On Wednesday 30 October, Funding Circle emailed all existing investors to advise of changes to the secondary market. These changes were undoubtedly made to improve liquidity in the platform following months of negative publicity around increased selling times.
From the start of 2019, P2P Independent Forum user ‘criston’ has usefully tracked the changes in the amount of time it takes for investors to sell their Funding Circle loans via the secondary platform.
At the start of the year, a user reported selling their investment in just 2 days. However, liquidity soon dried up, with sales instructions executed at the end of March taking 48 days to be carried out, rising to 64 days and 123 days for sales instructions made at the end of April and May respectively.
Throughout this period, the secondary market at Funding Circle has been free to use. The changes, which are due to be introduced from 2 December, will introduce a 1.25% transfer fee. Funding Circle will not profit directly from this transfer fee. Instead, new investors and existing investors who reinvest their interest/capital repayments will acquire the resold loans at a discount.
Aside from the introduction of selling fees, the other key change introduced is the elimination of the current queuing system.
Currently loan parts are sold on a first come, first served basis. This means that investors must wait until they reach the top of the queue before they start to receive any sale proceeds. Due to the prolonged selling times presenting being experienced, this has resulted in many investors experiencing frustration at not having quick access to their funds. The new tool aims to alleviate the issue somewhat by cycling through all investors wishing to sell loan parts as many times as possible within a 120 day period.
The management team behind Funding Circle acknowledges that the changes may be frustrating for investors who have been looking to sell for a long time already. A number of options were considered, with the management team noting that they “strongly believe the package of measures we are launching are in the best interests of the majority of investors and will provide an improved overall service”.