Following the revelation that the new Chancellor Rishi Sunak argued for an SME retail bond marketplace in 2017, Ablrate and ASMX founder David Bradley-Ward has penned an open letter offering some advice, from one fintech veteran to another…
I read with interest your ideas published in the Centre for Policy Studies in November 2017 where you proposed a ‘Retail Bond Market for SMEs’.
You discuss a £35bn funding gap that could be filled by such a market and how that market, if the costs were to be significantly less than the ORB market, could really boost the economy by supporting SMEs in their acquisition of expansion finance.
This is a very bold and visionary idea that has all the pieces of the jigsaw in place right now and could be delivered within months and not years. My fellow innovators in the peer-to-peer and alternative finance space have been providing SMEs with billions of pounds worth of finance for many years now. So, your suggestion that savers could assist SMEs is correct and we are already doing it.
Many of the companies in the P2P space have their own markets which act, in a smaller way, as the market you suggest. Our market at Ablrate, for example, has traded £44m of the £53m we have originated, and there are many who have traded multiples of this on their market.
So, the first part of your idea has been and is being done affectively. We also have tradable debt that does not need to be securitised as we have the regulations in place for bilateral loans to be created and traded.
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As you concluded: “the government should support the creation of an AIM-type exchange for SMEs to cost-effectively raise debt capital from ordinary investors via tradable corporate bonds in small issues.”
You went on to say that “boosting lending to SMEs isn’t just about attracting ordinary retail investors. It’s about making it easier for non-bank financial institutions with large pools of capital – such as insurers and pension funds – to invest in the sector”.
The issue with creating an ‘AIM-type exchange’ is that you will end up with AIM-type set-up costs and settlement that does not allow small trades to be completed and is slow to settle. Inevitably there will be nominated advisors or sponsors, the process will become bloated, slow settlement and expensive and, in the end, will end up with no liquidity and a frustrated customer base.
Fortunately, we have the solution for you. ASMX, a technology we have been developing since 2017, will be the very market you suggest. It is a software solution where all platforms from P2P to balance-sheet lenders can list their debt and have it trade.
What it really does is bring down the cost of settlement so low that £1 can be traded as efficiently as £100,000. If you want retail investors to help SMEs, you have to have that feature. It will also be a venue where settlement is not measured in days but milliseconds. This feature will create a real trading venue that will attract more participants into the market.
FIX messaging will also allow access to legacy trading systems providing efficient access to tradable debt for pension funds, small institutions and family offices.
The P2P and alternative finance space is already originating billions in loans for SMEs and with a market for trading that debt efficiently that will be boosted. We already have regulations in place, a committed and talented fintech eco-system, and the will to make such a market a huge success.
If this market and eco-system was supported by a progressive Chancellor, committed government and regulators, our industry could not only provide the solution you suggest but boost our SME marketplace at a time that we really need it.
We are passionately moving towards delivering this solution in the next couple of months, but with your support our business and our industry could easily deliver on the vision you suggested back in 2017…and you can have all the glory – we are just about solving problems.