Transcript ISITC Annual Conference 2006

• Cash STP: getting the sell side and buy side
to work together
James Spurdle, Client and Sales Support
Manager, RBS
Terri Van Praagh ASI, Director – Head of Market
Activities, Baring Asset Management
Agenda
• Background: what is ISITC Europe and What
are the Working Groups?
• What is cash STP - how does it impact
trading and operations?
• What is being done to improve efficiencies?
• Buy-side perspective of STP - same day
affirmation (SDA) and SSI issues
What is ISITC Europe?
Standardisation
Environmental Issues
Technology
Technical/Business
Political/Social/Regulatory
Software/Applications/Hardware
Market Sentiment
Market Appetite For
Collaboration
Bull/Bear
Asset Investment Appetite
(Derivatives/Debt/Cash/Equities)
Industry Issues Identification And Scoping
Industry
Associations
IMA/APCIMS/LIBA
Standards
Bodies
ISITC Europe Community
Brokers
Asset Managers
Vendors Custodians
Individuals
Consultancies Utilities
ISO/SWIFT/FPL/
FPML
Industry Response Validation, Collaboration And Activity Agreed
ISITC Europe Executive
Working
Group
Working
Group
Working
Group
Working
Group
Working
Group
ISITC COLLATERAL: Requirement specifications
White papers, Best practice guidelines and more ...
ISITC Europe Specific Actions And Results (Collaboration When Agreed)
www.isitc-europe.org
ISITC Europe Working Groups
*e.g. UCITS III/IV, MiFID, KYC/AML, T2S/Clearing & Settlement CC
Investment
Funds
Alternative
Investments
Investment Funds
Alt. Investments
Incl. Derivatives
Regulations
BESG
XJSG
Broker Forum
Custodian Forum
IM Forum
Marketing
Event Organisation
PR
STP/
Ops/Other
RegSIG
ETC Best Practice
Corporate Actions
Claims
Swaps
Broker Forum
Custodian Forum
IM Forum
Supplier Forum
Vendor/Utility Forum
IT Group
IT Group
Website
Marketing Group
Key: Existing WGs
Data
RDSG
Regulatory
Instrument
Client
C/Parties
Transactions
Corp. Actions
…
Website
Education Group
Proposed new WGs
Proposed revised WGs
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The increasing importance of risk and
regulation
New Regulations
e.g. MiFID, MLD III, PSD/SEPA, T2S…
New Technologies
e.g. SOA, P2P, ESPs, Latency, Meta-data
New Strategies
e.g. FMFG, Liquidity, Capital, Innovation…
New Geographies
e.g. BRICS, Emerging, Regional, Havens…
New Products
e.g. CLOs, REITs, Emissions…
New Channels
e.g. DMA, algos, MTFs, Dark Pools
New Domains
e.g. Coll. Mgmt, Islamic Fin., Research…
New Metrics
e.g. SLAs, Market Impact, STP…
New Standards
e.g. FIX 5.0, ISO20022, XBRL, IBEIs…
New Infrastructures
e.g. BOAT, eCCP, PE-ACHs.…
New Outsourcing
e.g. BPO, KPO, AO, …
New Asset Services
e.g. Cross-margining, NAV Admin, Benchmarks…
Source: ISITC Sep 2007
www.isitc-europe.org
What is Cash STP?
•
•
•
•
•
•
•
Equities and Fixed Income Process
Involves the sell side and the buy side
Involves the Dealing Desk and Operations
Untouched by human hand –Fully automated
Measured from point of execution to settlement…
Requires accurate data and up-to-date systems
Requires standards and established market
practices
www.isitc-europe.org
Impact on Trading and Operations
•
•
•
•
•
Market Turmoil – Need for reliable structure
Verification of trades is critical–Know your position
Manual and fax-based processes not sustainable
Automated and standard processes lead to risk reduction
Cost – a manual trade can cost as much as 5 times that
of an automated trade
• MiFID – States that ‘Best Execution’ is about the whole
process, not just price
What are we doing about it?
www.isitc-europe.org
Cash Securities STP Working Party
The Working party focus’ on
Cash Equities and Fixed
Income securities.
Concentrate on the trade
processing of Cash Securities
including the allocation and
confirmation processes.
www.isitc.org
Past achievements
ETC Code of Best Practice (2005)
1996
Industry User Group (IUG) – First draft
1999
Updated
2005
Current Version in use
2008/9
Proposed update
www.isitc-europe.org
Notice of
Execution/Allocation/Confirmation/Affirmation
Model 1: Notice of Execution/Allocation/Confirmation/Affirmation
.
ORDER
NOE 1
ALLOCATION 1
30 Minutes
CONFIRMATION 1
SELL-SIDE
BUY-SIDE
30 Minutes
30 Minutes
AFFIRMATION 1
1 Could be direct messaging between parties, or via a 3rd party provider
www.isitc-europe.org
Block/Allocation/Confirmation/Affirmation
Model 2: Block/Allocation/Confirmation/Affirmation
.
ORDER
NOE 1
30 Minutes
ETC BLOCK 1
ALLOCATIONS 1
30 Minutes
CONFIRMATION 1
SELL-SIDE
BUY-SIDE
30 Minutes
30 Minutes
AFFIRMATION 1
1 Could be direct messaging between parties, or via a 3rd party provider
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Central Matching via Virtual Matching Utility
.
