SWIFT for investment managers

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SWIFT for investment managers

  1. 1. SWIFT for investment managers How can you benefit from SWIFT - as many other asset managers already do? How can you further optimise your benefits from SWIFT? End-to-end solutions for the securities industry
  2. 2. Dear investment manager, You are at the forefront of every securities transaction. Multiple communication flows, a wide range of counterparties and many asset classes put a strain on your business environment and introduce risk. SWIFT offers you standardised electronic messaging and a single, low cost way of communicating with all your counterparties. These key components allow you to automate your processing environment. Automation with SWIFT enables you to achieve three key benefits: - Gain competitive advantage - Improve risk control - Improve your bottom line In the following pages, you will find a description of how these benefits are realised. Every investment manager is different, so we will work with you to determine how you can best achieve these benefits. Read why one investment manager says, “The scalability we get through SWIFT automation is huge. We would not have been able to support our growth and stay in this business without it.” Contact us to discuss how your institution can best benefit from SWIFT. Yours faithfully, Francis Remacle Member of the SWIFT Executive Committee Head of Securities Industry Division www.swift.com
  3. 3. Take advantage with SWIFT About this guide This guide for investment managers is designed to provide existing and potential users of SWIFT with an overview of SWIFT’s product and service offering. It highlights your specific business needs and requirements, and offers suggestions as to how you can use SWIFT to gain competitive advantage, improve risk control and improve your bottom line. For the purposes of this guide, an investment management institution (IMI) is defined as an institution responsible for making decisions to buy, hold or sell financial instruments. This includes insurance companies and government institutions that also have this responsibility. The term investment management institution also applies to investment managers, asset managers, fund managers and portfolio managers. Turn the page for more information on the value SWIFT can bring to your organisation...
  4. 4. Benefits you can attain through using SWIFT How can you benefit from SWIFT as many other asset managers already do? How can you further optimise your benefits from SWIFT? Improve operational efficiency Pg. 1 Gain competitive Reduce cost & time to market Pg. 3 advantage Improve customer service Pg. 5 Reduce processing risks Pg. 7 Improve risk Reduce operational uncertainties Pg. 9 control Reduce capital requirements Pg. 11 Reduce processing costs Pg. 13 Improve your Reduce cost of change Pg. 15 bottom line Reduce business expansion cost Pg. 17 ROI (return on investment) tool Pg. 19 Customer analysis tools Market gap analysis Pg. 20
  5. 5. Section 1: SWIFT’s value proposition for investment managers SWIFT’s value proposition for investment managers Improve operational efficiency Pg. 1 Gain competitive Reduce cost & time to market Pg. 3 advantage Improve customer service Pg. 5 Reduce processing risks Pg. 7 Improve risk Reduce operational uncertainties Pg. 9 control Reduce capital requirements Pg. 11 Reduce processing costs Pg. 13 Improve your Reduce cost of change Pg. 15 bottom line Reduce business expansion cost Pg. 17 ROI (return on investment) tool Pg. 19 Customer analysis tools Market gap analysis Pg. 20
  6. 6. Gain competitive advantage Improve operational efficiency “We started using SWIFT about a year ago. Efficiency wise it has been unbelievable. Now we are able to reach about 90% straight through processing (STP) for outgoing messages.” Investment manager using SWIFT Increase automation • seamless integration with your front and back-office systems + Reduce risk and cost • reduction in manual processing through automation • reduction in processing errors and failed trades + Improve operational control • automation means you can focus on exception processing • greater internal and external regulatory compliance = Increased operational efficiency 1
  7. 7. Improve operational efficiency In today’s market place, you need to take advantage of every option available to help make you more competitive. Returns on investments can be impacted by failed trades, errors and losses, all of which proliferate in manual processing environments. Benefits Increase efficiency through automation The key to automation is the use of standards with a single communication platform. By standardising your business process flows for orders, settlement instructions, reporting, corporate events, payments, foreign exchange and treasury functions, you can integrate your front and back office and communicate with your counterparties using one language. You will then derive increased efficiency through automation. Reduce risks & costs through reduced processing errors When working in an automated environment, you reduce the risk of manual processing errors. Integrating the exchange of information with your counterparties directly into your processing applications eliminates the need for rekeying, and therefore eliminates the possibility of rekeying errors and misinterpretation of trade details. The associated costs of operating in a manual environment, along with the costs incurred through errors and failed trades, are reduced as a result of automation. Improve operational control of your business Without automation, your efforts are focused on the processing and rekeying of information. Automation enables you to focus on exception processing. Problems or errors that do arise are identified and can be acted upon immediately. The result is an improvement in operational control. The more control you have, the less chance there is for errors and subsequently, fewer failed or late trades. 2
  8. 8. Gain competitive advantage Reduce cost and time to market “Before we had SWIFT, we had proprietary terminals all over the place. Staff needed to be trained on all the different systems and data was rekeyed all day long. Now, we simply have one system.” Investment manager using SWIFT Improve scalability • volume independent processing + Increase reusability • standardisation across all asset classes • covering all your counterparties (7600 institutions in 200 countries) + Reduce cost and time • enable your current environment for business expansion for future business needs = Reduced cost and time to market 3
  9. 9. Reduce cost and time to market In order to meet customer needs and take advantage of market trends, you need to be able to change and expand your business as opportunities present themselves. Manual processing environments are slow to change, which inhibits business expansion and the introduction of new products, thereby reducing competitive advantage. Benefits Business growth through scalability By automating your business processing environment, through the use of message standards and a single method of communication with all of your counterparties, you will reduce the impact of volatility in transaction volumes. As your business expands, with increased assets from new and / or existing clients, automation provides you with a scalable processing environment. Business expansion through reusability Through the use of message standards and a single method of communicating with all of your counterparties (including brokers, custodians, exchanges and central securities depositories), you have a solution that can be reused as you expand your business focus into new and different areas. These message standards are suitable for multiple asset classes including equities, fixed income, investment funds, money market instruments, foreign exchange, derivatives and financial payments. Reduce cost and time of expanding business New business expansion is easily undertaken with an automated environment. This is due to reduced costs and time needed to bring new business products to market. 4
  10. 10. Gain competitive advantage Improve customer service “If we were to report everything over fax, we would probably need twice as many people to do this. We have increased our traffic tenfold without really increasing the headcount.” Investment manager using SWIFT Increase service monitoring • focus on exception processing + Reduce errors and • reduction in processing errors failed trades • timely detection and resolution of potential trade fails + Improve customer • timely reporting satisfaction • focus on what matters to your customers = Improved customer service 5
