New STP system goes live at Merrill Lynch Mercury Asset Management

-ISID completes system delivery-

  Information Services International - Dentsu Ltd. (ISID, headquartered in Nakano, Tokyo; Jutaro Takinami, CEO; ¥743 million in capital) completed delivery of its new STP system [1] to Merrill Lynch Mercury Asset Management. (MLMAM hereafter; headquartered in Tokyo) at the end of Oct. 1999. The STP system integrates the matching engine "Gemini" with "Messenger" a messaging middleware developed by the US firm, Mercator Software. (former Braid Systems) [2]

  Several factors were behind MLMAM's decision to adopt the STP system. First, the company faced a need to handle the growing transaction volume fueled by the boom in mutual funds and an expanding size of the assets managed, as well as a need to cut the associated back-office costs and operational risk. Additionally, trends in the marketplace demanded that it gear up to handle shortened settlement cycles and prepare for the shift to T+1 settlement practices.[3] Adapting with these trends would require that the middleware assume a crucial role in automating transaction processes and maintaining seamless connections between the company's internal systems as well as with external networks.

  With the implementation of the STP system, MLMAM achieved an automation of whole trade process of foreign securities from deal capture to settlement including trade matching.

  Previously, the flow of foreign securities transaction processing involved several manual routines, beginning with the receipt of trade data by telex. This data had to be manually matched with trade confirmations, and input by hand into the company's back-office systems. Trade instructions to trust banks, moreover, were manually sent by fax. Needless to say, this approach could not handle the heightened back-office workload and settlement risk stemming from the growth in transaction volume.

  The STP system, however, is capable of electronically receiving trade data and confirmations through Messenger, and automatically matches them with its Gemini matching engine. Trade data are obtained from overseas front systems whereas confirmations are automatically captured from Oasys Global.[4] After the matching process, the trade data are automatically fed into the company's back-office systems, and trade instructions are automatically faxed out to trust banks.

  The adoption of the STP system for its foreign securities trading operations has enabled MLMAM to drastically cut the amount of manual labor involved. That achievement in turn has significantly reduced the associated back-office costs, risks and processing time. In addition, the utilization of a middleware for the implementation of new STP system ensures that the company will be flexibly prepared for future changes now anticipated in securities market infrastructure and messaging standards.

  MLMAM chose ISID's STP solution in view of the fact that the Messenger as a middleware provides an architecture for true Straight Through Processing with business logic on it. Conventional middleware tend to be limited primarily to the tasks of simple format conversion and message routing, and as such, are usually not equipped to handle complex business logic even if they can establish system interconnections. Messenger, however, has been designed for integration of the business logic required for the generation and management of messages on a divisional basis, as well as for confirmations and the correction of data errors. In addition, it features strict access controls that allow only users with proper authorization to process or view a given message.

  The ability to automate the post-trade matching process was yet another reason for the company's choice. ISID's STP system is equipped with the Gemini matching engine. Gemini is capable of automated matching operations, but more importantly, it also has the ability to launch response events based on the results of the matching process. In other words, it has the flexibility to decide which message should be issued depending on whether the trade data match up or not. This ability to launch events in response to the outcome of foregoing steps has made STP a reality for the entire transaction process from trade to settlement, including the matching stage.

•The workload involved in mutual fund operation has been reduced to one-tenth its former level.

•The workload involved in pension fund operation has been reduced to one-half its former level.

  Straight Through Processing has become a major focus of attention in the market. The securities industry organizations FIX Japan [5] and ISITC Japan [5] have stepped up their discussions of STP in relation to the formulation of policies on market practice. It is anticipated that market demand for middleware-driven STP systems will intensify in tandem with these discussions in the years ahead.

  ISID currently aims to sell five additional sets of its STP system within the current business year.
        

[Notes]

*1 Straight through processing (STP):

Straight Through Processing is a concept for the automation of business processes that seeks to streamline operational efficiency and lower settlement risk by integrating the tasks of reciprocal data conversion between financial institutions as well as the inter-system message flow within individual institutions.

*2 Mercator Software Corp.:

A leading provider of enterprise application integration (EAI) solutions with its flagship product Mercator. The company bought the leading financial STP solutions company, Braid, in March 1999, and has gained distinction as the financial unit of Mercator.

*3 T+1 (T plus one):

Refers to the settlement of a transaction one business day after the trade date. Currently, most settlement systems rely on T+3 settlements (i.e., settlement of the transaction three business days after the trade date). The US is now leading efforts to adopt T+1 settlement practices by 2002 as a means of reducing settlement risk.

*4  OASYS GLOBAL:

A network service provided by Thomson ESG for the exchange of securities confirmations. Widely used in North America and Europe.

*5 FIX Japan, ISITC Japan:

As organizations of leading financial institutions in the securities market, FIX and ISITC were set up with the goal of promoting the international standardization of electronic message formats for the securities industry. ISITC has concentrated its work on messages for securities settlements, whereas FIX has been concerned chiefly with messages for securities trading. The Japanese communities of these two organizations (FIX Japan and ISITC Japan) were formed in FY 1998, and are now engaged in deliberating and making recommendations with respect to, market practice and the topic of message format standardization.