It all seems so easy now. I remember all the turmoil in the back-office, the months of preparation and meetings to get things set up so that we minimize the impact of a move away from what, at the time, was the standard settlement timeframe in the US of T+5.
The market was moving to a T+3 settlement cycle…the aim was that by shortening the time between trading an asset, and actually settling the trade (exchanging money etc), pent up risk in the market would reduce. Of course, the thought at the time was that if moving to T+3 was good, would T+1 or even T+0 be even better? My, oh my, but the benefits that could be had if we eliminated that slack time and the risk set-asides associated with holding an open risk for so long! If only we could get everyone on board…..
I remember the conversations…the brokers were on-board as long as you can get the custodians and the investment managers to commit. The custodians were on board if their clients, the investment managers, and their counterparts were on board. Well, the investment managers swore that they would do whatever the brokers wanted, but, you know, it takes time to perform allocation and understand what actually happened in the markets, and…well, there were tons of reasons, including the lack of technology widely dispersed enough to support that kind of move.
It was somewhere back in those days that I was involved in looking at the differences between centralized SSI and decentralized SSI – the standardized data needed to create the… (hmm, back then were they MT52X or had we already adopted MT54X?) …settlement instructions that get sent to the agents & depositories that handle the final book-keeping associated with the trade.
FIX was born of these times (though I am sure I am now dating myself terribly!). SWIFT was more SWIFT-ish than what is used today (imagine that!). OMGEO was born to address some of this (and to attempt to quell discussion of decentralized SSI)…ah, heck, why did we even worry, those FX guys will never get their act together enough to change the time required to move currencies anyway! That’s a theme for someone else (Anyone from CLS out there?).
MT to MX…done!
Fast forward a bit and the march toward T+1 continues, albeit step by step. What’s changed? More of the technological underpinnings of the financial markets are leveraging standardized trade definition…though I seem to recall the nirvana we would all reach once ISO 20022 kicked in…what could be better – the culmination of standards with a standard to rule them all!
FIXML, FIX, and SWIFT would all meld into the magic of 20022! I guess that’s more of an aside and another stab at dating myself! ISO 20022 is here for investment funds…partly, at least. The interfaces with Clearstream Vestima and Euroclear FundSettle are migrating this fall…that is progress…and OpenText™ STP for Securities already has very active connections to both…..end of digression.
FIX is now in version 5.0.SP2…and the settlement cycle in much of the world has shortened to, well, the project we just completed gets the US to T+2! But this was about technology, right?
Maybe we have reached nirvana already…
So, if I can take a drop copy of a FIX order (whatever version of the protocol the counterparts insist on) and we can get updates on the status of the order from the executing broker and/or execution venue, we can show all this information to clients in real time.
Not only that, but if I get a “done for the day” and run through a net money job; I can create settlement instructions all in seconds. I can have a settlement instruction with my agent on trade date. I can have settlement instructions with my agent within seconds of a done-for-day action by a broker. I can support same-day matching and same day settlement…assuming money is in place!
I can do all that on OpenText STP for Securities software, running in the cloud, and I can do that equally well for equities, fixed income investments, ETFs, and non-exchange-traded funds and collective investments. The only thing that holds me back on any of these instruments is the counterparty and their systems…but heck, I can email them or fax them right from the same platform I have, so maybe that’s not a problem at all!
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