Bringing automation to hedge funds

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Article about the benefits of automation in hedge funds trade processing

Article about the benefits of automation in hedge funds trade processing

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  • 1. Standards f orum WHERE BUSINESS AND STANDARDISATION MEET MAy 2010 Newsletter Content 01 — 03 The case for ISO 20022 07 T2S: a test case for ISO 20022 09 Standards Forum: upcoming events 04 SWIFT Standards in a changing 07 — 08 Bringing automation to 10 Reducing the costs of standards world hedge funds implementation 05 You say potato, I say potahto 08 Reverse engineering: mission 11 — 12 SunGard capitalizes on processable accomplished standards definitions 06 Defining roles in the standards ecosystem The case for ISO 20022 While segments of the The time for talking is almost over. After The funds case holding Standards Forums in three SWIFT Standards’ work on the use of financial services industry continents – and taking soundings from ISO 20022 in the European Central are already benefiting multiple interested parties across the Bank’s TARGET2-Securities initiative finance industry – SWIFT will present the remains a work in progress. Nevertheless, from ISO 20022 in a organisation’s board with a strategy paper real-life examples of the benefits of measurable way, an on standards coexistence in June. More is ISO 20022 already exist. SWIFTNet industry-wide business at stake than how long MT messages will Funds offers tangible benefits today. continue to carry financial communications Designed to automate funds distribution case remains a work in around the globe. As well as being an using messages based on ISO 20022 progress. active developer and user of ISO 20022 standards, SWIFTNet Funds has brought messages, SWIFT is also the registration new opportunities to deliver value to end- authority for the standard, and as such customers, according to David Campbell, its deliberations will set the tone for the securities product manager, investment entire industry. In fact, the question of services, at technology vendor Fiserv. how best to utilise ISO 20022 tests the willingness of the finance industry to put standards-based competition and costly interoperability headaches behind it, grasping the opportunity to deliver value to customers via the automation of transaction value chains from beginning to end using a universal standard. To proponents the benefits seem obvious. But the extensive feedback gathered by SWIFT has unveiled division, both across geographies and product lines and within institutions.
  • 2. 2 Standards Forum “One of our clients creates funds domiciled in Luxembourg that they distribute through a technology hub in the US to an Asian broker network. Automating that entire chain is something that they couldn’t really do in the ISO 15022 world.” David Campbell, Fiserv “One of our clients creates funds domiciled she believes SWIFT has a vital role in in Luxembourg that they distribute developing tools to make adoption as through a technology hub in the US to simple and painless as possible. “Without an Asian broker network. Automating a time-defined migration the reduced total that entire chain is something that they cost of ownership (TCO) that ISO 20022 couldn’t really do in the ISO 15022 world,” can deliver will not be realised. But no one explains Campbell. “By facilitating global says migration has to start tomorrow”, distribution, ISO 20022 has allowed them she points out. “Migration can start once to do business in an automated fashion market participants have indicated that the that previously wasn’t possible.” migration supporting tools are available and the actual end-date can be set for an But Campbell acknowledges that, in appropriate time after that,” she suggests. those areas of activity where existing message standards are already in place, Clearstream was an early adopter of ISO investment management firms are 20022-based SWIFT XML messages for David Campbell, Fiserv struggling to identify a solid business funds in 2007 and Mermigidis says that the case for migrating to ISO 20022. “Firms Standards Developer Kit (SDK) introduced may have their difficulties with ISO last year is the result of “lessons learned” 15022, but overall they’re comfortable by Clearstream in trying to help their with it and it works,” he asserts. customers to benefit from a more effective Campbell echoes the feelings of many approach to implementing and maintaining financial institutions when he says new messages. that the business case for investment managers should be more robust to ISO 20022 for funds has demonstrated compete with other priorities. “They’ve that with the right tools the technology got a lot of other pressing matters to can be managed and have lower costs worry about, especially if they’re in the of implementation and maintenance for a OTC derivatives market, where the firm, but Mermigidis says the benefits to weight of regulatory change is forcing the industry of wholesale adoption will be them to make investment decisions now of a much higher magnitude because of that they don’t want to make.” the potential for a universal standard to Irene Mermigidis, senior vice president, product management - core products at Irene Mermigidis, Clearstream Clearstream, recognises that factors such as having to upgrade legacy IT platforms to use ISO 20022 messages make some financial institutions reluctant to commit to migration by a fixed point in time. She is “Standards-based interoperability could be the answer to the wary, however, of too long a coexistence industry-wide challenges of improving operational efficiency, period – where ISO 20022 messages run alongside ISO 15022. Rather than while reducing risk and the cost of technology.” simply accepting that the complexities Irene Mermigidis, Clearstream are too great to impose a rigid timetable,