  11. 11. Improve customer service The bottom line for any successful business is impacted by how satisfied your customers are. A satisfied customer creates a real competitive advantage, and can serve to attract new business. Benefits Increase service monitoring An increase in the automation of your processing environment allows you to focus on exception processing. This provides you the opportunity to increase the monitoring of your business and transaction processing you carry out on behalf of your customers. This can be achieved through the use of message standards and a single method of communicating with all of your counterparties. You will be better able to monitor pending trades, manage cash balances, and report on positions and activity to your customers. Reduce errors and failed trades through automation An automated environment reduces the risk of manual processing errors. Integrating the exchange of information with your counterparties directly into your processing applications eliminates the need for rekeying, and the misinterpretation of trade details. The increased focus on service monitoring means that you will discover errors that do occur much sooner, and be in a better position to provide problem resolution. Ultimately, the quantity and severity (e.g. associated cost) of errors and failed trades will be reduced. Improve customer satisfaction With a higher level of service monitoring and a reduction in errors and failed trades, you will be better able to focus on your customers’ investment needs. The operational concerns of your customers will be fewer. Ultimately, you will see an improvement in customer satisfaction and therefore an increase in competitive advantage. 6
  12. 12. Improve risk control Reduce processing risks “Without SWIFT, we would certainly need to double the number of operations staff and maybe even more. Fluctuations in the business cycles would cause problems because we would have to pull in temporary staff. This would increase the risk and further reduce efficiency.” Investment manager using SWIFT Reduce misinterpretation • industry accepted standards for more of information than 300 business processes • standardisation across all asset classes + Assured communication • assured identity of the sender • assurance of delivery + Reduce errors and • reduction in processing errors failed trades • timely detection and resolution of potential trade fails = Reduced processing risks 7
  13. 13. Reduce processing risks Many transactions exchanged in the financial industry are written in an unstructured way. This leaves room for interpretation and rekeying errors, introduces translation issues and ultimately delays the entire processing chain. This presents a very real, and costly, possibility of failed trades. Operating and maintaining multiple applications, syntaxes, databases and security infrastructures, combined with operating in a manual processing environment, significantly increases the operational risks associated with transaction processing. Benefits Reduce misinterpretation of information The use of standards to exchange information ensures that you talk to your counterparties in one language. Combined with a single communication method this allows you to automate your communication flows. This reduces the potential for misinterpreting information through translation issues and rekeying errors. Assured communication of information By using SWIFT as a communication channel, you are assured of the identity of the sender of the information as all communications are authenticated. Furthermore, you are assured that information you have sent to your counterparties has been safely received because delivery is guaranteed. Reduce processing errors and failed trades When working in an automated environment, you reduce the risk of manual processing errors. Automating the exchange of information with your counterparties eliminates the possibility of rekeying errors and misinterpretating trade details. The increased focus on service monitoring means that you will discover any errors that do occur much sooner, and be in a better position to provide problem resolution. Ultimately, you will reduce the quantity and severity (e.g. associated cost) of errors and the risk of failed trades. 8
  14. 14. Improve risk control Reduce operational uncertainties “Security and reliability are the cornerstones of SWIFT. They will always remain SWIFT’s key values”. SWIFT Board Member Increase resilience • always available • zero risk environment + Increase control and • automation means you can focus compliance on exception processing • greater internal and external regulatory compliance + Assured settlement • reduction in processing errors • timely detection and resolution of potential trade fails = Reduced operational uncertainties 9
  15. 15. Reduce operational uncertainties The ability to continue daily operational processes, even in the event of catastrophic disasters is a key challenge for the financial industry. You want to be assured that the settlement of your transactions will take place. You want certainty that your communication channels are available and operational at all times. Benefits Increase business resilience With a resilient communication platform, you will be protected from losing any business because your services are unavailable or late. You can conduct your business in the certainty that you will always be able to communicate with your counterparties, as and when required. Increase control and compliance of your business An increase in the automation of your processing environment (through the use of message standards and a single method of communicating with all of your counterparties) allows you to focus on exception processing. This provides you with the opportunity of increasing the monitoring of the service and transaction processing you carry out on behalf of your customers. Automation, reach, trust of sender and guaranteed delivery means that you are in control of your operational and processing environments. Assured settlement of your transactions Integrating the exchange of information with your counterparties eliminates the possibility of rekeying errors and misinterpretating transaction details. The increased focus on service monitoring means that you will discover any errors that do occur much sooner, and be in a better position to provide problem resolution. You and your customers can be more assured of the settlement of transactions. 10
  16. 16. Improve risk control Reduce capital requirements “Operational risk is the risk resulting from inadequate or failed internal processes, people and systems or from external events.” Basel II Increase security and • always available resilience • zero risk environment + Reduce operational risk • reduction in manual processing through automation + Lower reserve requirements • Lower Basel II capital requirements thanks to lower operational risk (if applicable to your institution) = Reduced capital requirements 11
  17. 17. Reduce capital requirements Whilst the financial services industry has always been considered as robust in terms of resilience, events in recent years have proved that there can be no room for complacency. Stringent regulatory requirements have become hot topics for the industry as a whole. Benefits Increase security and resilience in your business environment SWIFT services, in the form of a communications network and messaging standards, are always available. You can conduct your business in the certainty that you can communicate with your counterparties, as and when required. The SWIFT network is highly secure & trusted, and is used by major financial institutions in 200 countries around the world. Reduce operational risk through increased automation When working in an automated environment, you reduce the risk of manual processing errors. The global reach available through SWIFT (more than 7600 users), combined with the security and availability of the network, means that you are assured of the sender’s identity when receiving information from your counterparties, and assured that the information you are sending will be delivered. A controlled processing environment with the right level of security will contribute to reducing your operational risk. Lower reserve requirements The Basel II framework will impact a significant number of investment managers. For those affected, lowering your operational risk by using the most secure messaging infrastructure will enable you to lower your capital reserve requirements when using advanced measurement approaches. 12
  18. 18. Improve your bottom line Reduce processing costs “The cost of SWIFT is insignificant compared to the cost of other more manual messaging methods.” Investment manager using SWIFT Increase standardisation • industry accepted standards for more than 300 business processes • standardisation across all asset classes + Simplify communication • single method of communication with all your counterparties + Increase automation • seamless integration with your front and back-office systems = Reduced processing costs 13
  19. 19. Reduce processing costs Margins in the investment industry are under continued pressure. If you want to sustain profitability, you need to ensure processing costs are under control. Automation is acknowledged as the key to success in this area. Benefits Reduce cost and errors through standardisation The use of message standards greatly enhances the efficiency of information exchange. Standards should cover all process flows including orders, settlement instructions, reporting, corporate events, payments, foreign exchange and treasury functions. This ensures that you talk to your counterparties in one language. Standardisation is the first logical step to take if you want to automate communication flows. Simplify communication Using a single communication method to exchange financial information enables you to reduce the multiple communication channels currently used to talk to your counterparties, such as fax, Internet and proprietary links. Using standardised electronic communication, your flows will be greatly simplified, thereby leading to efficiency gains and ultimately a reduction in overall processing costs. Increase automation and focus on exception processing The combination of message standards and a single communication method is the first step to establishing an automated environment within your processing and operations departments. Increased automation allows you to focus on exception processing, and ultimately, spend more time servicing your customers. 14
