Cash STP: getting the sell side and buy side to work together
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Cash STP: getting the sell side and buy side to work together. James Spurdle, Client and Sales Support Manager, RBS Terri Van Praagh ASI, Director – Head of Market Activities, Baring Asset Management. Agenda. Background: what is ISITC Europe and What are the Working Groups?

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Cash stp getting the sell side and buy side to work together

  • Cash STP: getting the sell side and buy side to work together

James Spurdle, Client and Sales Support Manager, RBS

Terri Van Praagh ASI, Director – Head of Market Activities, Baring Asset Management


Agenda

Agenda

  • Background: what is ISITC Europe and What are the Working Groups?

  • What is cash STP - how does it impact trading and operations?

  • What is being done to improve efficiencies?

  • Buy-side perspective of STP - same day affirmation (SDA) and SSI issues


Cash stp getting the sell side and buy side to work together

www.isitc-europe.org

What is ISITC Europe?

Environmental Issues

Political/Social/Regulatory

Standardisation

Technical/Business

Technology

Software/Applications/Hardware

Market Appetite For Collaboration

Market Sentiment

Bull/Bear

Asset Investment Appetite

(Derivatives/Debt/Cash/Equities)

Industry Issues Identification And Scoping

Industry

Associations

IMA/APCIMS/LIBA

Standards Bodies

ISO/SWIFT/FPL/FPML

ISITC Europe Community

Brokers Asset Managers Vendors CustodiansIndividualsConsultancies Utilities

Industry Response Validation, Collaboration And Activity Agreed

ISITC Europe Executive

Working Group

Working Group

Working Group

Working Group

Working Group

ISITC COLLATERAL: Requirement specifications

White papers, Best practice guidelines and more ...

ISITC Europe Specific Actions And Results (Collaboration When Agreed)


Cash stp getting the sell side and buy side to work together

www.isitc-europe.org

ISITC Europe Working Groups

*e.g. UCITS III/IV, MiFID, KYC/AML, T2S/Clearing & Settlement CC

Data

Investment

Funds

Alternative

Investments

Regulations

STP/

Ops/Other

Investment Funds

ETC Best Practice

Corporate Actions

Claims

Swaps

Alt. Investments

Incl. Derivatives

BESG

RegSIG

XJSG

Broker Forum

Broker Forum

RDSG

Regulatory

Instrument

Client

C/Parties

Transactions

Corp. Actions

Custodian Forum

Custodian Forum

IM Forum

IM Forum

Supplier Forum

Vendor/Utility Forum

IT Group

Website

IT Group

Website

Education Group

Marketing PR

Event Organisation

Marketing Group

Key: Existing WGs Proposed new WGs Proposed revised WGs


Cash stp getting the sell side and buy side to work together

www.isitc-europe.org

e.g. FIX 5.0, ISO20022, XBRL, IBEIs…

e.g. MiFID, MLD III, PSD/SEPA, T2S…

e.g. CLOs, REITs, Emissions…

e.g. BOAT, eCCP, PE-ACHs.…

e.g. SOA, P2P, ESPs, Latency, Meta-data

e.g. DMA, algos, MTFs, Dark Pools

e.g. BPO, KPO, AO, …

e.g. FMFG, Liquidity, Capital, Innovation…

e.g. Coll. Mgmt, Islamic Fin., Research…

e.g. Cross-margining, NAV Admin, Benchmarks…

e.g. BRICS, Emerging, Regional, Havens…

e.g. SLAs, Market Impact, STP…

The increasing importance of risk and regulation

New Regulations

New Products

New Standards

New Technologies

New Channels

New Infrastructures

New Strategies

New Domains

New Outsourcing

New Geographies

New Metrics

New Asset Services

Source: ISITC Sep 2007


What is cash stp

www.isitc-europe.org

What is Cash STP?

  • Equities and Fixed Income Process

  • Involves the sell side and the buy side

  • Involves the Dealing Desk and Operations

  • Untouched by human hand –Fully automated

  • Measured from point of execution to settlement…

  • Requires accurate data and up-to-date systems

  • Requires standards and established market practices


Impact on trading and operations

www.isitc-europe.org

Impact on Trading and Operations

  • Market Turmoil – Need for reliable structure

  • Verification of trades is critical–Know your position

  • Manual and fax-based processes not sustainable

  • Automated and standard processes lead to risk reduction

  • Cost – a manual trade can cost as much as 5 times that of an automated trade

  • MiFID – States that ‘Best Execution’ is about the whole process, not just price

  • What are we doing about it?


