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Changes Today to the Lending Club Trading Platform

by Peter Renton on July 15, 2011

I received an email last night from Lending Club announcing some changes to their trading platform. The trading platform, run by FOILIOfn, is where investors can buy and sell notes that have already been issued.

There are three main changes that are being implemented on Lending Club’s trading platform starting today:

  1. Charged Off and Defaulted Notes can no longer be listed for sale – this one is a no brainer. Investors should never have been allowed to list defaulted notes for sale in the first place.
  2. Listings will automatically expire 7 calendar days after they are listed – this is the change that I expect will have the most impact on investors. Some notes that I have listed for sale on the trading platform have taken two or three weeks to sell. Now, I will have to go in and re-list them after seven days.
  3. Markup premiums will be capped at 70% – to this one I say, “About time!” For years now the trading platform has been littered with notes that were priced in a ridiculous way. Just this week I was in there and I saw a note that had one payment left, the total outstanding was less than $1, and the note was priced at $25. No one would ever buy that note so it was just cluttering up the system.

Like any change I imagine there will be some people that disapprove. But from a note buyer’s perspective these are all positive changes. Let’s face it, if we want a vibrant trading platform it needs to be easy to use from both a buyer’s and a seller’s perspective. In the past I think the platform has skewed towards being better for sellers than buyers, these changes will make it a little more equitable.

However, I think there is a long way to go before the trading platform is as easy to use for buyers of notes as it is for investors on the retail platform. The trading platform is in dire need of some better filtering so investors can more easily find the notes that interest them. There was no mention of that in today’s changes.┬áBut there was this little tidbit at the end of Lending Club’s email that I found interesting:

These changes are part of a larger, multi-month, project to improve the features and usability of the Note Trading Platform.

It seems that the trading platform is getting an overhaul, which is great news for all peer to peer lending investors. Maybe we will see some better filtering options in the future.

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gharkness July 15, 2011 at 7:26 am

Listening to your Webcast last evening (thank you for taking the time – I learned a lot) gave me “courage” to list a couple of poorly-performing notes I had purchased (Oh, the mistakes I made when I was a newbie – I’m still paying!).

The acknowledgement I received when I listed these notes on the Trading Platform indicated that they would expire in one month. This was probably only minutes before the new seven-day expiration date was instituted. I was wondering whether the expiration date will change now as a result of the new rules, or whether they will honor the extended dates for notes already listed, but after checking my account, I see they are honoring the original one-month date. Also, I didn’t receive this email yet. I assume they will send it to all investors?

Also, let me just say that I appreciate your comments about how to use Lendstats.com to choose some of the best-performing notes in your webinar last night. This helped a lot!

Larry V July 15, 2011 at 10:41 am

Peter, thanks for putting on the webcast. I had to miss a bit of it since I was driving my son to an appointment, so I’m hoping you will make a download or stream available.

As far as folio goes, I’d like to see a few changes. A big one would be a setting that would allow me to post a note for sale, but have it automatically withdrawn from sale if the status goes up. I posted 2 notes on folio that were “In Grace Period” and i priced them at a discount. No one bought them after a few days, but then whenever LC changes notes status, they both changed to current. Then my botes were snapped up immediately, since they were then waaaaay underpriced. Another need-to-have is the ability to search on loan number. If i have a late or grace period note, i like to look find other notes on the same loan so i can price mine accordingly.

gharkness July 15, 2011 at 10:47 am

I just made a wild-assed guess on how to price the notes I am selling, but they have been a pain since day one, and I will be glad to get rid of them. I will put it down to ‘expensive experience,’ because when I bought these two notes, I didn’t yet understand the concept of “never bet more than $25 on one note.”

It’s interesting, the idea that a note is snapped up right away when status returns to current. Hadn’t thought of that! However, I am thinking by the time I get to the point of putting it on the market, I will consider it ‘hampered’ by its history. I don’t like messing with people who pay late, or don’t pay at all. I would, however, think it a good idea if we had a heads-up when the status is about to change.

Brian B July 15, 2011 at 12:01 pm

I’m a little curious why they went with 70% markup cap (as opposed to what I thought would have been more useful – no amounts that result in a negative Yield to Maturity). The 70% cap gets rid of the ridiculous 10000% markup loans, but that’s a pretty low percentage of the clutter. Of the 11k “current” loans on folio today, only ~200 of them have markup over 70%. There are an additional 1000 loans that have less than 70% markup, but result in a negative Yield – which are notes that could only be purchased by accident.

7-day limit is a great change for clutter reduction. I would guess that the likelihood of a note selling after the first week is very low anyway. (I bet it drops pretty steeply after just 1 day even). This is good for buyers also, I expect sellers to naturally drop their prices a little in order to try to get noticed and sold in this quicker timeframe.

I like that LC used the word “usability” in their email. “Usability” sounds a lot like “filtering” to me.

