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Post-Trade Prosperity - One buy-side firm's experience FIXing its trade confirmation process

Published in Automated Trader Magazine Issue 33 Q2 2014

When many people think of Kansas, they tend to picture flat, rural landscapes and farmers -- in other words, hardly the sort of place you'd expect to find financial pioneers who are looking to change the nature of international trading processes. Scott Atwell, who looks after trading and connectivity for American Century Investments in Kansas City, tells Automated Trader's Adam Cox about the work he and other buy-side firms have been doing on post-trade processes and the benefits automation can bring.

Adam: Could you tell us about the work you do at American Century Investments and how you've been automating operations there.

Scott: I'm responsible for the technology side of our front office and middle office system. We have a proprietary order management system, so I'm responsible for what our portfolio managers use, for what our traders use, and then, after the execution of the trade, for the receipt, processing and delivery of the trade's post-trade activity. Not only to the brokers, but downstream to our accounting systems, to our custodians, into settlement; then the data that comes back from those entities.

Adam: I'll kick off with a broad question. What from your point of view are some of the key learning issues to be had on the post-trade side?

Scott: One of the key areas for us and several buy side firms is what I call the post-trade pre-settlement space. You know, we've automated the delivery of the order; we've been doing that for decades, now. And when we send an order to a broker, where we have multiple accounts, we're giving them a block. At the end of the day, when we're booking out the trade, we need to tell the broker which accounts and what the allocations are for those accounts. But the broker has to take each of those allocated accounts and they have to provide us back an official confirmation message for each account. That confirmation message has the financials spelled out in it, the fees, the charges, taxes, net money. It also has settlement information, settlement details, to form the official record of the trade. As the buy side, we need to archive and have available those confirms. We need to take that confirm and make sure that it matches up with our understanding and our recognition of the trade.

So we do a local match on that, and if that matches then we have to affirm the trade back. A lot of firms have been using FIX allocation messages to do the first part of that, delivering the FIX allocation. In fact, American Century was the first buy-side firm to use the FIX allocation message. We started using that in 1997. But it's only been this past year that firms have really been able to use the confirmation messaging part. So prior to that, confirmation either took place directly from the broker, PDFs that are attached to emails, or faxes that are delivered -- the paper route if you will, even if it's electronic paper. Or some were leveraging other services that are out there; there are vendors in that space to do that. For American Century, we never used any other services. On the non-US side, we were taking those non-US confirms directly from the brokers and then having someone in our middle office area look at our screen and their PDF to compare the numbers and, if they matched, hit a button. Then that initiated the rest of the booking and released it to all the downstream systems for post-trade processing. Then there are other buy-side firms that leveraged some vendor solutions that were out there. One of the vendor solutions was migrating all of the buy-side firms from an older system to a newer system, and created a deadline. So several of the buy-side firms have gotten together over a number of years, asking, 'Hey, could we automate the confirmation space?' There are different motivating factors for all of this, but the good thing is that we sort of all came together at the same time. We had maybe a dozen buy-side firms that really worked with the brokers and worked through what the process flow was. We agreed to it, and also how the messages should be constructed and populated.

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