  20. 20. Improve your bottom line Reduce cost of change “Our transaction volumes can vary significantly from one day to the next. However, the effort involved in generating our SWIFT based settlement instructions sent to custodians is very limited, given the high levels of automation we have achieved in this area. ” Investment manager using SWIFT Increase standardisation • industry accepted standards for more than 300 business processes • lower cost of making changes to processing environment + Increase reusability • standardisation across all asset classes + Increase scalability • volume independent processing = Reduced cost of change 15
  21. 21. Reduce cost of change The financial industry is constantly changing. Investment products are becoming increasingly advanced and new emerging markets are opening up. Market practice and standards are constantly evolving, and transaction volumes are forever fluctuating. Your institution needs to be able to keep up to date with these changes. Changes that impact your operational and processing environments often require a significant investment, both from a financial and resource perspective. Benefits Increase efficiency through standardisation You can communicate with your counterparties in one language, using standards that cover the entire business process chain, including orders, instructions, reporting, corporate events, payments, foreign exchange and treasury. Standardisation gives you the means to safeguard your operational efficiency in an ever-changing environment. Lower cost of change through reusability With one communication platform and one set of message standards you can talk to all of your counterparties (including brokers, custodians, exchanges and central securities depositories). These message standards are suitable for multiple asset classes including equities, fixed income, investment funds, money market instruments, foreign exchange, derivatives and financial payments. This significantly lowers the cost of making changes to your operational and processing environments. Reduce cost of change and growth through scalability With increased business from new or existing clients, your volumes will increase. An automated processing environment reduces the impact of an increase in volumes, providing you with scalability. New business can be easily absorbed into your existing environment with minimal increase in cost. 16
  22. 22. Improve your bottom line Reduce business expansion cost “SWIFT is definitely a scalable solution. We could double our volumes without noticing.” Investment manager using SWIFT Increase reach • covering all your counterparties (7600 institutions in 200 countries) + Increase reusability • standardisation across all asset classes + Increase scalability • volume independent processing = Reduced business expansion cost 17
  23. 23. Reduce business expansion cost You need to be able to change and expand your business as opportunities present themselves. However, bringing new products or services to the market is a costly and time consuming exercise when you are working in a manual environment. Benefits Increase reach to your counterparties As you expand your business, your network of counterparties grows. SWIFT is used by more than 7600 financial institutions (including investment managers, broker / dealers, custodians, banks, securities depositories, exchanges, fund administrators and market data providers), in 200 countries. This extensive reach enables you to communicate with your counterparties in a secure, low cost and automated way, 24 hours a day / 7 days a week. Lower cost of change through reusability You can reduce cost and complexity through automated communication with multiple counterparties across multiple asset classes by using one communication platform and one set of message standards. The messages standards are suitable for multiple asset classes including equities, fixed income, investment funds, money market instruments, foreign exchange, derivatives and financial payments. Reusing your operations and processing environment significantly lowers the cost of expanding your business. Reduce cost of change and growth through scalability As your business expands, with increased assets from new or existing clients, your volumes will increase. With the automation of your processing environment the impact of an increase in volumes is reduced. Automation provides you with a scalable processing environment, meaning you can easily absorb new business into your existing environment. You can focus your attention on what really matters: growing your business and providing excellent customer service. 18
  24. 24. Return on investment tool SWIFT’s Return on Investment (ROI) tool is used by your SWIFT representative to help you put together the business case for using SWIFT. It provides an easy way to calculate the savings you can get from using SWIFT in different areas of your business. It also helps you prioritise which business processes you need to automate first. Contact your SWIFT representative to calculate the financial benefits for your organisation and see what SWIFT can do for you. The tool will go through the following steps: - Introduction (how to use the tool) - Flow (looking at your current business processing flows) - Setup (looking at your infrastructure needs) - Result (an estimate of your costs and savings from using SWIFT) The ROI tool will take into account your current communication means and volumes and the investment needed to use SWIFT. The tool will also take into account additional integration and project costs. The end result of the tool is to provide you with an estimate of the ROI that the use of SWIFT can deliver to you, including: - Cost of using SWIFT - Comparison of the cost of SWIFT versus cost of other communication means - Payback period for your investment in SWIFT 19
  25. 25. Market gap analysis tool For existing users of SWIFT the Market Gap Analysis tool analyses whether you make optimal use of SWIFT. Do your traffic patterns match the ones of other investment managers in the industry? By comparing your traffic to the benchmark you can see where you can still make better use of SWIFT. Example of market gap analysis tool YTD IMI traffic report: INVMGR01 Benchmark criteria: >100 bn AUM The benchmark consists of 49 BICs Europe UK & Ireland Traffic breakdown sent Traffic breakdown received Institution Institution distribution CAT1 distribution sent received CAT2 CAT3 Benchmark Benchmark distribution CAT5 distribution received sent CAT9 Institution traffic evolution sent and received 18 000 16 000 14 000 12 000 10 000 8 000 Sent Rcvd 6 000 4 000 2 000 0 sep-03 oct-03 nov-03 déc-03 jan-04 fév-04 mars-04 avr-04 mai-04 juin-04 juil-04 aoû-04 Your SWIFT relationship manager will be happy to share the results with you. 20
  26. 26. Section 2: About SWIFT 1. Introduction 22 1.1. Investment management institution (IMI) 22 1.2. SWIFT 22 2. Business functions 24 2.1. Equities, fixed income & listed options 26 2.2. Investment funds 28 2.3. Payments & cash management 30 2.4. Treasury 32 3. Who can connect to SWIFT? 34 3.1. Categories of SWIFT user 35 3.2. SWIFT pricing and fees 37 4. How can you connect to SWIFT? 40 4.1. Direct connectivity 41 4.2. Indirect connectivity 42 5. SWIFT Partner Solutions 44 5.1. Vendor segmentation 45 5.2. Global label programme 46 About SWIFT 5.3. Working groups and vendor support 47 6. About Standards 48 6.1. International Organisation for Standardisation (ISO) 48 6.2. Securities Market Practice Group (SMPG) 48 6.3. Standards convergence 49 6.4. Bank Identifier Code (BIC) 51 7. Industry co-operation 52 7.1. Board committees and working groups 52 7.2. National member group 52 7.3. National user groups 53 7.4. Industry bodies & regulatory authorities 53 7.5. Sibos – financial services forum 55 8. About SWIFT 58 8.1. Our vision 58 8.2. Our mission 58 8.3. Facts and figures 58 8.4. SWIFT: history & evolution 58
