Swift enhances trade matching for hedge funds

Delayed or mismatched trades are the bane of traders everywhere. Numerous commercially available and proprietary systems are available to alleviate these headaches with various investment managers singing their individual praises. One of the latest additions to the field is Swift's new Accord for securities.

Accord for securities is a matching solution for hedge funds' equity and fixed income trades. Developed by industry players, it builds on the Society for Worldwide Interbank Financial Telecommunications' (Swift) existing Accord trade matching system.

Launched two decades ago, Accord's capabilities include foreign exchange, money market and derivatives trade matching.

"There are two reasons why Accord for securities was needed," says Adam Wilson, Asia-Pacific head of securities markets at Swift. "These types of transactions had a high level of operational risk and were costly to match."

Live since May 18, the new solution is the result of a year-long development collaboration between Swift and a group of major prime brokers. That group includes Citi, Credit Suisse, Deutsche Bank, Goldman Sachs and Bank of America-Merrill Lynch.

According to Wilson, Credit Suisse, Goldman Sachs, and Bank of America-Merrill Lynch went live on the solution in May. The remaining prime brokers will join them in "the next few weeks" and Swift is targeting executing brokers to go live later this year.

Hedge funds are not directly connected to Accord for securities. While it is up to the prime brokers to determine how to pass along the benefits they reap from the solution, it is hoped cost savings will be realised by the individual funds and benefit the entire industry.

The need for Accord for securities is especially relevant in Asia.

"Prime brokers have to match information from a hedge fund with that of an executing broker in, say, Japan," says Wilson. "Prior to the launch of this solution, matching was done by fax or phone and prone to errors." Needless to say, it was also an onerous and time-consuming process.

In Europe and the US, many prime brokers are also executing brokers making this disconnect irrelevant.

Swift is now targeting local executing brokers to join the service. The firm plans to hold roadshows throughout the region, especially in Japan, promoting Accord for securities. According to Wilson, Japan is singled out because a large number of prime brokers have requested that Swift target executing brokers there.

"Many domestic executing brokers in Asia-Pacific are not on Swift," he says. "Joining Accord for securities would allow them to do other things, like payments and securities settlement, on the system. This [solution] could be the catalyst for local brokers joining Swift."

When asked why local executing brokers would want to subscribe to the solution, Wilson says: "Both the prime and executing broker experiences the same amount of pain. Both sides benefit from risk and cost reduction."
 
None of Accord for securities development was conducted in Asia. Swift won the tender from the leading European and US prime brokers to develop a hedge fund securities matching solution a year ago. Those brokers were intimately involved in the development process, first through multiple working groups and later by testing the system prior to the pilot's launch.

Development straddled last fall's global financial and economic crisis. But now, the crisis has become a catalyst to speed up development.

"Brokers and investment banks were some of the most impacted parts of the market," says Wilson. "We asked them if they wanted us to continue with this project and their response was to not stop but go faster."

Attracting Asian executing brokers to join Accord for securities is Swift's next priority but additional enhancements are already in the works. Wilson outlines plans to eventually connect the solution directly to hedge funds and local depositaries, reducing the number of messages a broker would need to transmit and, of course, reducing cost.

"We are constantly looking at improving our functionality," says Wilson. "Accord is evolving and we continue to respond to what our customers are asking for."