I S S U E 1 0 2 0 0 8

NewsMatchSmartStream Technologies’ Magazine for the Financial Services Community

INSIDE THIS ISSUE

Focus on Americas

The web 2.0 advantage

Consolidating reconciliations through BPO

TLM® Corona – customer self-service

Reconciliations – moving up the lifecycle

TakeControl

with Transaction Lifecycle Management®

Proactive Cash Management delivered by TLM®

Trade Process Management – supporting post-trade processing of complex instruments

The growth of OTC Derivatives in the middle and back office

Streamlining payment exceptions with SWIFTNet E&I

2

The recent credit and liquidity crisis has

had implications across the global financial

markets and highlighted critical weaknesses

in middle and back office operations.

The front office investment in algorithmic

trading and the introduction of increasingly

complex instruments has resulted in

processing bottlenecks. As transaction

volumes have surged, in the case of OTC

derivatives growing as much as 80% year on

year, scaling operations to process these

volumes has proved a significant challenge.

However, when these volume increases are

further impacted by market events such as

the liquidity issue the consequences can

be crippling…

The back-office systems of the world'slargest investment banks are at breakingpoint from escalating trading volumes…Trading volumes on Friday, Aug. 10, wereso high that at least two top investmentbanks’ credit derivatives teams had to workover the weekend to clear confirmations.One banker said it was lucky the spikehappened on a Friday, giving his team twodays to catch up, or they would not havebeen able to open for business on Monday. Financial News (Aug 20, 2007)

In autumn 2006 SmartStream sponsored

a Celent research study into ‘The Barriers

to STP’ that revealed that while Straight

Through Processing had been embraced

as a concept actual practice showed a lack

of commitment. It also highlighted that,

compared to upstream investments, Banks

and Asset Management firms were not

allocating sufficient time and attention to

Back and Middle Office STP initiatives.

It’s clear this lack of investment is now

proving problematic for institutions.

At SmartStream we’ve been helping many

of the world’s leading financial institutions

build highly flexible, volume insensitive,

transaction processing environments since

the company’s inception in 2000. Today we

have transformed our business to deliver

a broad suite of Transaction Lifecycle

Management solutions that enable many

of the world’s largest financial institutions

to automate critical processes across

their enterprise.

SmartStream has a new owner to further

this vision, DIFC Investments, the

investment arm of the Dubai International

Financial Centre (DIFC) that has bought

the company from TA Associates. For our

customers and partners it is business as

usual in the short term, as we work with

them to develop, deliver and expand our

TLM solution portfolio.

However the investment will have a major

impact over the medium and long term,

helping SmartStream to further accelerate

product and solution development for new

and existing clients. It places the company

at the heart of the DIFC’s plans to create a

secure and scalable trade processing hub.

Our global capability has transformed as

we’ve opened offices around the world to

service our customers and address new

geographic markets. In the last few months

alone we’ve been expanding offices across

the UK, US and Singapore and opening

new premises in China. This will continue

under the DIFC’s ownership, delivering a

Welcome to NewsMatch | CEO Comment

Ken ArcherChief Executive Officer, SmartStream

Type here2 Welcome to NewsMatch

CEO comment

4 Global NewsCompany news round-up

6 Product FocusProactive Cash Management delivered by TLM

7 Industry ResearchBanks warn regulatory pressures and costs set to impact product innovation

8 Focus on AmericasBuilding on our strengths

9 TCS Aspire ServiceConsolidating reconciliations through BPO

10 Executive ViewpointCreating a reconciliations community

12 Trade Process ManagementSupporting post-trade processing of complex instruments

14 OTC DerivativesThe derivatives conundrum

Eliminating the barriers to Straight Through Processing

through the delivery of enterprise-wide, real-time

Transaction Lifecycle Management solutions

NewsMatch 3

direct route to the rapidly expanding

Middle Eastern market and offers exciting

opportunities to deliver TLM solutions to

new and strategically important markets

and client that we share.

The many achievements the company has

made to date have created a tremendous

platform to expand from and better serve

our global client base as their transaction

processing requirements evolve. The DIFC

investment is further evidence that our

strategy is in tune with market needs to

deliver efficiency, visibility and control to

back and middle office process.

SmartStream has invested heavily in its

suite of Transaction Lifecycle Management

products and established a Services Oriented

Architecture (SOA) approach that enables us

to rapidly respond to clients needs. New

solutions can simply be configured from our

existing products to address emerging market

and regulatory challenges. The flexibility of

this architectural strategy enables us to

address common industry issues as well as

meet individual client requests, addressing

specific transaction processing pain points.