  27. 27. 1. Introduction This guide for investment management institutions (IMIs) is designed to provide existing and potential users of SWIFT with an overview of SWIFT’s product and service offering. The focus is on investment management institutions, highlighting your specific business needs and requirements, and offers suggestions as to how you can use SWIFT to gain operational efficiencies, reduce risks and costs, and ultimately gain improvements in straight-through-processing (STP). 1.1. Investment management institution (IMI) For the purposes of this guide, an investment management institution is defined as an institution responsible for making decisions to buy, hold or sell financial instruments. This includes insurance companies and government institutions that also have this responsibility. The term investment management institution also applies to asset managers, fund managers and portfolio managers. 1.2. SWIFT SWIFT is the industry-owned co-operative supplying secure, standardised messaging services and connectivity to more than 7,600 financial institutions in 200 countries. These institutions exchange millions of messages valued in trillions of dollars every business day, and are active in the payments, securities (equities, fixed income & listed options), treasury (foreign exchange, money markets & derivatives) and trade services markets. Over the course of our history, more and more securities institutions have joined SWIFT. Today, investment management institutions, broker-dealers, custodians, securities depositories, clearing organisations, exchanges, central counterparties, virtual matching utilities, electronic trade providers, proxy voting service providers, market data providers, distributors, transfer agents and fund administrators rely on SWIFT to reduce the complexity, risk and cost of their domestic and international transactions. SWIFT facilitates standardised communications and processing at all levels of the lifecycle of equities, fixed income, listed options and investment funds transactions – from trade order through to settlement and custody services. 22
  28. 28. SWIFT’s support for securities processing lifecycles l ra t Pre-trade t e en l l a em C o ag n ma Tr ad e len d in s r it ie g Sec u Equities, fixed income en t et t lem / tr ad e & listed options Po s t Pr e-s Co c t i rp on a or s & at g r i n en t e ea m Sec u r it Cl t t l e rep o r ti s ie se ng A/C opening ta Da & maintenance i c ing at t St p o r re Tr an sf rep o r s io n s er s t in g m is Co m Investment sw i t r s & funds s che e Or d Ca p o r re sh tin fl o g ng w rti NA V po /P rep o r i c e Re rting 23
  29. 29. 2. Business functions As an investment management institution, you are involved from the very beginning of the traditional equities and fixed income transaction lifecycle (e.g. trading), and may well be involved in all settlement and custody related processes, as well as all aspects of investment funds distribution. Additionally, many of your securities related business processes lead you to be involved in payment, foreign exchange, money market and derivative related functions. Business functions of an investment management institution (IMI) Equities, fixed income & listed options Investment funds Foreign exchange IMI Money markets Payments Derivatives Cash management Within the following pages, the applicable SWIFTSolutions for each business area are shown in the SWIFTSolutions per Process diagrams. The intention is to highlight the solutions available. For a more detailed overview of each solution, including the specific message standards available, refer to the applicable chapter in the SWIFT’s Products & Services section of this guide. 24
  30. 30. Business areas SWIFTSolutions + offerings Sub-section Equities, fixed income ISO 15022 message and listed options standards (Cat. 5) SWIFTNet FIX 2.1 Investment funds SWIFTNet Funds ISO 15022 message standards (Cat. 5) 2.2 Payments and cash Category 1 and 2 message management standards Category 9 message standards SWIFTNet Cash Reporting 2.3 Treasury: Category 3 message standards Foreign exchange SWIFTNet CLS third party service Money markets Derivatives SWIFTNet Accord 2.4 25
  31. 31. 2.1. Equities, fixed income & listed options Within the equities, fixed income and listed options markets, there are four spaces through which activity is focused, covering initial trading through to settlement and custody events. Reporting & custody Pre-trade / Post -trade / Clearing & Trade Pre-settlement settlement The players most typically involved in these markets, with whom you need to communicate, include the following: - B/D (Broker / Dealers) - VMU (Virtual Matching Utilities) / ETCP (Electronic Trade Confirmation Providers) - Custodians - in some instances, directly with I/CSD (Central Securities Depositories, including Domestic and International) - in some instances, directly with Exchanges (member sponsored direct access) Client side Street side IMI B/D B/D Exchange VMU / ETCP CCP Custodian Clearer Clearer I/CSD 26
  32. 32. SWIFTSolutions per process & space Pre-trade / Trade + Post trade / Pre-settlement + Clearing & settlement processes Business IOI / Order / Execution / Allocation / Confirm Settlement process Process Quotes Pre-allocation / Affirmation instruction / Confirm Pre-trade / Trade SWIFTNet FIX SWIFTNet FIX ** ISO 15022 & & MT 502, 509, ISO 20022 ISO 20022 513 messages * messages * Post trade / Pre -settlement SWIFTNet FIX ISO 15022 & MT 514, ISO 20022 515, 517 messages * Clearing & settlement ISO 15022 MT 508, 524, 54x, 578 * The first delivery of new ISO 20022 messages for the Pre-trade / Trade space are scheduled for availability Q4 2004. ** ISO 15022 MT 5xx refers to a specific message type (e.g. MT 502 = Order to Buy or Sell). Reporting & custody services processes Business Lending & Corporate actions Depositary Process Reporting borrowing & entitlements receipts / Collateral Custody services * Securities ** ISO 15022 * Market data ISO 15022 ISO 15022 MT 516, 526, 581, reporting MT 53X, 549, provider MT 56X 582 (Ldg / Bor) initiative over 575, 576, initiative MT 587, 588, 589 FileAct 584, 586 ISO 15022 MT 503-507, 527, 558, 569 (Collateral) * Details of the Securities Reporting and Market Data Provider initiatives can be found in Section 3 of this guide. ** ISO 15022 MT 5xx refers to a specific message type (e.g. MT 535 = Statement of Holdings). 27
  33. 33. 2.2. Investment funds Within the investment funds industry, there are four spaces through which activity is focused, covering initial account set-up through to orders and reporting. Reporting & custody Account Orders Transfers management & confirms The players most typically involved in the investment funds industry, with whom you need to communicate, include the following: - Investor - Distributors and hubs (or Concentrators) - Transfer agents / Registrars - Fund administrators - Investment management institution - Custodian / Trustee - Cash agent Investor Distributor Concentrator Transfer agent / Registrar Fund administrator Custodian / Investment Cash agent Trustee management institution Note: An investment management institution can play several of the roles depicted in the above diagram. 28
  34. 34. SWIFTSolutions per process & space Account management + Orders / Confirmations + Transfers processes Business Account Orders (including switches) process Process Transfers management / Confirmations Account management SWIFTNet Funds (new ISO 20022 messages) Orders & confirms SWIFTNet Funds * ISO 15022 (new ISO 20022 MT 502, 515 messages) Transfers SWIFTNet Funds ISO 15022 (new ISO 20022 MT 540, 542, messages) 544, 546 * ISO 15022 MT 5xx refers to a specific message type (e.g. MT 502 = Order to Buy or Sell). Reporting & custody services processes Business NAV price Other reporting Corporate Account reporting process Process (cash flow, commission, report (holdings, transactions, etc.) static data) actions Reporting & custody SWIFTNet Funds SWIFTNet Funds * ISO 15022 SWIFTNet Funds ISO 15022 (new ISO 20022 (new ISO 20022 MT 535 (new ISO 20022 MT 56X messages) messages) messages) * ISO 15022 MT 5xx refers to a specific message type (e.g. MT 535 = Statement of Holdings). 29
  35. 35. 2.3. Payments & cash management During the course of carrying out your securities business, you will need to pay away and receive monies (with regards to settlement of trades, dividend income, etc.), and therefore can be both the ordering customer and the beneficiary customer in the diagram below. Payments are made through your financial institution, either directly through a bank, or indirectly through a custodian. You may also be involved in the reconciliation of cash positions between your own records, and those of your banks and / or custodians. Typical payments & cash management flows Clearing & settlement market infrastructure Ordering customer’s Beneficiary customer’s financial institution financial institution Typical role of investment management Ordering institutions Beneficiary customer customer SWIFTSolutions per process Business Customer Financial institution Cash management process payments payments & customer status * MT 101, 103 MT 200 - 203, MT 900, SWIFTNet cash 205, 210 910, 935, reporting 940 - 942, (XML standards) 950 * MT xxx refers to a specific message type (e.g. MT 101 = Request for Transfer). 30
  36. 36. Customer payments Financial institution Cash management & transfers customer status Category 1 messages Category 2 messages Category 9 messages are deal with payments, or deal with payments, or exchanged between information about information about financial institutions, either payments, in which the payments, in which all on behalf of themselves, ordering party or the parties in the transaction other financial institutions, beneficiary, or both, are are financial institutions. or customers. They not financial institutions. include confirmations of debits and credits, and cash statements. 31
