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Strategic Acquisitions, Cost Cutting and Corporate Actions Top the Bill at Sibos

Last week’s annual Swift user conference in Amsterdam saw the messaging network operator focus on a range of items central to its new 2015 strategy (see our video interview with Swift’s managing director for the UK, Ireland and the Nordics Arun Aggarwal on the subject earlier this year), including cost saving opportunities, strategic acquisitions of “adjacent” businesses and the progress of its corporate actions standardisation initiative with XBRL US and DTCC. Chairman Yawar Shah and CEO Lázaro Campos listed the cost savings Swift has achieved over the last year to the delegation in attendance at the opening plenary, for example, including a reduction in its structural costs of 17% of its total cost base, or €90 million.

The cost savings are the result of Swift’s two year Lean programme, which has included a fair amount of headcount chopping and “fat trimming” in order to realise cost savings in the face of last year’s messaging volume decline of 2.4%. Accordingly, Shah informed delegates that they would be receiving a 15% rebate for this year, worth around €50 million and a reduction in the price of FIN messaging of an average of 20%. He also indicated that Swift is expected to live up to its overall price reduction of 50% over the course of five years (promised under the banner of the 2010 strategy), which is due to be realised by the end of next year: a 48% reduction has been achieved thus far.

These numbers all look positive at the outset, but a less reassuring number was the percentage of securities industry delegates to the conference itself, with only 14% making up the numbers. Given the securities industry is a key focus for Swift going forward, as it represents a large proportion of its expected messaging traffic growth over the next five years, this is not good news. The benefits of a lower total cost of ownership (TCO) and a strategy targeted more directly at individual user communities mean nothing when they aren’t reaching the right ears, after all.

The structure of Sibos itself did Swift no favours either, with the first day heavily slanted towards securities industry topics (including the securities reference data utility panel and a morning of post-trade infrastructure discussions) but very little afterwards in terms of main conference sessions. There were a few standards and corporate actions focused discussions later in the week, but not enough in the way of focused, securities industry specific panels.

Arguably, the main sessions on risk, regulation and rebuilding trust were relevant to securities industry participants, but many of these sessions had a heavy transaction banking slant. The external view of Sibos as a payments conference has not really changed and is unlikely to do so unless action is taken. In order to attract more delegates from this desired demographic, Swift really needs to develop a structured and targeted securities industry stream. If by next year’s event in Toronto the industry network operator has failed to do this, percentages in terms of attendees will remain low and this might have an impact on messaging volumes from the securities sector going forward.

However, there was no shortage of panels on the subject of corporate actions at this year’s event. Swift is attempting to carve out a niche in the corporate actions messaging and standardisation space via its strategic initiative with XBRL US and DTCC, launched at Sibos in Hong Kong last year, and this year witnessed a barrage of discussions and announcements on the subject.

The biggest news was the addition of a few more high profile names to the list of financial institutions participating in the pilot programmes to prove the benefits of XBRL tagging and ISO 20022 messaging in the corporate actions space. Last month, Citi announced its involvement and now Brown Brothers Harriman (BBH), JPMorgan and Bank of New York Mellon have publicly declared their involvement.

The pilot programme, which is being run by DTCC, is aimed at allowing the global custodians to use the Swift network to automatically receive standardised corporate actions announcements and their related cancellations from DTCC in ISO 20022 messaging formats. The programme is expected to start in the second quarter of next year and will initially focus on corporate actions announcements and their related cancellations. The remaining corporate actions lifecycle processes, such as entitlements, elections and payments are expected to begin in 2012.

Chris Church, chief executive of the Americas and global head of Securities for Swift, explained to Reference Data Review over lunch that the aim is to reach critical mass by adding more financial institutions as the programme progresses. These initial pilot firms will therefore act as a beacon for the rest of the industry to follow by proving the benefits of ISO 20022 and XBRL tagging. A task which, given the reticence of many to adopt the new standards at the moment, could prove challenging.

For now, those involved in the pilot are convinced of the benefits and it will be up to them and the initiative’s key stakeholders to pass on that sentiment to the rest of the market. Tim Keaney, CEO of BNY Mellon Asset Servicing, said: “By engaging key stakeholders from across the industry the group has taken an important step forward in establishing new levels of automation and standardisation for corporate actions processing. This in turn will lead to reduced costs and greater efficiencies for the industry.”

Another controversial topic at Sibos was the “flexing of Swift’s new muscles”, as stated by Shah during the opening plenary in reference to its more acquisitive approach to market. Following on from the acquisition of SunGard’s Ambit Messaging Hub earlier this year, Swift will soon be exercising these muscles again, predicted Shah, causing a ripple of equal parts interest and concern throughout the vendor delegation.

Acquisitions are just one part of Swift’s new arsenal, which also includes spin offs, joint ventures and partnerships, according to Shah and Campos. This is all in line with the “deepening of Swift’s core” business, which is set out in the 2015 strategy. Shah referred directly to the opportunities in the reference data and utility space in his speech (albeit in a rather non-specific way).

We await the next acquisition with bated breath…

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