SunGard Dismisses Conflict-of-Interest Concerns About GSTPA Deal

SunGard executives say there is no reason for conflict-of-interest concerns as a result of the company's recently announced plans to become facilities manager for the GSTPA's Transaction-Flow Manager but add that any further development of the relationship will have to consider such issues.

"I can confirm that there are other conversations going on with the GSTPA," says Paul Schneider, chief executive officer of SunGard Financial Networks. "There is potential for SunGard and the GSTPA to do more together. However, any further involvement beyond FM (facilities management) would require more examination. What people look at as conflict of interest would have to be resolved."

Announcement of the deal, which came last week at the Securities Industry Association's Operations Conference in California, was received with some reservation by industry insiders because SunGard has made public its plans to launch a rival virtual-matching utility. SunGard officials say they filed a CA-1 application with the Securities and Exchange Commission last week, which would allow the company to provide matching services without registering as a clearing agency, and will launch a matching service by the end of July.

Although it is estimated that the CA-1 will spend between six to nine months at the SEC before possible approval, SunGard's July launch will feature an interim matching service until its request is granted.

Schneider says that the interim service will see SunGard collecting Omgeo-processed confirms from broker/dealers and matching them with an investment-manager's allocations. SunGard will then send the matched affirms back to the broker/dealer. Until its CA-1 is granted, SunGard must keep Omgeo in the post-trade loop to ensure the trade is legally binding and DTC eligible. Once the CA-1 is granted, SunGard will be able to collect confirmations directly from broker/dealers.

"From an investment manager's point of view there will be no change between what we can do for them in July and what we will be able to do for them when the CA-1 is approved," says Schneider.

Also, Schneider says that SunGard will offer a front-end application that will allow firms to access any and all VMUs, not just SunGard's. He says that such an approach means the client no longer has to worry about when and if VMUs are able to interoperate. "Our advantage in servicing our clients from a best-of-breed approach means that no matter which VMU is matching you only need one interface, so it doesn't matter how long it takes them to interoperate."

Interoperability, a sensitive topic between the GSTPA and Omgeo, is also a sensitive topic with SunGard. Schneider says that the lack of information flowing from Omgeo on interoperability requirements and specifications has been frustrating. In the SEC's first VMU approval, granting Omgeo a license to operate, it laid out the rules of interoperability by requiring that once a vendor was grated the exemption, it had 120 days to establish an interoperability plan with existing CA-1 holders, and then another 90 days to execute on that plan.

Schneider, however, says that interoperability is such a huge part of getting into the VMU game that, under the current setup, vendors have to make such a decision without all the facts. "We feel that it is unfair for people trying to become VMUs to understand the costs involved without having the definitions or plans for interoperability. Without interoperability you can't become a VMU but first you have to file the CA-1 to see if it's worth the investment," he says.

"Omgeo doesn't want to discuss interoperability," Schneider continues. "They are following the letter of the law until the CA-1 is approved. Are we displeased with that? Obviously, but they are within their rights to do so."

Lee Cutrone, executive managing director with Omgeo, says that he is not aware of any attempts on the part of SunGard to have interoperability talks but suggests that SunGard approach GSTPA if it needs such information. "It would seem natural for them to go to their new partner, GSTPA," he says.

Cutrone says that Omgeo, the GSTPA and the SIA agreed last week to publish the results of the interoperability discussions, which should come out sometime in the next two weeks.

"We could have a discussion with (SunGard) at some point," says Cutrone, who cautions that the more parties involved, the more difficult interoperability discussions become. "We are not going to get into a position of negotiating with four different vendors just because they say they are going to go into this space."

One of the more sensitive issues around the SunGard/GSTPA facilities-management deal, which will see SunGard becoming a GSTPA stockholder, is the possibility that SunGard executives might serve on the GSTPA board, an eventuality which C. Steven Crosby, special advisor to the GSTPA board, could not rule out.

Schneider, however, says that having a few representatives on a 19-member board does not amount to control of the company. "If we had a board seat, it would only be one out of 30, that doesn't give the ability to derive any particular direction or controlling interest."

The facilities-management deal, headed up by Rick Toler, president of SunGard eSourcing, will cover IT-infrastructure, physical facilities, processing capacity, storage, network support, and database-management support. The deal, says Toler, covers everything down the application-layer infrastructure.

Confirming what was said by GSTPA Chief Executive Officer Jurgen Marziniak, Toler says that, to his knowledge, there was no formal request for proposal which SunGard responded to. Rather, he says, there was a less formal request for information. SunGard then sent a small team to Zurich to see the TFM firsthand and assess what would be required to support it. That turned out to be IBM-mainframe technology, some Sun technology and NT environments and interfaces.

SunGard is currently porting GSTPA applications onto its environment and will begin initial testing in the next few says. The GSTPA most recently announced that the TFM would go live in September, a date that has been confirmed by SunGard.

While SunGard is certainly pleased to have the business, "It isn't something that requires us to turn our organization upside down," adds Toler.

Larry Tabb, vice president of the securities and investment practice with TowerGroup, says he sees the events of the last few weeks moving towards one conclusion. "(The GSTPA) lost a tremendous amount of momentum in the last few months and now SunGard is the only possible hope of resurrecting it. Eventually, I think SunGard will end up buying the GSTPA."