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Swift's bid for securities hindered by structural barriers

13 October 2004  |  4977 views  |  0 swift1.gif

The programme for investment managers at this year's Sibos is indicative of moves by the banking industry co-operative to boost its profile in the securities business, but recent research argues that the lack of industry-wide incentives for automation will continue to hinder progress.

Leonard Schrank, CEO, Swift says structural issues are delaying asset managers' adoption of the network, arguing that a culture where services have been provided through soft dollars and where brokers have accepted business from investment managers even when orders have been placed by fax means there is a "barrier of decades" standing in the way of improved automation.

Schrank says the way forward is to meet with investment managers to demonstrate the benefits of joining the network.

His words were echoed yesterday by Stephen Mellas, managing director, Goldman Sachs, who suggested that Swift needed to build alliances with other trade organisations such as the Asset Managers Forum or invite the top 10 asset managers and custodians for a brainstorming session.

Speaking in the same asset management session, David Wezdenko, head of technology and operations, Americas Asset Management Division, JPMorgan Chase, said that winning over smaller asset managers and custodians to the network was critical.

Wezdenko will have welcomed the news from New York broker dealer Loeb Partners that it has signed a letter of intent to become a Swift member. Swift says the agreement will expand its reach into the securities industry among smaller custodians, among broker dealers and especially among investment managers.

Loeb will use the Evare ASP system to manage messaging between Swift members and corporate counterparties, offering data aggregation, transformation and just-in-time delivery to corporate treasury operations.

A recent Tabb Group survey of 50+ global investment managers, broker dealers and custodians, which was sponsored by trade matching venture Omgeo, argues that it is the lack of industry-wide incentives that is hindering automation in the global securities industry.

The survey found that instead of industry-wide initiatives, firms now prefer to focus on internal efficiency challenges and look to larger industry vendors to solve external efficiency initiatives.

But as Larry Tabb observes: "The levels of efficiency that any particular firm can achieve are not absolute, but rather are limited by a variety of factors, some of which are beyond their control, such as the behavior of trading counterparties."

Firms from all segments of the industry believe that the greatest efficiency challenges lie in the areas of reference data and connectivity. Brokers and custodians also cite the need to generate industry-wide priority and critical mass around automation as the single greatest issue in their drive to improve efficiency.

The study also found that despite implementation of exception management, there are still a significant number of failed trades, particularly in fixed income, where 7.2% of cross-border trades and 6.4% of domestic trades fail to settle on time. Furthermore, with the SEC considering mandatory same-day affirmation, industry SDA rates require further improvement - surveyed firms indicated that only 44% of their trades are affirmed on trade date.

FIX allocation and confirmation adoption has been slow to develop - only three per cent of domestic equity allocations and confirmations being sent using FIX and only 21% of US firms and 37% of European have adopted the standard.

The survey also found central matching is being considered for adoption by 50% of European firms and 27% of US firms surveyed.

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