Wednesday, March 31, 2010

Restraint of Trade -- Revisited

It’s the afternoon of the last day of the month and The Receivables Exchange has been well into record monthly-volume territory for a few days now. This is clearly going to be the best month in the Exchange’s history by a wide margin.

In addition, as I write, the currently-live auctions are of the largest average size that I can recall at any single time. These are clearly significant positives from the point of view of TRE.

There is also an issue that I think is both significant and positive for both the Exchange and the community of TRE Buyers.

On January 12, I wrote in a post entitled “Restraint of Trade” about a Seller that had been posting auctions of the invoices of a certain Account Debtor quite frequently and in substantial amounts. For a time those auctions had been very well accepted and the pricing demanded by Buyers continued to trend downward.

Then a point was reached at which a large amount of this paper had been sold but none had been paid, and pricing began to back up. I wrote at that time to make the point that this was rational behavior on the Buyers’ part and that it was good to see that sort of restraint.

Since that time, that Seller has continued to be quite active. There have been payments made by that Account Debtor and there has been no indication that any default has occurred. But the dollar-value of open auctions relative to the financial capacity of the Seller has continued to increase.

As that has occurred and as the Buyer-experience has matured with respect to this Seller, the pricing has continued (in general) to firm and the appetite for the Seller’s auctions has clearly diminished.

The message is being sent that there is a limited appetite for more of this Seller's auctions. It’s not that there is NO appetite. But there is a limit.

And that, I think, is a another positive message for Buyers to send.

The message was positive in January when the pricing began to firm and it is more positive now when even firmer pricing doesn’t necessarily attract interest.

In an open-outcry auction market, sentiment and motivation can both be pretty literally “in your face”. In an anonymous, on-line auction market, reading sentiment and motivation is a much less immediate process.

This particular case has been playing out over the course of many weeks and many transactions, but the evidence of market reaction continues to be rational and positive.

Congratulations to TRE on a big month!

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