Introduction To ISITC Standards

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Introduction To ISITC Standards

  1. 1. ISITC Foreward 1 Foreword In November, 1991, a group of 25 investment managers, custodian banks, and portfolio accounting and communications vendors established an industry group to develop a standard automated method for communicating trade instructions between investment managers and custodian banks. The Industry Standardization for Institutional Trade Communications Group (ISITC) set as its objective the development or adoption of an electronic communications link between participating institutions. The establishment of an industry standard also eliminates the need for the investment management community to develop multiple proprietary linkages with the custodian banks. The significant progress to date with regard to standardization came from the ISITC Committee's agreement to adopt the Society for Worldwide Interbank Financial Telecommunication (SWIFT) format, specifically, the 520 & 570 message series, as the template for standardized trade communication. These formats were recognized as a long term, sustainable, global benchmark from which to build the outline of required elements for trade communication. The recommendation to utilize SWIFT was for format only. SWIFT is only one of the possible communications links. SWIFT has become an interested party to the ISITC Committee's efforts by providing support for this initiative and committing to ensure that all developments are far- sighted and correspond efficiently with other SWIFT initiatives. In June 1992, SWIFT favorably voted to allow investment managers into the network which endorses the ISITC decision to use SWIFT's formats as a template. The ISITC has elected to engage in a phased development approach, which involves implementing the standard by specific volume transaction types. Information regarding the ISITC standrad may be obtained via the ISITC Web site (WWW.ISITC.ORG) or by contacting the following: ISITC 170 Township Line Road Belle Mead, NJ 08502 Phone: 908-359-1184 Fax: 908-359-7619 9601 1-1
  2. 2. ISITC Foreward Scope In selecting an industry standard the representative groups focused on the following key objectives: Aggressive Implementation A short implementation time frame can only be accomplished through the adoption of an existing format which is well-established and tested. Comprehensive The range of security instruments traded in the institutional market place is broad. The selected standard must have the ability to cover all investment types, including mortgage-backed securities and derivative products. Flexible The investment product environment is a rapidly changing and evolving one. Therefore, the adopted standard must be one which can evolve at an equivalent pace and be modified with relative ease. Long-Term Life To minimize technology conversion cost burdens on custodians and managers the format will need to withstand the test of time. The optimal characteristics of a uniform format are: • Flexibility • Multiple Participants (i.e., brokers, depositories, exchanges) • Global Application • Comprehensiveness • Multiple Security Movement Type Applications 9601August 1994 1-2
  3. 3. ISITC Foreward Group of Thirty/Global Application Market borders are disappearing. There is a high level of interest in standardizing all aspects of trade execution and settlement globally. This is the charter of the "Group of 30" which plays an active role in global standardization. The "Group of 30" is an association whose steering committee is comprised of senior level executives from eight countries and is supported by several multinational working committees. Participating members include brokers, banks, depositories and exchanges. With an eye towards global standardization, the "Group of 30" developed and is advocating the adoption of nine recommendations which are intended to address existing inefficiencies experienced in the global marketplace. August 1994 1-3
  4. 4. ISITC Foreward Adoption of SWIFT Format The SWIFT format was recommended and approved as the uniform standard for institutional trade communication. SWIFT is a cooperative organization, which uses its global telecommunications network and message format(s) to transmit over a million cash and security transaction messages a day. The SWIFT format and message types support the objectives identified by the conference representatives. The advantages of SWIFT are significant: Well-Established SWIFT has been strongly embraced as a security settlement communication mechanism in the global markets. It is used in 6500 different locations. Its user base currently includes securities broker/dealers, recognized exchanges, central depositories and clearing institutions, trust and fiduciary services companies, subsidiary providers of custody and nominee services and registrars and transfer agents. Comprehensiveness SWIFT currently allows for the standardization of: • Money Transfer • Trade Execution • Trade Settlement • Corporate Actions Notifications • Securities Lending/Borrowing • Customer Reporting (Statements) • Capital and Income Advice • Proxy Notification and Voting Accordance with International Organization for Standardization (ISO). SWIFT has been formatted in accordance with ISO standards which are supported and recommended by the Group of Thirty. (Recommendation number nine.) 9601August 1994 1-4
  5. 5. ISITC Foreward Recommended Message Type All representatives of the securities processing and trading industry are striving towards a paperless environment, tighter controls and cost efficiencies gained through automation. We are utilizing the SWIFT message formats. This is distinct from network participation. Due to increasing pressure to broaden its user base to money managers, insurance companies, pension funds and large corporations, SWIFT, in June 1992, agreed to allow participation by the above groups on the network, if desired. In order to avoid any large reprogramming efforts, we should use the message types as SWIFT intended them to be used. The ISITC welcomes participation by the investment management and custodian bank community at large. Copies of the transaction specifications and communications requirements may be obtained via the ISITC Web site (WWW.ISITC.ORG) MT 520 Receive Free This message is sent from one financial institution to another to instruct the Receiver to receive specified securities, physically or by book entry, from a specified party, without paying an amount of money. MT 521 Receive Against Payment This message is sent from one financial institution to another to instruct the Receiver to receive specified securities, physically or by book-entry, from a specified party and to remit the specified amount of money in payment. MT 522 Deliver Free This message is sent from one financial institution to another to instruct the Receiver to deliver specified securities, physically or by book entry, to a specified party, free of payment. 9601 1-5
  6. 6. ISITC Foreword MT 523 Deliver Against Payment This message is sent from one financial institution to another to instruct the Receiver to deliver specified securities, physically or by book-entry, to a specified party, against the specified amount of money. MT 571 Statement of Holdings This message is sent from one financial institution to another to notify the Receiver of securities held by the Sender for the specified account. MT 304 Advice/Instruction of a Third Party Deal This message is sent by a fund manager to a custodian bank as an advice of/instruction to settle a third party foreign exchange deal. MT 592 (N92) Request for Cancellation This message is sent by a financial institution to request a second financial institution to consider cancellation of the SWIFT message identified in the request. MT 572 Statement of Settled Transactions This message is sent by the custodian to the investment manager and provides details of all transaction activity that has been received for a specified period and which has been effected (settled). MT 573 Statement of Pending Transactions This message is sent by the custodian to the investment manager and provides details of all transaction activity that has been received for a specified period, but not yet effected (settled) MT 950 Cash Transactions This message is sent by the custodian to the investment manager and provides details of all transaction activity that has been received for a specified period and which has affected cash. 1-6 9601
  7. 7. ISITC Foreward MT 575 Statement of Transactions This message consolidates the contents of the Mt950 Cash Statement as well as the Mt571 Holdings Statement into a combined message. This message is sent by the custodian to the investment manager and provides details of all cash activity as well as position activity that has been received for a specified period. MT 598 ISITC GROUP HEADER/TRAILER This message is a proprietary ISITC message that is utilized by both senders and receivers to batch activity destined for a financial institution. 9601 1-7

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