Calastone, a cross-border transaction network for the mutual funds industry, says it has signed up several firms to support a new settlement offering that will compete with Euroclear's UK and Ireland Crest system when it launches early next year.
Calastone says that its consultations with industry players have found that the Crest system is "not deemed ideal" for mutual fund transactions because it is essentially a secondary market offering.
Mutual fund transactions are a primary market activity where units are bought and sold directly with the issuer and where legal title is recorded on the fund managers' register and not within a central securities depository.
The costs of Crest membership can be prohibitive for smaller mutual fund firms and the industry is seeking a more flexible approach, says Calastone.
It is planning to develop a market model based on a matching engine approach, designed to calculate counterparty net settlement positions together with automated notification of legal title in fund unit positions.
Currently, settlements are undertaken on a 'many-to-many' bilateral basis and Calastone says its approach will enable firms to settle their transactions using a more efficient model.
The firm says Cofunds, FNZ, Nucleus, Henderson and Schroders have all signed letters of commitment to support its model, which should be launched by the end of Q1 2010 and will be available to the entire funds market, meaning counterparties will not need to be part of the Calastone transaction network.
Gartmore, and others have also "voiced support" for this initiative while IFDS and Capita Financial Group say they will support their clients' developments for this service.
Dan Llewellyn, head, market standards, Calastone, says: "The Calastone settlement approach will offer a cost effective, transparent model designed to calculate net positions for each counterparty to settle accordingly. This model will be designed to be easy to adopt, scale and integrate into existing back office systems."
Ken Tregidgo, business development director, Calastone, adds: "Throughout the consultation process, we were surprised at the degree of discontent with the incumbent settlement model. We are grateful for the level of commitment from these firms and their eagerness to be involved with scoping out a more flexible and cost efficient approach. We believe this is in line with the regulators' ambitions for greater cross-border transactions and harmonisation and our approach will be designed to be entirely interoperable with any regional settlement models."