At the beginning of 2002 it was widely predicted that, come the following November, one of the securities industry’s more ambitious projects to streamline the transaction chain – involving a major step change in technology and processes – would have degenerated into farce. Well, sure enough, a debacle duly occurred, although there was to be a significant departure from the script.
One of the cornerstones of the ongoing industry-wide effort to enhance straight-through processing (STP), the final transition from the venerable ISO 7775 message formats to the new, much more flexible ISO 15022 standard – scheduled for November 16 and being overseen by SWIFT– had been mired in negativity for most of the year.
Conceived as a means of codifying the information contained in securities messages, in its current incarnation ISO 15022 is a first step towards the decoupling of business elements from their physical representation to ensure they are always represented in the same way, whatever the message. This is achieved through the inauguration of the central Data Field Dictionary (DFD), wherein those business elements and their physical representation are defined; physical messages constructed within the parameters of the DFD are then stored in a Catalogue of Messages.
The big concern, however, was that too many institutions were leaving their 15022 preparations to the last minute. Furthermore, if too many firms failed to meet the proscribed deadline, the industry could see a reduction, rather than the promised increase, in STP rates during the weeks and months following the migration.
As a result SWIFT came under ever increasing pressure to postpone the migration. To its credit, the management at La Hulpe refused to cave in, recognising that any delay would rob the initiative of both momentum and credibility. Instead, in August it announced the creation of an ISO 7775 Message User Group (MUG), essentially a translation facility that would allow laggards to continue to use its network while they effected the switchover to 15022. However, by endowing the MUG with a mere six-month lifespan and implementing a fee schedule that became increasingly punitive over time, SWIFT made it clear that in the longer term non-compliance was not an option, period.
In the event, however, the migration proved a resounding success. No less than 94% of securities message traffic had made the transition by November 16 – quite an achievement considering that back in August that figure was hovering around the 35% mark. A few days after the deadline, however, that long predicted debacle actually materialised, only it involved the Global Straight-Through Processing Association (GSTPA) and its much-hyped virtual matching utility (VMU), the Transaction Flow Manager (see IPE May 2002).
Given that the TFM had only gone live on September 9, the announcement that GSTP AG, the operating company established to facilitate the development of the utility, had folded came as something of a shock. Their wallets already lighter to the tune of some $100m, the company’s shareholders – comprising leading custodians and broker-dealers, fund managers having steadfastly (and damagingly) refused to support the project – had simply balked at refinancing the company.
In hindsight, the recent decision by industry veteran and chief TFM proselytiser David Gilks to quit as executive director of GSTPA Ltd was a clear indication that the writing was on the wall. It had been clear, however, that all was not well within the organisation for some time. Originally scheduled for late 2001, the launch of the TFM was pushed back first to Q1 2002 and then finally to September.
This last postponement coincided with a radical shake-up within the project, which saw axion4gstp, the vendor consortium originally tasked with building and operating the TFM, effectively being disbanded. GSTP AG assumed direct responsibility for the operation of the utility, and while original consortium partners SWIFT and TKS-Teknosoft SA/TATA Consultancy Services remained involved, SIS SegaInterSettle was brusquely replaced as TFM operator by SunGard Data Systems.
This in itself caused a ripple of dismay around the industry. After all, in appointing the original consortium members, an unlikely triumvirate yoked together in a transparent attempt to marginalise any US interest in the project, the GSTPA succeeded in infuriating and alienating the Depository Trust & Clearing Company and Thomson Financial ESG, both of which already had solid track records in the trade management arena. This snub of course precipitated the creation of Omgeo, which soon came to be seen as a more persuasive alternative – after all, it possessed both clients and trade volumes, both areas where GSTPA was conspicuously lacking.
At the time of GSTP AG’s demise, Omgeo had over 50 clients signed up for its own VMU, the Central Trade Manager; conversely, while there was vague talk in early September of around 20 firms having completed pilot testing of the TFM, it understood that actual volumes processed through the utility since launch had been derisorily low. It seems likely that SunGard, which prior to its appointment as SIS’s successor had been piecing together its own global STP solution to compete with both the TFM and CTM, will now take over the utility with a view to bringing some badly needed commercial nous to bear on the whole sorry situation.