Euroclear UK & Ireland Investment funds service The UK’s fi rst automated funds processing solution Euroclear UK & Ireland investment funds service Euroclear – March 2011 1 Euroclear UK & Ireland investment funds service Combining the strengths of the CREST settlement system and the EMX Message System to automate the funds industry The problems of processing fund transactions are well known. Processes are often manual, costs are unacceptably high, and the date of settlement is often unclear. This lack of standardisation is restricting potential growth in trading volumes. Euroclear UK & Ireland is addressing these time-consuming, ineffi cient and unnecessarily expensive processes. Developed in partnership with 65 industry professionals from 39 funds organisations, our investment funds service provides a single point of input and full automation for the funds industry. Bringing automation to manual processing The Euroclear UK & Ireland investment funds service is the fi rst integrated, electronic order routing and settlement infrastructure for UK fund transactions. The solution: • provides settlement within our CREST system on T+4 1 basis, helping you to better realise your cash management potential • allows you and your clients to monitor fund positions as they settle throughout the day and reconcile in real time. You can also handle any exceptions via the CREST system as they occur • enables paperless transfers within the CREST system and automates corporate action processes For the fi rst time players can benefi t from the same proven effi ciency and reliability of systems used for other security types administered in the UK and Ireland. This allows you to take advantage of the equivalent economies of scale this provides. 1 Transfer of legal title takes place outside of Euroclear UK & Ireland’s CREST system, when the legal register is updated. “Euroclear UK & Ireland funds settlement is ushering the industry into a more cohesive, rationalised and cost- effi cient era.” Andrew Butcher, COO at Charles Stanley Euroclear UK & Ireland investment funds service 2 Euroclear – March 2011 How the service works 1. Subscriptions/redemptions 1. A retail client places an order with his IFA to subscribe to or redeem units in a fund. 2. The distributor routes the order either to the EMX Message System or via other methods to the fund manager. 3. The EMX Message System automatically routes the order to the fund manager (product provider). The fund manager completes the order by sending an electronic contract note to the distributor. 4. Settlement instructions are sent to the CREST system, either bilaterally or automatically via the EMX Message System direct input option. 5. Euroclear UK & Ireland processes the instructions (both the cash and unit aspects) and electronically confi rms the details of the matched transaction with the fund manager and the distributor. 6. On Intended Settlement Date (ISD), Euroclear UK & Ireland debits and credits the distributor’s and fund manager’s securities and cash accounts. It reports the settled transaction to the fund manager and the distributor. The distributor then informs the retail client. The movement of securities in the CREST system is made simultaneously against the movement of cash on the books at the settlement banks. “A major step forward in process automation and the mitigation of operational and credit risk.” Peter Fleming, Head of Investment Administration at Skandia CREST settlement system Product provider/ third-party administrator EMX Message System Platform/ Distributor Settlement instructions electronic contract note order Settlement instruction Reconciliation Corporate action processing order Optional direct input order Settlement instruction Reconciliation IFA Retail client Euroclear UK & Ireland investment funds service Euroclear – March 2011 3 7. A Register Update Request (RUR) is sent to the fund manager. Registrars and fund managers are allowed a two-hour period for RUR acceptance. 8. Transaction status reports, open and settled balances and open and settled transaction reports are available in real time via the CREST system. This allows distributors to plan present and future cash requirements and to handle any exceptions. 2. Reconciliations/account holdings The accounts held in the CREST system refl ect the balances held by the fund manager. Distributors’ holdings are held in member accounts which are reconciled nightly with fund managers. At any time during the operational day, real time balances of your entire holdings are available. Regulatory distributor asset reconciliation obligations, as laid down by the FSA, can be fulfi lled by using the balances held within the CREST system. CREST system Member account 25,000 6,500 6,500 8,500 4,000 19,0005,000 Member account Member account BAC M&G BNY BNY BNYCAZ CAZM&G 25,000 5,000 6,500 8,500 4,0006,500 19,000 Member accounts UÊÀi>Ìi`ÊLÞÊÌiÊ«>ÀÌV«>Ì UÊ,iviVÌi`ÊÊÌiÊÀi}ÃÌiÀ ,-/ÊiLiÀÊ*>ÀÌV«>Ì® Member PART ID: 00123 M&G BNY CAZ A B A B B C C Euroclear UK & Ireland investment funds service 4 Euroclear – March 2011 3. Corporate actions • Income distributions will be credited to your CREST member account 2 . Fund managers can credit securities and cash distributions directly to the distributor’s member accounts. Distributors and fund managers can monitor their distributions via the CREST system. • Securities movements made as a result of fund mergers and wind-ups are applied to distributors’ accounts on the merger date of the event. 4. Transfers • Unit movements between CREST member accounts as the result of re-registrations are performed by matching distributor instructions. Fund manager registrar updates are acknowledged as with subscriptions and redemptions. • Switches and conversions are actioned on CREST member accounts as the result of fund manager or matched distributor instructions. 