Like most firms in the industry, Legal & General Investment Management (LGIM) have been managing to regulations like CSDR and are preparing for the industry’s move to US T+1. To do this, they’ve made improving settlement efficiencies one of their top priorities.
Luckily, DTCC’s Institutional Trade Processing (ITP) has been there to help. The latest podcast in our ITP Podcast Series features DTCC’s Matt Johnson, Director, ITP Industry Relations and Strategic Initiatives, joined by Dan Morecroft, Onboarding Manager at Legal & General Investment Management and Jan Coughlan, Co-head of ALERT® Product Management, DTCC discussing the importance of well-maintained SSIs in facilitating timely and accurate trade settlement and preventing trade failure. Listen now to hear how LGIM was able to improve their settlement efficiencies with ALERT.
Related: Understanding CSDR
Related: Helping Clients Meet Regulatory Challenges
Transcript:
Matt Johnson
Hello and welcome to the latest Institutional Trade Processing podcast from DTCC. For those that don't know me, I'm Matt Johnson, part of DTCC's Institutional Trade Processing team based in London. We have CSDR settlement discipline regime now being live for well over a year and we've also seen the settlement rate across European markets drop since 2019 to present day. So many conversations are now focused on how to improve settlement efficiencies in securities markets. Of course, the US move to T + 1 is just around the corner. There's also the possibility of the UK and Europe moving to T + 1 in the next few years. The theme of today's discussion will focus on the importance of SSIs and how they help facilitate timely and accurate settlement as well as how well-maintained SSIs help reduce trade failure. I'm very happy to be joined today by one of DTCC's prominent by side clients as well as one of my DTCC colleagues. So let me introduce Dan Morecroft Onboarding Manager at Legal and General Investment Management and Jan Coughlan, Co-head of the ALERT® products at DTCC. So first and foremost, how are you both?
Dan Morecroft
Very well, thank you, Matt. How are you?
Matt Johnson
I'm not too bad. Thank you. Glad to have you guys on the call today. And Jan, all good on your side.
Jan Coughlan
Yep, very good. Thank you.
Matt Johnson
Looking forward to our discussion today. I wanted to start with you Dan, being one of our prominent buy-side clients. Dan, tell me how long L&G have been on ALERT and why did you make that decision to move?
Dan Morecroft
So L&G have been using ALERT since 2015 and honestly, we haven't looked back since. The team had a very, very manual process previously whereby, before we had ALERT, we would have to take our SSIs from our internal database. We would then need to download these, and these would then need to be emailed to our sales side partners. Of course, the challenge with that particular model was that for one, it's manual. Secondly, we have a pipeline of new funds that are coming down on a regular basis. So those documents, those emails quickly became out of date. Then of course you've got your day two markets at custody, which as we all know, they sort of tend to drip feed in after your initial go live. Then what I'd call your typical SSI changes, which are initiated from the custodians where they change the agents etc. The other challenge with sending out SSIs via that process was the requirement to do callbacks. Because our data wasn't in ALERT, the brokers would require us to perform callbacks, particularly on our cache SSIs. All of these challenges were subsequently negated when we moved on to the ALERT platform.
Jan Coughlan
For the broker dealers, because then suddenly they could consume your ALERT notifications. You know the new data, amended data via systemic mechanisms. If there were cache instructions on ALERT, because we've got the maker checker process in place, they're deemed authenticated SSIs. So, I mean that was a big step I think for, for Legal & General, for sure.
Dan Morecroft
Yeah, definitely. I agree, Jan. I think the thing about ALERT is that it's that standardized format that everyone understands. It ensures that you know with buy-side, making sure that the SSIs include key details that we need to be able to settle in the various markets in which we trade. I'm thinking of things like investor codes and account names etc. All the details that if they're in a standard format that everyone knows and everyone understands and the brokers can consume, it just eradicates the challenge in that space that we used to sometimes see.
Matt Johnson
It's interesting you said as well then that you took the plunge back in 2015, so about eight years ago now. Jan, I think it's fair to say that the ALERT model itself, it's been enhanced, it's got better. And one of those successes I think is what everyone calls GCD or Global Custodian Direct. Could you just give us that 30 second update as to what GCD is?
Jan Coughlan
Yeah, sure. So GCD, we implemented that around about five years ago and that provides a systemic manner for global custodians to enter their data into the ALERT platform. It then acts as an enabler for clients like Legal & General and beyond to connect their accounts to that source data. So rather than having hundreds of different instances of a custodian's data model, you have a single golden source that is managed by the custodian in a systemic format. We started that process five years ago or so. JPM and BBH were the first custodians to move on to that platform and over the years we've picked up a lot of traction. We now have 12 custodians using that model and they are maintaining 50% of our data set now in ALERT across hundreds of clients’ accounts.
Matt Johnson
I could ask a really silly question I should notice but then I'm assuming that Legal & General will utilize GCD?