Cash securities stp working party

Cash Securities STP Working Party

The Working party focus’ on Cash Equities and Fixed Income securities.

Concentrate on the trade processing of Cash Securities including the allocation and confirmation processes.

www.isitc.org


Past achievements

www.isitc-europe.org

Past achievements

  • ETC Code of Best Practice (2005)

  • 1996 Industry User Group (IUG) – First draft

  • 1999Updated

  • 2005Current Version in use

  • 2008/9Proposed update


Notice of execution allocation confirmation affirmation

www.isitc-europe.org

Notice of Execution/Allocation/Confirmation/Affirmation

  • Model 1: Notice of Execution/Allocation/Confirmation/Affirmation.


Block allocation confirmation affirmation

www.isitc-europe.org

Block/Allocation/Confirmation/Affirmation

  • Model 2: Block/Allocation/Confirmation/Affirmation.


Central matching via virtual matching utility

www.isitc-europe.org

Central Matching via Virtual Matching Utility

  • Model 3: Central Matching via Virtual Matching Utility.


Work in progress

Work in progress

  • Standardisation of Management information

  • Standardisation of fails reporting

  • Alert Quality Analysis review


Standardisation of management information

www.isitc-europe.org

Standardisation of Management information


Apples with apples

www.isitc-europe.org

Apples with Apples


Standardisation of fails reporting

www.isitc-europe.org

Standardisation of fails reporting


Alert quality analysis review

www.isitc-europe.org

Alert Quality Analysis review

  • 32,112 records checked for Equity Market

  • 31% of Data is missing vital data required for Dutch Market

  • 25% of data is populated in an incorrect field or is invalid for custodian which when used will cause an unmatched item

  • 44% of data conforms with market standards to give STP


Stp solution available

www.isitc-europe.org

STP Solution available

  • Bloomberg VCON

  • FIX 4.2, 4.4 and 5.0

  • Omgeo Oasys Global and CTM

  • SWIFT 515, 509 and 517

  • Xtrakter TRAX2


Cash stp getting the sell side and buy side to work together

www.isitc-europe.org

Buy Side Perspective of STP

IM

Custodian

1) Trade execution/allocation (T)

7) Reconciliation/Failed trade monitoring

6) Settlement/ position

reporting

(S and S+1)

2) Trade

matching with

broker (by T+1 noon latest)

3) SWIFT instruction to Custodian (by T+1 p.m. latest)

5) Clearance and Settlement

4) Pre-Matched / Matched

trade

reporting

(S-1)


Cash stp getting the sell side and buy side to work together

www.isitc-europe.org

Where are the issues?

IM

Custodian

1) Trade execution/allocation (T)

FIX?

7) Reconciliation/Failed trade monitoring

6) Settlement/ position

reporting

(S and S+1)

2) Trade

matching with

broker (by T+1 noon latest)

Same Day Affirmation (SDA)

Standard Settlement Instructions (SSI)

3) SWIFT instruction to Custodian (by T+1 p.m. latest)

5) Clearance and Settlement

4) Pre-Matched / Matched

trade

reporting

(S-1)


Cash stp getting the sell side and buy side to work together

www.isitc-europe.org

SDA

  • Same Day Affirmation - Benefits

  • Settlement failure rate doubles with non-automated parties

  • Failed rates drop to <0.5% for already automated parties

  • Allows prioritisation of workload

  • Enables quicker identification of problems


Cash stp getting the sell side and buy side to work together

www.isitc-europe.org

SSI

  • Ex Shorts, between 80-90% of buy side trades fail due to incorrect SSI

  • Failed trades add 50% to the process cost of a trade

  • So what’s difficult?

  • Who has the data?

  • Who is responsible/liable for the upkeep?

  • When is that data available?


Summary

www.isitc-europe.org

Summary

  • ISITC Europe Bringing together all participants

  • Addressing issues through Cash STP Working Group

  • Issuing Best Practice Documentation

  • Assisting in the clean up of Alert

  • Promoting SDA – with Omgeo

  • But…

  • Remember, it’s taken 12 years to get this far!


Cash stp getting the sell side and buy side to work together

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