The need for flexibility and cost control are two of the most important requirements of a post-trade matching solution. This was one of the key messages at the recent Post-Trade Business Clinic, hosted by Cor Financial Salerio and SWIFT, and held at SWIFT’s London offices.
The industry’s intense focus on streamlining post-trade processes is reflected in the growing number of firms adopting SWIFT’s Global Electronic Trade Confirmation (GETC) solution – an ISO standards-based messaging service for automation of allocation only or block allocation confirmations. So far, three investment managers and five brokers are live, and there is a pipeline of a further nine investment managers, 22 brokers and three outsourcing providers.
The Business Clinic brought together buy and sell side firms to discuss in practical terms, how the industry can reduce operational risk, meet new regulatory requirements and reduce cost per trade. Presentations from Cor Financial Salerio and SWIFT, looked at the business impact of accelerating access to SWIFT GETC through Cor Financial Salerio’s SWITCH capability. The representative of a buy side firm, an existing customer of Cor Financial Salerio, told the audience why it had opted for a dual platform approach to reduce risks and costs with speed-to-benefits the determining factor in securing sponsorship.
Opening the event, Richard Young, Public Affairs, SWIFT, gave an overview of the global and regional regulatory landscape. Driven by the twin objectives of making the financial system safer and eliminating EU market inefficiencies, regulators have focused their attention on both the trading and post-trade arenas. Earlier this year, the EU announced its CSD Regulation, which will harmonize settlement to T+2 for all platform-traded securities by 2015. Crucially, the new regulation includes measures to penalize firms for settlement failures as well as to help them prevent fails, and CSDs will have to monitor settlement fails at the client firms and report fails to the authorities.
Starting from the premise that the systems and processes at many firms will need to be re-engineered, Young asked the audience: “What changes will firms need to make to operate in a T+2 environment?” Delegates agreed that the move will present the industry with significant challenges, requiring a wholesale cultural change at some firms.
In his presentation, Paul Bowen, Head of Client Services, Cor Financial Salerio, argued that firms want choice and systems that work no matter what matching set-up they or their counterparties have. “When it comes to day-to-day operations, the theory of central versus local matching doesn’t necessarily matter. Choice matters; control over your trades and processes matter. The ability to see your matches and mismatches in one place is what matters,” he said.
Bowen added that the industry is now in a better position to reduce operational risks with real choices on how to match. “Choice creates competition, and this drives efficiency up and costs down,” he said.
To offer the community even greater flexibility, Cor Financial Salerio has developed a compelling value proposition that lowers the barriers to entry for dual matching. Firms can run local and central matching solutions side-by-side using Cor Financial Salerio SWITCH, which offers a “pay as you go” cost structure. With an eight to twelve week project cycle and the ability to co-exist with incumbent solutions, Cor Financial Salerio SWITCH is viewed as a non-disruptive quick win from a technology and business perspective.
These sentiments were echoed by the audience. “I am agnostic about whether I do central or local matching. I want a system that matches efficiently and hopefully preserves as much of my existing infrastructure investment as possible,” said one delegate.
In the SWIFT GETC session David Harrand, Account Director, SWIFT, highlighted that SWIFT meets these requirements and more. GETC reflects the desire in the market for an alternative solution, leverages firms’ existing infrastructure and is at least 50% cheaper than existing providers. In some cases matching over SWIFT is as much as 90% cheaper.
“Our client feedback tells that there is a strong preference for a local matching solution and GETC meets that requirement. Clients also want flexibility, so the Implementation Guide, created by the community, reflects that the market participants have different models and requirements – and it will continue to evolve in line with community needs. Most importantly, the evidence so far tells us that the highest rates for STP are possible over SWIFT; this is what it’s all about, achieving STP to reduce cost and risk and to improve efficiency,” said Harrand.
The highlight of the event was a session giving the hands-on experience of a firm that has implemented Cor Financial Salerio SWITCH / GETC. A spokesperson for the firm told the audience that it was cost and operational priorities that really drove his firm to look for an alternative to central matching, saying: “GETC reduces operational risk and gives us flexibility and cost-control. So far it has reduced costs by about 50 per cent, which is a significant saving for us.”
The spokesperson added that the firm is directing what goes into local or central matching according to the take-up by its brokers of local or central matching. This proportion could change, as more and more brokers look at a local matching solution: “The dialogue is changing. Brokers are getting increasingly interested.”