Thought Winter 2008

SWIFT: Providing Security for Securities Communications

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J.P. Morgan has helped lead the push for an ever-increasing focus on the securities industry at SWIFT, and the results are recognizable in SWIFT's board of directors, its executive leadership and, most importantly, its products and services.

Securities Business Powers SWIFT's Growth
Securities traffic on SWIFT developed in 1987, about 10 years after the first payment traffic. In the ensuing 20 years, the business has steadily grown to roughly equal the payments business. Perhaps more telling, approximately 60% of SWIFT's volume growth is attributable to the securities division.

SWIFT is making room for all this growth with a new (third) data center, adding capacity and additional resiliency to help maintain the network's 99.999% availability. It is precisely this resiliency that makes SWIFT so attractive to member institutions and the consortium of 10 national regulators that supervises SWIFT.

Thought Magazine

New Securities Messaging Initiatives
Funds processing messages have been available on SWIFT for a number of years, including new XML capabilities that go well beyond traditional subscription and redemption. The new messaging capability has grown an incredible 63% year-on-year from 2007; and this growth is no longer from a zero base.

SWIFT has taken this suite of messages to a new group of users, and sometime in early 2009 will be ready to roll out a new service aimed at alternative investments, to be used by hedge funds, funds of hedge funds, real estate investment trusts and other nonunitized collective investment vehicles.

Fax machines and transfer agencies wallowing in paper should become a thing of the past in fund processing as these capabilities take root. As usual in a new space like this, SWIFT is facilitating market practice discussions as well as creation of the messages; and we should anticipate a 'rulebook' of agreed usage to accompany the message set-making it a complete solution for the industry to leverage. Meetings are progressing rapidly, especially now that the Depository Trust and Clearing Corporation (DTCC) has joined the effort and stated that the new formats will be supported for use with DTCC's AIP product suite.

Prime brokerage is the next new frontier, as SWIFT has been invited by the community servicing hedge funds to create a presettlement matching system for use between prime and executing brokers, leveraging SWIFT's ACCORD matching engine. Planned for introduction in spring 2009, this new solution will leverage the MT 515 message to match inventory for OTC fixed income and equity transactions between the investment banks, and replaces a failing manual process of phone calls and faxes with an automated solution that will save time and human error.

Focus on Straight-Through Processing
Asset servicing is a key development for risk mitigation and processing efficiency. Income and corporate action messaging continues to grow more than 20% year on year. While the growth is excellent, it has also been noted that usage and interpretation of the standards yields less-than- desirable STP rates for these messages.

SWIFT responded to the challenge by introducing its Simulation Testing and Qualification system (STaQs) for the MT 56x suite of messages. This subscription-based service allows a participant to compare a large sample of messages to market practice standards and get detailed feedback on adherence to guidelines. The service allows users to review their own messages, or messages received from suppliers, and will drive evolution of usage quickly, by providing a neutral base from which to prioritize developments or discuss service levels with suppliers.

Next season, the SWIFT community will begin to leverage a new suite of messages designed to facilitate corporate governance and proxy voting. Not content with simply facilitating the delivery of meeting agendas and voting decisions, the capability paves the way for the industry to gain a clear audit trail of instructions all the way to the company meeting-and to provide meeting results.

Corporate Outreach Benefits Investment Managers
SWIFT's efforts to engage directly with corporate users are having interesting impacts on investment managers and other less-traditional users of SWIFT. In particular, the
SWIFT Alliance Lite connectivity will be available for use in the securities business in early 2009.

The Lite product for payments and cash processing is now live, allowing both 'templated' manual payment initiation and uploading of file-based instructions. SWIFT is now adding templates that empower securities settlements and basic asset servicing. The product is delivered on a very simple but secure USB stick that enables a secure Internet connection from virtually any PC to the full set of SWIFT services.

J.P. Morgan will assist in the effort by identifying low-volume users of facsimile and other manual instructions that are likely candidates for SWIFT's pilot of this simple, cost-effective STP solution.

Reaching All Corners
Standardizing the funds industry is a hot topic in almost any language, and so SWIFT is engaged in efforts well beyond its traditional European sphere of influence. Efforts to engage in Latin America have solicited interest from the Brazilian National Association of Investment Banks (ANBID), which is working to introduce the ISO 20022 standards into local market processing. SWIFT is hoping to introduce a similar initiative with the Association of Mutual Funds of India (AMFI). At the same time, banks in Taiwan are already rolling out the solution.

SWIFT is hosting Funds Forums, day-long events to educate and engage the local fund markets. Scheduled events are listed on swift.com .

Cost and Efficiency Benefits of SWIFT
For companies and institutions that already use SWIFT for basic transaction processing needs, it is even more likely that the investment can be leveraged by other business groups within the organization.

J.P. Morgan is always thinking about efficiency and how to partner with clients to improve our services. Between new opportunities for simplified connectivity and the ever-increasing array of solutions, there is a match for many clients' needs in the secure, reliable, efficient processing of cash, securities, foreign exchange or supply chain management communications.

For more information on how your relationship can be expanded and improved with the communications reliability that SWIFT provides, contact your J.P. Morgan representative.

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