Cost reduction in funds processing A back-office or a distribution problem?

Transcription

1 Cost reduction in funds processing A back-office or a distribution problem? Market challenges, Cost drivers, Optimising TER Riccardo Gambineri Head of Product Management Investment Fund Services Clearstream Banking 2 February 2005

2 Agenda Our main strategic choices to serve the industry VESTIMA + : Overview of functionalities VESTIMA + : Pricing principles Business implementation cases Settlement Models for global custodians Supported Settlement Models. Page 2

3 Main Trends in the Industry Investors Require access to a wider range of funds from their distributor. Focused on better service and lower costs Fund Promoters Need to develop their distribution network to reach a wider range of end investors Focused on leveraging fixed costs per fund Distributors Have to cope with increasing & complex procedures in order to process in-house and third-party, domestic, non-domestic and offshore funds. Under pressure to compete with alternative distribution channels: fund markets, fund exchanges, web distribution... Focused on internal efficiency gains and costs reduction. Page 3

4 Market Focus Groups feedback The various Market Focus Groups have requested: A single solution for domestic, non domestic and off-shore funds A solution that leverages existing infrastructure in their domestic markets Minimal organisational impact to lower each participant s investment Reductions in processing costs for both distributors and fund providers They need a solution that efficiently processes 3 types of transactions: Internal transactions (group internal customers to central order desk) Outgoing transactions on 3rd party funds Incoming transactions from 3rd party distributors Additional data management aspects needed from any solution: Provision of data management and adequate fund information Provision of relevant reports in order to compute trailer fees Page 4

5 Current Vestima service offering R E T A I L I N V E S T O R S DISTRIBUTORS Insurance Companies Specific (IFA s, Platforms) Banks PROFESSIONAL INVESTORS Asset Managers V E S T I M A IN-HOUSE DOMESTIC 3rd PARTY DOMESTIC FOREIGN DOMESTIC OFFSHORE FUNDS Page 5 Highly automated brings high STP & low error rates Covers only banks and cross-border transactions Clearstream Luxembourg

6 Vestima + delivers an open model R E T A I L I N V E S T O R S DISTRIBUTORS Insurance Companies Specific (IFA s, Platforms) Banks PROFESSIONAL INVESTORS Asset Managers Vestima + offers an open settlement & custody model V E S T I M A + IN-HOUSE DOMESTIC 3rd PARTY DOMESTIC FOREIGN DOMESTIC OFFSHORE FUNDS Page 6 Other settlement provider Local CSD e.g. Euroclear France Clearstream Frankfurt Clearstream Luxembourg

7 Vestima+ Functionality - Outline Order Entry In cash, in units or fractions up to 4 decimals (dependent on fund characteristics) Vestima validates orders according to Fund requirements Standing data at OI profile level enables efficient data input by the participant Third parties (Order Approver) can control the order flow Order Routing Order routing is flexible and is based on Order Issuer (OI) place of settlement Orders are routed to the Order Handling Agent (OHA) in real time or batch mode Exception Handling Cancellations Corrections Page 7

8 Vestima+ Functionality - Outline Settlement On request Settlement instructions are issued on behalf of the OI and/or the OHA Settlement instructions will be issued for various settlement places Both, securities and cash instructions will be supported Delivery versus Payment and Free of Payment Reporting Fund portfolio and transaction reports for CBL account holder CBL position and movement reports for Fund Companies to allow them to compute trailer fees Order reports for Fund Companies allow business and performance monitoring Page 8

9 Vestima+ Functionality - Outline Connectivity - Media SWIFT ISO System to system connectivity - using Creation Direct infrastructure Thin Client Browser Via public internet Through Deutsche Börse network, SWIFTNet or VPN Principles All available communication media can be combined Vestima can be adapted to accommodate specific formats as long as they are ISO based Future Developments new XML fund templates through SWIFTNet Page 9

10 What s new in Vestima + 1. Open settlement model International Cross Border Local domestic Global Custodian Register Order routing only 2. Additional instruction types Cancellation Request Execution cancellation 3. Automated order completion with Standing Instructions Trading information Settlement Information 4. Additional OI functions Order approver Multiple portfolios 5. Extended information capabilities Additional capabilities to communicate charges and commissions Fund specific reports on transactions and positions 6. Access channel extensions Web browser access via public internet File up- and download via browser OI = Order Issuer (Fund Distributor/Trading desk) OHA = Order Handling Agent (TA/Depotbank/centralisateur) Page 10