A good example of the way in which we’re

able to respond to common operational

challenges, like the sub-prime issue, is the

way in which we’re helping companies create

real-time, multi-instrument, enterprise-wide

trade processing environments for

the Middle Office with TLM Trade

Process Management.

Beyond product innovation we’re focused

on strengthening our business through

operational excellence and greater client

intimacy – in doing so we believe we can

be a better strategic partner to our clients.

Operationally, we’re improving our already

robust product development processes to

ensure the quality of products and our new

composite, SOA-based, solutions remain at

the highest level. We’re introducing new

processes to capture market feedback on a

more frequent basis to identify common

processing challenges from our global

customer base of more than 1,000 clients. In

this way we can help customers respond faster

to their most critical processing challenges.

SmartStream is also increasing headcount

across our operations and investing further

in employee training to ensure our people

are in the best possible position to rapidly

respond to client needs. Account management

is another focus for the company; we’re

building teams and strengthening processes

across each of our regions to ensure we

make ourselves easier to do business with.

To provide greater capacity to our existing

markets and to enter new geographies we

are expanding our indirect operations by

building relationships with trusted third

parties. Our commitment to serve our

global client base with the highest level

of service has never been stronger.

It’s through these continued investments

and with our clear and compelling

technology vision that I believe we have

become a strategic partner to our clients.

The news stories and features in this edition

of NewsMatch highlight just how far the

company has come over the last 12 months.

I’d encourage you to take a look at the

magazine and see how we can help you

strengthen your operations.

TakeControlwith Transaction Lifecycle Management®

Cash Management

Compliance Management

Corporate Actions

Exception Management

Reconciliations

Trade Finance

Trade Process Management

Type here16 Customer self-service

Case Study – RZB

18 ReconciliationsCase Study – Northern Trust

20 Web 2.0Set to transform customer services

22 STP in Latin AmericaMoving towards standardisation and greater efficiencies

24 ReconciliationsCase Study – ING IM Australia

26 SWIFTNet E&IStreamlining payment exceptions

28 Cash ManagementMaximise funding and lending opportunities through enterprise-wide, real-time cash management

30 TLM® CoronaTLM Corona goes from strength to strength

4

Global News

New website – now with mySmartStreamSmartStream has re-designed its website to make

it easier for you to find the information you

want. You will find better navigation, a robust

search facility and more content on our range

of Transaction Lifecycle Management (TLM)

products and solutions. By registering yourself

on the website you’ll have access to ‘mySmartStream’

which will save you re-registering in order to

register for events, you will be able to browse

and download the latest brochures, case studies

or research papers time after time.

Simply visit: www.smartstream-stp.com

SmartStream gains SWIFTReady GoldSmartStream has achieved the highest level of

certification awarded by SWIFT for their solutions,

recognising Corona, TLM Corona, TLM Reconciliations and TLM Trade Finance’s

SWIFT compliance, integration with the SWIFT environment and its contribution to

facilitating greater STP. The accreditation also proves the continued commitment and

investment into SmartStream’s world leading Reconciliations solution. Commenting on

the TLM Reconciliations accreditation Joel Luvigsen, Head of Partner Solutions, SWIFT

said, “We are delighted that SmartStream continues to work with SWIFT to drive the

market forward for the benefit of our mutual customers. TLM Reconciliations is yet

another example of SmartStream continuing to offer a standards-based approach to

automating reconciliations processes to reduce risk and cost. The SWIFTReady Gold

accreditation now gives institutions even greater assurances that TLM Reconciliations

adheres to specific SWIFT criteria to deliver a complete, integrated business solution.”

Delivering exceptionmanagement atCommerzbank

By extending its Corona implementation,Commerzbank aims to enhance Exception Management through rapidinvestigations processing of historictransaction data. Using Corona Archive,the data can be maintained onlinewithout any limitations in systemsperformance for reconciliation processes.

“The return on our investment is compelling.

Corona’s ability to provide users with rapid

access to historic transaction data will

allow us to further automate investigation

handling and ultimately improve STP

rates,” commented Karin Brehm, Assistant

Vice President, on the purchase of Corona

Archive. “Corona Archive will facilitate

our investigations process across different

instruments and assist in regulatory

compliance. We are planning to keep historic

data of the last 10 years in the system for

online retrieval.”