  37. 37. 2.4. Treasury SWIFT offers a range of standards that cover different treasury market segments: - Foreign exchange (FX) - Money markets (Loan deposit; call / notice) - OTC derivatives (Foreign currency options; Forward rate agreements; Interest rate derivatives) Many of the treasury messages are specifically aimed at investment management institutions, allowing you to instruct and confirm FX and money market deals with broker / dealers and custodians. Additionally, the MT 300 and the MT 304 messages can be used to confirm and advise FX trades requiring settlement through CLS (Continuous Linked Settlement (CLS™) bank). CLS is an industry initiative, represented by over 60 shareholders from the world’s largest financial institutions, to reduce risks associated with cross-currency transactions. CLS bank delivers continuous linked settlement services to ensure final and simultaneous settlement of cross-currency financial transactions. SWIFT provides the network components to connect CLS bank with its members and third party CLS users. Typical treasury flows Clearing & settlement market infrastructure IMI’s financial Counterparty’s financial institution institution Investment management Counterparty institution (IMI) 32
  38. 38. SWIFTSolutions per process Business process Process Foreign exchange Money markets OTC derivatives * MT 300, 303, 304, MT 320, 321, MT 303, 305, 306, 307, 308, 380, 381 330, 350 340, 341, 360 - 362, + + 364, 365 SWIFTNet accord SWIFTNet accord + + SWIFTNet accord SWIFTNet CLS third party service * MT xxx refers to a specific message type (e.g. MT 300 = Foreign Exchange Confirmation). 33
  39. 39. 3. Who can connect to SWIFT? The following table highlights the wide variety of financial industry players who can currently connect to SWIFT. Some players can connect directly to SWIFT while others are able to connect indirectly via such services as an MA-CUG (member administered closed user group). An MA-CUG allows SWIFT Member’s to establish their own closed user group, through which they can communicate with non-SWIFT connected counterparties over SWIFT. Financial industry players Connect to SWIFT Connect to SWIFT directly indirectly * Securities (equities, fixed income & listed options) Investment management institutions ✓ Broker / Dealer ✓ CCP (central counterparty) ✓ Exchange ✓ VMU (virtual matching utility) ✓ ETCP ✓ (electronic trade confirmation provider) Custodian ✓ (ICSD / CSD) [International] ✓ Central securities depository Market data provider ✓ Corporates ✓ Securities (investment funds) Distributor ✓ Investors intermediary ✓ ✓ Fund administrator ✓ (independent Transfer agent / Registrar ✓ financial advisor’s cannot currently Portfolio / Fund manager ✓ connect directly.) Concentrator / Hub ✓ Custodian / Trustee ✓ Payments, foreign exchange, treasury Bank ✓ Clearing systems ✓ RTGS (real time gross settlement) systems ✓ Treasury counterparties ✓ Market infrastructures (e.g. CLS) ✓ * All players can, if they choose, connect indirectly to SWIFT. 34
  40. 40. 3.1. Categories of SWIFT user There are three categories of SWIFT users: Member (shareholder): An eligible organisation holding a share in SWIFT SCRL, including banks, eligible securities broker-dealers and regulated investment management institutions. A Non-shareholding Member is an organisation which complies with the eligibility criteria of a Shareholder (Member), but either chooses not to or is itself prevented from becoming a Shareholder (Member). Note: SWIFT shares are re-allocated amongst its members at least every three years. The share re-allocation is calculated based upon each members network based invoice (e.g. the fees paid to SWIFT for use of its services). For non-shareholding members, once their network based invoice entitles them to five SWIFT shares, they must become a shareholder by purchasing the required shares at the next share re-allocation. Sub-member: An organisation more than 50% directly or 100% indirectly owned by a Member. A Sub-Member must fall under full management control of the Member. Participant: Any organisation may be permitted to make use of specific services of SWIFT as a Participant, provided it complies with the criteria of eligibility of a particular category of Participant. Participants are not entitled to shares in the capital of SWIFT. The following are some of the categories of participants currently accepted on SWIFT: - Central depositories and clearing Institutions - Fund administrators - Recognized exchanges for securities and related financial instruments - Registrars and transfer agents - Securities Electronic Trade Confirmation (ETC) service providers - Securities market infrastructure system participants - Securities proxy voting agency - Trust or fiduciary services companies MA-CUGs (Member Administered Closed User Groups) Addressing the institution-to-client market, MA-CUGs enable SWIFT members (as described above) to create their own private communities and extend SWIFT-based services to their corporate clients who are not connected directly to SWIFT. A key benefit of an MA-CUG is that it allows you to build services on your existing SWIFT infrastructure. This 'reusability' offers a more cost-effective approach to providing client services than developing proprietary solutions, and also allows a considerable advantage in the time-to-market. For more information on MA-CUGs, contact your SWIFT representative. 35
  41. 41. SWIFT’s legal definition of an investment management institution SWIFT recognises three types of investment management institution (IMI): - Primary IMI (e.g. investment manager, asset manager, fund manager, etc.) - Insurance company - Government institution Primary IMI The following conditions need to be fulfilled to be recognised as a primary IMI: i. Are primarily engaged in the management of Asset portfolios (which must be composed, at least in part, of securities); and ii. Are authorised by a competent regulatory authority to conduct such primary business activity; and iii. Are subject to relevant regulations applied by such competent regulatory authority. iv. In countries where conditions ii) and iii) do not apply, are sponsored as an investment management institution by at least two-thirds of the S.W.I.F.T. SCRL shares held by the members in the country of origin of the applicant and either (a) by a minimum of ten members, or (b) by one percent of the total S.W.I.F.T. SCRL shares. Either i), ii) and iii), or i) and iv) must apply. The support referred to in iv) (a) and (b) may be provided by a combination of members from and / or outside the country of origin of the applicant. Insurance company The following conditions need to be fulfiled to be recognised as an insurance company: i. Are engaged in the management of asset portfolios (which must be composed, at least in part, of securities), in connection with their primary business activity, which is either the provision of investment management services to other persons or the underwriting of insurance or both; and ii. As above under primary IMIs. iii. As above under primary IMIs. iv. As above under primary IMIs. Either i), ii) and iii), or i) and iv) must apply. The support referred to in iv) (a) and (b) may be provided by a combination of members from and / or outside the country of origin of the applicant. 36
  42. 42. Government institutions The following conditions need to be fulfiled to be recognised as a government institution: i. An agency, department or institution of a national, regional or state government or public international organisation (“public authority”) qualifies as an investment manager if primarily engaged in the management of asset portfolios (which must be composed, at least in part, of securities) on behalf of and for the account of such public authority; and v. As above under primary IMIs. vi. As above under primary IMIs. vii.As above under primary IMIs. Either i), ii) and iii), or i) and iv) must apply. The support referred to in iv) (a) and (b) may be provided by a combination of members from and / or outside the country of origin of the applicant. 3.2. SWIFT pricing and fees Financial institutions joining SWIFT incur fees based upon the way in which they connect to and use SWIFT. As a co-operative, SWIFT aims to continuously lower average message prices. SWIFT pricing is value based, allowing users to pay only for the products and services they use. Pricing is also loyalty based; the more an institution uses SWIFT, the lower the per-unit cost (e.g. per message costs decrease as an institution’s traffic invoice increases). Co-operative based Prices decrease as cost effectiveness increases 1991 average message price 2002 FIN Value based The right solution for the InterAct right need at the right price FileAct Browse Loyalty based The more you use SWIFT, Unit prices the lower your unit prices Low SWIFT usage High 37
