Reference Data Review catches up with Gerard Bermingham, vice president of business strategy for the Americas at vendor Information Mosaic, about his views on Swift’s new 2015 strategy and how the industry network operator should figure in the standards development process and the reference data industry of the future.
How well do you think the goals of the Swift 2010 strategy were met overall?
The essence of Swift’s 2010 strategy was about growing the business, expanding its share of financial messaging and providing enhanced messaging services to customers. Swift has spent time laying the groundwork, and upcoming initiatives will go a long way to achieving the Swift 2010 goals of lowering back office costs, raising levels of automation and better managing risk, aims outlined by CEO Leonard Schrank when the strategy was first announced in 2006. These initiatives include the introduction of ISO 20022 and MX messages (mandatory from 2011), plans for new services and the enhanced functionality of existing products such as the Alliance Integrator. The Issuer to Investor project has been well received by the market so far, and this combined with standard changes in the 2010 release has put Swift at the forefront in securities process automation. The announcement of their five year plan through 2015 will make tracking their progress that much more transparent.
Swift has just approved its 2015 strategy – what would you like to see it focusing on in the next five years with regards to the securities market?
Swift’s 2015 strategy needs to be one of education and of enforcing the correct usage of existing standards, and driving adoption of new ones such as ISO 20022. The standards are well defined in theory, but the value of Swift messaging needs to be proved as a priority to asset managers and other non-bank entities to help drive its global adoption. It also needs to apply pressure to CSDs who have already adopted Swift to use the standards properly as there are still a number of bespoke usages that hinder straight through processing, such as the use of narrative and texts and unstructured logic to map underlying processing systems. Anomalies between messages, such as where valid sub-position qualifiers are different between statements messages and corporate actions messages, need to be cleared out and securities master file standard formats defined. Lastly but by no means least, Swift needs to pressurise data vendors to provide their data in this standard format, creating a post-trade processing system that removes the risk of misinterpretation of data.
How well do you think Swift has met your expectations over the last year in terms of meeting its core objectives around providing reasonably priced securities messaging?
There has been a slight increase in Swift messaging volumes year-on-year which makes it a success. Its cost-cutting initiative, rather than volume discounts traditionally offered to control pricing, could be largely responsible for this.
Swift has historically struggled to gain traction in the securities market – where should it concentrate its energies in this market to get more firms on board?
This is both an educational and commercial issue. Getting the CSDs on board would transform the market as all local brokers would be forced to become compliant, and it is often the resistance of these selfsame local brokers that hinders Swift’s widespread adoption. However, for brokers, using a proprietary feed is free while using Swift means they incur messaging costs, so there is little incentive for them to change their approach, which is something Swift needs to address. Smaller sell side and retail firms also need to be encouraged to use Swift, but again this can only be accomplished by proving the unique value of the secure messaging provided over the Swift network.
Swift seems to be adopting a much more aggressive stance in the market competitively – branching out into the vendor solution space – are there any dangers in this? Could this potentially negatively impact its relationship with vendor partners, for example?
You can see where certain providers, such as those in the reconciliation space for example, could take issue with certain Swift partnerships, but in the main there should be no problem as they aren’t the supplier of the vendor data, simply the transport and standards layer.
Has the change in the governance structure – by devolving decision making down to a regional level – made an impact?
This was a key move as the system becomes less dictatorial, allowing for and recognising individual varying processes within markets and regions rather than trying to enforce a blanket approach. The devolution to a regional level has given Swift the opportunity to evolve in certain markets, enhancing its participation and usage in these markets.
A lot of work seems to have gone into altering the Bank Identifier Code (BIC) to enable it to function as a legal entity identifier – is this a sensible/desirable move?
Yes it is both desirable and sensible – very often different legal entities have to have different accounts at custodians/correspondent banks so the differentiation for instruction authority is essential.
In terms of setting the standardisation agenda for the world of securities data – what should Swift’s position be in the market?
Swift needs to be seen as the holder and implementer of standards for the financial industry, as well as actively promoting and enforcing its correct usage. CSDs, asset managers and non-bank entities need to be encouraged to adopt its standards and formats through a combination of education and pressure, and variations on standards needs to be dealt with. No other organisation has the experience or bandwidth to take on this responsibility so it’s vital for Swift to make its presence felt as the driver behind setting the standardisation agenda on a global basis.
Related to this, how do you feel a reference data utility should potentially fit into the future for Swift?
Developing and setting the standard for reference data would be an important step for Swift. As in the case of corporate actions standards, normalising reference data for the market would go a long way in addressing STP rates and toward ultimately meeting its goal of helping lower back office costs, raise automation levels and better manage risk.
What is your perspective on the work that has gone into making ISO 20022 and XBRL compatible for the corporate actions market? Is XBRL a sensible option for this market in the US and the rest of the world?
ISO 20022 will be a key driver for adopting standard formats for corporate action messaging, with it delivering significant reductions in interpretation of messages and therefore reducing the risk this poses to accuracy. ISO20022 and XBRL go a long way to helping drive automation of corporate actions, particularly in areas such as proxy voting where regulations are coming in to play. Automation in this market can only be a good thing. However the benefits for the corporate actions market don’t necessarily translate to other messages, where ISO 20022 becomes simply another format to support.