Sunday, June 19, 2011
The new drivers of STP - the regulatory and standardization work at European level:
The Giovannini Report in 2003 pointed to weaknesses of the RL at European level concerning cross-border transactions. Regulatory works to address them are underway. They will lead to harmonization of cycles RL (and therefore a shortening of RL in some places), and impose a uniform technique, the different tax and legal depositories (CSD) Europe.
MiFID requires the tendering systems RL Europe, in the fall of 2007. The current model of a settlement made systematically at the CSD in the country of the title, lived. If they want to benefit from the introduction of competition, the players in the securities business (especially the trustees) will have to upset their traditional organization into streams.
Finally, Target 2 Securities project proposes the establishment of a European central depository, in 2012. Current European CSDs will have to focus primarily on the functions of overall conservation (settlement being provided by the system TS2), where they will find themselves in competition with the traditional custodians.
In other words, industrialization goes into high gear. For asset managers, the challenge is twofold: make the most of the opening to competition, and ensure the levels of STP always higher.
Set up middle office function common to different managements (conventional management, alternative investments) and various subsidiaries (foreign, for example) are, for large asset managers, an opportunity to reduce costs and increase operational efficiency. It is also a way to refocus the subsidiaries of their management activities.
Finally, some will choose outsourcing middle-office function. Bet that the trustees, in competition with the CSD in the field of conservation, will benefit from their proximity to the asset managers to develop the services of this type.
In recent years asset managers have conducted I their sites, both led to major changes at the organizational level:
* Changing the middle-office business, which has become a business expert responsible for dealing with exceptions STP
* Streamlining and sometimes processing service contracts vis-à-vis external actors (including custodians), and between internal stakeholders (empowerment of front-office concerning the seizure of deals)
* Increased importance of reference for the automation and control requires reliable baseline data (third values, standard instructions and settlement)
* Formalization of business processes and streamlining the distribution of transactions within the information system.
Regarding the matching of transactions and settlement, patterns emerge and process to standardize.
Solutions and centralized automatic matching have emerged as solutions that provide the best rates of STP: 85% of the deals are confirmed on the day when the confirmation is done via a solution centralized matching, only 18% when the confirmation is done by back and forth between asset manager and broker.
ISO 15022 (and ISO 20022, which complements it by adding the XML syntax) makes Swift and fill rules SMPG as a standard interface for the exchange. The standard requires disclosure of such details of RL brokers in the IRL messages sent to custodians.
That said the levels of STP are highly variable, depending on the types of instruments.
For classical instruments (equities, fixed income, forex), the rate of STP is good and almost exclusive breaks STP cross-border transactions and are often caused by contact settlement brokers. The improvement involves the emergence of a global repository recognized by all and a standardization of data exchange between partners. Meanwhile, asset managers shall have in place reference coordinate RL brokers, administered manually.
On the other hand, the level of industrialization is low for complex instruments (derivatives futures, credit derivatives, OTC instruments, etc.). Several obstacles: the lack of standards and "market practices" in terms of formats and exchange protocols; gaps in modeling and benchmarks in information systems, the pace of innovation in front office. The STP is not always possible or appropriate, it requires as a prerequisite to the emergence of standards for external trade, and urbanization work and standardization of trade and in-house repositories.