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11 мая 2006 |
Originally published by Depositarium, National Depository Centre in Moscow, N° 4, 2004
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SWIFT’s effort for standardisation in the Securities market
Interview with John Falk, Director Securities Market Infrastructures, SWIFT
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is the leading international organisation that provides the exchange of standardised messages to about 8,000 top financial institutions in 204 countries worldwide. Every year 2.5 billion messages are being sent. Recently a new ‘peak day’ was reached when more than 12 million messages were sent in one day.
SWIFT is a highly reliable system with an availability of 99.999 %.
SWIFT has many different kinds of users from the financial industry. Initially, SWIFT was established by banks in 1973. It is important to note that many people still see SWIFT as a banking cooperative. However, not only banks can join SWIFT, but also other participants of the worldwide financial industry, like for example registrars and custodians, who got the authorisation to join SWIFT in the nineties.
By uniting different types of financial organisations with different business approaches, SWIFT offers a unique combination: the possibility to exchange messages, based on ISO standards, in combination with a highly secure and reliable financial messaging network. Standardised messages enable STP (Straight-Through Processing) which is extremely important for business efficiency and risk reduction. The state-of-the-art network offers a readily available technological infrastructure that links users in real-time.
At the conference ‘Electronic Document Flow – technology uniting the infrastructure’ – organised by NDC – many speakers highlighted the problem of supporting plenty of different messaging standards and networks with different organisations. This problem can be solved by using SWIFT as a ‘single window’ to access different types of counterparts. In the memorandum that was presented by the conference organiser the importance of STP technology was emphasised. I’m convinced that SWIFT’s experience in the Standards area could be successfully used to increase STP rate in the Russian securities market.
Before getting into details on SWIFT standards, I would like to say a few words about how they were historically developed. Initially the SWIFT standards for the Securities market were developed based on the ISO 7775 standard according to a rather simple scheme: in each field only very specific information could be written. After that the ISO 15022 standard was established. It was implemented about three years ago. What is special about the ISO 15022 standard is that it changes the basic principle of standards formation. Instead of using separate strictly formatted fields, each with a very specific function, this standard allows users to combine different data blocks and data fields (what we call building blocks). With this method, almost any information or instruction can be passed on.
XML is the basis for the new standard ISO 20022 (UNIFI). It’s important to mention that both standards – ISO 15022 and ISO 20022 – use a single Data Dictionary.
In an ever more complex business environment the main objectives of the ISO 20022 standard are to increase levels of service, reduce the costs of standards development and implementation and ensure a shorter time-to-market for new standards. Using the UNIFI principles makes the process of developing standards a lot simpler.
Today, SWIFTStandards are traditionally used in the share markets and with fixed income securities. This business segment continues to grow steadily. The Funds market is relatively new for SWIFT, being only active in this area for the last 2 to 3 years. The XML messages for SWIFTNet Funds are based on the ISO 20022 standards. It is important to note that many of these messages can accommodate the needs of the Russian securities market after some additional adaptation, for example by the Securities Market Practice Group under the auspices of ROSSWIFT.
SWIFT continues its efforts in developing new messages for the Funds market. Currently about 53 messages have been developed. The following groups of messages are already being used on SWIFTNet:
- Subscription / Redemption / Switch orders
- Order confirmation / order status
The following messages are being used in pilot mode:
- Statements holdings / Statement transactions
- Transfer in / Transfer Out instructions
- Transfer status / transfer confirmation
The following messages are almost ready for rollout:
- Account management
- Portfolio transfer
The following messages will be available in 2007:
- Commissions report
- Request for statement
- Request of pending transactions
SWIFT collaborates worldwide with several organisations that are focusing on the harmonisation of different market practices. The 53 messages I mentioned have been developed in cooperation with all of these market practice groups.
