Hundreds of Executives Converge in Geneva for Sibos 2002
Following Swift's last-minute cancellation of Sibos due to the Sept. 11 attacks, this year's Sibos started out with a focus on business-continuity planning, or "resilience" as the folks at Swift prefer to call it. But whatever name it goes by, the processes and procedures associated with disaster recovery have been catapulted to the top of everyone's priority list, regardless of where one calls home.
Sibos, however, never drills down on one issue to the exclusion of all others, and this year was no exception. So, issues like cross-border post-trade information matching, risk management and straight-through processing were also discussed and debated by industry insiders.
As a new theme, and in light of the current economic conditions, other sessions seemed to focus on discerning just how much the financial-services industry can handle regarding burdensome industry initiatives. Can, for example, executives deal with CLS, STP, VMUs, Basel II and (possibly) T+1 when confronted with budgets that are tighter than ever? As always, the answers were mixed but the discussion was lively as the following coverage will show.
Straight From SIBOS: BCP Tops Agenda at First Post-Sept. 11 Show
Improving the global-financial-services-industry's resilience - or business-continuity-planning - is a major theme at this year's Sibos conference, an annual back-office-technology bonanza hosted by Swift.
This year's show, being held in Geneva, Switzerland, sees Swift executives emphasizing many of the points that have already been identified by U.S. firms as critical to ensuring BCP preparedness. Those points include the importance of geographically dispersing a firm's technology and personnel, and appreciating the interconnectedness of the financial-services industry when devising disaster-recovery plans.
Swift is an international-banking consortium, currently comprised of financial institutions in 197 countries, focused on facilitating cross-border payments and messaging.
Keynote speaker Niklaus Blattner, member of the governing board of the Swiss National Bank, says that because financial institutions are growing ever larger -- thus reducing the arteries through which financial transactions can pass - resilience efforts need to be closely examined now more than ever.
However, he contends that there must be a line drawn between what needs to be done and what can be done in the current economic downturn. "The regulatory community will keep this in mind and will do its best not to impose unnecessary burdens on the private sector," says Blattner.
Though BCP is a strong theme, which Swift heavyweights like Chief Executive Officer Leonard Shrank and Chairman Jaap Kamp are raising in their opening remarks, it is by no means the only piece of business on the table. The aforementioned executives are also touching on other Swift projects like the consortium's x25 to SwiftNet conversion, 7775 to 15022 messaging-standard conversion, and the notion that larger financial institutions need to take a stronger leadership role by shepherding smaller firms through such conversions.
The 15022 conversion is especially high on Swift's list of priorities, as the date for migration is set for Nov. 16. A few weeks ago, Swift announced that it would provide a message-user group after the conversion date for firms that do not make the switch from 7775. Dilatory conversion, however, will come at a price, as late adopters will be hit with charges for relying on the contingency.
At a press conference hosted by Shrank and Kamp, Swift's Global Crossing debacle was also addressed. Swift had contracted the maintenance of its network to Global Crossing, sending dozens of employees to work for the telecom giant. A few months ago, however, Global Crossing declared bankruptcy and Swift was forced to enact some BCP measures of its own as it resumed maintenance of the network. According to Shrank, all the transferred employees have been rehired by Swift and are back in their old posts. The experience was certainly a lesson learned, he says. "It taught us a lot about risk and we pay more attention to that now," says Shrank.
In the next month and a half, he adds, Swift will issue a list of four or five telecom providers that customers can use to "interface with the Swift backbone."
Straight From SIBOS: GSTPA Goes Live To Few Problems, But Few Trades
The Global Straight Through Processing Association successfully went live at the beginning of September, but warns that cautious asset managers are keeping volumes to a minimum, say industry executives speaking at Sibos.
The GSTPA is an industry association that was formed to design, build and operate a utility (the Transaction-Flow Manager) to facilitate the post-trade, pre-settlement-information matching of institutional trades. Such trades involve investment managers, broker/dealers and global custodians.
