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As
noted in our previous issue, while asset managers focused
on equity straight-through-processing to comply with T+1,
fixed income STP was largely ignored. Equity STP is easier
and less costly to achieve because of fewer and less complex
securities, standardized trading and settlement processes
that lead to automation, and FIX standards and trading systems
that are equity oriented. In fixed income, there are highly
complex and numerous security types, non-standard investment,
trading and settlement practices that are not easily automated.
Furthermore fixed income trading platforms are in their
infancy and electronic broker connectivity via FIX has not
been implemented. Although asset managers are making some
progress toward fixed income STP, few firms have approached
full automation.
Fixed Income STP Needs Work
Cutter Associates recently surveyed over 40 large global
investment managers and found that:
- No firms are fully automated.
- Sixty-six percent had no allocation automation.
- Those that had automation used it only for some instrument
types.
- Faxing is the most commonly used communication method.
- No firms had automated communications with brokers
for fixed income trading. (Pre-trade automation was limited
to alternative trading systems.)
Slow Progress is Being Made
Most survey participants are focused on improving connectivity
through the implementation of fixed income trading systems.
At many firms, custodian notification has migrated from
accounting to middle office systems or trading systems.
Over half have automated matching and firms that are automated
are migrating from local to central matching.
Available Solutions are Not Widely Used
The industry has mounted many initiatives (some say too
many) that could help improve fixed income. However, many
of the available solutions are not widely used.
- FIX 4.4 can handle most fixed income-related communications,
but few managers or brokers support it.
- Alternative trading systems like TradeWeb and MarketAxess
support full STP, but brokers do not.
- OASYS and OASYS Global can help, but are hampered by
lack of or late broker participation.
Conclusion
With increased focus, asset managers will continue to make
progress on achieving fixed income STP. The tools are falling
into place, but slow adoption means that progress will continue
to be only incremental and manual processes will be the
norm.
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