the user in control.