According to GSTPA Chief Executive Officer Jurgen Marziniak, firms that have participated in the launch include: Merrill Lynch, JPMorgan Chase, Morgan Stanley, Northern Trust and The Bank of New York.
Marziniak says that it's critical his utility embarks on a concerted sales and marketing campaign to get buy-in from investment managers, whose order flow holds the key to GSTPA's success. "We are live. We do not have great numbers of transactions going through, but we do have transactions," he says.
"The trade numbers are substantial but not vast," says Jeff Gooch, executive director, Morgan Stanley, who adds that most of the trades his firm has put through GSTPA are matched in less than 30 minutes. "That should be the standard," he says. "Especially if the industry ever plans to go through with T+1."
"There has been limited traffic to date," comments Karen Moynihan, vice president, JPMorgan Chase Investor Services. Moynihan says that her part of the firm, which functions as a global custodian, has been in talks with JPMorgan Fleming Asset Management (the firm's investment-management arm) about using Investor Services to link up with the TFM.
Arthur Barton, chief administrative officer, Clay Finley, says that using the GSTPA, instead of Omgeo's Oasys Global, will give the firm substantial savings. Clay Finley, which sends information to the TFM at five-minute intervals, expects to reduce its costs per trade from 2.09 euros to .3 euros.
Barton says his goal, as an asset manager, is to remove Clay Finley from as much of the post-trade process as possible -- to let the global custodian and broker/dealer work out settlement between them. "We don't want to be the middleman in the settlement process," says Barton.
Options for connecting to the TFM, via SwiftNet, include a single-user workstation -- for lower volume shops -- a multiple-user workstation, and a Gateway option for high-volume firms. Clay Finley has employed the single-user workstation option while JPMorgan Investor Services and Morgan Stanley are using the Gateway.
Though it has gone live and is processing cross-border trades overseas, the GSTPA has yet to receive regulatory approval from the Securities and Exchange Commission to operate in the United States without registering as a clearing agency. Marziniak says he is confident the SEC will grant that approval before the end of the year.
Straight From SIBOS: Reservations About Basel II Remain
Industry executives voiced their concerns that the proposed Basel II Accord, which dictates the amount of capital a firm must set aside to cover its operational-, market- and credit-risk exposure, might set an un-level playing field in the financial-services industry.
Executives fear that the accord might, for example, require a traditional asset manager to tie up a large amount of capital, while leaving its unregulated hedge-fund competitor free to leverage such capital to the benefit of its clients.
"Will there be a common playing ground?" asks Raj Singh, head of group-risk controlling, Allianz AG. "We don't want this to make our business non-competitive."
The bottom line, contend executives, is that the more resources they must tie up as a result of Basel II, the less they have at their disposal. "There are other corporate needs for capital than providing protection against operational risk," says Patrick Zurstrassen, senior adviser, Credit Agricole Investor Services. "Operational losses can be protected by other forms than capital." As examples, he sights proper corporate governance, depth of insurance, supervision and market discipline.
"The goal is to minimize capital requirements," says Charles Cock, head of multi-direct clearing and custody, BNP Paribas, "to minimize the operational-risk capital that we have to set aside."
And the amounts to be set aside are, apparently, not paltry to all. "The capital charges on the securities side seem to be pretty large," says Andrew Sheng, chairman, The Securities and Futures Commission of Hong Kong.
Allianz's Singh says that getting buy-in for Basel II in a global conglomerate like his is about communicating the importance of complying with the accord. "You have to be able to sell the idea of operational risk across the enterprise," he says. "Now, we are finally catching the interest of senior management at our operating entities."
Cock explains that Basel II is based on three "pillars": minimum-capital requirements, supervisory-review processes and market discipline. According to Basel II, loss "events" are divided into seven categories, which include internal and external fraud, employment practices, client and business practices, and damage to physical assets.