 |
 Tony Freeman
Director of Industry Relations, EMEA
Tony Freeman of Omgeo examines the practical implications of SWIFT�s consultation paper on removing the barriers to efficient European cross-border clearing and settlement
The European Commission has stated that SWIFT should take the lead in resolving Barrier 1, which cites national differences in information technology and interfaces used by providers as being barriers to efficient EU cross-border clearing and settlement. SWIFT�s consultation paper, published earlier this year, outlined the proposed scope and framework of a standardised common communication protocol for European Clearing & Settlement.
The implications of the paper for service providers in this area are significant, but they also present a rich opportunity for these providers to be the players that help define the eventual, borderless European securities market. We at Omgeo were able to call on our experience in messaging, networks and business processes to provide a response to SWIFT in three areas: scope; interoperability and protocols.
Dealing with the scope of the protocol first, SWIFT has given a broad definition of participants and instruments. This approach will make adoption more complex and lengthy, and if firms are to buy in to the process, they will need to see ROI within a short time period � over two years and the business case is significantly weaker. If the scope of instruments for inclusion were more limited, Barrier 1 could be removed much quicker for these at least. This would then provide a clear business benefit, which could be used to make the case for the inclusion of further instruments.
The geographic scope for the removal of Barrier 1 included only the 25 member states of the EU, so no Swiss market for the time being. However, such a pragmatic approach needs to recognise that removing Barrier 1 will only be truly successful if those markets not yet included can join later. Failure to do this will pose the threat of excluded markets proceeding with developing their own solutions, further complicating, rather than simplifying cross-border trading.
On to interoperability, which is ground that we at Omgeo have covered before. SWIFT has identified a two-track approach for interoperability to cover both systems and business. So far, so good. For this strategy, SWIFT has proposed a time scale of two years to achieve the former and five years to achieve the latter, with the tracks to run concurrently. This is where we step in and point out a hard truth.
Business interoperability is the more complex of the two processes and has a massive impact on systems interoperability. Many aspects of the business side need to be taken care of before systems interoperability can be tackled � particularly if you want to achieve this within SWIFT�s ambitious deadline of 2 years. Such a complex task will require the EU regulator to draw on its deepest political resources to pull regional regulators together, because without this cohesion, systems interoperability will go nowhere.
If I can dare to cite an Omgeo example: in the early 1990s, we implemented IVL (Inter-Vendor Link) in Europe. This was a system linkage between Omgeo�s OASYS Global service (then Thomson ESG) and two other competing ETC systems: Sequal and TRAX. While the technical link was achieved i.e. system interoperability, IVL was not taken up widely because it lacked some critical functionality. Without an actor to unify the players on the business process and push them for a definition of precisely what should be included in the link, clients had to settle for a shadow of the initial, promising concept.
The final aspect of our response concerns protocols. To achieve the maximum pervasiveness of a standard as conceived by SWIFT, we believe that any new standard has to be based on existing ones. Luckily we already have two to do this: ISO15022 and ISO20022. Better to work with what we have at hand with a view to the future rather than starting anew, though of course we can see the need for room to manoeuvre, which is where our next point comes in.
What we have to say about the adoption of a re-worked protocol may be surprising, but pleasantly so. Although the "buy-side" is not implicated directly in clearing and settlement, through our experience with STP amongst investment managers we know that their role could be decisive. By transferring their operational processes to prime-brokers and outsourcers, investment managers are indirectly pushing for a unifying protocol since the nature of their service providers� business requires them to be flexible. As long as there is a strong case for investment managers to outsource, there is a strong case for a new protocol, along with a greater consensus than one would have thought.
As I said at the beginning, the EC has called on SWIFT to lead the effort for resolving Barrier 1 and we are enthusiastic participants in this process. . The consultation process so far seems to be a thoughtful, wide reaching effort and we will watch and participate with interest to see how it plays out for the marketplace.
Back |
|
|
|