  • 3. 3 May 2010 “Standards are not competitive; they are there to support the business. And it’s at the business level that people must be convinced. Banks should be competing at the service level, not on standards.” Martine De Weirdt, SWIFT accelerate momentum in interoperability methodology and the flexibility it offers between financial institutions. “Standards in encompassing all business processes for many years have been the prerogative in financial services. A technical solution of technical groups and committees,” to map between coexistence standards she asserts. “But standards-based introduces additional layers of processing interoperability could be the answer to to be maintained and controlled.” the industry-wide challenges of improving operational efficiency, while reducing risk Martine De Weirdt, SWIFT’s head of and the cost of technology.” coexistence, acknowledges more work needs to be done to make the business Lower processing costs for the industry case for ISO 20022 easier to grasp. But will be a challenge, but can be achieved she suggests that talk of reduced STP according to Mermigidis. In addition to rates, lower costs of development and supplying the tools for migration, SWIFT maintenance for financial communication must also provide the arguments that networks and greater interoperability will help senior managers appreciate are, though important in their own right, the potential of ISO 20022, she says. only elements of a much bigger picture. “Traditionally, SWIFT has helped to “ISO 20022 offers a new foundation for define standards, but then it was up competition,” she states. “Standards are to each market participant to run its not competitive; they are there to support own implementation project,” explains the business. And it’s at the business level Mermigidis. “In the future, we will need that people must be convinced. Banks all the support tools that would make should be competing at the service level, implementation a no-brainer from a not on standards.” technical and a management decision- making perspective.” Having seen the impact of ISO 20022 on the ability of investment management Limits to coexistence firms to establish competitive advantage If the tools are not provided to win the through more efficient funds distribution, technical, operational and business Fiserv’s Campbell believes that appealing arguments and firms are left to chart their to competitive instincts will continue to own timetable for migration, Mermigidis be a key factor. “The business case for believes that extended coexistence could ISO 20022 will be made by members become permanent, a situation that would of the community using the standard to undermine the ability of ISO 20022 to add value and deliver a better service. facilitate greater market harmonisation. “A For investment managers, for example, prolonged period of one-to-one mapping the business case for migration could between ISO 15022 and ISO 20022 would arise through the promise of a better limit our ability to innovate and improve or additional service offered by their while maintenance of two standards of custodian or broker counterparts,” he different technology will increase cost,” predicts. she says. “One-to-one mapping can ease the migration, but we need to be in a position to benefit from the ISO 20022
  • 4. 4 Standards Forum SWIFT Standards in a changing world Three major shifts in the role of message standards in the finance sector are driving change – and the need for a new strategy for SWIFT Standards. SWIFT has played a leading role in the finance industry’s use and development Global versus local Don’t be a dummy! of standards since it first started replacing The Securities Market Practice Group telex messages in the 1970s. But as (SMPG) – which operates national SWIFT has created 10 simple questions members of the SWIFT community ponder market groups coordinated by a global on ISO 20022 as a first draft of an ‘ISO the progression from ISO 15022 to ISO steering committee – has also worked 20022 for dummies’ publication. The 20022, it is clear that the role of the SWIFT to strengthen linkages between global aim is to help members of the SWIFT Standards team is evolving too. standards and local market practice. community look beyond the technical “The key to this second challenge is message syntax issues to the wider First, the nature of the work that SWIFT synchronisation,” says Marc Delbaere, strategic benefits of ISO 20022 as is required to do in the standards field is head of strategy and architecture, a universal message standard. The going “beyond messaging” says Jamie Standards, SWIFT. More than just effective publication is in production now so keep Shay, head of Standards, SWIFT. Where project management, he believes SWIFT your eyes open for an update! SWIFT once developed and maintained has a ke