Peter Renton July 15, 2011 at 12:31 pm

@gharkness, It looks like you got it right before they switched to one week. That is the main way I have used the trading platform – to unload the notes I considered mistakes, that I would never have purchased today. Glad you are going to use Lendstats – it is one of the best tools we all have as investors.

@Larry, These are all good ideas. I am going to ping the Lending Club person who is responsible for the FOLIOfn project to see if he can shed any light on future features.

@Brian, The logic that was explained to me by someone at Lending Club was that 70% is the markup for fair pricing of a G5-rated 60 month note on their first payment. So, in theory no note should ever need a higher price than that.

I think the upshot of these changes is that in a month or so we should see a dramatic reduction of notes on the platform. I really hope you are right that some decent filtering is in the works. I have pretty much ignored the platform as a buyer because I can’t do the filtering there like I can do on the retail platform.

Jeff July 15, 2011 at 1:10 pm

Any plans to post the webcast up for review by people who couldn’t make it?

Peter Renton July 15, 2011 at 1:41 pm

@Jeff, Yes, look for the webcast here on the blog early next week.

storm July 18, 2011 at 1:52 pm

@Larry V, I believe, in theory, when a loan payment is made, the sell order is supposed to be automatically cancelled. In my experience, sometimes it is and sometimes it isn’t, and I think the people buying up those notes purposefully take advantage of it. My other gripe is sometimes a loan doesn’t go into “grace period” status until up to 10 days after the payment was due. That leaves me 5 days to sell it before it is officially late…when it seems it is much more difficult to sell the notes without a deep discount. I generally price the note a little high and slowly bring down the price each day until someone takes the bait. There really needs to be a FAQ or help document or something saying what Lending Club/FolioFN is going to do when loans payments are past due, and then sticking to it.

+1 for better filtering options on the trading platform. I’ll even take a “download all” link that I can scour through with a Perl script.

Jeff July 19, 2011 at 3:44 pm

Looks like it has yet to take effect. Lots of 70%+ markups still exist…

gharkness July 19, 2011 at 4:37 pm

I believe that the new rules will take effect as the old listings expire. So any of the 70% plus markups will not be renewed, but they won’t go away until their time runs out. I could be wrong, though!

Any new listings will likely not be accepted at that markup, though.

Peter Renton July 19, 2011 at 5:29 pm

@storm, These are all valid concerns. I hope they can be addressed in upcoming improvements to the platform.

@Jeff, I think @gharkness is right. These changes have only been in effect for a few days, it will take over three weeks to get rid of all the loans under the old rules. Then, we should see a cleaner trading platform.

stilltrackin March 12, 2012 at 6:32 pm

Did anything change recently (since February, 2012) on the trading platform? There seems to be very few discounted notes / deals of any kind. Even notes I’ve listed at a discount seem to take longer to sell. Just curious.. Has anyone else noticed this? Any idea what caused the change?

Marc March 12, 2012 at 10:46 pm

@stilltrackin, I have noticed a few changes. The biggest is that newly Issued do not show up as never missing a payment. It makes it harder to find newly Issued Notes. This change happened about that same time.

About the same time that this change happened I started using my new Chrome Browser extension, and started choosing Notes in three different ways, Discounted, Newly Issued High Yield and overall High Yield. I have noticed that it is getting hard to find discounted Notes. I thought it was just because my extension was filtering out things I didn’t particularly want.

There are “natural” causes of few discounted Notes (lots of new people investing, or large investors slowly buying Notes). When I deposited my largest chunk of money, I found that I needed to slowly buy Notes as I was scraping the cream off the top and needed to let more Notes come in naturally to back fill the top Notes I was buying.

What is curious is that you said that you are having a hard time selling discounted Notes. If that is true then it sounds like something deeper going on than just market adjustments.

Marc March 12, 2012 at 11:46 pm

@stilltrackin, I just put together a blog post and it looks like for Notes with a Yield to Maturity of 15% or higher there is a sudden drop off in available Notes for less than 2% markup. Around 100 Notes in the top 1,300 least marked up Notes have a Yield to Maturity of 14% or higher (and not from the same Loan, not being dumped while “processing…” and $25 shares). Of that 100, 7 have a markup of less than 1.8%. It seems for the 14%+ Yield to Maturity Notes, 2% is the going rate.

I guess that makes it a sellers market.

Peter Renton March 13, 2012 at 12:18 am

@Marc, Thanks for the detailed reply here. Sounds like it is a sellers market if you have high yielding notes. Although I am not planning on offloading many of these notes any time soon.

@stilltrackin, Marc is a very active user of the Folio platform and has studied it more than most people. Your question did indeed spur a new blog post that you can read here: http://lcp2p.blogspot.com.au/2012/03/discounted-notes-on-lending-clubs.html

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