Separately-managed-account programs, in which brokerages like Merrill Lynch & Co. and UBS farm out the assets of their individual-investor clients to third parties, are an important source of business for money managers. But the logistics have long been a nightmare. Each brokerage has its own operations process to communicate with managers, who must maintain separate systems to interact with each firm they do business with. Asset managers for years have longed for a set of standards that all brokerages could use. Their wish is close to coming true.The Money Management Institute, a trade group representing firms that administer SMAs, plans by year-end to post online a set of 17 standards for a variety of broker-manager communications, such as those required to open accounts or withdraw funds. The MMI will require that the standard messages be communicated using the extensible markup language (XML) technology protocol. The group envisions brokerages and money managers working with vendors to develop technology that conforms to the standards.
The MMI effort is taking shape as an alternative to a 2003 plan by nonprofit utility Depositary Trust & Clearing Corp. to develop and centrally maintain a broker–money manager interface, which private vendors criticized as anticompetitive. The DTCC is still working on what it calls an open hub that all industry participants will be able to access.
The MMI standards will be voluntary, allowing some brokerages (also called “sponsors”) to continue using faxes, e-mail or other proprietary systems. But the trade group hopes to give them an incentive to adopt XML standards by certifying technology that meets its specs. “Once everybody is speaking the same language, then an investment manager can build one low-cost operational system and plug into any number of sponsors,” says MMI industry operations chief Gary Jones. “What’s good for the managers is good for the sponsors.” — Julie Segal
Credit derivatives clear the backlog
One year ago the growing backlog of unconfirmed credit derivatives trades set off an alarm loud enough to be heard from New York to London. Regulators, and a private sector group led by E. Gerald Corrigan, former president of the New York Federal Reserve Bank, warned market participants that it was time to clean up their act.
Since then dealers have reduced the number of unconfirmed transactions by more than 80 percent. One key to that success: The Depository Trust & Clearing Corp. worked with interdealer brokers GFI Group, ICAP and Tullett Prebon to launch AffirmXpress, a screen-based system that lets traders and front-office staff confirm transactions executed by multiple firms.
Yet the DTCC’s primary focus is on its Trade Information Warehouse project. Scheduled for a phased-in launch beginning in the fourth quarter, the system will function as a global utility for all credit derivatives trades and will maintain a master copy of all deals made in the market. It will also perform an array of posttrade processing services, including automatic calculation of payments.
“I expect to get very strong take-up from all of the major dealers and large-volume investment firms,” says DTCC business development head Peter Axilrod.
For buy-side firms more automation means less time spent chasing confirmations and more time on higher-value tasks. Hedge fund Caxton Associates affirms its trades through T-Zero, one of several vendors that processes credit derivatives transactions, which then sends them to the DTCC for confirmation. But as Mark Sharman, Caxton’s head of credit operations, points out, the market needs a unified strategy. “I don’t think it does the market any good at all to have several affirmation platforms vying for success,” he says. “It’s almost a VHS–Betamax competition out there at the moment, and you’ve got to back your horse and hope it’s the one that comes good.” — Sherree DeCovny
