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

• 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?

• 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

www.isitc-europe.org

WorkinWorking Groupg Group


ISITC COLLATERAL: Requirement specificationsISITC COLLATERAL: Requirement specificationsWhite papers, Best practice guidelines and more ...White papers, Best practice guidelines and more ...

ISITC COLLATERAL: Requirement specificationsISITC COLLATERAL: Requirement specificationsWhite papers, Best practice guidelines and more ...White papers, Best practice guidelines and more ...

Market SentimentMarket SentimentBull/Bear Bull/Bear

Asset Investment AppetiteAsset Investment Appetite

(Derivatives/Debt/Cash/Equities(Derivatives/Debt/Cash/Equities) )

Market SentimentMarket SentimentBull/Bear Bull/Bear

Asset Investment AppetiteAsset Investment Appetite

(Derivatives/Debt/Cash/Equities(Derivatives/Debt/Cash/Equities) )

Market Appetite For Market Appetite For CollaborationCollaboration

Market Appetite For Market Appetite For CollaborationCollaboration

StandardisationStandardisationTechnical/BusinessTechnical/Business

StandardisationStandardisationTechnical/BusinessTechnical/Business

Environmental IssuesEnvironmental IssuesPolitical/Social/RegulatoryPolitical/Social/Regulatory

Environmental IssuesEnvironmental IssuesPolitical/Social/RegulatoryPolitical/Social/Regulatory

TechnologyTechnologySoftware/Applications/HardwareSoftware/Applications/Hardware

TechnologyTechnologySoftware/Applications/HardwareSoftware/Applications/Hardware

Standards Standards BodiesBodies

ISO/SWIFT/ISO/SWIFT/FPL/FPMLFPL/FPML

Standards Standards BodiesBodies

ISO/SWIFT/ISO/SWIFT/FPL/FPMLFPL/FPML

IndustryIndustryAssociationAssociation

ssIMA/APCIMS/LIBAIMA/APCIMS/LIBA

IndustryIndustryAssociationAssociation

ssIMA/APCIMS/LIBAIMA/APCIMS/LIBA

ISITC Europe ExecutiveISITC Europe ExecutiveISITC Europe ExecutiveISITC Europe Executive

ISITC Europe CommunityISITC Europe CommunityBrokers Asset Managers Vendors CustodiansBrokers Asset Managers Vendors Custodians IndividualsIndividuals Consultancies UtilitiesConsultancies Utilities

ISITC Europe CommunityISITC Europe CommunityBrokers Asset Managers Vendors CustodiansBrokers Asset Managers Vendors Custodians IndividualsIndividuals Consultancies UtilitiesConsultancies Utilities









Industry Issues Identification And ScopingIndustry Issues Identification And Scoping

Industry Response Validation, Collaboration And Activity AgreedIndustry Response Validation, Collaboration And Activity Agreed

ISITC Europe Specific Actions And Results (Collaboration When Agreed)ISITC Europe Specific Actions And Results (Collaboration When Agreed)

What is ISITC Europe?


Key: Existing WGs Proposed new WGs Proposed revised WGs

ISITC Europe Working Groups

Broker Forum

Custodian Forum

IM Forum

Supplier Forum

Marketing Group

Investment Funds

Alternative Investments

Regulations STP/Ops/Other

WebsiteEducation Group

Marketing PREvent Organisation

Broker Forum

Custodian Forum

IM Forum

Vendor/Utility Forum

IT Group IT GroupWebsite

DataRDSG

Regulatory Instrument Client C/Parties Transactions Corp. Actions …

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

BESGInvestment Funds ETC Best PracticeCorporate ActionsClaimsSwaps

RegSIGXJSGAlt. Investments Incl. Derivatives


New Regulations

New Technologies

New Geographies

New Strategies

New Products

New Channels

New Domains

New Metrics

New Standards

New Infrastructures

New Outsourcing

New Asset Services

e.g. SLAs, Market Impact, STP…

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

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

e.g. CLOs, REITs, Emissions…

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

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

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

e.g. MiFID, MLD III, PSD/SEPA, T2S…

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

e.g. BPO, KPO, AO, …

e.g. BOAT, eCCP, PE-ACHs.…

e.g. FIX 5.0, ISO20022, XBRL, IBEIs…

Source: ISITC Sep 2007

The increasing importance of risk and regulation


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

• 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

www.isitc.org

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

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

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Past achievements

ETC Code of Best Practice (2005)

1996 Industry User Group (IUG) – First draft

1999 Updated

2005 Current Version in use

2008/9 Proposed update


Notice of Execution/Allocation/Confirmation/Affirmation

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

NOE 1

ALLOCATION 1

CONFIRMATION 1

AFFIRMATION 1

30 Minutes

30 Minutes

30 Minutes

BU

Y-S

IDE

SE

LL-SID

E

1 Could be direct messaging between parties, or via a 3rd party provider


Block/Allocation/Confirmation/Affirmation

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

ETC BLOCK 1

ALLOCATIONS 1

CONFIRMATION 1

AFFIRMATION 1

30 Minutes

30 Minutes

30 Minutes

BU

Y-S

IDE

SE

LL-SID

E

30 Minutes

NOE 1

1 Could be direct messaging between parties, or via a 3rd party provider


Central Matching via Virtual Matching Utility

Model 3: Central Matching via Virtual Matching Utility.ORDER

NOE 1

ALLOCATION

CONFIRMATION 3

AFFIRMATION

30 Minutes

30 Minutes

30 Minutes

BU

Y-S

IDE

SE

LL-SID

EVMU

ETC BLOCK 2

ALLOCATION 3

CONFIRMATION

30 Minutes

1 Could be directed via VMU2 Not required in flows where NOE is sent via VMU3 Dependent upon matching within VMU

Work in progress

• Standardisation of Management information

• Standardisation of fails reporting

• Alert Quality Analysis review


Standardisation of Management information

Minutes from Ex0h 7.360h 1.540h 5.320h 12.410h 9.140h 4.420h 4.420h 2.50h 7.3643h 21.33

