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Game, Set, Match?

Omgeo is hoping that the demise of the GSTPA doesn't mean investment managers can do without central matching. But some on the buy side feel they are being asked to fix a process that isn't broken.

He says that the current economic environment, combined with the effectiveness of existing local-matching solutions and the high rate of same-day affirmations they offer, means that the seemingly cool reception to central matching could continue for some time.

""My impression right now is that local matching is good enough,"" says Katotakis. ""Central matching requires a radical shift in the way the industry is working today and right now the industry is not willing or ready to throw things out.""

However, he says that the idea of central matching is a good long-term industry goal that will eventually be embraced.

TRowe's Burdiek is not so sure. Burdiek, whose job is to act as a liaison between the business and IT sides of the firm in areas like back-office reconciliation, post-trade support and corporate actions, says there is just no business case for central matching.

""Our thoughts are that it is not going to improve anything,"" says Burdiek. ""There is no one that has been able to convince us of the business case of central matching.""

He says that TRowe Price, an investment manger handling $140 billion, currently uses Omgeo products, such as the Oasys/TradeMatch/NearMatch combination. Domestically, he says, the firm starts the process by using Macgregor's trading system. Then the block- and allocations-level details are sent to the broker who confirms both the trade on both levels. Once that's done, trade details are sent to the firm's custodian and, on an overnight basis, trade details are affirmed with the Depository Trust Company.

Internationally, TRowe, like MFS, employs an internal matching solution provided by One-Ten. The system, called Salerio, interfaces with Oasys Global.

Based on this system, Burdiek says the firm has attained a high next-day affirmation rate. ""We haven't been able to identify the benefits (of CTM) because we are at 90 percent already,"" he says.

However, John Panchery, vice president of systems and technology at the SIA, says there is definitely value in central matching. ""The bottom line is that even though the systems used for the confirm/affirm process have improved, today there is still no real-time interaction that takes place from execution to allocation to settlement in one process."" He adds that the benefits of CTM include automating instruction enrichment for standing-settlement instructions and real-time automated trade allocations.

Panchery says that the success of CTM will depend on Omgeo convincing investment managers of the benefits, while doing everything possible to make conversion financially painless. ""For the buy side to adopt this it's got to be a wash where it doesn't cost them any more than they are paying for the process today.""

""We at the SIA will be working with Omgeo and the buy side to document the incentives for change,"" says Panchery.

Burdiek says that Omgeo's desire to move all its customers onto the CTM by no longer upgrading its existing products could backfire. ""I am sure that Omgeo will force us over there (to CTM) but that could cause a revolt in the marketplace and force us to embrace another solution. I believe they need to be very careful so they don't ruin their image in the marketplace.""

But Adam Bryan, chief operating officer of Omgeo, says he has no intention of forcing firms off existing products until they are ready. The last thing he wants to do, he says, is to fracture the community of users and trading partners that Omgeo has built up over the years.

When talking about the goal of moving customers to the CTM, Bryan and Omgeo's Executive Managing Director Lee Cutrone use words like ""migration"" and ""evolution,"" as they try to emphasize that the company will be ""building bridges"" to allow customers to move ""at their own pace,"" while rejecting a ""big bang"" approach.

The focus on taking things slow doesn't mean that companies can avoid CTM forever. ""We will be moving the firm to CTM eventually,"" says Cutrone, ""but there is no date."" Asked if he felt the move would come in the next five years, Cutrone says, ""I'd like to believe it would happen in five years, but I don't know.""

Though Omgeo's existing products are prevalent in the marketplace, some find a way to do without them. Scott Atwell, manager of FIX trading and connectivity with investment manager American Century, says his firm does not use Oasys, preferring instead to agree on trade details with counter parties using the Financial Information Exchange protocol. Currently, he says, American Century sends 75 percent of all its domestic allocations via FIX to 30 brokers. ""That system works for us,"" says Atwell.

He does, however, think that matching is important. ""Even with electronic trading, you still need to do matching. Whether that happens centrally or is done on the sell side or the buy side doesn't matter. It could happen anywhere and probably will happen all different ways,"" says Atwell.

TRowe Price's Burdiek agrees that there are alternatives to CTM. ""Do you need Omgeo if you have internal matching and SwiftNet?""

TowerGroup's Lind says, ""I always thought if you had the messaging in place and the local tools to manage that information then this whole process could be affected though local matching.""

Lind adds, ""I think the whole market with GSTPA blown out asks the question of whether central matching is the only way forward and opens to door to a fractured approach with many alternatives.""


Q&A With Omgeo
Q: How many of your U.S. investment-manager clients are on the Oasys/TradeMatch combination?

A: To date 69 clients have adopted the Oasys/TradeMatch service.

Q: How many U.S. investment managers are in the Omgeo CTM pipeline?

A: Nearly half of the 10 or so Omgeo CTM investment managers (not all of the clients allow us to include them in PR initiatives) are U.S. based.

Q: How many U.S. investment managers are using Omgeo CTM for international trades?

A: All of the current U.S. Omgeo CTM investment managers will be using the service for international trading as we have the transitional central-matching solution (Oasys/TradeMatch) for U.S. domestic trading. We expect that most, if not all, of these clients will then transition their U.S. domestic trading to Omgeo CTM when it becomes available.

Q: What are the potential migration costs?

A: It costs approximately $20,000-$30,000 to implement Omgeo CTM. This includes a monthly base fee, API, consulting and integration services, installment of a lease line, etc.

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