of Clearstream talks about the campaign to extol the benefits of automating the entire funds processing life cycle.
Clearstream has a long-standing presence in Asia and opened its first regional office in Hong Kong in 1990. The company has since opened a Tokyo office in 2007 and a Singapore branch in 2009 which now serves as Clearstream’s operational hub in Asia. Clearstream also launched a tailored suite of Vestima products in 2009 which provides Asian-based fund distributors with a single service to place their funds orders.
“Our Asian-based clients first adopted our funds solution (Vestima) over seven years ago and we have now extended our client base throughout the Asian region, focusing on Hong Kong, Singapore, Taiwan, Korea and Japan,” says Stanley Poon, vice president at Clearstream Asia.
Hong Kong, Singapore and Taiwan remain the major processors of cross-border mutual funds in Asia and most of this order flow goes back to Europe via Luxembourg or Dublin. Consequently, this has given an organisation like Clearstream some leverage in the Asian market due to its strong presence in Luxembourg’s cross-border funds market and its links with the major, international players in that market.
Meanwhile, the domestic funds markets in Asia typically have a funds order routing solution provided by the local CSDs. But what is increasingly happening is that Asian fund managers are realising they need an order routing solution that works for both cross-border and domestic funds and this is where Clearstream’s efforts have concentrated, says Poon.
“We have talked to the Asian-based financial institutions that are manually processing orders and either work with them directly or in partnership with their local CSDs to develop automation services and to eliminate manual processes from their operations via our fund order routing service (Vestima) or settlement service (Central Facility for Funds).”
Clearstream has targeted traditional retail banks, private banks, commercial and custodian banks, all with the aim to eliminate manual processing from their operations. “A number of Asian-based distributors successfully implemented our Vestima platform to automate the order routing, settlement and custody of offshore funds. Before that all their processing was done manually by fax and hand. Nowadays, a centralised platform for managing orders, cash and daily reporting of holdings and corporate actions has provided greater efficiency and reduced operational risk for our clients.”
The focus is to provide a 100% straight-through processing solution across the full investment fund trade cycle, says Poon. “We want to be a one-stop-shop for their funds processing and to cover the full trade cycle – order routing, settlement and custody – so that order activity and cash management can be easily harmonised into one centralised system for easy reconciliation. Our clients will be able to take advantage of this centralised system to conduct other related activities such as exchange trading and funds as collateral to yield greater benefits.”
Hong Kong, the most developed of the cross-border funds markets in Asia, has historically been a very manual market with only a few organisations promoting the benefits of automation and the vast majority relying on faxes to place funds orders. Labour costs were inexpensive, therefore, and additional volume was always met with additional headcount. Due to tight budgets for system improvements in operations, spending money on improving back-office systems was not well received by decision makers, as the full cost savings were not always understood.
REAPING THE BENEFITS
In the past seven years, however, the benefits of automation have become more evident across the Asian market, helped in some part by the increasing volume of fund orders and also by the growing number of service providers; fund managers and promoters extolling the virtues of automation, via industry conferences like the International Transfer Agency Summit.
Meanwhile, messaging standards body Swift has tried to establish several Asian projects via its local offices and a number of international fund promoters have formed the Asian Funds Automation Consortium (AFAC) to promote automation. “The message has spread and the early adopters are reaping the benefit of automation,” he says.
But although the momentum of automation is building in Asia, it remians a lengthy process to convince each organisation of the long-term benefits of automation, says Poon.
“Spending money to gain greater cost savings is still an idea which takes time to digest.”
Given these challenges, Clearstream has continued to develop its strategy and improve the capabilities of its solutions in order to encourage greater adoption. Part of this effort involves convincing them that the processing platform of the future will encompass the total work flow of the investment cycle. “A lot of the automation we’ve seen in Asia has focused on order routing – as in the case of Taiwan. And while replacing the fax is a straightforward task and it does create some benefit, the value of it is quite small.
“The real benefit lies in automating the full processing cycle – including cash payments, holdings reconciliation and corporate actions,” says Poon.
At a fundamental level, processing is the same for all distributors. Placing an order for a fund will always involve some form of cash payment and reporting down the track.
Therefore, Clearstream’s approach is fundamentally the same for all participants regardless of size or market, says Poon. “Our core belief is to ensure our clients fully understand the value of a total solution as this is where risk can be reduced and most cost savings achieved.
“Once this point is established, we can then offer clients some value added services depending on their individual requirements – for example, the use of investment funds as collateral, access to Asian exchanges for exchange-traded funds, the ability to invest in locally domiciled Asian funds and even alternative funds now that Clearstream offers standardised processing for hedge funds through its newly established hedge fund processing centre in Dublin.”
The initiative to introduce automation for fund order routing in Taiwan is in its infancy. And a pan-Asian approach for funds is still a long way off as the region is very fragmented due to varying legacy setups and distribution models currently in place. For example, the Taiwan market uses local “master agents” to represent the offshore funds which is not seen anywhere else, in Singapore there are a good size of local Singapore funds processed by local transfer agents only.
“Therefore, distributors in each country require their own unique solution and for them to commit in undertaking their own solution in achieving the most benefits across the trade cycle,” he says.
The region has seen a big push from fund managers, service providers, local CSDs and international infrastructure providers. Now the onus is on the distributors to not just introduce automation for order routing but begin addressing the efficiency of the entire trade cycle.
“For automation to pick up substantially, we need greater commitment from distributors.”
Despite this challenge, Clearstream’s work in Asia has been rewarding, says Poon. ‘The take-up of automation has grown and as a result we have won regional mandates and been successful in building market share in Korea. The automation message is definitely growing and we stand in a good position as the number of distributors with an interest in automation is growing every year.”
Stanley Poon is vice president at Clearstream Asia
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