Smartfund allows for bids to be placed automatically for investors against borrower applications / listing based on mandate rules defined for the investors. Smartfund is made up of the following:
- Business rules that control the overall parameters that apply to all investors.
- Investor mandates which contain the rules for placing the bids for each investor.
- BOTS which is the engine that places the bids on behalf of the investors.
The business rules and the investor mandates exist at a combination of finance company, originator group and product. This allows the finance company and the investors to be able to define different rules for different products and even different originator group that originate the products.
Once the Smartfund BOTS engine has placed bids, they will appear under "Bulk Bids" against the listing / application and will need to be approved before they become live active bids.
See here for details on how to approve bids placed by Smartfund Bots.
Business Rules
The use of Smartfund to place bids automatically is defined and controlled in the "Bid Values" business rule on the originator group product. From within this business rule the finance company can indicate if Smartfund bidding is to take place and define things like:
- Investment categories that are to be included in the "Institutional investor segment".
- Investment categories that are to be included in the "General investor segment".
- The maximum number of bids an investor can miss out on
- The maximum number of investors from the general investor segment that will be allowed to bid per application / listing
- The maximum number of investors from the general investor segment that will be allowed to bid per application / listing if the first try of general investors does not fully fund the application / listing
- The maximum number of bids an investor in the general segment can miss out on
- The minimum and maximum allocation percentage that will be attempted to be assigned to investors in the institutional investor segment.
- The list of investors that will be included as residual investors and the rule for using them as residual investors. Think of residual investors as the "garbage collectors". They will allow no leftovers. Residual investors attempt to ensure applications / listings are funded while still keeping them within mandate. It makes sense that residual investors will have a wider mandate range.
- How will rates be applied to investors that bid on the application / listing.
Common Clearing At Maximum Investor Bid Rate
Common Clearing At Minimum Investor Bid Rate
Common Clearing At Maximum Rate as per Credit Grade and Term
Common Clearing At Minimum Rate as per Credit Grade and Term
Common Clearing At Application Rate
Investor Mandates
Each investor will need a mandate to be setup and approved in order to participate in the automatic assigning of bids to an application / listing. Details on how to setup an investor mandate
can be found here. Investor mandates can also be copied and the details
can be found here. Once a mandate is created it needs to be activated before it will be used by the BOTS. Details on how to activate the mandate
can be found here.
NOTE!
The rule for the investor mandates is:
If
the investor has NOT supplied any details for a specific criteria of the
mandate then the assumption is made that the investor is not concerned with the
criteria and therefore is allowed to bid. However, if the investor supplied
information for at least one criteria then the assumption is made that the
investor is concerned and therefore bids will only be placed based on criteria
supplied.
Example.
If an investor supplies no details for application credit ratings, then bids
will be placed on all applications with any credit rating. However, if the
investor supplies criteria to have maximum of 40% to credit grade A then bids
will only be placed on applications with a credit grade of A and only to a
maximum of 40 %
Example
2
If
an investor supplies no details for insurers, then bids will be placed on all
applications with any insurer. However, if the investor supplies criteria to
have maximum of 40% to insurer ABC then bids will only be placed on
applications with an insurer of ABC and only to a maximum of 40 %
Same
rule applies to all the mandate criteria including portfolio criteria.
BOTS Engine
BOTS is the engine that uses the business rules and investor mandates and places the bids automatically for the investors. The Clearmatch platform comes with a BOTS engine but a finance company that wishes to use it's own formulas and calculations to place bids, can develop their own BOTS engine. The Clearmatch API's will allow business rules, investor mandate rules and investor portfolio details to be extracted from Clearmatch and for bids to be placed in Clearmatch in order for a finance company to develop their own BOTS solution.
The Clearmatch BOTS is generic enough that any finance company can use, so unless a finance company has specific requirements like extracting data from external sources in order to determine if a bid must be placed for investor, there is no real reason not to make use of the Clearmatch BOTS.
A workflow notification can be setup within Clearmatch that will fire a notification / signal to a service that will in turn call the BOTS service whenever an application / listing is approved by the credit department and is now ready for bids to be placed by investors. It is within this notification service that a finance company can replace the call to the Clearmatch BOTS with a call to their own proprietary BOTS.
It is important to understand how the Clearmatch BOTS works. Below is a high level summary of how it works and what order it does things. The order presented below is the exact order that occurs in the BOTS.
1. Check for possible investors
Only investors that have funds available to invest and the application / listing details meet the non portfolio based investor smartfund mandate criteria can place bids.
The portfolio based mandate criteria can only be dealt with later at the amounts allocated to each investor need to be taken into account in order to see if the portfolio mandate percentages will be breached.
Only investors that meet the below will be available to the BOTS:
- Customer is active
- Investor is AML verified
- Investor has funds to invest i.e. they have sufficient investable balance. The investable balance is the available balance – escrow balance.
- Investor must have an investment category that has been assigned to either the institutional investor segment or the general investor segment as defined in the bid values business rule on the originator group product of the loan note / listing, with the exception of the residual investors, i.e. residual investors will be included regardless of their investment category.
- Investor must have an active smartfund product mandate for the finance company, originator group and product of the loan note / listing.
- Investor customer does not have a restrictive mandate that prevents investing on the asset class (asset class restrictive mandate)
- Investor customer does not have a restrictive mandate that prevents investing on the asset class, originator group and product (product restrictive mandate)
- Finance amount must be within the minimum and maximum finance agreement amounts on the investor smartfund product mandate
- The finance amount may not be more than the “maximum finance agreement size” allowed for the credit rating of the application / listing as defined in the investor smartfund product mandate.