11 Fund Distributor chooses the services used BASED ON STANDING INSTRUCTIONS IN VESTIMA ORDER AUTOMATION VESTIMA + VESTIMA + VESTIMA + EXTERNAL SETTLEMENT INSTRUCTION ISSUING EXTERNAL VESTIMA + VESTIMA + EXTERNAL SETTLEMENT EXTERNAL EXTERNAL VESTIMA + VESTIMA + CUSTODY EXTERNAL EXTERNAL VESTIMA + VESTIMA + DATABASE & REPORTS VESTIMA + VESTIMA + VESTIMA + VESTIMA + Page 11

12 Vestima+ supports two participation models for Order Issuers Direct Distributor Model Enable access to any eligible fund Automate any outgoing flow Hosting Model Enable access to promoter s funds Automate any incoming flow Monthly fee Flat fee per order depending on: Market Service level Volume Monthly fee - per Distributor Per Order fee (similar to distributor s model) Settlement fee Custody fee Standard pricing model with specific prices for FUNDS as asset type Page 12

13 Hosting Model A promoter is able to host its distributors : Distributors do not have to pay in order to access the platform Distributor access the platform through a web access Promoter or OHA receive the orders in their usual way Flows are tagged with the distributor identification code Reports on orders are provided to the promoter regardless of the settlement place Reports on position in Clearstream are also provided.. Procedure & costs Promoter provide Clearstream with a list of distributors for validation. Promoter creates access rights for its distributors. Promoter pay monthly fee for active distributors only, and is charged per order. Distributor custodian is charged for the settlement. Page 13

14 European bank distributing French funds EUROPE BANK DISTRIBUTION NETWORK Clearstream V E S T I M A + FRANCE CENTRALISATEUR DEPOSITAIRE FONDS 1 CLEARSTREAM s ACCOUNT IN EUROCLEAR FRANCE Clearstream secures a DVP process directly with Euroclear france Page 14 CREATION DISTRIBUTOR s ACCOUNT CLEARSTREAM FRANCE CENTRALISATEUR DEPOSITAIRE FONDS 2

15 Managing mandates in a multi-custodian organization Clearstream MANDATES ASSET MANAGER V E S T I M A + FUND S OHA PORTFOLIO 1 BANK 1 BANK 1 ACCOUNT PORTFOLIO 2 BANK 2 BANK 2 ACCOUNT CREATION OHA CLEARSTREAM PORTFOLIO 3 BANK 3 BANK 3 ACCOUNT OTHER SETTLEMENT SYSTEM OHA OTHER SETTLEMENT Page 15

16 Typical DVP Order and Settlement Flow using a Global Custodian Clearstream GLOBAL CUSTODIAN s CUSTOMER GLOBAL CUSTODIAN SETTLEMENT SYSTEM V E S T I M A + FUND S OHA GC CLEARSTREAM CREATION OHA CLEARSTREAM CUSTOMER s GC ACCOUNT Page 16 FUND S OHA ACCOUNT

17 DVP with Vestima + as a neutral intrastructure A BANK VESTIMA+ FUND S OHA Euroclear Account 1 Transfer Euroclear Account 2 THE BRIDGE CLEARSTREAM FUND S PAYING AGENT FundSettle CORE SETTELMENT CREATION Delivery Versus Payment Page 17

18 Vestima + Order and Settlement Flow for Global custodians

19 1. Open settlement model a) International Settlement in CBL (as in current Vestima) OI/FD and OHA/TA have an account in CBL b) Cross border settlement OI/FD has an account in CBL, OHA/TA has account in local CSD France, centralisateur has account in EOC-France Germany, KAG (Depotbank) has account in CBF c) Local Settlement in Germany CBF/Cascade OI/FD and OHA/KAG have an account in CBF d) Fund register settlement OI/FD holds positions directly in fund register e) Order Routing only OI/FD and OHA/TA settle independent from Vestima + Direct Account relationship Other special arrangements Page 19