4h 41.2590% within the hour

Error rate

Total trades rejected

Total trades cancelled and re-booked

Total trades rejected out side SLA


Apples with Apples


Standardisation of fails reporting

123 Management CO Status of all Pending Transactions as at 10/10/2008

Trade ref Access code

Trade date

Value Date

Age

Broker B/ S

Trade Qty

Issue description

Issue ID /ISIN

Open nominal

Trade Ccy Price

Sett Ccy

Sett amount

Open cash Trade Status Fail reason Code Comment PSET

123456 ABCDEFGH 08-May-08 13-May-08 B 12,648 CAIRN ENERG PL GB00B1RZDL64 12,648 GBP 33.5383 GBP -423,767.43 -423,767.43Unmatched

Cpty instructing LSE and need to amend to OTC

123456 ABCDEFGH 09-May-08 14-May-08 1 S -65,000VIVENDI SA EUR5 FR0000127771 -65,000 EUR 25.005 EUR 1,626,625.26 1,626,625.26Broker investigating trade status

123456 ABCDEFGH 09-May-08 14-May-08 1 S -975PSION ORD GBP0. GB00B0D5VH57 -975 GBP 1.09712 GBP 1,078.26 1,078.26Unmatched

123456 ABCDEFGH 09-May-08 14-May-08 1 B 22,850 WSP GROUP ORD GB0009323741 22,850 GBP 6.065 GBP -138,376.37 -138,376.37Matched

123456 ABCDEFGH 09-May-08 14-May-08 1 S -117PSION ORD GBP0. GB00B0D5VH57 -117 GBP 1.09712 GBP 129.39 129.39Unmatched

123456 ABCDEFGH 09-May-08 14-May-08 1 S -2,332PSION ORD GBP0. GB00B0D5VH57 -2,332 GBP 1.09712 GBP 2,578.99 2,578.99Matched

123456 ABCDEFGH 09-May-08 14-May-08 1 B 5,800 AVEVA GROUP PGB00B15CMQ74 5,800 GBP 12.7918 GBP -74,080.15 -74,080.15Matched

123456 ABCDEFGH 09-May-08 14-May-08 1 S -438PSION ORD GBP0. GB00B0D5VH57 -438 GBP 1.09712 GBP 484.39 484.39Unmatched

123456 ABCDEFGH 09-May-08 14-May-08 1 B 1,300 AVEVA GROUP PGB00B15CMQ74 1,300 GBP 12.7918 GBP -16,603.40 -16,603.40Unmatched


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

Bloomberg VCONFIX 4.2, 4.4 and 5.0Omgeo Oasys Global and CTMSWIFT 515, 509 and 517Xtrakter TRAX2


1) Trade 1) Trade execution/allocation execution/allocation

(T)(T)

2) Trade2) Tradematching withmatching withbroker (by T+1 broker (by T+1

noon latest)noon latest)

3) SWIFT 3) SWIFT instruction to instruction to Custodian (by Custodian (by

T+1 p.m. latest)T+1 p.m. latest)

4) Pre-Matched / Matched4) Pre-Matched / Matchedtradetrade

reportingreporting(S-1)(S-1)

6) 6) Settlement/ Settlement/

positionpositionreportingreporting

(S and S+1)(S and S+1)

IMIM

CustodianCustodian

7) Reconciliation/Failed 7) Reconciliation/Failed trade monitoringtrade monitoring

5) Clearance and 5) Clearance and SettlementSettlement

Buy Side Perspective of STP


1) Trade 1) Trade execution/allocation execution/allocation

(T)(T)

2) Trade2) Tradematching withmatching withbroker (by T+1 broker (by T+1

noon latest)noon latest)

3) SWIFT 3) SWIFT instruction to instruction to Custodian (by Custodian (by

T+1 p.m. latest)T+1 p.m. latest)

4) Pre-Matched / Matched4) Pre-Matched / Matchedtradetrade

reportingreporting(S-1)(S-1)

6) 6) Settlement/ Settlement/

positionpositionreportingreporting

(S and S+1)(S and S+1)

IMIM

CustodianCustodian

7) Reconciliation/Failed 7) Reconciliation/Failed trade monitoringtrade monitoring

5) Clearance and 5) Clearance and SettlementSettlement

Where are the issues?

FIX?FIX?

Same Day Same Day Affirmation (SDA)Affirmation (SDA)

Standard Standard Settlement Settlement Instructions (SSI)Instructions (SSI)


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


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

• 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!

• Questions

Documents

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