  43. 43. The various fees can be broken down into three categories: - joining and connecting to SWIFT - using SWIFT services and SWIFTSolutions - other SWIFT services Joining and connecting to SWIFT Institutions incur a variety of fees dependent on their status and type of connectivity: Fee Definition Joining fee One-time fee dependent on member, sub-member or participant status of the joining institution SWIFT BIC (8 characters) - destination Annual recurring fee SWIFT user handbook Annual recurring fee FIN/SWIFTNet FIN logical terminal (LT) One-time fee Security fee One-time and recurring fees related to the registration and maintenance of security officers, PKI and BKE certificates and/or USE equipment SWIFT IP network connectivity fees Recurring fees dependent on the type of connectivity (managed or dial-up), the bandwidth and the country where the connection is implemented SWIFT interfaces Dependent on whether institution uses SWIFT or 3rd party vendor interfaces One-time and software maintenance recurring fees dependent on volume of transferred traffic Up-to-date fees for all of the above can be obtained by contacting your SWIFT representative. Using SWIFT services and SWIFTSolutions For FIN and SWIFTNet messaging, and for some of the new SWIFTNet business solutions, fees are based on the volume and size of transferred messages or files and are typically charged to the sender of the message (except when otherwise specified or agreed with SWIFT). Note: some SWIFTSolutions are charged based on a flat service fee. The price per message is typically defined according to the following criteria: - The institution’s global tier determined by the institution’s overall financial contribution related to usage of SWIFT services. The more the institution uses SWIFT services, the better the tier in terms of price per message. 38
  44. 44. - The route used by the transfer, either, domestic, international or intra- institution. The domestic route is defined by the country of the sender and the receiver. Intra-institution traffic is the traffic transmitted between destinations that are part of the same financial institution. International inter-institution traffic is all other communication. - The optional value-added features selected for the transfer of message or file (e.g. priority, delivery notification, etc). - The size of the transferred message. Up-to-date fees for all of the above can be obtained by contacting your SWIFT representative. Other SWIFT services SWIFT delivers directory, documentation and education services to its community. Up-to-date fees, along with details of these services, can be obtained by contacting your SWIFT representative. 39
  45. 45. 4. How can you connect to SWIFT? To be able to connect to SWIFTNet, users require: - a network connection to SWIFT's secure IP network (SIPN) - SWIFTNet Link - an interface SWIFT users can choose to manage their own technical connectivity (direct connectivity) or they can outsource their connectivity either to a Service Bureau or by the use of a shared connection (indirect connectivity). Example of direct connectivity to SWIFT’s secure IP network (SIPN) Customer premises Local loops Access networks Backbone Network Partner 1 VPN router box POP SIPN M-CPE Network backbone Partner 2 network OPCs Backbone SIPN Access access Network points SIPN 40
  46. 46. Example of indirect connectivity to SIPN [via Service Bureau] Service bureau Customer A WAN VPN internet box point to point connections SWIFTNet Customer other SNL VPN B box - SWIFTNet Connectivity - interface solution Customer N Diagram Acronyms VPN – Virtual Private Network M-CPE – Managed Customer Premises Equipment POP – Point of Presence SIPN – Secure IP Network OPC – Operating Centre Whether you choose to connect directly or indirectly is an internal business decision. It is SWIFT’s goal to ensure that all of its users have choice in this respect. Some of the points to consider as to whether to connect to SWIFT directly or indirectly are as follows: - Are you a global, regional or domestic institution? - Are you planning on expanding your physical presence in the future? - Do you have multiple business lines, or are you focused in one area? - Are you planning on expanding your business lines in the future? - Are your volumes high, or do you anticipate your volumes increasing in the future? 4.1. Direct connectivity To be able to use SWIFTNet services, you require a network connection to SWIFT's secure IP network (SIPN), SWIFTNet Link and an interface. Secure IP network is SWIFT's highly secure and extremely reliable network. Full redundancy, advanced recovery mechanisms, first class operations and customer support services ensure continuous network availability for SWIFTNet services. SWIFTNet Link guarantees interoperability between our customers. SWIFTNet Link is our unique underlying software module that encapsulates transport, service management and security technologies. 41
  47. 47. Interface - The SWIFTAlliance product family includes interface products for both SWIFTNet and FIN. SWIFTAlliance WebStation and SWIFTAlliance Gateway are our SWIFTNet interface products. SWIFTAlliance Access and Entry are our FIN-specific interfaces. In addition to SWIFT’s own interface products, third party interfaces are also available from SWIFT’s service partners. 4.2. Indirect connectivity There are two ways for a SWIFT user to connect indirectly to SWIFTNet: A SWIFT-registered Service Bureau (SB) provides user facilities management and / or data processing services, supporting their access to, and use of, the SWIFT messaging services. A Service Bureau may thus operate various connectivity components (such as a connection to the SWIFT network or interface software) for the benefit of, or on behalf of the users for their prime and / or backup connection. For a current list of SWIFT registered Service Bureaux, refer to www.swift.com. A shared connection occurs whenever different SWIFT users connect through the same interface equipment to SWIFT in such a way that they could be simultaneously logged on. What is the difference between Service Bureaux and shared connections? Both offer the same indirect connectivity solution. However, in the case of a shared connection, the party operating the connection is also a SWIFT user, while in the case of Service Bureaux, it is not. SWIFT provide a variety of connectivity options depending on each individual customer’s needs and requirements, ranging from fully resilient and redundant permanent connections down to dial-up connections, either directly or indirectly. For detailed information on how you can connect to SWIFT, please contact your SWIFT representative. 42
  48. 48. 5. SWIFT Partner Solutions SWIFT Partner Solutions is responsible for establishing and maintaining business relationships at all levels between SWIFT and external partner vendors. One of our main aims is to improve communication and the sharing of information between SWIFT and providers of applications and services for the Investment Management Industry. Partner solutions works with third-party providers who develop and support solutions that focus on SWIFT readiness, traffic automation and straight through processing to help our customers achieve end-to-end automation. SWIFT traditionally works with various partners to extend its product offering beyond the network and messaging layers. - Application vendors - Consultants - Interface providers - Installation experts Partner Solutions' objectives are to: - Facilitate SWIFTNet implementation for members - Increase STP and reduce total cost of ownership to members - Leverage SWIFT’s business potential through its partners network Over 60 partner companies active in the investment management industry have been identified. Partner Solutions will seek to work with these vendors within the framework of our established programmes and projects, as described further in this section. 44
  49. 49. 5.1. Vendor segmentation Partner solutions typically segment the vendor community in the following way: Market Business applications infrastructure service Banking Securities ERP providers Integration services Consultancy / Middleware Interfaces Messaging Network, connectivity Vendor segment focusing on the investment management industry Solution stack provided by SWIFT and by third party providers Solution stack provided by SWIFT 45
  50. 50. The securities business applications are obviously highly relevant for the investment management community. The types of business applications identified as key for this industry are: - In the pre-trade/trade space: FIX engines and Order Management Systems - In the post-trade/pre-settlement space: FIX engines, Order Management Systems, ETC providers and reconciliation applications - In the clearing and settlement space: back office platforms and reconciliation applications - In the custody space: corporate actions processing The investment funds distribution vendor landscape is slightly different as niche players have been developing extremely focused business applications catering for the specific needs of distribution, fund accounting and transfer agency. Partner solutions identified the following application types as highly relevant for the mutual funds industry (in addition to the ones relevant for the investment management industry generically): - Distribution platforms - Transfer agency applications - Fund accounting systems - Portfolio management applications The middleware or EAI stack is the main component involved in the gathering of the business flows and the construction of the messages. This application category is spanning multiple spaces (also for funds distribution) and serves as the concentrator and transformer of business flows beyond the interface. The market infrastructure service providers are traditionally seen as technical infrastructure providers. Nevertheless, these are extremely relevant for the investment management community, and Partner Solutions carefully monitor the evolution within this partner segment. The consultancy and integration services stack would intervene at all stages in an implementation process (architecture, business analysis, testing, etc). 5.2. Global label programme Partner solutions' global label programme certifies third party applications that support SWIFT functionality and messages, through validating the integration of third party applications into SWIFTAlliance interfaces, and accrediting providers of SWIFT-related services. For the securities industry, labels have been awarded to third-party providers who have developed solutions covering specific securities processes and SWIFTNet Business Solutions, including the following: - Securities Custody and Settlement - Corporate Actions - SWIFTNet FIX - Securities Reconciliation - SWIFTNet Funds 46
