The Multi-Trillion Dollar Trade as an Asset Class

Since the global financial crisis and the subsequent implementation of stringent financial regulations, banks have been consistently moving towards the so-called originate-and-distribute model, keeping as much of their lending portfolio off balance sheet in order to retain working capital flexibility. Today, technology developments are making it possible to implement such a model on a much broader, automated scale.

In view of those market-wide developments, ITFA recently joined the Trade Finance Distribution Initiative (TFD Initiative) with the goal to contribute to the development of market practices and standards that will help trade originators make trade finance accessible and appealing to a broad section of investors.

Sean Edwards, Chairman of ITFA, Head of Legal and Special Adviser to the Global Trade Finance Department at SMBC Europe describes the market-level opportunity: “Distribution of trade risk was once simple but, with the introduction of more stringent regulatory requirements and capital rules, has become more difficult to achieve efficiently. Technology offers the greatest opportunity to overcome these challenges and also brings in a potential new source of liquidity in the shape of new non-bank investors.”

Fourteen leading global financial institutions have launched a drive to use technology and standardisation for the wider distribution of trade finance assets. ANZ, Crédit Agricole CIB, Deutsche Bank, HSBC, ING, Lloyds Bank, Rabobank, Standard Bank, Standard Chartered Bank, and Sumitomo Mitsui Banking Corporation are among the banks backing TFD Initiative which is powered by Tradeteq, the global trade finance distribution platform.

“Trade finance is the oldest banking product and the only one that couldn’t be efficiently accessed by institutional investors. Smart technology now enables investors to access, understand, and execute trade finance investments. This will open a trillion dollar opportunity and create additional funding for corporates worldwide.”, says Nils Behling, Tradeteq Founder and CFO.

Trade finance presents a compelling multi-trillion dollar investment opportunity for institutional investors seeking sources of attractive risk-adjusted returns with low correlation to stocks or bonds. TFD Initiative will initially focus on creating common data standards and definitions to enhance operational efficiency and improve risk management, creating a blueprint for global trade finance asset distribution.

Discover the recent press release on TFD Initiative as well as the dedicated web site www.tradefinancedistribution.com where the initiative white paper entitled “The end of balance sheet lending? Originate and distribute for trade finance capacity” is available.

Banks interested in joining the TFD Initiative may reach out to André Casterman, Chair ITFA Fintech Committee.

Read the freely accessible press articles on Ledger Insights, Financial IT, FStech, Finextra, The Global Treasurer and Banking Tech. Also available on Financial News, BCR Publishing, GTR and TXF.