TECHNOLOGY: Automation for the industry

Is Swift doing enough to encourage more efficient processing among buy-side firms? Nicholas Pratt asks various market participants for their views on Swift’s role in the investment management community.

Sibos, the annual trade conference organised by the banking co-operative and financial messaging body Swift, has traditionally been the once-a-year opportunity for the banking industry to address its back-office concerns and extol the virtues of automation, straight-through-processing (STP) and messaging protocols to its buy-side counterparties.

These buy-side counterparties include investment managers – a segment that Swift has previously devoted dedicated sessions and streams to at Sibos. However, there are few sessions at this year’s Sibos event in Osaka that are specifically geared towards investment managers.

In fairness, Swift does hold other events during the year aimed at investment managers but is there more Swift could be doing for the industry? For example, should Swift be making a greater effort to engage with smaller managers that have not yet signed up to its membership?

Is Swift still too focused on the concerns of its existing, largely bank-based members rather than the issues facing the many financial services firms that have more modest transaction volumes but still represent a large proportion of the market when taken as a whole? Or with operational outsourcing increasing among investment managers of all sizes, would Swift be better served by focusing on the outsourcers rather than the outsourcers’ customers?

In addition to speaking to Swift about its work with investment managers, Funds Europe asked a fund manager, a fund administrator and an asset servicer about how well they feel they are served by Swift and its services and what more could be done. The answers suggest there are different perceptions of Swift from the different types of participants, especially in terms of how bank-centric an organisation may be. And the greatest challenge for Swift in encouraging greater adoption among the investment management community is to balance the needs of its core, bank-based membership with those of the periphery players.


What work is Swift doing with the investment management community?

Unusually for Swift, we are working in both the front office and back office with investment managers. In terms of the front office, we are working with fund promoters, producers and distributors as well as transfer agents to help with fund distribution. We provide the underlying messaging network and infrastructure which enables users to connect to the various multi-provider platforms. Messaging volumes have grown by roughly 35% each year and we now have more than 1,000 users of the Swift Funds messaging standard, including 17 out of the 27 fund platforms in the UK.

Funds are increasingly distributed cross-border and given the international reach of the Swift network, a lot of investment managers are turning to us. We are also being used domestically as regulators and managers are increasingly favouring the use of open architecture. Investors want to choose from a variety of promoters rather than being tied to one promoter.

We have 800 investment managers on Swift, and in the securities post-trade environment, the allocation and confirmation matching of block trades is increasingly being done over the Swift network. We are supporting local matching solutions rather than the central matching solutions offered by the likes of Omgeo. A lot of the large and sophisticated investment managers have invested heavily in local matching solutions and they want to continue to use these via Swift rather than migrate to a central matching service.

Adoption of the Global Electronic Trade Confirmation (GETC) service – as we call it – is increasing rapidly.

We have already gone live with three broker/dealers, including Morgan Stanley and Legal & General Investment Management.

Another major investment manager is set to go live before the end of the year, and we have another five that will go live either before the end of the year or in the first quarter of next year. Continuing this momentum is important because GETC adoption does involve some effort from broker/dealers in terms of developing new workflow and they don’t want to undergo that work for just one or two investment mangers.

What work is being done to target the smaller investment managers with lower volumes?

We created a smaller Swift footprint for these smaller managers through Alliance Lite, and we have made some significant improvements with Alliance Lite2. The concept is essentially the same in that users connect via a USB stick, but the underlying platform is completely new – it is cloud-based, more plug and play, has better performance and covers the full suite of Swift messages. Alliance Lite2 is a very cost-effective way for smaller players to gain the renowned benefit of Swift.  

It is definitely our aim to get smaller investment managers, hedge funds and pension funds on to the Swift network, but a lot of them have outsourced their operations to custodians and asset servicers, so a lot of our sales and marketing activity is concentrated on the outsourcers. For example, we are working with the prime brokers and the hedge fund administrators rather than visiting all the hedge funds individually.

Will investment management be covered much in the upcoming Sibos event in Osaka?