The SWIFTNet Funds solution is based on the ISO 20022 standard. It is provided in two modes: real-time and store-and-forward. In both modes non-repudiation is provided, i.e. the counterpart can’t deny having sent a message. The solution also uses Public Key Infrastructure (PKI). The SWIFTNet Funds solution is rather new, but currently already 9 funds are using it actively, 24 more funds have finished the implementation and 76 more are ready for implementation.
Worldwide there are many initiatives that speak of the need for standards harmonisation. For example the G30 made the statement that all market participants should take ISO 15022 standards as the single standard for the whole securities transaction cycle.
In an other statement the Group says that the standards should be expressed in XML, and the network used should be based on IP technology. The SWIFTNet funds solution complies with all of these requirements.
In the Giovannini report it is recommend to use ISO standards as much as possible. Here is a list of some of the ISO standards that are used in SWIFT messages:
ISO 3166 - Country code
ISO 4217 - Currency code
ISO 6166 - ISIN code
ISO 8601 - Date and time format
ISO 9362 - BIC code
ISO 10383 - MIC code
ISO 10962 - CFI code
ISO 13616 - IBAN code
ISO 16732 - IBEI code
I previously mentioned the recommendations for the Securities market. In the area of Funds there are also several organisations, amongst which EFAMA (European Fund and Asset Management Association) and IMA (Investment Management Association), which recommend the use of ISO standards.
How do organisations benefit from using SWIFT?
First of all, by increasing their business profit thanks to a reduction in the costs of message processing. At Schroders, the cost of processing orders has been reduced by 66% since implementing SWIFT.
Secondly, scalability. Fidelity states that SWIFT allows them to position themselves for an increase in dealing volumes, without having to increase headcount.
Thirdly, there is customer service. The straight-through processing of instructions allowed Citibank Asia to improve customer service by extending the opening hours.
SWIFT offers the securities market the messaging standards in combination with the security and a high availability. SWIFT messages are developed based on the interaction between the different market players, which allows them to be used irrespective of the market practice of a particular country. The SWIFTNet services bring your infrastructure to a new level, and the experience SWIFT has in the banking area is a convincing argument that the solutions for the securities market will be successful.
Standardisation in Europe.
SWIFT heads the working group to remove Barrier 1 to efficient clearing and settlement in the European Union, as indicated in the Giovannini report. In the framework of the Securities Market Practice Group, SWIFT was authorised to work out a method to remove the first barrier. To achieve this goal, a protocol should be worked out and implemented throughout the European Union. The protocol should eliminate national differences in information technology and interfaces used by clearing and settlement participants.
On 25 October 2005 SWIFT released a draft protocol for data exchange for clearing and settlement in the European Union. The protocol was sent to market participants to get their feedback on two questions:
1.Is this a suitable solution for removing Barrier 1?
2.Do I support the implementation of this protocol in the proposed time schedule?
Over 60 organisations expressed their point of view regarding the draft protocol. The majority replied ‘yes’ on the first question, but were worried about the fact that this might lead to a migration from ISO 15022 to ISO 20022 in the near future. Here we must say that there are currently no plans to move from one standard to the other. In case it would happen, then the market participants will be informed three years in advance. On the second answer also a positive answer was given, however with reservations regarding the timeline from the major market infrastructures. The respondents assume that a longer period of time will be needed for the implementation of the protocol. It will take more likely 5 years instead of the proposed 2 years.
By accepting the protocol the leading financial organisations want to reduce their costs and risk by implementing a single standard for their interaction with the market infrastructures worldwide. This becomes even more important as these organisations start centralising their operations. Taking into account the necessity to support multiple internal standards and processes instead of one standard, it is indeed a straight forward solution to reduce risk and costs.
In my opinion it would definitely be beneficial if the Russian financial industry also adopts the protocol. The Russian market can use the benefits of the very latest standards, which supports the attempts to attract more national and foreign investments; or makes it more accessible. This allows the Russian market to grow with the increase in volume without increasing the costs. Most important, is that standardisation reduces the risk of incorrect interpretation or mistakes during the processing of transactions and, consequently, it significantly reduces the business risks.
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