SWIFT moves forward with securities alliances

Messaging network SWIFT has signed a memorandum of understanding with the Tokyo Stock Exchange (TSE) to explore using standard ISO15022 messages for corporate action distribution. The deal was signed last week during a visit to the region by Francis Remacle, a member of SWIFT's executive committee in charge of securities. The agreement is likely to culminate in the TSE joining SWIFT by the end of the year.

If broad adoption can be achieved, all market participants will be brought into line with foreign custody and sub-custody banks which already use SWIFT messages to handle settlement and transmit data on corporate actions. The idea, says Remacle, should appeal to TSE members because of the inherent cost savings and risk reductions that come with standardized message formats. "Our experience in Europe has shown us that the industry can save up to 40% on processing costs by consolidating message infrastructure."

In Japan today, ISO15022, the standard underpinning SWIFT messages, is used for international transactions while domestic trades are handled using unique and proprietary systems. "There are long standing legacy systems in place in Japan and there are a whole host of small brokers and custodians which make it challenging for us to convince market participants that consolidation makes sense," says Remacle. "Essentially we have to focus on the cost savings that can be achieved through standardization."

SWIFT's tour of the region also took in China where the delegation met with the Shanghai Stock Exchange, says Ian Buckley, regional director of SWIFT's securities division in Asia. "We discussed the FIX protocol and how it will converge with ISO15022 messages for post-trade functions. We were very pleased to hear that market groups in China are open to adopting an international solution for their trade processing rather than developing one system for international trades and one system for domestic trades."

With no legacy systems in place, market participants in China are looking to the regulators for an indication of the best way forward, says Buckley. "They are looking for a lead on trading systems but also on payment systems," he says.

SWIFT also met with the depository in Shanghai which is considering joining the network to process trades made by newly approved qualified foreign institutional investors (QFIIs). While trades from this group still only amount to a few hundred per day, activity is expected to increase quickly.

Increased QFII trading will also put pressure on custodians to process more corporate actions, says Steve Farrage, who covers corporate actions for Swift in Asia. "Automation of this function is high on the agenda of market groups in China and Japan." He says Asian exchanges and depositories will be looking to the experience of the London Stock Exchange which is set to adopt ISO15022 standards for involuntary and voluntary corporate actions starting in June.