Use of information in the secondary debt market for loan trading
Produced in partnership with Diane Roberts of Reed Smith LLP
Use of information in the secondary debt market for loan trading

The following Banking & Finance guidance note Produced in partnership with Diane Roberts of Reed Smith LLP provides comprehensive and up to date legal information covering:

  • Use of information in the secondary debt market for loan trading
  • Is loan trading on the secondary market a regulated activity?
  • Establishment of information barriers
  • Use of 'Big Boy' letters
  • Relevant voluntary guidelines issued by the LMA, LSTA and other trade associations

At present, there is no consistent approach as to how the possession of information (particularly confidential or material non-public information, being information that a reasonable investor would consider important in buying, holding or selling debt, including any information that could reasonably be expected to affect pricing of the debt) impacts upon the secondary debt market for loan trading. There are many reasons for this. One reason is that loans as a product and the trading of loans are not regulated, whereas some of the market participants who trade loans are regulated and others are not. Another reason is that the voluntary and non-binding rules and guidelines of the Loan Market Association (LMA) in the UK and the Loan Syndication and Trading Association (LSTA) in the US and other professional associations surrounding the use of information are unclear, competing and conflicting. A further reason is that loan trading by corporate insiders, such as borrowers and sponsors and their affiliated or controlled funds, is increasingly governed by the relevant loan documentation.

Is loan trading on the secondary market a regulated activity?

The UK position

The use of information in the secondary debt market for loans in the UK is somewhat undefined. This is largely because loans are not regarded as constituting 'financial instruments' (generally regarded as including shares, bonds, units in collective