20 2. Additional instruction types Order Cancellation Request OI can issue a cancellation request for an issued order Only possible if OHA accepts cancellation requests at all Vestima + will cancel order if not already forwarded to OHA For forwarded orders request is sent to OHA OHA either cancels order or rejects the cancellation request Execution Replacement An OHA can cancel an execution (as in current Vestima) An OHA can then replace the cancelled execution The replacement is forwarded to the OI Page 20

21 3. Standing Instructions Vestima + can complete orders automatically with standing instructions: If the participant opts for this service and provides the data Trading chain information Constituents (INVE, STBR, CLBR) Dealer code / commercial contract Order is amended according to the OHA requirements Settlement chain information Can be defined per fund(group) / market Contains complete settlement information (accounts, custodian, intermediaries) Order is amended to give counterparty full settlement information Settlement option Instructions issued by participant or Vestima + ( locked-in ) It is essential that the participant keeps information provided to Vestima+ actual Page 21

22 4. Additional OI Functions The OI can assign another entity as order approver (OA) Orders issued by the OI are forwarded to the OA They are only forwarded to the OHA once approved by the OA In Release 1 the Order approver can only use browser The OI can separate his business into multiple portfolios The OI assigns each order to a portfolio The portfolio defines Order approver Trading chain information Settlement chain information Settlement option (i.e. instructions issued by Vestima + or participant) Page 22

23 5. Extended information capabilities Vestima + offers additional capabilities for OI and OHA to communicate applied charges and commissions The usage of this capabilities is subject to the arrangements between OI and OHA Input and output formats have been amended accordingly Vestima + provides specific reports on fund positions and transactions Via file transfer For download from the browser Page 23

24 6. Access channel extensions Web browser access is also possible via public internet Current web access (VPN, dial-up) still possible Current certificates remain valid File up- and download in.csv format Page 24

25 DVP Order and Settlement Flow 1 Clearstream Banking 2 G.Cust. customer Vestima + OHA G.Cust. Creation 8 G.Cust. account 7 OHA account Exchange of shares against cash Page 25

26 DVP Order and Settlement Flow Details 1 Working assumptions : 1. Orders are input by the Global Custodian s customers. Alternatively they can be input by the Global Custodian themselves. 2. The Global Custodian wants to settle DVP, hence through CBL or EB. 3. The Global Custodian wants to issue settlement instructions themselves. Flow details 1. The Global.Custodian s customer (Order Issuer) enters his order into Vestima + either through SWIFT, H2H or the browser. Before forwarding the order to the Order Handling Agent (OHA), Vestima + validates the order and updates it with the Global Custodian s settlement details. The Global Custodian can also optionally approve the orders input by their customers through the Order Approver functionality. 2. Vestima + forwards the order to the OHA, indicating that the counterparty for settlement will be the Global Custodian. 3. Once the price is known, the OHA issues the confirmation to Vestima +. Page 26

27 DVP Order and Settlement Flow Details 2 4. Vestima+ forwards the confirmation to the OI with all relevant details (settlement date, settlement amount, trade date and trade price, etc) including the identification of the settlement counterparty. This confirmation is provided by SWIFT, H2H or the browser. 5. The OI either advises their settlement agent, i.e. the Global Custodian, about the order and the settlement details or requests Vestima+ to issue the relevant settlement instruction directly to the Global Custodian (SWIFT MT54X). 6. The Global Custodian issues the relevant settlement instructions to CBL or to EB. 7. On the settlement date, the exchange of cash and shares takes place between the Global Custodian s account and the account of the OHA. Page 27

28 Vestima + Settlement options

29 Settlement Model: DVP - OHA/OI Clearstream account holders Subscription via Vestima+ Order Issuer 1. order entry 5.1 order reporting 5.2 receipt against payment Instruction 2. order routing 4.1 order confirmation 5.2 deliver against payment Instruction Order Handling Agent 3. deal execution 6.1 settlement confirmation CLEARSTREAM CREATION 6. settlement 6.1 settlement confirmation Page confirmation of receipt of shares Depository periodic reconciliation 4.2 mark-up instruction

