Fund Managers And Brokers Commit More Money To STP

LONDON--The investment managers and broker-dealers behind the securities industry's drive toward global straight through processing increased their commitment to their goal by incorporating the GSTP Association. The move follows last year's formation of the Global Straight Through Processing Committee (ITT, July 10) which was largely due to the Depository Trust Co.'s backing of industry-wide STP, and the recent formation of the new group is designed in part to increase the level of funding the backers provide for the effort.

Derek Stein, first vice president at Merrill Lynch, says the GSTPC was loosely organized, with membership open to most securities firms. Once legally formed in the UK, the GSTPC became the GSTPA, and participation has been limited to companies contributing funds.

Structured as a "Company Limited By Guarantee," which is the same status used for most UK-based non-profits and charities, the GSTPA is a more formal body than its predecessor committee, with articles of association, directors, and a bank account, Stein says. This legal structure limits the liability of its members.

At the outset, the GSTPA will fund research and planning for implementing an industry-wide cross-border trade-processing model. The objective is to reduce the settlement cycle, which is typically T+3 in the US and as high as T+5 in other markets. The longer the settlement time, the greater the risk, and the fund managers and brokers in the GSTPA would like to see settlement compressed to T+1, or where possible, same day settlement.

The GSTPA envisions a network combined with a Transaction Flow Manager (TFM) utility that would facilitate and control information from execution to settlement, Stein says. This utility would use an interactive network linking each participant or the participant's vendor. The TFM would act as an intelligent router which, based on the content of the trade, would determine the timing, nature and sequence of operations needed to settle the trade.

Stein says that the GSTPA infrastructure will give participants, or their vendors, the ability to "publish and subscribe" cross-border trade information to the TFM in real time. For example, investment manager allocations can be submitted to the utility and matched to the notice of order execution provided by the broker-dealer. Global custodians will have access to this information and can anticipate their settlement requirements.

Art Thomas, senior vice president and director of global operations at Merrill Lynch remains chairman of the executive committee. The 11 other executive members include Kathleen Corbet of Alliance Capital Management, David Gilks of AXA Investment Managers, James Leman of Salomon Smith Barney, Vincent Molloy of Fidelity Investments, Albert Petersen of State Street, Mark Smith of Schroder Investment Management, Ruud van der Horst of ABN AMRO, Edward Watts of Goldman Sachs, Richard Genin of The Bank of New York, Des Joyner of Dresdner Kleinwort Benson and Mitchel Lenson of Warburg Dillon Read.

The executive committee will meet roughly every six weeks, supplemented by bi-monthly conference calls, says Stein. There will also be a quarterly general membership meeting. Meetings will usually alternate between New York and London.

The association has engaged KPMG to prepare a business and technical model for the infrastructure, and it's estimated that this report will take six to seven months to complete. The analysis will result in a plan for staging the implementation of STP, by instrument and region, says Stein. Specific implementation schedules will depend largely on the recommended staging sequence.

The GSTPA is also closely aligned with other industry organizations such as Financial Information Exchange (FIX) committee. However, the FIX committee's goal is to create a standard protocol for transmitting pre-trade and trade-order information between broker-dealers and investment managers, but the GSPTA will focus primarily on cross-border post-trade activities such as allocation, affirmation, matching, and settlement. The association will also propose the technological infrastructure necessary to achieve its goals.

"The work already done on FIX is closely aligned and complementary to the GSTPA," says Stein. "FIX and GSTPA have already worked together, and many of the GSPTA members also serve on the FIX committee. The GSTPA plans to include FIX committee members on many of the working groups."

The current membership of the GSTPA includes only North American and European money managers, brokers and custodians, but ultimately, membership will be open to companies from Asia and elsewhere. Institutions can join by submitting an application and membership fees, and the association's executive committee will review all applications to only approve brokers and fund managers engaged in cross-border trading.