Rasori’s Relentless Releases Episode 7:

Hey everybody. Welcome to another week of Rasori’s Relentless Releases.

My name is Justin Grant and I am Director of Investor Services here at MCT.

And today, we are excited to talk about some recent enhancements we’ve brought to BAM Marketplace for buyers and sellers.

Since 2018, when Wells Fargo first released their Bid AOT program, MCT has championed the novel execution by collaborating with leading investors to automate this process within the Bid Auction Manager (BAM) platform.

The result has been a fully integrated, automated process that has allowed MCT clients to easily take advantage of the benefits of this execution without any additional work other than the click of a button.

Since then, over 50,000 AOTs for over $60 billion in volume has been transacted in MCT’s Bid Auction Manager.

That’s a cumulative total savings of over $30 million for MCT clients.

Not to mention all the cash benefits that helped to weather some of the turbulent markets we have experienced along the way.

Now, we are excited to show you how MCT has added this groundbreaking functionality to BAM Marketplace so that participating buyers and sellers can leverage this execution on an even larger percentage of their production.

But first, let’s recap what exactly is a Bid AOT and what are the benefits.

In an assignment of trade, (AOT) a lender delivers loans with like product and coupon into an existing trade of the same product and coupon.

A tri-party agreement between the lender (the assignor), the investor (the assignee), and the broker-dealer (the buyer) is executed which assigns the trade over to the investor the lender is selling loans to.

In order to true up the gain/loss of the trade, the investor updates the final price on loans being assigned by an adjustment that offsets the gain/loss they are taking on the newly assigned trade.

So, net execution to the lender is the same, but now it’s all wrapped into the price of the loan being sold which has significant cash implications.

First, in a rallying market where trades are out of the money, this helps to reduce the mark to market exposure with broker-dealers and thus lessen the chance of a margin call.

And I know a lot of you took advantage of this last year when COVID first hit and we had a massive rally that left many of your hedge positions massively out of the money.

On the flip side, in a market selloff, this will allow the lender to receive a better price on their loans since the hedge gains are getting added on to the current price.

No more waiting weeks or even months to receive the proceeds at time of settlement.

The other main advantage of the AOT is avoiding the pair off on the trade which allows the lender to save on the bid ask spread, plus any spread that the dealer would take.

On conventional loans, this is often at least three basis points and on government this is closer to six basis points, and even higher on the larger coupons. So, the savings are substantial.

Lastly, because MCT has completely automated the Bid AOT, what used to be a cumbersome process that involved manually filling out tri-party agreements and scanning or even faxing them over to investors, can be done with the click of a button.

So, the Bid AOT allows sellers to take advantage of the granularity in pricing via the bid tape while still leveraging the savings and cash flow improvements of an assignment.

It really is the best of both worlds.

So, what’s the advantage for investors?

First, it allows you to acquire the hedge positions for the production you are buying that you’d need to add anyway.

Second, because MCT incorporates the bid ask savings for lenders into their best ex, this allows you to offer a more competitive price relative to your competition who aren’t offering the Bid AOT.

So, now you’re three to six basis points stronger without having to your lower margins.

Now, participating BAM marketplace buyers can leverage MCT’s autobid pricing technology to offer Bid AOT to MCT clients.

Our pricing tools will allow buyers to set their own assignment parameters and automatically calculate AOT ratios and strike deltas to adjust their bids for AOTs.

We’ve also integrated Agile’s Trade Auction Manager (TAM) platform so that upon acceptance, tri-parties will be automatically assigned and sent to TAM dealers for final approval.

And this is the game-changer, because all three necessary parties are transacting on the same system of record.

We can remove the back-office headache of processing and confirming the assignment.

Dealers will have a real-time look at trades being assigned now that investors don’t need to manually calculate final pricing and wait days for operations to process and communicate the assignment.

This means faster acceptance and fewer errors so it’s a win-win for everyone.

For participating sellers, this means you can now potentially leverage this execution on an even larger percentage of your production, allowing you to save even more on trading costs.

If you haven’t done an assignment, I encourage you to talk to your MCT trader who can walk you through your options given your current investor set, or even recommend new investors who are offering Bid AOT.

If you aren’t yet opted into BAM Marketplace, I recommend looking at some of the resources we have on our website.

You can always reach out to your trader or myself and we’d be happy to walk you through the benefits.

For those of you already leveraging BAM Marketplace, keep an eye out as participating buyers begin to leverage the tools and offer up Bid AOT as an option for you.

That’s all for this week, guys. Thanks for joining and we’ll see you next time.