Omgeo and GSTPA, rival initiatives to develop post-trade processing services for cross-border securities trading, are failing to win over the UK investment management community, lending weight to calls for a merger between the two groups.
According to a report from TCA Consulting, only sixteen per cent of 26 UK investment managers surveyed expressed a clear preference for either GSTPA or Omgeo in the development of straight-through processing strategies. Worryingly, only one in five of UK investment managers see the implementation of GSTPA or Omgeo as the single most important method of increasing the efficiency of cross-border settlement cycles.
Despite their reservations, 60% say they intend to participate in one or other initiative. Twenty-four per cent of those surveyed said they will not participate initially and 16% were unsure whether to or not.
Steve Kell, principal consultant at TCA Consulting, warns: "Even at this relatively late stage, too many financial institutions have still not decided whether to choose GSTPA or Omgeo to roll out STP-compliant systems. Instead, a policy of 'wait and see' has prevailed."
The research shows 62% of fund managers surveyed did not have enough information on Omgeo, while 33% echoed this with regard to GSTPA.
"Our report demonstrates that neither Omgeo, GSTPA, or broker/dealers and custodians have persuaded investment managers of the business benefits inherent in either solution, or indeed the need for urgent action. However, urgent action is exactly what is required," says Kell.
A majority (62%) of UK investment managers questioned said they intended to put pressure on their broker/dealers and custodians to select either GSTPA or Omgeo, but few have yet set a timeframe for this.
According to the report, broker/dealers and custodians are unsure which system their investment management clients will want to use and, as a result, are continuing to invest in both systems in order to hedge their bets.
Kell concludes: "If we are to move beyond the current deadlock in achieving end-to-end STP in the securities sector, broker/dealers and custodians may have to break the neutrality by promoting one or other solution, perhaps by establishing a pricing structure to make their own preferred solution more attractive. If they do not do so it may be that neither system ends up with enough liquidity for it to be effective. The result of this will be the global securities industry going back to the drawing board to find an alternative route to T+1."
The market for post-trade processing services is set to become even more crowded with the proposed entry of SunGard, which will further complicate the selection process for industry participants. The announcement by the US Securities Industry Association that it is to set back the deadline for moving to T+1 by a year until 2004, provides some breathing space, but it seems unlikely that the industry will want to support more than one central trading matching utility.