We have a good number of investment managers attending Sibos but it is true to say that Sibos is not the premier event for that community. So we hold our own specialist events throughout the year and we get involved with major industry events, like Fund Forum. Investment management issues will, of course, be covered at Sibos because a lot of the custodians and asset servicers will be there and they will be looking for help to make their services more cost-effective and attractive to investment managers.


Is Swift doing enough for the funds industry?

We are generally fans of Swift but there is more it could do to encourage the take-up of the new message types and products that it releases and to make its products comparable with its competitors. While Swift has been successful with MT 509 to 518, it is still behind other market offerings, such as Omgeo’s trade management products. Swift has issued some new settlement instruction types and a new standard that includes flexible protocols like XML and FpML. But the next big change in messaging standards is ISO20022 and many people are holding off from making any changes until a date is mandated, which hinders the take up of new Swift products.

What factors will help increase adoption among investment managers?

Ultimately, I think it will come down to market coverage and getting adoption from the various counterparties that investment managers are working with. Omgeo has been very successful in getting broad adoption from across the industry and Swift has to somehow encourage the same level of take-up from brokers and all segments of the investment managers.

Swift also has to address the commercial incentives for investment managers to move over to Swift products and should perhaps look at toolkits and services that can help to reduce the cost of conversion, especially for smaller managers, and make products like SwiftNet and Swift Lite more streamlined.  

With investment managers increasingly outsourcing their operations, would Swift be better advised to focus on the outsourcers rather than the investment managers?

The reality is that Swift needs to address both groups. As an asset servicer we have benefited from our relationship with Swift but there will still be a group of investment managers whose operating model will be to directly engage with the market.


Is Swift doing enough for the investment management industry?

To ensure compliance with shortening settlement cycles, custodian/broker cut-off times, the increasing demands for accurate valuations and regulatory reporting, it is crucial that high levels of automation and STP are sustained at all times. To achieve this, the promotion of global Swift standards to aid with processing is paramount. Hosting Swift standard working parties and forums is key to ensuring adherence to the latest standards. As a result, system infrastructures/ connectivity can be developed with the confidence that all participants on a global scale are following market practise. By doing so, this will further aid users of Swift to achieve higher levels of STP.

Should Swift be focusing its efforts on existing members and users within the investment management community or on those investment managers that have not yet signed up?

While there are many users of Swift, efforts should be focused on working with those providers that don’t currently have Swift connectivity, to enhance network coverage. Therefore, the promotion of initiatives like Alliance Lite, SwiftNet and Amigos to make Swift more accessible to organisations globally, is crucial to help with the many regulatory and compliance issues that buy, sell and service providers of vendor firms face. In addition, greater emphasis should be placed on supporting existing users of Swift to adopt the full suite of messages to support core processes, discouraging the customisation of messages.


Is Swift doing enough for the investment management community?

Swift can come across as too bank-centric. If you are already knowledgeable about Swift, that’s great, but if you are not, you might never become aware that it exists.

What more should Swift be doing?

If Swift is going to expand significantly in the corporate and buy-side space, it has to become more creative in the options available for connecting to its network. It would be beneficial if Swift could provide software that links the Swift network to the internal systems of non-banking financial services firms to send and receive Swift messages. This type of software would vastly accelerate adoption of Swift, in my opinion.  At the moment, we use a service bureau partner (Bottomline Technologies) to manage the process of passing messages from our system to Swift, for which we pay a message-based subscription fee, which does enable high levels of STP for our financial transactions.

With investment managers increasingly outsourcing their operations, would Swift be better advised to focus on the outsourcers rather than the investment managers?

There is a broad trend towards outsourcing but there are also a large number of people whose jobs depend on keeping those roles in-house so it is not a black-and-white issue. Despite being a fairly sizable service provider that deals with 1,200 legal entities and with $50 billion (€38 billion) of assets under administration, I didn’t have any awareness of Swift and they could do more to raise their overall profile in the funds space.

Sibos takes place from
October 29 to November 1 in Osaka, Japan (

©2012 funds europe



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