2 All securities in the CREST system are held in member accounts within a Euroclear UK & Ireland membership. Euroclear UK & Ireland investment funds service Euroclear – March 2011 5 Benefits for distributors • Reduced risk and errors – our STP service automates funds processing from order routing through to settlement. No manual intervention is required. • Settlement within 4 business days – compared with up to 10 business days today. There is also a much greater chance of settlement on ISD because we can match instructions from the fund manager and distributor from or after order confi rmation. • Get a real-time view on your funds holdings – benefi t from up-to-date fund balances based on processed transactions at Euroclear UK & Ireland which are reconciled with the fund register on a daily basis. This reduces your operational risk and helps you to provide your clients with improved accounting services. • Manage your cash fl ow more easily and reduce funding costs – our solution credits payment into your CREST account on ISD. Cash settlement is also likely to happen earlier on ISD, because our system processes most settlements between 06:00 and 08:00. In addition, our reports make it easier to forecast your future cash requirements and meet your funding obligations. • Uses existing functionality – you can continue to use the same formats and mechanisms you use for the EMX Message System and other Euroclear UK & Ireland asset class business. An ISO interface can also be used for transaction input, reconciliation and corporate action processing. This allows you to expand your funds business with minimal development costs. • Increased back-offi ce effi ciency – automation means that delays associated with faxing and mailing documentation are eliminated. Information can be accessed quickly and easily, resulting in an immediate and substantial reduction in manual workload and its associated costs. Real-time reporting also lowers the number of processing-related queries. • True exception processing of unmatched transactions and reconciliation failures – increases effi ciency and signifi cantly reduces administrative workload. Fewer exceptions should be experienced due to settlement matching and resource management. • Transparency of order fl ow and settlement process with full audit trail – you can keep a full transaction history and record of activity, allowing you to recall transactions and balances quickly and easily. “Euroclear UK & Ireland funds settlement means that we will be able to settle our trades in a standard four-day period, only one day more than for equities. It’s a guarantee for us. Everyone knows when they will be paid and we won’t have any problems with cheques getting lost in the post.” Shirley Mansour, Head of IT and Settlements at Cardale Asset Management Limited Euroclear UK & Ireland investment funds service 6 Euroclear – March 2011 • Paperless transfers – once funds are held in the CREST system, paperless transfers can take place via the matching of free of payment instructions. Fund providers are able to acknowledge the transfer and update the register within two hours of settlement. • A range of corporate action services – reducing processing time and increasing effi ciency (see page 4 for more details). Benefits for product providers/third party administrators • Improved inventory management – our reports allow you to forecast your future cash requirements and meet your obligations. Cash settlement on ISD is likely to happen between 06:00 and 08:00, enabling you to receive cash earlier in the day. • Fully automated cash settlement of funds subscriptions and redemptions – allows you to automatically provide the settlement and reconciliation of your fund holdings across a large distributor base. • Reduce your manual workload – STP allows you to automate the settlement and reconciliation aspect of your operations. This will supersede fax, phone and other manual methods of reporting settlement status to your clients. • Complete scalability – increased order volumes do not mean increased settlement costs. • Improved settlement effi ciency – by matching the orders provided by both distributor and product provider ahead of settlement date, settlement problems and failures are easier to handle and less likely to occur. Transparent exceptions handling also allows you to handle fails more effi ciently. • Dramatic reduction in counterparty risk – Any cash movements made across the cash memorandum accounts within Euroclear UK & Ireland are simultaneously moved in the Bank of England between the accounts of the settlement banks involved. Finality of cash settlement is therefore achieved on settlement of the transaction in Euroclear UK & Ireland. • Paperless transfers – once funds are held in our system, paperless transfers can take place via the matching of free of payment deliveries. Fund providers are able to acknowledge the transfer and update the register within two hours of settlement. Euroclear UK & Ireland investment funds service Euroclear – March 2011 7 Tariff Funds settlement is charged on a transactional basis only, so you only pay for what you use. The charge covers the input (set up), matching and cash and securities settlement where applicable. It is made to both the distributor and the fund manager. Communications charges also apply. For a full list of the communications charges involved, please see the Euroclear UK & Ireland Tariff document, available at www.euroclear.co.uk > Services > Tariff For more detailed information, a