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The Fat Lady Sings: GSTPA To Dissolve

The GSTPA, an industry utility focused on the automation of post-trade/pre-settlement matching, announces that it will cease operations and begin to dissolve its business.

The Global Straight Through Processing Association, an industry utility conceived, funded and developed during the boom times of the late 1990s, announced that its shareholders have voted to suspend operations and dissolve the business.

The GSTPA went live on Sept. 9 but weak commitment from investment managers, combined with an unwillingness on the part of shareholders to kick in more funding, left the utility with little chance of survival, according to GSTPA Chief Executive Officer Jurgen Marziniak.

"There was a floor in terms of the number of allocations that were necessary and that floor wasn't reached," he says.

The GSTPA was focused on providing central matching of trade details between investment managers, broker/dealers and global custodians.

Marziniak says that he advised the board to continue operations and is "disappointed and embarrassed" that the GSTPA will close its doors. "There is just no business," he says. "We built a very beautiful machine, a nice car that nobody wants to buy."

When asked about the reasons for the GSTPA's demise, industry insiders mention things like the removal of a T+1 mandate, the economy and Sept. 11, but never a problem with the actual software.

Theresa Parker, senior vice president in the Worldwide Operations and Technology group with Northern Trust, a large global custodian, says that the GSTPA's Transaction Flow Manager is a very strong piece of software. "For trades where we were automatically connected with our counter parties, confirmation took place within six minutes."

Parker says that Northern sunk about 5 million euros into the GSTPA, which she says is part of the cost of doing business as a custodian. "The circumstances have changed so much since its inception ... I don't think it was a mistake at the time."

Dan Stroot, chief technology officer for investment manager Nichols Applegate, says that his firm intended to use the GSTPA's TFM but a bad economy got in the way.

"We had done the majority of the plumbing work to put (connectivity to the TFM) in but we decided, based on the economy and the fact that we didn't see others moving in the same direction, to move it down in priority," says Stroot.

He says that ultimately, Nicholas Applegate never went live on the TFM, concentrating on its implementation of a new portfolio-management system instead.

Tim Lind, a senior analyst with TowerGroup, says that the GSTPA was set up to deliver a piece of software, rather than to run a business. Functions such as sales and marketing, which are integral parts of any business, seemed to be afterthoughts in the GSTPA model.

"Omgeo, however, has always looked at matching as a business and not a software device," says Lind.

Though its main competitor has just closed up shop, the news may not be completely positive for Omgeo. "The GSTPA's demise demonstrates a potential lack of overall enthusiasm for central matching, which means it is unclear whether Omgeo will get its return on investment for CTM -- will it be able to convince buy-side firms to make incremental investments using CTM?" asks Lind.

Lee Cutrone, executive managing director with Omgeo, says that the demise of GSTPA doesn't mean central matching is dead. "I don't think that's the case long term. We have existing services and we are continuing to get interest in the CTM," he says.

In terms of embracing Omgeo's CTM, Stroot says he will stick with Oasys and Oasys Global for now. "Omgeo has the same problem as GSTPA in that it's hard to justify the investment of migration right now ... investment managers are in a bunker mentality."

Additionally, Stroot says he wants to keep a close eye on Omgeo's pricing now that it's the only central-matching game in town. "Our concern with the for-profit model is that we don't want a monopoly-for-profit entity."

Tom Perna, senior executive vice president with the Bank of New York -- a long-time GSTPA shareholder -- says that, from quite early on, the utility had little chance of success.

"Once the project started, there were personality issues and a lot of individual self-interest on a number of parties getting into politics. It just became a flawed project that was doomed to fail. It is unfortunate that the industry had to spend $100 million in hard cash," says Perna.

The only winners in the GSTPA exercise, according to Perna, were the consultants.

Marziniak says the possibility exists that a company like Omgeo, SunGard or IBM could now buy the TFM for almost no money, however, the GSTPA failed for a specific reason. "For me, it's clear that if the industry players don't want to use it then why would anyone want to come in and buy it? There is just no business case."

Looking back, Marziniak says that he "came into the GSTPA as the captain of a ship in trouble" and did the best he could to straighten that ship out. Now, he says, he feels like the "captain of a sunken ship."

"If there are people interested in calling me with their condolences, that's one thing," comments Marziniak, "but if they are interested in giving me a call and offering me a good job then I would look at that very seriously."

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