News to Use: Omgeo, SEI, and Broadridge

Custodians on Alert: Custodians and prime brokers will be able for the first time to input standing settlement instructions (SSIs) to Omgeo’s ALERT database, potentially reducing the number of trades which fail to settle on time.

SSIs refer to the last leg of the post-trade communications process when asset managers tell their custodians or prime brokers in which depository to settle a transaction and to which bank or broker-dealer to send cash or securities. The data also includes the name of the subcustodian, registration details, investor codes, and tax IDs.

An estimated 30 percent of trades don’t settle on time because of erroneous SSIs that can occur when asset managers manually rekey information provided by custodians and prime brokers into Omgeo’s ALERT or when they use manual processes to store SSIs outside of ALERT. Fund managers could easily delay inputting data, make a typing error or forget to include fill out some data fields. Even if all the SSI information is correct, a trade could fail to settle on time if the wrong SSI is used.

Using the new GC Direct capabilities in Omgeo ALERT, custodians and prime brokers can now download all of the necessary SSI data in a standardized XML-based schema to the ALERT  database for asset managers to immediately retrieve. Fund managers can request the SSIs using their current acronyms and access codes which they can link to the code of their custodian banks or prime brokers.

Omgeo officials say that ALERT will validate the SSIs uploaded for completeness and accuracy. State Street will be one of the first five custodians expected to use new GC capabilities this year.

Compliance Checkup: Fund managers using SEI for administration services can now get an in-depth checkup as to how well they are handling regulations across the globe.

Working with global compliance specialist Eisner Amper and software vendor BasisCode Compliance, SEI’s Investment Manager Services division will provide fund managers with a gap analysis of their compliance performance in meeting regulatory requirements, as well as a technology-based solution for improvement.

Eisner Amper brings to the table expertise in identifying the regulations a fund manager should be addressing with an explanation of each regulation’s requirements. Fund managers in the program will also get a a daily feed of regulatory news from Thomson Reuters.

Compliance specialists from SEI’s Investment Manager Services division will use the analysis from Eisner Amper, plus on-the-ground experience with all of their clients to develop a compliance strategy that a fund manager can implement and document using BasisCode Compliance’s platform. The application will keep track of the status of compliance tasks, who is responsible for completing it, and who has approved it.

The new compliance service expands upon SEI’s regulatory reporting capabilities and is initially targeted to global fund management shops, which are on the legal and financial hook for any errors. Compliance managers are the logical subscribers, but other C-level executives, eager to reduce costs and headline risk, are also expected to come to the table. SEI executives believe the biggest response will come from alternative fund managers facing more stringent oversight regimes.

Reviewing the Tab: Middle office operations specialists at investment banks, mutual funds, asset managers and investment advisors, wanting to validate and even reduce their trade execution costs now can use a managed service from Broadridge Financial which provides them with hosted technology and staff to handle discrepancies.

The new service expands on Broadridge’s acquisition of the Revport trade expense software application when it purchased Bonaire Software in 2013. Broadridge will identify billing discrepancies with exchanges, other trading platforms and executing broker-dealers, as well as negotiating reimbursement at the client’s request. Broadridge is charging an annual subscription based on trade volume, plus success fees for collecting a reimbursement.

Trade expense differs from transaction cost analysis in that it only handles the explicit costs of a trade, not the implicit ones. These expenses can be as much as eight percent higher than they should be because of errors in the trade count or contract interpretation. That eight percent might sound like peanuts, but it can add up to six-figure losses every month for a large global bank.

Separate trading desks arranged along product lines commonly depend on separate contracts with third-party exchanges and others, complicating the process of verifying the bills. Even harder is determining whose calculations are right. Instead of giving the middle office the job of manually matching contract terms with various parties to confirm the fees charged, the Broadridge service takes seconds to match up the trades executed with contract terms and charges to check for errors. Its audit trail substantiates the methodology and inputs when it comes to negotiating the reimbursement.