Members of the newly formed Taiwan Fund Operation Group will hold their first meeting in early March to establish best practices for automating cross border mutual fund orders and confirmations using SWIFT message protocols. Members of the group include some of the most active distributors in the country such as Chinatrust Commercial Bank, Taishin Bank and First Commercial Bank, as well as large fund houses such as Fidelity, Invesco, Schroders and Alliance Capital.
The SWIFT message system allows distributors to place orders and receive confirmations electronically, making it possible to confirm customer trades within 24 hours and without manual processing. At present, this process is conducted using faxes and can take between three and five days.
Citibank has been using the automated system from its distribution hub in Singapore since October last year, processing trades for fund products offered by Fidelity and Schroders. The bank is hoping to have another five fund houses online by the end of the year. Citibank's hub is processing orders from investors based in Singapore and Taiwan, and is planning to add Hong Kong and Indian markets soon.
Ian Buckley, regional director for the securities arm of SWIFT, says Taiwan is the ideal market for mutual fund automation. "There is a lot of cross border fund activity in Taiwan and yet most orders and confirmations are handled by fax and there is a high error rate," says Buckley. "By using SWIFT messages distributors can send orders directly to the transfer agents which are often based in Europe, in places like Luxembourg, and receive an acknowledgement of the order in seconds."
The job of convincing fund managers and distributors to use the SWIFT platform hasn't been easy, says Buckley. "Quite often we find people think that their systems are already automated but in most cases they are only looking at what happens in their own department. They don't look further down the processing chain to see how much rekeying of data occurs."
Buckley says the challenge is to prove to distributors and fund managers that automation will save time and money. "Our estimate is that it costs Asian-based fund managers between 1 billion and 1.5 billion euros per year to process orders and rectify errors. People realise that automation is the way of the future, and that fax communication can't continue forever, but there is reluctance to be the first to try something new."
The Taiwan industry group is unique in that it brings together a collection of staunch competitors, says Eric Chua of SWIFT who led the Citibank implementation last year. "The institutions in the group compete with each other for market share but they are prepared to come together to address issues in the back office," says Chua. He says the banks within the group have been identified by offshore fund managers as the biggest distributors of their product in Taiwan. "The plan is to expand the group as more distributors and fund managers are identified."
SWIFT plans to roll out new messages later this year to deal with more sophisticated fund processes such as NAV reporting. "Being able to receive price reporting in a standardised electronic format will be a big win for distributors," says Buckley. Other messages to be rolled out this year include statements of holdings, statements of transactions and cash flow reporting. "These messages will help fund managers to communicate with their transfer agents," says Buckley.
