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Clearstream’s Mermigidis Calls for Drop Dead Deadline for Move to ISO 20022 for Corporate Actions

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The benefits of moving to ISO 20022 appear to be clearly understood in the market by most, but many firms are now keen for Swift to provide a clear timeline for its adoption, including a drop dead deadline for the switchover from ISO 15022 formatted messages for corporate actions. Clearstream Banking’s senior vice president in charge of product management for core products, Irene Mermigidis called for as short a coexistence period as possible for the two standards in order to minimise costs and to allow firms to fully leverage the benefits of 20022.

Speaking at CorpActions 2010 in London last week, panellists agreed that ISO 20022 should represent a step forward in terms of technical standards for the corporate actions space. The standard, which is based on XML and is therefore more web friendly than previous standards, is more flexible and is XML is widely used by issuers in other domains. Moreover, there is a wider proliferation of applications that can use an XML based standard, said panellists.

Mermigidis noted that since the international central securities depository (CSD) has adopted ISO 20022 messaging for mixed message types, it has witnessed the benefits of increased efficiency and automation. “We are able to capture changes much earlier in the process and have then been able to provide our customers with validation portals to check that changes have been correctly made,” she elaborated. “I am confident that 20022 will bring cost reduction and more flexibility to corporate actions messages too.”

Axelle Wurmser, securities services head of Swift coordination at BNP Paribas, noted that a huge amount of work has already gone into ISO 20022 development. “The last paper I saw indicated that there are now 245 messages ready in 20022 now, including eight proxy voting messages and 22 issuer agent messages,” she said.

Despite the fact that this work is “impressive and constructive”, Wurmser conceded that it will be tough to implement and it will represent an ongoing commitment on the part of the Swift user community, as more areas are added to 20022’s remit. The implementation timeline for the standard is also, as yet, rather fuzzy, agreed her fellow panellists. This lack of clarity therefore poses a potential threat to the standard’s adoption in future.

Although ISO 15022 is out there, it has also failed to gain significant market traction. ISO 15022 is often seen as an intermediary step in the market and many have opted to wait for 20022 rather than bear the costs of this step, explained Frank Slagmolen, director and product manager at Euroclear. This essentially means an impasse has been reached in the corporate actions messaging standards arena, as firms are stuck between a standard they don’t wish to implement but is ready and a standard that they have to wait for.

Slagmolen noted that the will to move to 20022 remains strong on the part of the CSDs and issuer agents, however. “It will require an investment but it will also improve data quality overall and the risk of errors will be much lower,” he said.

The move to ISO 20022 is also part of the general move towards removing the Giovanninni barriers to clearing and settlement, Slagmolen added. “Tying this to something like the Target2-Securities (T2S) project would avoid a double migration effort,” he contended.

However, the panel also agreed that there are barriers to adoption remaining in the market such as fear around legacy applications integration and a general lack of understanding among clients about the benefits of the move. “The absence of business justification for these implementation projects is a real danger,” warned Mermegidis. “A weakness in marketing the benefits of harmonisation could hold back progress for the good of the industry overall.”

There is also some dispute about whether firm deadlines are needed or the industry should proceed to 20022 with a more open-ended approach to coexisting standards. Speaking on behalf of the custodian community, Wurmser said that the cost of a big bang approach would be unsustainable by the industry and therefore a more gradual implementation would be preferable. Whereas CSDs such as Clearstream and Euroclear are keener for interoperability to be as short as possible in order to keep their own costs down.

When asked, the audience seemed to be in favour of a defined migration approach broken down into particular phases. It will now be up to Swift to begin drawing up a potential timeline for this process to begin.

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