30 Settlement Model: DVP - Orders are approved by an Order approver Subscription via Vestima+ Order Approver Order Issuer 2. confirmation 3. approval 1. order entry 4. order routing 7.1 order reporting 6.1 order confirmation 7.2 receive 7.2 deliver against against payment payment Instruction Instruction Order Handling Agent 5. deal execution 8.1 settlement confirmation CLEARSTREAM CREATION 8. settlement 8.1 settlement confirmation Page confirmation of receipt of shares Depository 6.2 periodic reconciliation 6.2 mark-up Instruction

31 Settlement Model: Free of Payment Payment on Settlement date Subscription via Vestima+ Order Issuer 1. order entry 5.1 order reporting 2. order routing 4.1 order confirmation Order Handling Agent 3. deal execution 5.2 cash payment instruction 6.3 cash receipt confirmation 6.2 settlement confirmation CLEARSTREAM CREATION 6. settlement 6.1 cash payment to the fund OHA CCB periodic reconciliation 5.3 confirmation of receipt of shares Depository 4.2 mark-up Instruction Page 31

32 Settlement Model: Free of Payment Payment before order execution Subscription via Vestima+ Order Issuer 1. order entry 6.2 order reporting 2. order routing 5.1 order confirmation Order Handling Agent 4. deal execution 3.1 cash payment instruction 3.3 cash receipt confirmation 7.1 settlement confirmation CLEARSTREAM CREATION 7. settlement 3.2 cash payment to the fund OHA CCB periodic reconciliation 6.1 confirmation of receipt of shares Depository 5.2 mark-up Instruction Page 32

33 Settlement Model: Free of Payment - Order issuer directly on register and payment via Clearstream Subscription via Vestima+ Order Issuer 1. order entry 5.1 order reporting 2. order routing 4. order confirmation Order Handling Agent 3. deal execution 5.2 cash payment instruction 6.3 cash receipt confirmation 6.2 confirmation of cash payment CLEARSTREAM CREATION 6. settlement 6.1 cash payment to the fund OHA CCB Page 33

34 Settlement Model: Domestic - Clearstream account holders Subscription via Vestima+ Order Issuer 1. order entry 5.1order confirmation 2. order routing 4.1 order confirmation Order Handling Agent 3. deal execution 6.3 settlement confirmation 5.2 domestic receipt instruction CLEARSTREAM CREATION 5.3 domestic receipt instruction 6.2 domestic settlement confirmation Page 34 periodic reconciliation Central Securities Depository 6. domestic settlement 4.2 domestic delivery instruction

35 Settlement Model: Domestic External Custodian Settlement instructions issued via Clearstream Subscription via Vestima+ Order Issuer 1. order entry 5.1order confirmation 2. order routing 4.1 order confirmation Order Handling Agent 3. deal execution 6.2 settlement confirmation 5.2 domestic receipt instruction OI Custodian 5.3 domestic receipt instruction 6.1 domestic settlement confirmation Market 4.2 domestic delivery instruction 6. domestic settlement Page 35

36 Settlement Model: Domestic External Custodian Subscription via Vestima+ 1. order entry (via browser or SWIFT) 2. order routing (MT502) 3. deal execution Order Issuer State Street (OHA) 5.1 order confirmation (via browser or SWIFT) 4.1 order confirmation (MT515) 6.2 settlement confirmation 5.2 domestic receipt instruction OI Custodian 5.3 domestic receipt instruction 6.1 domestic settlement confirmation Market 4.2 somestic delivery instruction Page somestic settlement

37 Settlement Model: Free of Payment Order issuer directly on register and cash paid externally Subscription via Vestima+ 1. order entry (via browser or SWIFT) 2. order routing (MT502) 3. deal execution Order Issuer State Street OHA 5. order confirmation (via browser or SWIFT) 4. order confirmation (MT515) Page 37

38 Fund Order Message Flow Submit order Order Issuer MT 502 Order MT509 Pass/Fail MT 509 Accept/Reject MT 515 Execution MT 515 Cancel Execution Validate order Vestima+ Forward order Update status Validate message MT 502 Order MT 509 Accept/Reject MT 509 Fail MT 515 Execution MT 509 Fail MT 515 Cancel Execution MT 509 Fail Order Handling Agent Process order Execute order Cancel execution of order Page 38