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Euroclear UK & Ireland and EMXCo announced today their joint plans to address inefficiencies in the settlement of transactions in UK, Irish, Guernsey, Jersey and Isle of Man domiciled investment funds. An automated settlement service for institutional investors will be introduced in two phases: Euroclear Cash Settlement for Funds is planned for launch in summer 2008, followed by Cash PLUS in summer 2009. More than 65 industry professionals from 39 organisations worked with EMXCo and Euroclear UK & Ireland on this initiative over the past year.
Investors in UK, Irish, Jersey, Guernsey and Isle of Man funds will benefit from streamlined transaction processing, using the same post-trade infrastructure many already use for their equity and fixed-income trades. They will also profit from reduced errors with the elimination of manual intervention, decreased settlement and market risks, and a more effective transaction reconciliation process. Investment fund processing costs, which are currently 10 to 50 times higher than the cost of processing an equity transaction, will decline sharply. Furthermore, the new, automated service could accelerate the growth in investment-fund trading volumes as it will remove manual processing constraints.
The new service will also ease reconciliation procedures between fund distributors and fund managers or their agents by providing transparency to both cash and securities movements. As a result, all relevant parties to transactions across the fund market will have the certainty that the cash and securities components of the transaction will both settle on the intended settlement date. Compared with the current practice of performing manual reconciliations monthly, often requiring large teams of staff to resolve large numbers of unreconciled items, the efficiency gains will be substantial.
Tim May, Chief Executive Officer of Euroclear UK & Ireland, said: “Combining the order-routing excellence of EMXCo with the STP transaction settlement expertise of Euroclear UK & Ireland will provide our clients with a single point to submit subscription and redemption orders and receive settlement confirmations for their domestic fund investments. Clients will use the same Euroclear systems and procedures to settle investment fund transactions as for other asset classes.”
Peter Fleming, Head of Investment Administration at Skandia said: “The EMX Message System has brought great efficiencies and cost savings to the funds industry for order routing and we look forward to receiving these same benefits for settlement.”
In the first stage, orders placed via the EMX Message System will be routed to Euroclear UK & Ireland’s processing platform, which will settle the cash movement of the transaction. In summer 2009, Cash PLUS will settle the cash component and reflect the stock element of the transaction, which is recorded on the legal register maintained by the fund providers.
For the settlement of transfers, where no change in beneficial ownership occurs, Cash PLUS will provide complete transparency to the process, thereby removing execution uncertainty and allowing all parties to monitor and reconcile movements across fund provider registers.
A range of corporate-action services will also be provided by Euroclear UK & Ireland in order to maintain the integrity of holdings.