guideline to funds settlement pricing can be found at www.euroclear.co.uk > Services > Funds settlement No. of transactions / month Fee <= 5,000 £0.80 5,001 – 10,000 £0.60 10,001 – 15,000 £0.40 15,001 – 20,000 £0.20 Each additional transaction £0.10 Euroclear UK & Ireland investment funds service 8 Euroclear – March 2011 A global funds processing solution for Europe The Euroclear UK & Ireland investment funds service is another step towards fulfi lling our ultimate vision of a pan-European order routing, asset servicing and settlement solution for the funds industry. When completed, we will be able to offer full STP between the Euroclear group CSDs, covering all aspects of the funds life cycle. To achieve this, Euroclear has launched an automated link between Fundsettle International, Euroclear Bank’s platform for automated cross-border fund processing, and the EMX Message System. Euroclear has also introduced a second link from the EMX Message System to FundSettle International for cross-border funds. This will provide users of the EMX Message System with expanded access to the cross-border market. An important component of this initiative will be to offer clients a choice of message formats used to communicate transaction information. Clients will have the choice of using FIX (the UK standard today) or ISO standards (a more universal standard). This syntax-neutral solution will allow clients to automatically route and settle fund transactions without needing to change their existing communications infrastructure. By developing further interoperability between the existing systems, the need for new investment will be minimised and clients will be able to benefi t in the short and medium term. Importantly, clients will be able to pick and choose the services they want to use. For example, a client could continue to use the EMX Message System for its order routing but not make use of the settlement and asset servicing capabilities offered by Euroclear UK & Ireland. In addition, clients will be able to access the funds of one market or all of the markets covered by Euroclear. “An unprecedented opportunity to harmonise unit trust settlement with equity settlement.” Judy Price, COO at Rensburg Sheppards [...]... Demand Trialling +44 (0)8459 645 648 (option 5) uk- ondemand @euroclear. com A complete list of contacts can be found at www .euroclear. co .uk > Contact 10 Euroclear – March 2011 Euroclear UK & Ireland investment funds service Notes Euroclear – March 2011 11 Euroclear UK & Ireland investment funds service Notes 12 Euroclear – March 2011 Euroclear, owner of Fundsettle International and the EMX Message System,.. .Euroclear UK & Ireland investment funds service Further information A wide range of documents can be found at www .euroclear. co .uk > Services > Funds settlement, including: • • • • Euroclear UK & Ireland funds settlement white book Cash settlement of funds trades by means of a trade feed from EMXCo Definition of market practice for settlement of UK funds A guideline to funds settlement pricing Euroclear. .. also be useful: Euroclear UK & Ireland investment funds service Andrew Rudd +44 (0)20 7849 0053 andrew.rudd @euroclear. com EMX Message System Client Relationship +44 (0)1279 858 333 UK Client Contact Centre +44 (0)8459 645 648 client _service_ london @euroclear Client Data Management +44 (0)20 7849 0997 uk- membership @euroclear. com Training Peter Caldwell +44 (0)20 7849 0031 peter.caldwell @euroclear. com On... burdens.” © 2011 Euroclear UK & Ireland Limited is incorporated in England and Wales under registered number 2878738, with registered address at 33 Cannon Street, London EC4M 5SB, United Kingdom – Tel: +44 (0)20 7849 0000 – www euroclear. co .uk – Euroclear UK & Ireland Limited is the operator of the CREST settlement system – Euroclear is the marketing name for the Euroclear System, Euroclear plc, Euroclear. .. valuation, reconciliation and re-registration of unitised funds The EMX Message System is Europe’s leading funds messaging platform and routed over 37 million messages in 2010 Use of the EMX Message System for purchase, sale, valuation and reconciliation messages is free to distributors Euroclear – March 2011 9 Euroclear UK & Ireland investment funds service Contact us To find out more, please contact your... Euroclear, owner of Fundsettle International and the EMX Message System, has been at the forefront of the effort to automate and standardise the European investment funds processing landscape By year end 2009, Euroclear UK & Ireland will provide the UK investment fund industry with its first automated settlement solution to reflect cash and fund unit movements in notional client accounts In partnership... trade feed from EMXCo Definition of market practice for settlement of UK funds A guideline to funds settlement pricing Euroclear UK & Ireland operates CREST, one of the largest and most technically advanced settlement systems in the world It offers real-time settlement for Irish, UK, Jersey, Isle of Man, Guernsey and international securities We process around 1.6 million transactions per day Each day securities... Ireland Limited is the operator of the CREST settlement system – Euroclear is the marketing name for the Euroclear System, Euroclear plc, Euroclear SA/NV and their affiliates www .euroclear. com www .euroclear. com MA0437 ©2009 Funds Europe . www .euroclear. co .uk > Contact Euroclear UK & Ireland investment funds service Euroclear – March 2011 11 Notes Euroclear UK & Ireland investment funds service 12. Euroclear UK & Ireland Investment funds service The UK s fi rst automated funds processing solution Euroclear UK & Ireland investment funds service Euroclear