Since October 1998, SWIFT has become a service provider in the post-trade pre-settlement arena, providing Electronic Trade Confirmation (ETC) to a growing number of active cross-border fund management institutions, and investment banks. As the financial community continues to look at ways to leverage their information technology expenditure on 'true' Straight Through Processing (STP) upstream, the new SWIFT securities messages (ISO 15022-compatible messages and Data Field Dictionary) enable this via the SWIFT ETC suite of standardised messages.
Over the past 12-18 months, Merrill Lynch has noticed a marked increase in interest in ETC among its institutional clients. The key business driver for clients appears to be the move to STP, which is anticipated to help reduce both operational costs and settlement risks.
"We were one of the first global broker-dealers to go live using SWIFT to communicate block level ETC messages to the DTC TradeSuite service and it is working very well."
Andrew Wilson, Merrill Lynch "With more institutional clients moving towards electronic communication, we wanted to ensure that we could support their service of choice," says Andrew Wilson, vice president, Merrill Lynch Client Services in London. Until recently, Merrill Lynch exclusively offered use of the Thomson Financial Services OASYS system for ETC, which is fully automated for both debt (allocation only) and equities (block and allocation) in Europe. Over the last year, however, there has been an increasing interest among larger institutional clients in using SWIFT for ETC, thereby leveraging their existing infrastructure (initially used for cash and securities settlement/reconciliation). It was due to this increasing interest among its clients, that Merrill Lynch began discussions to implement SWIFT for ETC.
Working toward a single, global standard
To provide the SWIFT ETC service, it was imperative that a standardised global methodology for communicating ETC messages was established and adhered to. Merrill Lynch supported and actively participated in the UK-based cross-border Trade Initiation & Confirmation (TIC) Market Practice Group - a forum made up of key market players. The purpose of this group was to agree how to automate the content of the new SWIFT ETC messages for the various markets with the sole aim of agreeing a single common market practice standard. This would prevent multiple methodologies from developing and the subsequent disparate systems required to support them.
Wilson commented that SWIFT provided much of the standards expertise and assisted in qualifying the group's Release 1.0 document for cross-border SWIFT ETC, which was distributed at ISITC's November 1999 conference in Florida. "It was a real cross-industry team effort," he says. The document was signed off by a number of institutions, proposed to ISITC (Industry Standardisation for Institutional Trade Confirmation), and sent to several market practice groups for review and agreement. Some differences remain between the ETC practices of domestic markets. However, Merrill Lynch, together with other key market players, continues to work with SWIFT on the promotion of a single global standard.
STP through ISO 15022
Institutional clients, global broker-dealers and banks, who have made an investment in connecting to SWIFT, initially for cash and securities settlement/reconciliation, are increasingly looking to extend their STP focus from back-office into the mid/front office. The new securities ISO 15022-compliant messages and Data Field Dictionary fully support this move.
A link to DTCC's TradeSuite
In late 1999, The Depository Trust & Clearing Corporation (DTCC) re-launched its European ETC service, TradeSuite. With two main ways to communicate with TradeSuite - through SWIFT and/or DTCC's ID system - Merrill Lynch Europe has opted for SWIFT and the system has been rolled out for a key client, Standard Life Investments. Merrill Lynch worked closely with Standard Life Investments throughout the implementation and the project has been very successful. Merrill Lynch was keen that the DTCC's implementation of SWIFT for ETC should, where possible, conform to the same standards agreed by the TIC Market Practice Group and the DTCC also participated in the working group.
"We were one of the first global broker-dealers to go live using SWIFT to communicate block level ETC messages to the DTC TradeSuite service and it is working very well," says Wilson. Merrill Lynch Europe is currently finalising the testing of "pure SWIFT ETC" with a number of institutions, including UBS Brinson, at block level for equities. There has been close co-ordination through industry-wide partnerships on this project and a live date is planned for the second quarter of 2000. Merrill Lynch will also be extending the SWIFT ETC functionality in the US for both equity and fixed income.
Merrill Lynch intends to offer clients the major ETC service of their choice. "We are not biased towards any one service provider and can provide assistance in moving to ETC," Wilson explains. "Most major cross-border institutional clients will adopt some form of notable ETC service, and Merrill Lynch is equipped to accommodate clients."
Merrill Lynch is one of the world's leading financial management and advisory companies with offices in 43 countries and total client assets exceeding USD 1.7 trillion. As an investment bank, it is the top global underwriter and market maker of debt and equity securities and a leading strategic advisor to corporations, governments, institutions and individuals worldwide. Through its Asset Management Group, the company is one of the world's largest managers of financial assets.