after nine long months of navigating the rapidly changing regulatory landscape, we are thrilled to announce that Prosper’s registration statement with the SEC has been declared effective. Prosper lenders can once again invest directly in fellow Americans and small businesses!
Although this has been an excruciatingly long and frustrating process, especially considering that it has played out during the worst credit crisis in 70 years, this is a watershed moment. Prosper is the first Internet auction-based P2P loans marketplace and trading platform to have its SEC registration declared effective, which means the SEC is permitting Prosper to facilitate auctions in a way that has never been done before.
Selling securities by auction is not new and critical to greater efficiency in fair price discovery for both sides of the transaction. However, the SEC has never permitted Wall Street investment banks or any other institution to run a true auction where investors could make an irrevocable bid that committed funds prior to the establishment of a final rate. Previously all bids were revocable at any time prior to the establishment of a final price and no funds could be committed prior to this time (e.g. Google IPO). This previous requirement made competitive auctions for small consumer loans like Prosper’s virtually impossible under an SEC regulatory regime. (Continue reading below the video…)
Trade Existing Notes
We’re also incredibly excited to introduce an Internet auction-priced trading platform for Prosper Notes. As many early Prosper lenders know, we’ve been working on this feature since we first launched in February 2006. We know that financial markets thrive on liquidity, which in P2P lending means lenders will have the opportunity to sell Prosper Notes any time regardless of the loan term. The note trading service is provided by Foliofn Investments, Inc., through their Folio Investing Note Trader platform.
Other significant improvements include a new Prosper Rating system to make bidding easier and more rewarding. The new Prosper rating is built on Prosper’s huge database of approximately 28,000 personal loans. We have also introduced a minimum 640 credit score requirement for borrowers and a minimum bid floor for each Prosper rating to improve and optimize returns. Finally, to improve the ease of diversification, we’ve lowered the minimum bid amount to $25.
All of this translates into more opportunity for average Americans to use Prosper to fund loans directly, earn an attractive return in a new asset class, and help their fellow Americans at the same time.
Perhaps this is why the peer-to-peer lending has garnered such support from financial policy makers. For example, Federal Reserve Chairman Bernanke just said in a speech three weeks ago, “emerging technologies like peer-to-peer lending also show promise.” And California Department of Corporations Commissioner Preston DuFauchard stated in May that Prosper’s P2P lending model is a perfect example of, “the kinds of innovative ideas that can help get credit in the hands of people who need it while instilling in our financial markets desperately needed openness and transparency. We’re proud to take the lead in providing regulatory approval and oversight for Prosper.”
Let’s seize the moment!