SWIFT on straight-through processing

Charles Welham, SWIFTÆs director of STP and Initiatives and Ian Buckley, regional director, talk to FinanceAsia.

Q: Charles, as director of straight-through processing (STP) at SWIFT you’ve been doing audits around the world since 1996, looking into the levels of STP at various institutions. After around 50 of these reviews, what are your general views on the progress being made?

Welham: What we do in the STP reviews is measure the quality of traffic - the message quality. That’s become more important in terms of measuring against agreed market practice. Message formats and syntax are going to change in November this year and go completely live in November 2002. There’s been a lot of work done in market practice on what should be in a message to make it ostensibly STP-able for the receiver.

Q: And this should lead to fewer exceptions?

Welham: That’s the theory. What we can say about the results we publish is that from when we started doing this in 1996 the STP rates have gone from 36% to 68% in the traffic we pulled off a few weeks ago, which was captured from last November. In reality, although the quality of messaging has improved, unfortunately in essence, messages fall on the floor. And that’s just talking about the SWIFT bit, regardless of faxes and even capturing data off the internet or through proprietary systems.

So what we do in reviews is use the data we’ve got - that gives us a flavour up front - and then we’ll actually look very closely at the end-to-end process. You can go into any organization and they’ll tell you that they’ve got good STP. And I smile because the day we really see it will be wonderful. A lot of institutions take it that if they capture data electronically, ergo they have STP.

If we look at the custodian world in Asia, for example, there are some excellent examples of custodians and sub-custodians who capture 98-99% of their data, coming through SWIFT, electronically. That’s step one. A lot of these players also have some software or another kind of check to look at STP. That shows that between 40% and 50% of that will drop off. There could be some narrative text in the message, an ICIN code gone wrong or that kind of standard thing. So, you’ve gone from almost 100% capture to 50% STP, and then you get into the rest. In Hong Kong, for example, you look at the pre-matching they try to do - the STP rate drops even further.

Another thing we’ve found getting in the way of STP, in Asia particularly, is the desire to have paper printed. And then there’s the chop. We’ve been doing some reviews this week and the CEO of one company admitted that he had a chop that reads ‘This chop is meaningless’, but he uses it anyway. In general terms, Asia is a bit worse, but there are problems everywhere. It’s not just a question of message quality, its lack of integration of systems.

Q: How does the proliferation of proprietary systems and protocols impact this integration and STP in general?

Welham: What we would have seen five or maybe 10 years ago is a lot of independent systems, and SWIFT would have been one of them. There has been, without a doubt, at most institutions, a rationalization of the number of interfaces. I know it’s a bit trite to talk about the single window, but why should we be running 10 different interfaces? It’s the same with protocols, there are a few out there and the industry, including SWIFT, is looking at ways that they can all be brought together.

Buckley:  If you look at the drivers behind all these protocols it’s the same reasons - improving efficiencies, speeding up processes. They might look slightly different but the desires are the same. That’s driving the push for interoperability.

Welham: For example, we’re working with the FIX organization. While FIX looks at pre-trade and trade, we’ve been historically more involved in post trade settlement, corporate actions and custody activities. Obviously you’ve got this bridge you’ve got to cross to get from the FIX world to the SWIFT world. That’s something that we’re now addressing. All the companies we talk to in the FIX world are also involved in our world so it’s not as though we’re talking to completely alien organizations - slightly different, though, in terms of the area of business - front office versus back office.

Q: What’s your take on the perceived rivalry between the industry body Global Straight-through Processing Association (GSTPA) and Omgeo, the commercial entity being set up by Thomson Financial ESG and the Depositary Trust and Clearing Corporation (DTCC) in the US?

Welham: Anything there that’s going to help STP we have to welcome. On the other hand, we have to be careful about how many horses you ride on. Any initiative that’s there to improve the general state of the industry in the broad sense has to be welcomed. We come across users who say use OASIS and Thomson’s, but there are still problems downstream, just as in the SWIFT systems there are also problems. Anything we can do to help fix this has to be welcomed.

Buckley: DTCC is something akin to SWIFT in being an industry body and many of its owners are SWIFT members. Thomson has a large and impressive customer list. Many of our customers in this region have automated around Thomson’s OASIS service. What the industry doesn’t want is two competing solutions with different standards, because that really is going to cause problems and be a waste of money. What the industry is really looking for if there are going to be two solutions is interoperability. We’ve been working with Thompson and DTCC to be sure that we do have that.

Last year I attended a conference where Gordon Scott at Thomson stated that Omgeo would adopt the ISO 15022 standard with their Intelligent Trade Manager (ITM) service. That’s a great first step, so at least we’re talking the same standard. In theory, you could change which system you use without changing your back office set-up because it’s the same set of standards, it looks the same. But obviously we have to come down to the practicality. With interoperability we’re not just talking about the message standards but also the possibility of passing data between the two systems. That one we’re still discussing, so it hasn’t yet been addressed.

Competition isn’t a bad thing. If you look at the history and ask why the GSTPA and their Transaction Flow Manager (TFM) service have come about, and talk to some of Thomson’s customers now in the GSTPA, they’ll probably say the OASYS system wasn’t meeting their needs, wasn’t evolving. It was the only show in town and they were looking for something more. As a result of the GSTPA coming into existence and TFM now being developed, you now have the ITM.

Maybe Thomson had that in mind all along, maybe that was their plan. I don’t think it harms the industry to have an alternative, but we do need to get the interoperability right. It will probably be ok because of the ownership of the different entities - they won’t let it develop to the stage where we have two separate systems, it’s really not what the industry wants.

Q: Even with interoperability, won’t there still be an issue of unnecessary duplication?

Buckley: That is one argument, but there’s two ways of looking at it. Is it going to be good having two solutions? Some say competition is good to push improvements, others would argue it’s duplicating technology, it’s duplicating investments and that’s not a good thing. When it comes down to it, what the industry doesn’t want is to have two terminals on the desk. If I go with Omgeo and need to access TFM because that’s what a customer uses, I want that bridge.

Q: How long will it take to build a stable bridge between the two systems?

Buckley: It’s hard to say. First we’ve got to iron out what we mean by interoperability, and then we’ve got to build it. I’m not even sure that Omgeo has regulatory approval yet in the US.

Welham: GSTPA is piloting from June 30 with over 25 firms participating. We’re actually going to be involved working with some of the large fund managers to assess impacts on STP. We’ve got to help our membership have a better idea of which way they want to go. What we’re going to offer through axion4gstp [the consortium contracted to build the cross-border processing system] is going to be a good service and I’ve no reason to believe ITM, if and when it gets out there, won’t also be a good service.

Buckley: There’s always been this talk of SWIFT and Thomson being head-to-head, but Thomson joined SWIFT and has had the option to connect to us for a number of years now. They just haven’t found a business model to support that. The DTCC is a major customer of SWIFT and with the Omgeo relationship we would expect to be able to offer services to them. We’re actually talking to Omgeo about providing networking services.

Share our publication on social media
Share our publication on social media