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• 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
www.isitc-europe.org
WorkinWorking Groupg Group
WorkinWorking Groupg Group
ISITC COLLATERAL: Requirement specificationsISITC COLLATERAL: Requirement specificationsWhite papers, Best practice guidelines and more ...White papers, Best practice guidelines and more ...
ISITC COLLATERAL: Requirement specificationsISITC COLLATERAL: Requirement specificationsWhite papers, Best practice guidelines and more ...White papers, Best practice guidelines and more ...
Market SentimentMarket SentimentBull/Bear Bull/Bear
Asset Investment AppetiteAsset Investment Appetite
(Derivatives/Debt/Cash/Equities(Derivatives/Debt/Cash/Equities) )
Market SentimentMarket SentimentBull/Bear Bull/Bear
Asset Investment AppetiteAsset Investment Appetite
(Derivatives/Debt/Cash/Equities(Derivatives/Debt/Cash/Equities) )
Market Appetite For Market Appetite For CollaborationCollaboration
Market Appetite For Market Appetite For CollaborationCollaboration
StandardisationStandardisationTechnical/BusinessTechnical/Business
StandardisationStandardisationTechnical/BusinessTechnical/Business
Environmental IssuesEnvironmental IssuesPolitical/Social/RegulatoryPolitical/Social/Regulatory
Environmental IssuesEnvironmental IssuesPolitical/Social/RegulatoryPolitical/Social/Regulatory
TechnologyTechnologySoftware/Applications/HardwareSoftware/Applications/Hardware
TechnologyTechnologySoftware/Applications/HardwareSoftware/Applications/Hardware
Standards Standards BodiesBodies
ISO/SWIFT/ISO/SWIFT/FPL/FPMLFPL/FPML
Standards Standards BodiesBodies
ISO/SWIFT/ISO/SWIFT/FPL/FPMLFPL/FPML
IndustryIndustryAssociationAssociation
ssIMA/APCIMS/LIBAIMA/APCIMS/LIBA
IndustryIndustryAssociationAssociation
ssIMA/APCIMS/LIBAIMA/APCIMS/LIBA
ISITC Europe ExecutiveISITC Europe ExecutiveISITC Europe ExecutiveISITC Europe Executive
ISITC Europe CommunityISITC Europe CommunityBrokers Asset Managers Vendors CustodiansBrokers Asset Managers Vendors Custodians IndividualsIndividuals Consultancies UtilitiesConsultancies Utilities
ISITC Europe CommunityISITC Europe CommunityBrokers Asset Managers Vendors CustodiansBrokers Asset Managers Vendors Custodians IndividualsIndividuals Consultancies UtilitiesConsultancies Utilities
WorkinWorking Groupg Group
WorkinWorking Groupg Group
WorkinWorking Groupg Group
WorkinWorking Groupg Group
WorkinWorking Groupg Group
WorkinWorking Groupg Group
WorkinWorking Groupg Group
WorkinWorking Groupg Group
Industry Issues Identification And ScopingIndustry Issues Identification And Scoping
Industry Response Validation, Collaboration And Activity AgreedIndustry Response Validation, Collaboration And Activity Agreed
ISITC Europe Specific Actions And Results (Collaboration When Agreed)ISITC Europe Specific Actions And Results (Collaboration When Agreed)
What is ISITC Europe?
www.isitc-europe.org
Key: Existing WGs Proposed new WGs Proposed revised WGs
ISITC Europe Working Groups
Broker Forum
Custodian Forum
IM Forum
Supplier Forum
Marketing Group
Investment Funds
Alternative Investments
Regulations STP/Ops/Other
WebsiteEducation Group
Marketing PREvent Organisation
Broker Forum
Custodian Forum
IM Forum
Vendor/Utility Forum
IT Group IT GroupWebsite
DataRDSG
Regulatory Instrument Client C/Parties Transactions Corp. Actions …
*e.g. UCITS III/IV, MiFID, KYC/AML, T2S/Clearing & Settlement CC
BESGInvestment Funds ETC Best PracticeCorporate ActionsClaimsSwaps
RegSIGXJSGAlt. Investments Incl. Derivatives
www.isitc-europe.org
New Regulations
New Technologies
New Geographies
New Strategies
New Products
New Channels
New Domains
New Metrics
New Standards
New Infrastructures
New Outsourcing
New Asset Services
e.g. SLAs, Market Impact, STP…
e.g. Coll. Mgmt, Islamic Fin., Research…
e.g. DMA, algos, MTFs, Dark Pools
e.g. CLOs, REITs, Emissions…
e.g. BRICS, Emerging, Regional, Havens…
e.g. FMFG, Liquidity, Capital, Innovation…
e.g. SOA, P2P, ESPs, Latency, Meta-data
e.g. MiFID, MLD III, PSD/SEPA, T2S…
e.g. Cross-margining, NAV Admin, Benchmarks…
e.g. BPO, KPO, AO, …
e.g. BOAT, eCCP, PE-ACHs.…
e.g. FIX 5.0, ISO20022, XBRL, IBEIs…
Source: ISITC Sep 2007
The increasing importance of risk and regulation
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?
Cash Securities STP Working Party
www.isitc.org
Concentrate on the trade processing of Cash Securities including the allocation and confirmation processes.
