Taiwan intends to launch a service for the automation of fund orders. Sebastien Chaker of Calastone looks at the potential of this proposal.
The past decade has seen many attempts to find solutions to the lack of funds’ automation in Asia. There were great hopes several years ago when the first few Asian bank distributors adopted the ISO 20022 standard for fund automation.
Fund managers and transfer agents invested substantially to upgrade their systems to this standard in the hope their straight-through-processing rates would reach European levels, thus creating better efficiencies throughout the region.
After that, a number of other initiatives led by market infrastructures in Hong Kong and South Korea also unveiled their solutions. This led the West to assume that Asia was focusing on delivering new electronic solutions to the growing number of manual orders.
But with estimates that more than 80% of Asia-originated orders are still processed manually and 60% of manual orders into cross-border Ucits originate from Asian distributors, these solutions have been unable to deliver on their promises.
Despite disappointing results, Western fund managers active in Asia have increased efforts for automation in the region.
Domestic Asian fund managers remain mostly unreceptive. There have been ten years of effort, with few results. However, their Western counterparts have experienced benefits brought by automation of fund orders across global businesses and markets.
The Asian Fund Automation Committee, which represents some of the largest Western fund houses in Asia, has been working with players to find a solution for the Taiwanese market. This market, on its own, accounts for 48% of the manual orders processed by the leading cross-border funds groups.
At the end of 2011, the Taiwan Financial Supervisory Commission (FSC) and the Taiwan Depository and Clearing Corporation (TDCC), announced their intention to launch a new service for the automation of fund orders in Taiwan.
In November 2012, the TDCC service was launched and active. Is this yet another initiative that is deemed to fail or will it lead the revolution in the way investment funds are processed in Asia?
The support and enthusiasm around this solution from global fund houses and Taiwan distributors shows this solution is likely to succeed and could lead the region to embrace modern practice and straight-through-processing automation.
The reason for its potential success can be found in a number of pragmatic decisions made by the TDCC and the FSC.
By delivering a simple order routing solution, the TDCC has avoided the temptation of intermediating fund assets locally, which would effectively re-engineer the entire fund trade and post-trade mechanism. It has focused on delivering what offshore fund houses and Taiwan distributors were looking for: a solution to automate their orders.
By partnering and leveraging the existing network and expertise of global fund messaging specialists, the TDCC has avoided the mistake of trying to “reinvent the wheel”.
As a result, the TDCC can offer Taiwan distributors a solution providing immediate coverage to the main cross-border fund houses active in Taiwan, thereby covering the vast majority of existing flows.
By charging fund managers for the service instead of distributors, the TDCC has removed an important barrier to automation in Asia. This model has been successfully implemented in the UK .
Taiwan distributors are offered an electronic solution provided by local market infrastructure, requiring limited IT investments, and providing immediate critical mass of fund houses. And it is free. The first distributors will be joined by a second wave, who are finalising their business cases. They will then force the remaining fund managers to join the solution.
With this virtuous cycle the benefits will lead to substantial cost and risk reduction through the elimination of faxes being processed as well as improve scalabilities and service levels for distributors and investors.
At an international level, with the Taiwanese market adopting electronic transactions, global fund managers will seek to leverage distribution, with the surety that they can link to existing straight-through-processing without additional resource or management of manual interactions. As these fund houses, including the regional ones, will have experienced the benefits of fund order automation, it is hoped other Asian countries will be more receptive. In the end, it is they who will benefit from linking to global transaction networks. Sebastien Chaker is managing director and head of Asia at Calastone ©2013 funds global asia