A swift way of getting the message across

Despite the costs of becoming a member of SWIFT (the Society for Worldwide Interbank Financial Telecommunication) having come down in recent years, the current pricing structure for becoming a member of the industry-owned co-operative depends to a large extent on the type of user and the membership being sought.

Typically, a SWIFT member refers to a shareholder – essentially a bank. Although corporates can be users or ‘participants’, they cannot be shareholders. On top of this, the rules prohibit burgeoning numbers of hedge funds from securing membership.

While for the largest asset managers of this world there is no other choice but to consummate a SWIFT relationship, due the volume of trades they handle day in day out, the dynamics affecting small-to-medium sized investment managers are an entirely different ball game.

Naren Patel, business development director at Trace Financial in London, while acknowledging the recent tailing off in costs, says: “Connecting directly [to SWIFT] or going via a bureau all depends on the predicted volumes a fund manager may have now but also in the future, and to be aware of what services they can leverage from SWIFT.”

‘In the Tier-III space, managers are self-managed, self-owned and self-driven, and characterised by very low volumes of transactions’ Eamus Halpin, iRevolution

In terms of assessing what investment managers and fund managers ideally want from third-party providers that offer connectivity to SWIFT, low cost of entry and economies of scale come fairly high up.

Growth strategy

Yet Mr Patel believes that “scalability, flexibility and agility of the solution are of equal importance to cost.” And, he adds, it must provide “a growth strategy” for the fund manager.

Cost of entry could be as low as £25,000 (c36,250) he reveals, made up of licence and annual maintenance. But the overall costs ultimately depends on the scale and size of project and what functionality is required.

The company’s current solutions include Transformer, a next generation software solution for financial message mediation and Cloverleaf finance (SWIFTReady GOLD accredited 1999-2005), a non-invasive message integration and routing toolkit, which offers internal and external connectivity with SWIFT, Omgeo, Euroclear, FIX and Crest.

“Fund managers would also like to be sheltered from the maintenance aspect of standards on an on-going basis,” Mr Patel says. “Third-party providers need also to be fluent in the message standard and message mediation. They also need to be able to provide the fund manager with a solution that will take advantage of the current ISO 7775 and ISO 15022 standard, but at the same time take advantage of the ISO 20022 XML based standards. Agility and flexibility are key if fund managers are to take advantage of the SWIFT network or any other IP based network,” he says.

Ted Stanley, executive vice president and COO of Evare LLC, a Massachusetts-based financial services technology company that provides systems connectivity, data aggregation and normalisation, and desktop applications to asset managers, broker/dealers, custodial institutions and banks, contends that while, “SWIFT has been instrumental in pushing forward the vision for seamless STP” and is making a major push to open the global financial network to corporations and securities firms, there are still gaps that need to be filled to make it all work.

“SWIFT members must be able to talk to all their clients, but right now they are very restricted. They have to build one-off pipes and/or build large infrastructures, which can be hugely expensive. What they really require is one pipe in and out,” Mr Stanley adds.

Through its majority stakeholder, Loeb Partners, a US broker/dealer, Evare has membership of the SWIFT community, through which it can offer as ‘neutral’ facilitator messaging between SWIFT members and counter parties. Evare claims its clients benefit from a 35 per cent improvement in reconciliation time, and can receive information from custodians on a daily rather than a monthly basis.

Prior to this offering, financial institutions were often unable to communicate to all counter parties effectively over SWIFT, either due to the high internal costs that SWIFT technology and expertise incurs, or because institutions could not qualify to be SWIFT members.

As Eamus Halpin, CEO of iRevolution, a UK company, says: “In the Tier-III space and below, fund managers and investment managers running funds under $20bn and often less than $10bn, are self-managed, self-owned and self-driven, and characterised by very low volumes of transactions.”

Mr Halpin argues that given that SWIFT is really an order of settlement notification for the custodian (i.e. MT541 and MT543 ‘buy’ and ‘sell’ message types) – a very small message form – it does not justify the expense of getting hooked unto SWIFT by itself. Putting Omgeo and SWIFT together in the order of settlement life cycle process will yield significantly more value, he says. But for small companies who do not have a structured IT department or an IT strategy, this would incur significant cost as well risk.

Revolution solution

One answer could lie in i-Revolution’s ‘iSTP’ managed service that utilises a middleware product called BizTalk from Microsoft, allowing interconnection with any data system, in any form and in any way, and around which a mission critical order pipeline is built for the management of data. The cost of the service can be spread over a three, four or five-year period payable on a monthly retainer, providing a guaranteed cost base for clients.

In terms of the time to get connected to SWIFT for a new member, a spokesman for the Brussels-headquartered organisation says that board approval could take one month, but much rested on how much preparatory work had already been undertaken with respect to a potential user’s own internal IT systems. On the corporate side, the Swift project comes with a re-engineering project, which could last a minimum of three to four months, says the spokesman. There was “no limitation anymore” in the concept of the Member Administered Closed User Group (MA-CUG).

On that note, Financial Tradeware, a European provider of solutions for medium to small sized investment management firms and part of the Dharma Group, also unveiled MFEX of Stockholm, an independent investment firm that distributes third-party mutual funds as a new user in September of Financial Tradeware’s SWIFT MA-CUG service, which provides secure access to SWIFTNet (for funds) at an affordable tariff. Financial Tradeware also offers ‘S-Messenger’ service, a financial message routing system providing STP for the full range of SWIFT messages.

Patel: scalability, flexibility and agility