The Society for Worldwide Inter-bank Financial Telecommunication will remove all ISO 7775 messages from its network on November 16. Will the industry be ready?
Unlike the Securities Industry Association, which has moved out its deadline for converting the financial-services industry to a trade-date-plus-one settlement cycle, first from June 2004 to June 2005, and now, possibly, canceling that initiatives all together, SWIFT is sticking to its deadline for converting to ISO 15022 messages, slated for Nov. 16.
The conversion from ISO 7775 messages, which have been used on the SWIFT network since 1983, to the new ISO 15022 standard is being carried out in the hopes of achieving higher levels of straight-through processing in the financial-services industry.
Charles Welham, global program director for SWIFT's 15022 conversion, says that 7775 messages were designed specifically for the back office, thus making them difficult to extend into the middle and front office, something critical to reach STP. 15022 messages, on the other hand, have been designed to move information from the front to back office, without re-keying or other disruptions.
"It became evident that the industry needed connections from trade through to reconciliation - 15022 allows you to have that because it contains reusable blocks of information that can be carried forward into the next stops in the chain of a transaction," says Welham.
In addition to the stated benefits of 15022, and its endorsement by SWIFT, the standard is being embraced by the Financial Information Exchange protocol, the GSTPA and Omgeo.
Certainly, firms which grumble about a lack of time to perform the conversion will find that argument falling on deaf ears. SWIFT made the decision to migrate to 15022 in 1997. In order to allow for a smooth transition, during which time firms could test with the new messages but still conduct business in the old, SWIFT decided that from November 2001 to November 2002 both 7775 and 15022 messages would be supported by the network. That time, however, is almost at an end.
A concern that some firms would not meet the deadline was voiced by Francis Remacle, head of SWIFT's Securities Industry Division, at this year's SIA Operations Conference in Palm Springs. At that event, Remacle took the industry to task for not migrating quickly enough, and in great enough numbers, to meet the November deadline.
While converting at this late date may be a tall order for firms to handle, there is no dearth of vendors willing to help convert 7775 messages to 15022. SWIFT, in fact, has taken the step of certifying vendors according to their level of proficiency in 15022, either with a gold or silver designation.
Among those at the forefront of the conversion game are Financial Fusion, Mercator and Heliograph. Each offers its own flavor of conversion product and service.
Heliograph offers an ISO 15022 converter, which, at a basic level, provides a straight conversion, and is described by Richard Vreeland, Heliograph chief operating officer, as "a good way to get up and running very quickly without much implementation time." He adds that firms should allow at least two months before the deadline, giving them a Sept. 1 start date at the latest.
Welham says that converters are a good start and a necessary quick fix given that the deadline is only a few months away, but cautions that they are not a long-term solution. "Over time you have to make sure that what you are using allows for the richness that is in the new messaging data."
Financial Fusion offers an ISO 15022 Accelerator Program, which consists of an upgraded set of SWIFT libraries in compliance with 15022, 7775 to 15022 mapping, a multi-platform conversion tool and five days of professional-services consulting.
Roy King, Mercator chief executive office, says there are many things happening in the straight-through-processing world, which should encourage firms to embrace 15022. "The GSTPA, in its reconfigured state, is planning to go live this fall. Omgeo is planning to go live with its CTM (central-trade manager) this fall and Mercator is offering connectivity to both. If we lay on top of that the fact that the SEC is considering mandating a T+1 deadline, it gives customers a real need to think over their STP strategy," he says. "SWIFT's 15022 is really preparatory to STP and becomes a prerequisite to do STP initiatives."
But despite all the logical arguments to move forward, Tim Lind, a senior analyst in the Investment Management Practice at TowerGroup, says that firms hate to move away from something they see as bring successful. He calls this an, 'If it's not broken, don't fix it' - kind of attitude.
"Many have good rates of straight-through processing on vanilla trades right now," says Lind, a former SWIFT employee. "If they have automation around the old messages, the last thing they want to do is pull that out and stop it."
SWIFT's Welham argues that not all firms have significant levels of STP around 7775. He says that over the last five years, SWIFT has worked with 60 firms that haven't done much with 7775 and notes that this is an opportunity for them to raise those STP levels with 15022.
Lind says that the remaining time may not be enough and any large custodians, for example, sitting on the sideline will likely not be ready for the new messages. That's because converting is not merely about being able to construct 15022 messages, but rather about testing with each and every counter party.
"The train has already left the station," says Lind. "You need a year if you're a large global custodian that is getting SWIFT messages inbound from the buy side and sending out SWIFT messages to between 80 and 100 sub custodians. With 100 counter parties, testing in and out with each party needs to be done."
Lind says the reason so much testing is required is that, much like bringing on a new counter party in the FIX world, institutions must ensure that their new partner is speaking the same version of a standard. The result of incongruent messages, says Lind, could be million-dollar trading mistakes.
Welham says SWIFT is concerned about firms making the deadline because it is able to monitor the use of 15022 messages on its network and can thus gauge the amount of traffic being conducted with each standard. With this monitoring, SWIFT can tell the least amount of industry-wide preparation being conducted by firms. However, SWIFT cannot tell how many firms have prepared "offline" and conducted testing thorough means other than SWIFT's networks. There is the possibility, says Welham, that the industry is more prepared than SWIFT can tell through the monitoring of its network.
Some firms, says Welham, may be waiting until July to make a move because that's when SWIFT releases its 2002 standards. But waiting is a mistake, he says. "We know many institutions are waiting for that date before they switch over. The final release will see very few and minor changes - some qualifiers but nothing of significance."
The main point, adds Welham, is that firms must be ready to function using the new messages on Nov. 16. "Some think there will be a delay which there won't be," he says. "We have to make it clear that the date will not change."
At Press Time
SWIFT recently announced that it may provide a lifeline for users that have not converted to 15022 by the November deadline. The scenario, which would have to be approved by the SWIFT Board Securities Committee, would create a "closed-message-user group" where firms could send and receive 7775 messages for up to six months. However, in order to induce firms to make the switch as quickly as possible, they will be charged. "Charges would be significant and would increase throughout the time the closed-message-user group is in use," notes SWIFT. The measure will be considered by the board during the first week of August.