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 Tony Freeman
Director of Industry Relations, EMEA
Tony Freeman, Director of Industry Relations EMEA at Omgeo asks whether the promised transformation of the securities industry is realistic.
12 months on and Heidi Miller�s speech at the 2005 SIBOS in Atlanta is still making waves. With her dynamic call to action for banks she appeared to have started a trend for calling a spade a spade. This year, Leo Apotheker, a board member of software giant SAP openly told the audience: �Your customers are fed up�. Time and again SIBOS delegates heard that the banking and securities markets are too slow to change, lack innovation and face disintermediation from more nimble competitors. The need for transformation was widely discussed and generally accepted by all, but the proof is in the pudding. The real question is whether, by SIBOS 2006, we will have seen any visible sign of efficiency gains in either the banking or securities industries.
Much of the discussions still revolved around the payments business. Despite the best efforts of SWIFT, the show remained largely a banking event. Securities now form one-third of SWIFT�s business but at SIBOS the buy-side is still poorly represented. Few traditional long-only investment managers attended at SIBOS, and even more significantly, hedge funds were probably not even aware that the event took place. The influence of hedge funds was constantly emphasised during the speeches but little success, it seems, has been had so far in engaging this community in efficiency discussions. Estimates vary widely but it seems certain that at least 40% of NYSE and LSE volume is hedge fund generated making it critical to involve this increasingly powerful segment in the transformation debate. During a discussion on Giovannini barriers, Dr Giovannini said that he is aware of only 1 hedge fund manager that takes any interest in European harmonization. He was talking about himself! However no-one seemed to have any definitive answers about how to increase either traditional or alternative investment managers� involvement in the transformation debate.
Regulation is always on the SIBOS agenda and 2005 is no exception. MIFID emerged as the most feared new set of rules � many speakers were openly critical of its scope and potential impact. There were also rumours that it may be slowed down or even postponed indefinitely. Some European governments are reputed to have told the European Commission that implementation cannot be cost-justified. However the clock is ticking. With the deadline for implementation in 2007, if MIFID is pushed through to domestic legislation then securities firms are going to have to focus their energies on compliance, and fast.
Another trend associated with the regulatory landscape to have come out of SIBOS is the continued fragmentation of the industry. Many trade association groups were present at the conference, but they all appeared to have a narrow community of members. We all know that Europe isn�t a nation state or a federal union - it�s a community of independent countries � but there are still surprisingly few pan-European trade-associations out there. This is particularly troublesome with EU driven regulation like MIFID on the horizon. More pan-European associations, efficiently and effectively representing the interests of the various segments of the securities market, could have a strong voice in challenging the need for this type of regulation.
Best speech award went to Bob Wigley of Merrill Lynch. Merrill has a very clear and well-expressed vision of how it wants to see the European landscape emerge: in a crude generalisation a replication of the US market is the ideal model. Their desire is for a single clearing and settlement entity that is user-controlled and focuses on three key areas: cost efficiency, product innovation and risk mitigation. Clearly this is incompatible with a for-profit status. Bob described a dream he had where various European rain-makers talk to God about the likelihood of a single European CSD � the conclusion being that it wouldn�t be any time soon.
Jaap Kamp and Lenny Schrank of SWIFT also made very interesting presentations at the Opening Plenary. These events are rarely controversial but 2005 was different � SWIFT seem to be taking the idea of transformation very seriously indeed. They outlined 7 key areas where SWIFT could do more to standardize and automate operations processing. They spoke about de-emphasising SWIFT role as a message carrier and positioning themselves as a �transaction management infrastructure provider�. This re-definition could possibly involve some changes in the way SWIFT operates: for example changing the membership rules so that corporates can join more easily. The SWIFT membership is a very broad church and this change will not be welcomed by all the members.
During the next 12 months SWIFT will consult with its membership and report back in Sydney at SIBOS 2006. I would recommend booking your ticket now � it seems that this isn�t idle talk from SWIFT. STP and greater efficiency seems to be firmly back on the agenda and, whilst on a pan-European level progress may be slow, I expect that the next 12 months could pave the way for some interesting developments in the securities world.
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