Model 3: Central Matching via Virtual Matching Utility
ORDER
NOE 1
30 Minutes
ALLOCATION
ETC BLOCK 2
ALLOCATION 3
VMU
CONFIRMATION 3
30 Minutes
CONFIRMATION
SELL-SIDE
BUY-SIDE
30 Minutes
30 Minutes
AFFIRMATION
1 Could be directed via VMU
2 Not required in flows where NOE is sent via VMU
3 Dependent upon matching within VMU
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Work in progress
• Standardisation of
Management information
• Standardisation of fails
reporting
• Alert Quality Analysis review
Standardisation of Management
information
Minutes from Ex
0h 7.36
0h 1.54
0h 5.32
0h 12.41
0h 9.14
0h 4.42
0h 4.42
0h 2.5
0h 7.36
43h 21.33
Error rate
Total trades rejected
Total trades cancelled and re-booked
Total trades rejected out side SLA
4h 41.25
90% within the
hour
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Apples with Apples
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Standardisation of fails reporting
123 Management CO
Trade
ref
Access
code
Status of all Pending Transactions as at 10/10/2008
Bro
ker
Trade Value A B/ Trade
Issue
date Date ge S Qty description
CAIRN ENERG
12,648PL
Open
Issue ID nomina Trade
Sett Sett
Open
/ISIN
l
Ccy Price Ccy amount cash Trade Status
123456 ABCDEFGH
08-May08
13-May-08
B
123456 ABCDEFGH
09-May08
14-May-08
1S
VIVENDI SA
-65,000EUR5
123456 ABCDEFGH
09-May08
14-May-08
1S
PSION ORD
-975GBP0.
GB00B0D5VH57
123456 ABCDEFGH
09-May08
14-May-08
1B
WSP GROUP
22,850ORD
GB0009323741
123456 ABCDEFGH
09-May08
14-May-08
1S
PSION ORD
-117GBP0.
GB00B0D5VH57
-117 GBP
1.09712 GBP
129.39
123456 ABCDEFGH
09-May08
14-May-08
1S
PSION ORD
-2,332GBP0.
GB00B0D5VH57
-2,332 GBP
1.09712 GBP
2,578.99
123456 ABCDEFGH
09-May08
14-May-08
1B
5,800 GBP
12.7918 GBP
123456 ABCDEFGH
09-May08
14-May-08
1S
-438 GBP
1.09712 GBP
123456 ABCDEFGH
09-May08
14-May-08
1B
1,300 GBP
12.7918 GBP
GB00B1RZDL64
FR0000127771
AVEVA GROUP GB00B15CMQ7
4
5,800P
PSION ORD
-438GBP0.
GB00B0D5VH57
AVEVA GROUP GB00B15CMQ7
4
1,300P
12,648 GBP
-65,000 EUR
-975 GBP
22,850 GBP
Fail reason Code
33.5383 GBP
423,767.43 -423,767.43Unmatched
25.005
1,626,625.2 1,626,625.2
6
6Broker investigating trade status
EUR
1.09712 GBP
6.065
GBP
1,078.26
CommentPSET
Cpty instructing LSE and need to amend to
OTC
1,078.26Unmatched
138,376.37 -138,376.37Matched
129.39Unmatched
2,578.99Matched
-74,080.15 -74,080.15Matched
484.39
484.39Unmatched
-16,603.40 -16,603.40Unmatched
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Alert Quality Analysis review
32,112 records checked for Equity Market
31% of Data is missing vital data required for Dutch Market
25% of data is populated in an incorrect field or is invalid for
custodian which when used will cause an unmatched item
44% of data conforms with market standards to give STP
www.isitc-europe.org
STP Solution available
Bloomberg
FIX
Omgeo
SWIFT
Xtrakter
VCON
4.2, 4.4 and 5.0
Oasys Global and CTM
515, 509 and 517
TRAX2
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Buy Side Perspective of STP
IM
Custodian
7) Reconciliation/Failed
trade monitoring
1) Trade
execution/allocation
(T)
6)
Settlement/
position
reporting
(S and S+1)
5) Clearance and
Settlement
2) Trade
matching with
broker (by T+1
noon latest)
4) Pre-Matched / Matched
trade
reporting
(S-1)
3) SWIFT
instruction to
Custodian (by
T+1 p.m. latest)
www.isitc-europe.org
Where are the issues?
IM
Custodian
7) Reconciliation/Failed
trade monitoring
FIX?
1) Trade
execution/allocation
(T)
6)
Settlement/
position
reporting
(S and S+1)
2) Trade
matching with
broker (by T+1
noon latest)
Same Day
Affirmation (SDA)
Standard
Settlement
Instructions (SSI)
5) Clearance and
Settlement
4) Pre-Matched / Matched
trade
reporting
(S-1)
3) SWIFT
instruction to
Custodian (by
T+1 p.m. latest)
www.isitc-europe.org
SDA
Same Day Affirmation - Benefits
• Settlement failure rate doubles with nonautomated parties
• Failed rates drop to <0.5% for already automated
parties
• Allows prioritisation of workload
• Enables quicker identification of problems
www.isitc-europe.org
SSI
• Ex Shorts, between 80-90% of buy side trades fail due to
incorrect SSI
• Failed trades add 50% to the process cost of a trade
So what’s difficult?
• Who has the data?
• Who is responsible/liable for the upkeep?
• When is that data available?
www.isitc-europe.org
Summary
• ISITC Europe Bringing together all participants
• Addressing issues through Cash STP Working
Group
• Issuing Best Practice Documentation
• Assisting in the clean up of Alert
• Promoting SDA – with Omgeo
But…
Remember, it’s taken 12 years to get this far!
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• Questions