The industry is starting to put its money where its mouth is in terms of straight-through processing (STP) of industry transactions. Investment managers, broker-dealers and custodians have raised over e90m euro towards building a facility for managing the flow of securities transactions between trade and settlement.
The announcement of the pledged funding for the Transaction Flow Manager (TFM) project was made at Sibos, that annual banking and securities technology conference organised by messaging services provider Swift and held this year in San Francisco from 11-15 September. The Global Straight-Through Processing Association, the industry owned organisation that is building the TFM, was clearly delighted that it had raised almost twice as much as it expected, especially in view of the fact that the controversy over potential duplication of effort with a commercial alternative to the TFM has not yet been resolved. US technology supplier Thomson Financial ESG and the US Depository Trust & Clearing Corporation (DTCC) are cooperating to build a transaction flow monitor of their own using many components they already have.
With the funding in place, the GSTPA is pushing ahead with the construction of the TFM, which it has outsourced to technology consortium, clumsily named Axion4gstp. At Sibos, Steven Crosby, the evangelical chief executive officer of GSTPA, announced that the basic infrastructure of the TFM will be ready in January next year, with pilots to follow in April and a planned launch in September 2001.
Crosby also announced that a number of financial and technology firms have signed up to be “concentrators” - hubs that will collect transactions from other firms and consolidate them for the TFM. They include Chase, Merrill Lynch, State Street and Bank of New York and technology firms SunGard and ADP.
With nearly 90 members, the GSTPA now has support from firms representing all aspects of the investment process. This “coopetition” is changing the landscape of the industry, said Scott Long, head of global operations at Nicholas Applegate Capital Management. Investment firms will benefit from the greater interconnectivity that the TFM brings, as well as increased awareness of the importance of transaction data. The TFM will also allow investment firms to outsource the management of transactions and enable them to concentrate on their core competencies of managing investments, he said.
Despite the progress of the TFM and the endorsement of firms such as Merrill Lynch and Nicholas Applegate, many are still unconvinced by the project. One delegate pointed out that many US firms are involved with the DTCC and/or Thomson so to contribute to the TFM is to pay for the same technology service twice. Art Thomas, chairman of the GSTPA and senior vice president at Merrill Lynch, denied that the two initiatives were identical and said that the TFM is a response to the enormous growth in cross-border trades, now and anticipated in the future.
Several Sibos speakers emphasised how the current period of change in the industry will put increasing pressure on the technology resources of investment managers, forcing them to outsource their requirements. Markus Ruetimann, head of global operations and IT at UBS Asset Management, said that smaller firms would be unable to cope on their own with moves to shorten the processing cycle to the day after trading (T+1).
To coincide with Sibos, a number of financial and technology firms announced new products and services, particularly for outsourcing. Chase’s Global Investor Services launched an outsourcing service for investment firms that will handle their back and middle office functions online. New Jersey-based ADP launched Global Processing Solution, a service that supports processing, clearing, settlement and custody across a wide range of instruments including equities, fixed income and foreign exchange. It also announced that it has Web-enabled its Impact fixed income and Trading Assistant trading system.
Pennsylvania-based SunGard has registered as a Swift electronic trade confirmation (ETC) service provider, which will enable it to act as an agent on behalf of its investment management and broker-dealer customers to confirm trades and send settlement instructions over Swift. The move is part of the company’s development of the SunGard Transaction Network, a service that aims to link its range of investment, broker-dealer, custodian and other products to provide users with a single point of access to multiple services and straight-through processing of transaction.
Next year’s Sibos will be in Singapore in October, by which time the TFM should be live, as should the CLS Bank, the foreign exchange settlement risk reduction project also much discussed at Sibos over the years. There should be some interesting debate if either project misses its deadline.

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