Automation of fund order processing may be reaching critical mass in Taiwan, as a rising number of domestic banks sign up to the platform operated by country’s central securities depository.
Taiwan Depository & Clearing Corp (TDCC) late last year rolled out a service for the automated order processing of offshore-managed funds sold in Taiwan. This was part of the local regulator’s push to centralise fund order processing; it effectively forced the issue, by making the service free for cross-border funds.
Three service providers – Brown Brothers Harriman (BBH), Calastone and Euroclear –signed up as partners to connect TDCC with their respective network of offshore fund managers.
Taiwan’s model has led to debate in the industry about whether it should be a template for other Asian markets to widen the adoption of fund automation. Fund automation benefits fund managers and custodians by reducing the risk of manual errors that might be introduced via the faxing of these orders for subscription, redemption, confirmation or settlement.
TDCC’s platform has gained significant traction considering the fact that it has been live for less than a year, says Sebastien Chaker, head of Asia at fund transaction network provider Calastone. He expects that 50% of cross-border fund order volume will be automated in the next 12 months.
The platform for offshore funds has seen a steady increase in processing fund subscription and redemption orders, according to TDCC figures. In October this year, it processed 37,377 subscription orders worth NTD2.06 billion ($70 million). This compares with 29,140 orders, worth $41 million, in November 2012, when the service was first launched.
“The approach TDCC has taken is very pragmatic,” says Chaker. “While they were building the order routing automation platform onshore in Taiwan, for the linkages with offshore fund managers and their respective transfer agencies they have chosen to outsource to service providers that already have such connections in place.”
That has enabled TDCC to reduce the time needed for Taiwanese distributors to connect with offshore fund managers and transfer agencies. In Taiwan, distributors that wish to send their subscription or redemption orders to the transfer agents of offshore funds electronically must process these orders on the TDCC platform.
Only distributors that send these orders via the Swift network get an exemption. Calastone has so far signed up three Taiwanese banks – Bank of Taipei, Far Eastern International Bank and Union Bank of Taiwan – via TDCC, connecting them to 32 offshore fund managers that offer funds in Taiwan.
BBH, meanwhile, has also been active in signing up distributor banks. It was the first service provider to go live with TDCC and has helped five banks to go live, including E. Sun, Shin Kong and Taiwan Cooperative.
These banks are now directly sending their order files directly from their own accounting system to fund providers such as AllianceBernstein, Baring Asset Management, Blackrock and Fidelity.
Many commercial banks in Asia do not yet see the urgency in spending money to automate a process that can be done by fax, which they can do without extra outlay. Eddie Fong, Asia-Pacific head of operations at JP Morgan Asset Management, is optimistic that the recent momentum in Taiwanese banks signing up to use TDCC will continue.
“To a large extent, governments taking a stance on enforcing the use of such financial infrastructure is key to fund automation success,” he says.
This seems to be borne out by Hong Kong’s experience, where the regulator has not sought to ‘encourage’ adoption of automation. The Hong Kong Monetary Authority launched a fund order routing service in 2009, but take-up by distributors has been lukewarm, with only five banks using the service.
In Europe, fund processing has long been highly automated. Some 80% of Luxembourg-domiciled Ucits fund orders were automated in the first six months of 2012, according to the European Fund and Asset Management Association.
* A feature on fund automation in Asia will appear in the November issue of AsianInvestor.