Two years ago, discussions about shorter settlement cycles dominated the front-page headlines. Fast forward to the end of 2004 and here they are all over again. Is this renewed focus on T+1 proof that time really does equal risk? These discussions may appear to be the same as a few years ago, but in fact much has changed. In some respects, we are dealing with a very different backdrop to the discussions about T+1.
For a start, the world's financial markets have moved on a great deal in the past few years. Even with the postponement of T+1, in general it's fair to say that the securities industry has made significant steps in improving its operational efficiency. The market downturn hasn't dissuaded firms from investing in straight through processing (STP) in order to reduce their operational cost and risk. However, according to the SEC, there is still considerable room for improvement.
In addition, talk four years ago surrounded mandating T+1 with central matching as the enabler. While some type of mandate may still occur, the SEC is today taking a softer approach and is testing the market's temperature in regards to shortened settlement cycles, and the appropriate methods to get there. This method seems to have been welcomed by industry participants.
The fundamentals driving the T+1 debate are still the same as ever: the need and desire to minimize risk, reduce processing costs and reduce the number of trade reclaims and trade failures, which would validate the "time equals risk" theory. In addition, support for same day affirmation (SDA) has remained constant. Back in 2000, and still today, while there may be a great deal of skepticism about the need for T+1, most industry participants (as well as the SIA and the SEC) seem to be united in the conviction that same day affirmation of trade details is a fundamental building block to improving industry-wide STP and driving down cost and risk for everyone.
STP is that underlying fundamental building block, and has become a business requirement for those competing for trade processing business growth. So as the U.S. industry re-assesses the business case for a T+1 mandate, there is renewed focus on individual firms' STP regardless of that decision. Only true STP promises to deliver the kind of increased operational efficiency, reduced risk, and expanded capacity that our industry requires to profitably handle continued growth in the years ahead.
Omgeo has proven itself as a leader in providing STP solutions -- not as a "processing pipeline" but rather a "co-operating environment" that will drive value for the entire industry. Whether you're an investment manager, broker/dealer, custodian bank, or an interested party, Omgeo can help you achieve true STP. We provide solutions that not only process trades faster, but process trades better.
Our unique, integrated STP solutions combine automated allocation and affirmation with central matching, settlement instruction enrichment and a seamless link to settlement. The result is a streamlined and operationally efficient environment that enables all trading parties to increase SDA rates while dramatically reducing operational risk and trade failure rates.
Omgeo and many industry experts agree that central matching is the most efficient way to achieve the industry's goal of STP and, as a result, higher levels of automation. We offer clients central matching for all of their trades via two systems: Omgeo OASYS-TradeMatchSM for U.S. domestic trades and Omgeo Central Trade ManagerSM (Omgeo CTM) for cross-border trades.
OASYS-TradeMatch is a real-time central trade matching service for allocations to confirmations. OASYS-TradeMatch links Omgeo OASYSSM, the leading electronic trade allocation and acceptance service for U.S. securities, with Omgeo-TradeMatchSM, the U.S. domestic central trade matching service for investment managers and broker/dealers. Clients regularly achieve SDA rates of more than 90 percent over OASYS-TradeMatch.
To facilitate an STP environment for U.S. firms' cross-border trades, Omgeo offers Omgeo CTM, the global solution for central matching. Omgeo CTM provides a customizable way to centrally match trades between counterparties, offering automated exception-only processing, real-time settlement instruction enrichment and settlement notification messaging to custodian banks and settlement agents.
A recent survey conducted by The TowerGroup, a financial services-focused advisory research and consulting firm, targeting Omgeo's low and high volume buy-side clients, identified a consistent array of benefits across many central matching users. These include:
- SDA rates are in the high 90 percent range, allowing firms to focus on exception processing
- Firms are processing increased trading volumes without a commensurate increase in costs and in many cases with reduced costs
- Trading volume peaks are being handled smoothly without additional overhead
- Both staff and financial resources are reallocated to work on higher value initiatives
- Longer term cost savings become possible through an infrastructure that can support future trading activity without additional investment
(including mergers and acquisitions)