Trade Finance: Revolutionizing a Medieval Market

June 12, 2001

Abstract

Boston, MA, USA June 11, 2001

Trade Finance Market Poised for Huge Online Growth  

In a new report entitled , Celent Communications examines new alternative trading systems (ATS) for trade finance assets, probably the most unwieldy financial instruments to be traded online to date. This US$2.5 trillion market consists of bank-guaranteed financing to facilitate the importation of goods and commodities, particularly by emerging markets. Due to the complexity of these instruments, however, the secondary market remains underdeveloped.

Whether a new offering or a sale in the secondary market, a trade finance asset is backed by a cumbersome set of documents and deals vary widely in structure, making them ill-suited to automation. For this reason, the development of alternative systems for trade finance assets is an intriguing case study of the application of online technologies to difficult, irregular asset classes.

According to Neil Katkov, the author of the report, "Due to the complexity of trade finance instruments, investors tend to shun this fixed-income asset class, even though yields often match or outperform comparable bonds. The first generation of trade finance exchanges will go a long way to reducing these barriers to participation and draw new liquidity to the market."

He went on to comment, "However, the current trade finance exchanges are essentially online B2B exchanges. Trading in these complex, irregular assets won't really take off until they are standardized so they can be traded on more advanced systems. We expect this to happen by the end of 2003, at which time we will see exponential growth in transactions. In the long term, this increased activity will draw more of the far larger pool of primary issues - estimated to exceed US$3.6 trillion by 2005 - into the secondary market. At that point, the trade finance market will rise from its current obscurity to become a significant asset class for institutional investors."

The report includes a review of the two trade finance exchanges currently in operation, LTPtrade.net and ITFex.

A Table of Contents is available online.

of Celent Communication's Wholesale Banking research service can download the report electronically by clicking on the icon to the left.

        

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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Michele Pace
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Table of Contents

 

Boston, MA, USA  June 11, 2001

Return to report abstract  

EXECUTIVE SUMMARY

3

INTRODUCTION

4

MARKET OVERVIEW

7

 

Trade Finance Instruments

8

 

Trade Finance Assets

10

TRADE FINANCE ATSS

12

 

LTPTRADE.net

12

 

ITFEX

13

 

Functional Overview

15

FUTURE TRENDS

18

 

        

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