Omgeo approval has sting in the tail

Omgeo approval has sting in the tail

The Depository Trust & Clearing Corporation and Thomson Financial have set 1 May as the launch date for Omgeo, their joint venture for global straight-through processing. Approval for the initiative was granted by US regulators on condition that the two vendors provide fair and reasonable linkages to competing utilities.

The setting of the launch date follows the release of a registration exemption order from the US Securities and Exchange Commission (SEC). The UK Financial Services Authority had granted an authorisation to Omgeo at the end of February. Omgeo will combine the institutional trade processing businesses of DTCC’s depository subsidiary, DTC, and Thomson Financial ESG.

Omgeo is promising to fill key gaps in the current trade processing model by linking a global community of more than 6000 investment managers, broker/dealers and custodian banks in 40 countries on a single e-commerce enabled platform. The system is being launched in competition with a rival service from Axion4, a consortium of vendors selected by the Global Straight Through Processing Association to develop a similar global platform.

The SEC Order defined a set of principles to govern interoperability between Omgeo and potential competitors requiring "fair and reasonable linkages that are transparent to customers". To assure competition and to permit customers to choose a single matching service, the principles call for:
* use of industry standard formats and protocols;
* prevent a matching service from using intellectual property to eliminate competition;
* prohibit interface surcharges;
* set out interface pricing principles; and
* provide strict guidelines for linkage implementation.

In addition, the SEC order requires Omgeo to maintain high standards of safety and soundness, and calls for neutral industry involvement in the negotiations between Omgeo and potential competitors. The Securities Industry Association (SIA) is expected to be called upon as a moderator in any future talks.

"Omgeo is pleased that the SEC has taken the position that interoperability must be implemented on a peer-to-peer basis based on fair and reasonable commercial arrangements between central matching providers," says Adam Bryan, Omgeo president and CEO. "There has been a lot of rhetoric in the industry without any precise definition of interoperability. Now that we have a definition, it is up to ourselves and potential competitors to work diligently and in good faith to implement these linkages."

He says clients of Omgeo will be able to move at their own pace to a new workflow solution for both domestic and cross-border trades, utilising a profile-driven trade management engine with both confirm/affirm and central matching capability.

The trade management engine will be fed by an expanded set of reference databases modeled after SID and Alert, the respective firms’ existing databases of standing delivery instructions, including a new series of local fees, taxes and settlement databases being provided in conjunction with JPMorgan Investor Services. Omgeo plans to begin a pilot programme for its central matching service this summer, with a production version of the service scheduled for late 2001.

By mid 2001, Omgeo plans to link ESG’s Oasys to DTC’s TradeMatch in order to provide straight-through processing of trade allocations, including early custodian notification of allocations and instructions to settle as well as earlier identification of errors.

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