- All the borrower details as per the investor smartfund mandate must be valid examples
Preferred state the borrower resides in
If the borrower is a personal customer
Min and max age
Min income
Min and max time at current employer
Min and max DTI
Min and max surplus
Home owner %
Non home owner %
Preferred employment status
Preferred employment industry
Residential address type of residence
If the borrower is a business customer
Min income
Min and max DTI
Min and max surplus
2. Calculate bid rates and assign to the investors
The rates will ultimately determine which investors from the list of possible investors will have bids placed as the investors with the lowest rate will be assigned bids first. This rate calculated is not necessarily the rate that will be allocated to the bid, as that is determined by the details in the bid values business rule as detailed above example it could use a common clearing price or it could use the rates calculated.
The rate is calculated using two factors, the urgency and the desirability which together form the bid strength.
- Urgency
- The urgency is used to ensure the investors get allocated bids as evenly as possible based on the money they have invested. It is based on the total invested in the risk category and term as a percentage of the total funds the investor has available to bid and the remaining committed to invest. Term is not taken into account if the payment frequency on the application is set to “on settlement”. The urgency calculation uses:
- Total Investment = all investments the investor has that have the same credit grade and term as the application / listing being funded + all bids that have not been approved i.e. bids with a status of “active, accepted” that have the same credit grade and as the application / listing being funded.
- Remaining committed funds are the funds the investor has committed to invest but not yet deposited in the fund account. So, in other words the money will be received in the future. This is located on the fund account of the investor.
- Phantom Committed Funds – this will be used in situations when the finance company would like to try and increase the chances of an investor getting a bid. Increasing the phantom amount to a high value will result in the urgency being increased which will result in a lower rate which in turn will give the investor more chance of receiving a bid. Phantom committed funds are available on the fund account of the investor. Only active values that fall within the date range will be used.
- Number of times an investor has missed out on receiving a bid - it could happen that an
investor does not receive a bid in a long time, especially when there are a
large number of investors or if issues have occurred. If an investor has missed out more than the "missed count" on the business rule, then the urgency will be increased which will result in a lower rate which in turn will give the investor more chance of receiving a bid. There are 2 settings which determine this, the, maximum no bid count on the bid values business rule
on the originator group product and the general investor segment maximum no bid count setting on the bid values business rule on the originator group
product
- Desirability
- Desirability determines the investors appetite for bidding on the credit grade and term of the application / listing, taking into account the percentage of their portfolio that has been allocated to the credit grade and the term versus their mandate percentages for the credit grade and the term bucket within an allowable margin. Term desirability is only taken into account if the payment frequency of the application is not set to “on settlement” as in this case the term is irrelevant.
BOTS retrieves the minimum and maximum bid rates to determine a range that the bids can be calculated between. The minimum bid rate = minimum bid rate (from the credit rating) + minimum bid factor (from term per credit rating). The maximum bid rate = maximum bid rate (from the credit rating) + maximum bid factor (from term per credit rating).
It then adjusts the minimum range to be the midpoint between the minimum and maximum range values. This minimum range is then the starting bid rate for the investors. The bid rate will adjust for each investor as the bid strength calculated above is applied resulting in investors having different bid rates.
3. Calculate the bid amount for each investor
The bid amounts are calculated and allocated in the following order until the application / listing is fully funded. Once fully funded, no further amounts are allocated to any other investors. In each section below amounts area allocated to investors with the lowest bid rates.
i. Investors that have been assigned a minimum allocation commitment on
their mandate mandate for each application / listing.
- if
not fully funded then investors that belong to the institutional investor
segment based on the “maximum allocation percentage to institutional
investors” on the business rule. The bid amount for the institutional
investors will start at the amount that is equal to the investors total
investable balance + their remaining committed funds as a proportion
of the total investable balance + remaining committed funds of all
the investors that are allowed to place a bid on the
application, i.e. the investors as determined above, proportionate to the
percentage that is allowed for institutional investors as per the business
rule.
- if
not fully funded then investors that belong to the general investor
segment to the “maximum general investors per application” on the business
rule. The bid amount for the general investors will start at the amount
that is equal to the investors total investable balance + their
remaining committed funds as a proportion of the total
investable balance + remaining committed funds of all the
investors that are allowed to place a bid on the
application, i.e. the investors as determined above, proportionate to the
remaining amount of the application / listing that needs to be funded.
- if
not fully funded then try an additional number of investors that belong to
the general investor segment. The number to retry will be as per the
to “retry general investors per application” on the business rule. The bid
amount for the general investors will start at the amount that is equal to
the investors total investable balance + their remaining committed
funds as a proportion of the total investable balance + remaining
committed funds of all the investors that are allowed to place a
bid on the application, i.e. the investors as determined above,
proportionate to the remaining amount of the application / listing that
needs to be funded.
- if
not fully funded then try increase the bid amounts of the investors that
belong to the institutional investors that have already bid.
- if
not fully funded and there are residual investors, allocate evenly to
residual investors. When the residual investors are setup in the business
rule if they are setup to “residual investor only” the investor will only
receive bids under the residual investor section. If set to “residual and
investor segment” the investor will receive bids under the residual
investor section as well as the investor segment they fall under.
This is important as there may be investors that are only willing to be
residual investors and receive bids only if the application / listing
cannot be fully funded by other investors OR you may have residual
investors that want to participate as investors but are also willing to
pick up all leftovers to ensure applications are funded.
vii. if not fully funded then
- if there are residual investors, try increase
the bid amounts of the residual investors that already have bids
- if there are no residual investors try
increase the bid amounts of the general investors that already have bids
When the amounts are being assigned the values will not break the minimum and maximum bid values on the business rule and attempt to keep the investors as close to their portfolio mandate rules as possible. It is not possible to always be perfectly within mandate as for example the first bid on an application for a specific credit rating will result in the portfolio being 100% allocated to that credit grade, regardless of the mandate portfolio percentages as there is only one bid.