The Working party focus’ on Cash Equities and Fixed Income securities.
www.isitc-europe.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
CONFIRMATION 1
AFFIRMATION 1
30 Minutes
30 Minutes
30 Minutes
BU
Y-S
IDE
SE
LL-SID
E
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
ETC BLOCK 1
ALLOCATIONS 1
CONFIRMATION 1
AFFIRMATION 1
30 Minutes
30 Minutes
30 Minutes
BU
Y-S
IDE
SE
LL-SID
E
30 Minutes
NOE 1
1 Could be direct messaging between parties, or via a 3rd party provider
www.isitc-europe.org
Central Matching via Virtual Matching Utility
Model 3: Central Matching via Virtual Matching Utility.ORDER
NOE 1
ALLOCATION
CONFIRMATION 3
AFFIRMATION
30 Minutes
30 Minutes
30 Minutes
BU
Y-S
IDE
SE
LL-SID
EVMU
ETC BLOCK 2
ALLOCATION 3
CONFIRMATION
30 Minutes
1 Could be directed via VMU2 Not required in flows where NOE is sent via VMU3 Dependent upon matching within VMU
Work in progress
• Standardisation of Management information
• Standardisation of fails reporting
• Alert Quality Analysis review
www.isitc-europe.org
Standardisation of Management information
Minutes from Ex0h 7.360h 1.540h 5.320h 12.410h 9.140h 4.420h 4.420h 2.50h 7.3643h 21.33
4h 41.2590% within the hour
Error rate
Total trades rejected
Total trades cancelled and re-booked
Total trades rejected out side SLA
www.isitc-europe.org
Apples with Apples
www.isitc-europe.org
Standardisation of fails reporting
123 Management CO Status of all Pending Transactions as at 10/10/2008
Trade ref Access code
Trade date
Value Date
Age
Broker B/ S
Trade Qty
Issue description
Issue ID /ISIN
Open nominal
Trade Ccy Price
Sett Ccy
Sett amount
Open cash Trade Status Fail reason Code Comment PSET
123456 ABCDEFGH 08-May-08 13-May-08 B 12,648 CAIRN ENERG PL GB00B1RZDL64 12,648 GBP 33.5383 GBP -423,767.43 -423,767.43Unmatched
Cpty instructing LSE and need to amend to OTC
123456 ABCDEFGH 09-May-08 14-May-08 1 S -65,000VIVENDI SA EUR5 FR0000127771 -65,000 EUR 25.005 EUR 1,626,625.26 1,626,625.26Broker investigating trade status
123456 ABCDEFGH 09-May-08 14-May-08 1 S -975PSION ORD GBP0. GB00B0D5VH57 -975 GBP 1.09712 GBP 1,078.26 1,078.26Unmatched
123456 ABCDEFGH 09-May-08 14-May-08 1 B 22,850 WSP GROUP ORD GB0009323741 22,850 GBP 6.065 GBP -138,376.37 -138,376.37Matched
123456 ABCDEFGH 09-May-08 14-May-08 1 S -117PSION ORD GBP0. GB00B0D5VH57 -117 GBP 1.09712 GBP 129.39 129.39Unmatched
123456 ABCDEFGH 09-May-08 14-May-08 1 S -2,332PSION ORD GBP0. GB00B0D5VH57 -2,332 GBP 1.09712 GBP 2,578.99 2,578.99Matched
123456 ABCDEFGH 09-May-08 14-May-08 1 B 5,800 AVEVA GROUP PGB00B15CMQ74 5,800 GBP 12.7918 GBP -74,080.15 -74,080.15Matched
123456 ABCDEFGH 09-May-08 14-May-08 1 S -438PSION ORD GBP0. GB00B0D5VH57 -438 GBP 1.09712 GBP 484.39 484.39Unmatched
123456 ABCDEFGH 09-May-08 14-May-08 1 B 1,300 AVEVA GROUP PGB00B15CMQ74 1,300 GBP 12.7918 GBP -16,603.40 -16,603.40Unmatched
www.isitc-europe.org
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 VCONFIX 4.2, 4.4 and 5.0Omgeo Oasys Global and CTMSWIFT 515, 509 and 517Xtrakter TRAX2
www.isitc-europe.org
1) Trade 1) Trade execution/allocation execution/allocation
(T)(T)
2) Trade2) Tradematching withmatching withbroker (by T+1 broker (by T+1
noon latest)noon latest)
3) SWIFT 3) SWIFT instruction to instruction to Custodian (by Custodian (by
T+1 p.m. latest)T+1 p.m. latest)
4) Pre-Matched / Matched4) Pre-Matched / Matchedtradetrade
reportingreporting(S-1)(S-1)
6) 6) Settlement/ Settlement/
positionpositionreportingreporting
(S and S+1)(S and S+1)
IMIM
CustodianCustodian
7) Reconciliation/Failed 7) Reconciliation/Failed trade monitoringtrade monitoring
5) Clearance and 5) Clearance and SettlementSettlement
Buy Side Perspective of STP
www.isitc-europe.org
1) Trade 1) Trade execution/allocation execution/allocation
(T)(T)
2) Trade2) Tradematching withmatching withbroker (by T+1 broker (by T+1
noon latest)noon latest)
3) SWIFT 3) SWIFT instruction to instruction to Custodian (by Custodian (by
T+1 p.m. latest)T+1 p.m. latest)
4) Pre-Matched / Matched4) Pre-Matched / Matchedtradetrade
reportingreporting(S-1)(S-1)
6) 6) Settlement/ Settlement/
positionpositionreportingreporting
(S and S+1)(S and S+1)
IMIM
CustodianCustodian
7) Reconciliation/Failed 7) Reconciliation/Failed trade monitoringtrade monitoring
5) Clearance and 5) Clearance and SettlementSettlement
Where are the issues?
FIX?FIX?
Same Day Same Day Affirmation (SDA)Affirmation (SDA)
Standard Standard Settlement Settlement Instructions (SSI)Instructions (SSI)
www.isitc-europe.org
SDA
Same Day Affirmation - Benefits
• Settlement failure rate doubles with non-automated 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!
• Questions