The latest version of the FIX Protocol could lead to industry savings in excess of $100m annually on confirmation processing alone, with post-trade processing utility Omgeo tipped as the biggest loser, according to new research commissioned from CityIQ by Solution Forge.
Already considered the de-facto industry standard for pre-trade processing between fund managers and brokers, the front office protocol has been significantly enhanced to cover post-trade processing in version 4.4, released in April 2003.
The research has identified that the new facilities will enable many firms to switch their processing from utility providers such as Thomson/DTCC joint venture Omgeo, with savings at average firms likely to be in the region of $125,000 annually, with larger firms able to realise considerably greater savings.
John Wilson, the CityIQ director who led the research effort observes: "While services from firms such as Omgeo undoubtedly have additional features over FIX, with most firms already looking to reduce costs, they may be prepared to forego these."
He adds: "The savings we’ve highlighted actually understate the benefits that will accrue from introducing the protocol into the pre-trade and allocations processes for those firms that remain manually based – which can be done at minimal extra cost."
Whilst there will be work involved for firms that are not already FIX enabled, the payback period is likely to be less than 6 months, says Wilson, meeting current industry criteria for low-cost IT and instant returns on investment.
Buy side and sell side firms can assess their own potential savings, courtesy of a calculator on the CityIQ Web site.
A seperate CityIQ survey of 242 companies undertaken in association with interbank messaging outfit Swift and STP vendor SmartStream finds a clear commitment to automation of corporate actions processing across the securities industry. Corporate actions is widely seen as one of the key remaining areas to be automated with 75% of firms anticipating substantial automation. One in five are expecting to introduce partial automation with only five per cent of the vote supporting the view that they see no future automation happening.
At present, few firms are devoid of any automation with many already importing third party data feeds into their core processing systems to create corporate action event records and automating the calculation/generation of basic entitlements.
However, there seems to be general acceptance by the vast majority of firms that corporate actions events considered too complex to automate in the past are now open to automation.
Entitlements offer most opportunity for 'step change', according to the research, with automation of both position/entitlement reconciliation and entitlement calculation/posting tipped as the most likely candidates.
The survey found a strong undercurrent of activity among prime brokers and custodians, with private banks and asset managers moving more slowly.
Forty-one per cent of respondents are currently reviewing the possibility of automating all or part of their corporate actions processing. An additional 42% are either about to embark on automation, or are currently in the process of doing so.
Fifty-nine per cent of respondents cite the reduction of operating costs as a major driver, with custodians in particular keen to trim average annual corporate actions-related losses of $4 million.
With no clear mandatory reason to automate corporate actions, organisations are moving at their own speed. Eighteen per cent of the sample are looking to select a solution within the next six months and a further 30% will choose a vendor within a 12 month timeframe.
However, with 51% of companies looking at a 12-month plus timeframe, CityIQ foresees software supply outstripping demand and a consequent consolidation in the number of vendors chasing this market.