Dan Morecroft
Absolutely and I think to pick up on what on Jan said earlier, we were early adopters with JP Morgan. It must have been around 2017/2018 that they were looking for early adopters to move on to Global Custodian Direct. And bearing in mind at that point, Matt, we hadn't actually been on ALERT about long. We'd only been on for a handful of years. We were already seeing those benefits that we've already outlined previously. But we took the opportunity to go forward with Global Custodian Direct. If I was to sort of summarize it in in three main areas, for us it's about mitigating manual risk because if we think about how the SSIs are sent to buy-side firms from custodians, they're not all in a standard format. Some of them will send it on a PDF, a Word document, whatever it might be and then you've still got the manual keystrokes. Granted ALERT gives you those controls around make a checker, but you've still got to spend the time putting those into the platform. For us, ensuring we have the highest quality of data to support our business activities and ensure that we operate in a in a controlled environment, we’re very much focused on that. We could see that GCD helped us to continue to evolve and deliver on that. The other thing is also the time saved as well. We launched a lot of funds and we used to spend an awful lot of time putting SSIs in because our funds trade multiple markets and each one of those would have securities, SSIs and then cache SSIs as well. Then once they've been inserted into the system, you'd then have to have someone checking those manually as well. Which of course GCD negates the need for all of those steps because it's fed directly from source and then of course ongoing maintenance. And I know we touched on this earlier today, but we know that once they're in the system and the SSI changes, any amendments that need to be made, they're automatically captured by Global Custodian Direct.
Matt Johnson
Yeah, perfect model. With your role being onboarding manager, I guess it's probably always a couple of things front and center in your mind about new projects such as resource and cost. So, what did the GCD process entail for L&G from that cost and resource perspective to deliver?
Dan Morecroft
It was very, very straightforward. There weren't any significant resource constraints. So, there's clearly a well-trodden path within DTCC in terms of how to roll this out. We started by holding an initial call with DTCC, the custodian in question and Elgin. We would essentially walk through the approach that we're going to take, agree a runbook, look at the number of funds that we got in scope, agree a testing plan. We were able to test the GCD pipes through ALERT UAT which is really, useful. It proves that the data comes through and populates as expected from the custodian. But it also gives you that opportunity map to be able to review the data and do a compare and contrast. You can see how it will come through when we do send it through into live and this is the data that we've currently got in the live environment today. It gives you the opportunity to look at any deltas that may or may not occur and we certainly found that very useful. Then once you've gone through that and you review the data and you're comfortable what's coming through is what we'd expect, we would then schedule a further call with the same three parties. We would then have the opportunity to agree on the go live date, any potential scenarios where we might need to do a fallback solution and insert the previous live data back in. It gave us that opportunity to do this in a controlled manner. Then we would then do an announcement internally and then a courtesy notification to our brokers as well. It was a process that we undertook many, many times and worked well for us.
Matt Johnson
I mean it sounds like it's hitting all the relevant touch points for you guys. So, what full benefits are L&G now getting through GCD?
Dan Morecroft
Well, for us, we are close to 99% of all our SSIs being managed via GCD and that gives you tremendous confidence in your SSI data quality because it's coming from source. The FTE save is also significant as I mentioned earlier, not just setting up new funds, but the ongoing maintenance of those funds in the platform as well. Fund setups, as a result of that are faster because you're taking that step away. Query volumes are lower. The data is already in ALERT so we're not necessarily being chased to get the data in there by sell-side parties because it's just being fed through in one go from the custodian. All in all, it's ticked those boxes and been a resounding success for Elgin.
Matt Johnson
And when you say 99% coverage, I mean, Jan that has the music to your ears, right?
Jan Coughlan
Yeah and again, I think the number that I quoted earlier was across all of our client base, 50%. To kind of hit on that, we've got 14 and a half million SSIs in ALERT. So, over 7 million are managed by source providers. For Legal & General, they’ve actually surpassed that in terms of their coverage, with 99% of L&G’s SSIs being managed by source providers. Eliminating the callbacks, the timeliness, the improvement of data quality. I think it speaks volumes as Dan's mentioned there, it's a great.
Matt Johnson
Yeah. Yeah, no, couldn't agree more. When we kicked this concept kicked off many years ago and we spoke about the involvement of ALERT and the different directions it's going in to provide benefits to a client base. So, Jan, what's the future state looking like for ALERT?
Jan Coughlan
Well, the future state, again, I would like us to get to a position where all of our clients are reaping the benefits that Dan currently has with 99% coverage. So, the plan for us is to extend that source data provider model. We’ve got all of the big custodians that are leveraging the platform, but we want to expand that out to those smaller custodians and offer the same type of mechanism for those custodians to manage data at source and then multiple clients connect. Again, we've seen the benefit with the big players. We need to further extend that model to the smaller custodians.
Matt Johnson
Well, it sounds like we're well and truly on track to doing that. And I do always have one eye on time when we come to these podcasts. So, I do want to draw the conversation till close as always with these things when we speak to our clients. I've learned a lot in these last 10 minutes or so. So, it's a huge benefit for me to provide these platforms. Thank you so much, Dan, for taking time out of your busy day and talking to us about the benefits the services brought. Thank you, Jen, for providing some context and detail around some of the models and of course the future state. Thank you, guys, again, we will leave it there. Hopefully the audience enjoys listening to this. And if there are any questions, please do feel free to reach out to your relationship manager or to myself or to Jan directly. And with that being said, thank you guys so much. Take care. And we look forward to having another podcast very, very soon.