The Investment Fund industry is proving to be one of the last remaining bastions to technology
in the financial services market, with buy side firms at the core of the problem. The Buy side always appears resistant to
change especially if it encompasses cost or investment in technology. The attitude has always been that if the sell side are
the overall beneficiaries, they should be the ones to bear the cost. With the power of the order with the buy side it’s
inevitable that the sell side will accede on most occasions. However, when it comes down to generic industry projects to drive
out the cost and inefficiencies in the market for the overall benefit of the investing client, surely a more mutual approach
to cost should take place! It is therefore worth noting how well EMXCO has performed in establishing their business in a market
that frowns on innovation and technology investment.
EMXCO provide the messaging standards that connect the buy and sell side for Investment
Funds. They fall short however of providing a settlement capability for investment funds. EMXCO supply the messaging standard
for the initial order and execution. Their messages are based on FIX, which has been a vital first step in trying to bring
about overall market efficiency in this erstwhile paper laden cost ridden area of the financial services market.
The investment funds market including all its range of products can be described as a market
stuck in a time warp! A situation created by ignorance, protectionism and greed that has objectives more to do with the retention
of profits ,bonuses and the status quo for the services supplier. The result is clients are paying well over the odds for
dealing and operational costs. EMXCO has tackled this thorny end of the market with careful planning, charm and a clever business
plan that is focussed on winning the war rather than the odd skirmish.
Investment funds and trusts suffer from the Dickensian attitudes that prevail in the buy
side of the industry. It has been a long struggle to develop any system, to bring much needed efficiencies in this product.
You would think systems solutions to 20th century processes, had long been delivered, but not so, as this is the
last bastion of gross inefficiency and cost.
EMXCO has cleverly structured their pricing policy for the sell side to cover the inability
of the buy side to foresee a future that includes STP (Straight through Processing) and the ensuing cost and risk reduction.
Although I am sure the buy side will wish to entertain cost benefits when they accrue, as they are not stupid just reluctant
to invest in change. The buy side firms always expect the sell side to pick up the tab but always glad to accept any benefit
that’s going without making the necessary investment to achieve it, a kind of industry ‘harpy’ living off
the investment of others.
This short sightedness by the buy side is a historical burden for the market, that companies
like EMXCO have to live with, when developing a business designed to eventually bring forth STP, in a industry that seems
happy to continue with paper and a operational cost that is between £50 to £150 per bargain, depending on domestic or international.
In an industry that has for decades been making strides to reduce operational costs this anomaly is unacceptable.
EMXCO has had a very rough birth and from the beginning was not accepted in some quarters
as a company offering opportunities but more as one of threat. Any company entering a business that includes driving out inefficiencies
will be seen as a threat. The founding investors in EMXCO had to have deep pockets as well as nerve and patience to stick
with the company whilst it began to make an impact and turn the ship around. Only recently has EMXCO been achieving the success
their efforts richly deserve. This success has been manifested into profits, message volume and a rapidly expanding user base.
It’s no wonder that Euroclear has now chosen the best time to buy EMXCO.
EMXCO has got the ball rolling and it’s now possible for Euroclear to take it further
up field and build a settlement capability for investment funds. The further investment by Euroclear in EMXCO is just what
was required at the right time for the industry. EMXCO was a concept based on a CREST idea and it was inevitable that at some
point there would be a meeting of technologies. In my view CREST and EMXCO are therefore a perfect fit of technologies and
there should be a fast acceleration towards a settlement engine for investment fund products.
There is still the issue of how to engage the buy side in investing in technology to take
part in the new STP structure for investment funds, but hopefully if they can finally see the end benefits for the industry
and themselves they will take a more pro active role and a share of the development costs.
Max Wright the CEO of EMXCO can be proud of his team in getting the company to this stage
of its development. It has not been an easy ride but the future looks extremely bright under the Euroclear umbrella, where
the industry will come to enjoy the final ellimination of costs and operational infrastructure only valued by Uriah Heap!
By Gary Wright