  51. 51. The following labels support the investment management industry, but also span multiples industries: - SWIFTReady Financial EAI: targeted at middleware providers - Provider of SWIFT Accredited Solutions: targeted at consultancy houses and integration specialists For details on SWIFT’s current range of Partners, please contact your SWIFT representative, or go to www.swift.com. 5.3. Working groups and vendor support In the context of specific business solutions and initiatives, Partner Solutions also engage in closer relationships with niche players to ensure that each solution being rolled out is understood by its partners and well implemented. SWIFT also involved these specialist partners in the validation and review of specific business solutions deliverables through the creation of working groups. The SPIFA (SWIFT Partner Investment Funds Automation) working group is composed of 15 companies helping us refine our SWIFTNet Funds business solution. As this solution has multiple facets and tackles multiple business flows, SWIFT carefully selected key players in the funds industry, including consultancy houses, middleware and business applications providers for transfer agencies, fund accountants or distributors. More generically, one of the key missions of Partner Solutions is to ensure that at least three vendors support each business solution or initiative that SWIFT is rolling out. 47
  52. 52. 6. About standards Standards are an essential element of SWIFT's global offering. We are committed to the collaboration of efforts and convergence of standards, so that you can benefit from cost savings, eliminate redundancies and seize the opportunity to expand into previously untapped markets. SWIFT offers a range of securities standards, in both FIN and XML syntax, which facilitate the link between front and back office operations of financial institutions. This leads to interoperability and higher straight-through- processing (STP) rates throughout the entire securities, payments and treasury transaction chains. In order to achieve a common industry standard for the financial industry, SWIFT works in close co-operation with the international standards setters and several financial industry bodies, including ISO, the Securities Market Practice Group and FIX Protocol Ltd. This section highlights some of these organisations and how we work with them, along with an overview of the industry’s standards convergence efforts. 6.1. International organisation for standardisation (ISO) ISO is the world's largest developer of standards. ISO is a network of the national standards institutes of 148 countries with a Central Secretariat in Geneva, Switzerland that co-ordinates the system. SWIFT is the registration authority for a number of ISO standards related to financial operations including the BIC (Bank Identifier Code), the MIC (Market Identifier Code), the ISO 15022 securities message standard and the new UNIFI (ISO 20022) financial message standard. 6.2. Securities market practice group (SMPG) SWIFT acts as a facilitator to the SMPG. The objective of this industry group is to create globally harmonised market practices, which enhance STP at an industry level. Securities market practices Market Practice Rules for existing securities messaging standards (e.g. FIX, ISITC, and ISO 7775) have been historically defined after industry participants have implemented the standards. To further complicate industry information flows, each industry participant has defined its own usage rules separately and differently. This has resulted in an inefficient exchange of information whereby standards and their associated market practice rules have been interpreted and implemented differently by each industry participant in each geographic market. This inefficient exchange of information has limited (STP) in the securities industry. 48
  53. 53. SMPG In July 1998, SWIFT sponsored the organisation of the SMPG. The formation of the SMPG resulted in the establishment of National Market Practice Groups (NMPG) in more than 30 geographic markets comprised of investment management institutions, broker / dealers, custodian banks, central securities depositories and regulators. The membership of the SMPG and the NMPGs are committed to the vision that standards, in conjunction with defined market practices, will bring the industry closer to its goal of achieving STP. The SMPG is a tactical initiative focused on enhancing the current securities industry infrastructure. However, this group also realises the further benefit of industry utilities in supporting conformance to standards and market practice. As such, there is active dialogue between the SMPG and other industry initiatives (e.g. ISITC-IOA) in order to ensure that the tactical work of the SMPG provides a first step toward the restructuring of the securities industry. SMPG process The SMPG is open to all participants interested in creating globally agreed market practices for the securities industry. This objective includes the harmonisation of non-regulated geographic differences as well as consistent implementation by securities industry participants for processing within and across all markets. Monthly meetings of the NMPGs and twice-yearly meetings of the SMPG cover issues ranging from standardised methods of informing custodians to register shares, to creation of NMPGs in non- participating countries. NMPG countries — as of January 2004 Austria, Australia, Belgium, Brazil, Denmark, Canada, Croatia, Czech Republic, Finland, France, Germany, UK and Ireland, Greece, Hong Kong, Hungary, India, Israel, Italy, Japan, Luxembourg, Malaysia, Netherlands, Norway, Portugal, Poland, Russia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, United States and the Eurobond Markets. Further information on the SMPG is available from www.smpg.info. 6.3. Standards convergence There are numerous message development initiatives addressing financial information flows, driven from both inside and outside the financial industry. They are generally driven by communities of users looking for more cost- effective communications to support specific financial business processes. It is possible to preserve interoperability and consistency between standards developed by different organisations, if a common standardisation approach is adopted. Such a common standardisation approach has to include a common message development methodology, a common validation / prioritisation process and a common financial repository. The international standards setters, such as ISO and UN/CEFACT, are guiding the industry towards the standard use of methodologies and tools. 49
  54. 54. SWIFT’s strategic priority supports this convergence at three levels: - SWIFT is actively supporting ISO and UN/CEFACT in the development of a common approach and has offered to be the Registration Authority for the common financial repository - SWIFT is committed to use this common approach and promotes it actively to other standards initiatives developing financial messages - SWIFT makes every effort to select relevant standards initiatives to support and avoid duplication of efforts by Financial Institutions in multiple standards initiatives that would cover the same financial transactions The adoption of such a common standardization approach by as many message developers as possible will prevent the development of inconsistent, non-interoperable and overlapping message standards, whilst allowing a large degree of freedom for message development initiatives to emerge and prosper. The target is the harmonization of all messages sent and received by financial institutions, between themselves, with their clients and with the market infrastructures that participate in the execution of financial transactions. FIX protocol limited (FPL) Co-operation with FPL is key to convergence of securities message standards between the front and back offices. While the SWIFTNet FIX Hub allows SWIFT to transport FIX messages, the ultimate goal is to provide a full set of securities messages in the same XML language. In 2001 SWIFT and FPL signed a memorandum of understanding. Since then, SWIFT and FPL have contributed jointly to the development and approval of the ISO 20022 standard. Under the ISO umbrella, SWIFT and FPL have developed a set of ISO 20022 compliant pre-trade / trade message models, which are expected to be available in late 2004. Future efforts between SWIFT and FPL will focus on the development of message models in the post trade / pre-settlement space. FIX representatives are also working with SWIFT (as well as several industry players) on the new investment funds messages, being developed in compliance with the ISO 20022. The first set of investment funds message standards are now complete, and will be available for use on SWIFT in late 2004. FpML / ISDA Co-operation with FpML (financial products mark-up language) is key to the convergence of standards for the OTC FX and interest rate derivatives business. FpML are a part of ISDA (International Swaps and Derivatives Association) of which SWIFT is a member. FpML have already started defining an XML directory for OTC derivatives and SWIFT are working with them to promote an adoption of the ISO 20022 methodology. Market data definition language (MDDL) MDDL was launched in 2001 by the Financial Information Services Division (FISD) of the Software & Information Industry Association (SIIA). MDDL’s aim 50
