Buy Side Among Targets for Sungard’s STN

NEW YORK--Sungard is parlaying its position as vendor to the buy side, sell side and everyone in between to address the internal and external realms of straight through processing. The company is bundling application packages for internal STP and integrating trade order management systems and counterparty connectivity via the Sungard Transaction Network (STN).

"We’re delivering the plumbing and infrastructure asset managers need to hook up to different applications. Trade order management systems, from Sungard and others, will be able to use the Sungard Transaction Network for integrated price discovery, order execution, settlement and reconciliation, all over a single pipe. Then, all that real-time information will update the investment management system," says Paul Schneider, CEO of Sungard Financial Networks.

The idea is to provide a single conduit to replace the variety of terminals investment managers have on their desks. There might be one for price discovery, one for market data, an Instinet terminal for electronic execution and so forth. Any information must then be entered into the order management system application and then perhaps one or two more for allocations and reconciliation. The one place all the data needs to be is the OMS, which the Sungard Transaction Network will feed.

Schneider sees as the typical client a "mid-tier" asset manager with between $500 million and $5 billion under management, 15 custodians and 25 brokers and a connection to the Depository Trust Co. for matching and affirmation. "We believe this type of manager is the biggest stopping point for T+1 on the buy side," he says. "They don’t have millions of dollars to invest to achieve straight through processing. Somebody needs to deliver them a turnkey solution." Sungard has firms managing $80 billion on the network as well.

Sungard has a connectivity module that is integrated with the application that the manager is already using. In the case of Advent, Moxy users get FIX modules installed on their machines that communicate with STN via a secure networking protocol. This relieves them of the need for the technical and operations staff who would sort out the connection protocols, scheduling with custodians and the idiosyncrasies between the FIX protocols of various brokers, Schneider says.

For example, if a broker takes a new release of software, normally all the clients have to be notified and scheduled for testing. The Sungard Transaction Network’s intelligent hub stores the rules for all the connections so the clients do not need to get involved.

Schneider says client requests have been straightforward. "Asset managers say to us: ‘But really, at the end of the day, I send it to you and it happens, right?’ Whether it be our matching engine or if we are the conduit to GSTPA, all they really care about is that they have just one connection," he says. "And we actually have managers on the network today who are getting affirms/confirms back in an hour after placing baskets of trades."

"The strategy is to take our 400 different applications and package them together as ‘integrated solutions,’ " Schneider adds. For instance, Sungard’s worldwide fund administration package includes pre-integrated investment accounting, shareholder accounting, order management, compliance, etc., bundled together as an integrated solution to solve the internal straight through processing problem. Similar packages are offered to brokers, banks and custodians. The Sungard Transaction Network --and the $50 million that Sungard spends on networking infrastructure each year--addresses the external STP problem by connecting all the counterparties.

"This segment will remain fragmented," says Schneider. "Every asset manager has to fundamentally think and behave differently; that is what makes the market. They each have different opinions about what they think is important. As a result, no one vendor is going to come up with the single silver bullet. It would be pompous of Sungard to believe that we will have all the asset managers on our systems. To make this work, we have to deal with the other vendors out there."

The Sungard Transaction Network currently performs tasks such as indications, order execution and reconciliation. Only allocation routing, bank notification and the actual matching pieces are left to develop. "Allocation data is the key to the kingdom," explains Schneider. "Having that data all filled out properly drives the remainder of the process."

For this reason, he says, STN has begun routing allocations, although the number of firms able to use that service has been limited thus far. However, this month’s launch of Advent’s FIX allocation support is expected to greatly increase use of STN’s allocation routing service. Schneider says STN plans to partner with other primary OMS vendors as well, with the purpose of gathering additional allocations.

George Ries, senior vice president of Sungard Financial Networks, says, "The allocation is the key. When we create one as a complete message with all the required fields filled out, you’re guaranteed to capture all of the data. The hit ratio will increase greatly, and we believe matching will be in the 90 percent area, with very few fixes that need to be made."

The Sungard Transaction Network is currently connected to nearly 600 buy-side institutions and 270 broker/dealers as well as the custodial marketplace.

Meanwhile, Sungard Financial Networks is developing a central matching utility for real-time securities processing and next-day settlement similar to the more publicized solutions from the Global Straight Through Processing Association and Omgeo.

The matching engine, which represents the final piece in Sungard’s T+1 solution, will be ready for production in the fourth quarter. A confirmation delivery mechanism will go into production in the third quarter. The other pieces, including the order allocation component, are already live.

Schneider says Sungard will attempt to work closely with other T+1 initiatives, such as Omgeo and GSTPA, observing that "all the players in this space are going to have to be interoperable. We see ourselves as an onramp to the GSTPA for international order flow." However, he admits he is still a bit unclear on what exactly is meant by interoperability: "We’d like to have that defined a bit more for us."

Ries believes that while large firms have done a good job of recognizing the need to initiate T+1 projects, small- and mid-sized firms have yet to realize the importance of focusing on this issue at such an early stage. He feels this presents an opportunity for Sungard: "Because we’re already embedded in this space, we’re not forcing any new software on them or forcing them to change their environment. We’ll be a very palatable solution for these guys to solve this problem, even if they don’t realize yet that it is a problem."