  55. 55. is to build XML standards covering pricing information and reference data for financial instruments. From its inception MDDL has evolved in parallel with the development of the ISO 20022, and is looking to become ISO 20022 compliant. To ensure the convergence of standards in this area, SWIFT helped MDDL to gain access to ISO, and have supported the creation of a new ISO working group (WG11), which is creating an ISO 20022 compliant market data model for pricing information and reference data. 6.4. Bank identifier code (BIC) The ISO Bank Identifier Code (BIC) is an international standardised method for identification of financial institutions. The BIC is designed to facilitate automatic processing of telecommunication messages in financial environments. SWIFT is the Registration Authority for ISO 9362 Banking – Banking Telecommunication Messages – BICs. SWIFT in this capacity is responsible for the assignment of these codes and their subsequent publication in the BIC Directory. Each SWIFT User registers a unique 8 character Bank Identifier Code (BIC). Such registration is completed when the organisation applies to become a SWIFT User. An entity may register separate 11 character codes where the last 3 characters represent a branch code, either of a geographical, functional or departmental nature. However, if the branch being registered is considered a separate legal entity, then it must be registered with its own 8 character BIC. 51
  56. 56. 7. Industry co-operation SWIFT works with a variety of regulatory bodies, industry groups as well as our customers to help drive standardisation and automated communications forward in the financial industry. 7.1. Board committees and working groups SWIFT is governed and guided by its users (many of whom are shareholders in SWIFT), and by its Board. As our users represent a broad industry base, the Board has six committees with delegated decision powers: audit and finance, banking and payments, compensation, securities, standards, technology and production. The Securities Steering Committee (SSC) is made up of senior industry representatives from leading investment management institutions, custodians, broker / dealers and international central securities depositories. The SSC meet on a quarterly basis to discuss issues affecting the securities industry, and guide SWIFT as to how it is best placed to deal with these issues in the most beneficial manner for the Industry. Additionally, SWIFT has created Working Groups to assist Board Committees on detailed industry matters. As with the SSC, the Working Group is likewise made up of senior representatives from the securities industry, and also meets on a quarterly basis. 7.2. National member group The National Member Group (NMG) consists of all SWIFT shareholders within the same nation. Within each nation shareholders organise themselves in such a manner so that they can effectively advise and assist the Board on specific local matters such as admission of new users, propose Director candidates to the Board, communicate and work with their representative on the Board of Directors. The NMG is consulted in an advisory function at a national level on policy issues affecting members which are due to be discussed in the Board, such as share participation or new categories of SWIFT Users. In doing so, the NMG not only assists the Board, but also serves the interests of its members by co-ordinating their views and formulating a common policy. The NMG ensure that their advice to the Board is objective and competitively neutral, and that the local criteria are drafted to provide fair and open access to SWIFT services to any eligible institution. 52
  57. 57. 7.3. National user groups The National user group consists of all SWIFT Users within the same nation who organise themselves to discuss SWIFT matters of an operational nature. They develop a forum to allow for collective planning and co-ordination in their operational activities. The prime functions of the National User Group are: - to enable users to co-operate in establishing their connections to SWIFT - to advise organisational, operational or technical matters affecting the users - to discuss and decide on matters which have to be agreed upon at a national level as they relate to the day-to-day network operation in the country (e.g. sharing of costs) - to assist SWIFT in ensuring an efficient and reliable day-to-day operation of the network The national user group is chaired by the user group chairperson (UGC). To fulfil this role, the UGC should be well versed in operational and technical matters relating to SWIFT's operation and be in close contact with the users on an operational level. The UGC also acts as focal point for training requirements. In most countries the UGC is elected by the National Member Group or by the steering committee of that National Member Group. 7.4. Industry bodies & regulatory authorities SWIFT plays an active role in working with (and / or ensuring compliance with) various industry bodies and regulatory authorities around the world. These include the following: FIX protocol limited (FPL) FPL is an industry organisation created in 1992, which has built successful message standards for communication primarily in the pre-trade / trade area. FPL’s membership is made up of many of the key buy-side and sell-side players in the securities industry, along with a number of key vendors of FIX related services. SWIFT is a member of FPL. As mentioned previously in the standards Convergence section, SWIFT and FPL have developed a set of ISO 20022 compliant pre-trade / trade message models, which are expected to be available in late 2004. Future efforts between SWIFT and FPL will focus on the development of message models in the post trade / pre-settlement space. G30 The Group of Thirty is a private, not-for-profit, international body composed of senior representatives of the private & public sectors and academia. It aims to deepen understanding of international economic and financial issues, to explore the international repercussions of decisions taken in the public and private sectors, and to examine the choices available to market practitioners and policymakers. 53
  58. 58. In January 2003 the G30 published a set of 20 recommendations for the securities industry (global clearing and settlement: a plan of action). The G30 have called for comprehensive reform of the cross-border clearing and settlement process. These recommendations are in unison with how SWIFT operates, and the value SWIFT offers to its users. Cross-border clearing and settlement processes have been at the core of SWIFT’s securities offering for more than ten years. “The importance of the clearance and settlement processes as the central nervous system of global finance is clear, and there is a compelling need for all institutions that are engaged to ensure that they contribute to securing the system's health." G30 ISSA The International securities services association (ISSA) is a group of leading global market players, who as a group control a significant share of cross- border investment volume. The associations focus is twofold, firstly to collect and disseminate information on the developments in the rapidly changing international securities markets, and secondly to offer securities operational professionals a forum to exchange ideas and issues of common interest. SWIFT is an active participant of ISSA. ISITC-IOA The international securities association for institutional trade communication – international operations association (ISITC-IOA) is a global working committee of securities operations professionals representing custodian banks, investment managers, brokers and vendors. The group’s mission is to foster alliances and advocate standards that promote straight through processing (STP) of securities transactions. SWIFT is a member of ISITC-IOA. FEFSI The fédération européenne des fonds et sociétés d’investissement (FEFSI) is the pan-European umbrella organisation of the investment funds industry for Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Liechtenstein, Luxembourg, the Netherlands, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland and the United Kingdom. FEFSI represents through its national member associations more than 900 investment management companies with over 40,000 investment funds. SWIFT are actively involved with FEFSI, specifically as a member of the steering group of the Funds Processing Standardisation Group (FPSG), for which there are two key areas of focus. Firstly, support of ISO 20022 as the basis for European funds messaging standards. Secondly, the harmonisation of processing features (e.g. decimal spaces, cut off times, etc.). 54

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