WebConnect enablesrapid deployment

Banco Popolare, implemented TLM Corona,

to automatically match all relevant

transaction data for Italian and foreign

accounts. TLM Corona highlights exceptions

as early as possible in the transaction lifecycle

and provides the bank with a complete

audit trail of its transactions for compliance

purposes. The solution’s web-based user

interface, TLM WebConnect, has enabled

the bank to quickly and easily deploy

TLM Corona across its operations.

ING IM gain visible results from automated processes

ING Investment Management (ING IM) in Australia isusing TLM® Reconciliations to manage the reconciliationcontrol requirements of around 1,000 portfolios with avalue of approximately AU$40 billion.

This has enabled it to move away from in a ‘semi-automated’ environment using Excel

spreadsheets, Access databases and other desktop tools to create automated, timelier

reconciliations processes. As a result, ING IM has gained greater visibility of the resulting

reconciliation items, a key element to reducing risk. Turn to page 22 for full case study.

NewsMatch 5

Bank of Scotland (Ireland) extends TLM to loans and mortgages

Bank of Scotland (Ireland), a long standing SmartStream client, has extended its use of TLM to automate payments for its home loans and mortgages division. As a result, the bank can eliminate paperwork and reduce the re-keying of data,enabling it to minimise the potential opportunity for human error.

Sean Moore, Business Project Manager, Bank of Scotland (Ireland), explained:

“The initial TLM implementation enabled us to build an automated, volume insensitive

process that can easily be extended as we expand our operations. By automating our

payments and receipts processes, we have been able to further reduce risk whilst

delivering the highest level of customer service. Extending the service to our home loans

and mortgage divisions is a natural progression which has been made very simple by

TLM’s scalability.”

AMVESCAP selects SmartStream as Global Reconciliations Platform

AMVESCAP is one of the world’s largest

independent investment managers with

approximately $480 billion in assets under

management and the parent for the AIM,

INVESCO, AIM Trimark, Invesco Perpetual,

Atlantic Trust, PowerShares and WL Ross

brands. By selecting TLM Reconciliations.

AMVESCAP will create a single

reconciliations and exceptions management

capability in line with its overall goal of

continuing to leverage and optimise its

global operating platform. Its global

operating platform aims to consolidate and

significantly reduce the overall number of

suppliers for all major applications.

UBS extends investment withSmartStream

The Investment Bank is expanding its

use of TLM Reconciliations to implement

a solution to cope with more complex

reconciliations and replace its existing

securities reconciliation system. TLM

WebConnect, SmartStream’s web portal,

is being deployed across the firm’s global

user community to provide greater

operational visibility for users through its

intuitive dashboards. Commenting,

Richard Cummings, Regional Director,

SmartStream UK, stated “We have been

a trusted supplier to UBS for a number of

years, successfully deploying TLM across

their global operations. We are delighted

that the Investment Bank has decided to

expand its use of TLM Reconciliations to

gain a further return on its investment.”

US buy-side firms select TLMSmartStream’s TLM delivers the abilityfor buy-side firms to automate and controltransactions across the middle and backoffice from the reconciliations departmentto the corporate actions function. A majorNew York hedge fund, ranked in the Top10 globally by asset size, has selected TLMCorporate Actions to automate the firm’send-to-end event lifecycle. This willenable the fund to cleanse external dataand prime broker feeds to create theGolden Record for all events, includingvoluntary response tracking and thencalculating and applying entitlements.

On the West Coast, a leading asset

manager with more than $100 billion in

assets under management will deploy

TLM Reconciliations to help manage its

increasingly diverse portfolio, by increasing

control and visibility in the transaction

lifecycle through more efficient reconciliation

and exception management processes.

Banco Santanderlive on TLM

Banco Santander has implemented TLM

Reconciliations to support the group’s

reconciliation consolidation strategy and

to better respond to current and future

market and regulatory challenges. The

implementation is based on a centralised

shared service to include reconciliations

capabilities for cash, securities, and FX

confirmations, as well as intersystems

reconciliation, and reconciliation of

complex treasury products such as SWAPS

and OTC Derivatives. Luis Corbolan,

Director of Reconciliation Operations,

Santander, commented: “TLM Reconciliations

has provided us with the flexibility and

scalability we needed to build a common

reconciliation platform for the group.

By creating an agnostic reconciliations

processing capability we are able to handle

complex transactions like OTC derivatives

as well as more standard instruments.”

Product Focus

6

Proactive Cash Management delivered by TLM®

Equally applicable to corporate and

internal cash management, TLM enables

banks to leverage real-time information

and implement proactive cash management

practices that eliminate the costs of

incurring unnecessary settlement and

operational risk exposure in the market.

TLM Cash Management 2.0 harnesses

TLM Control, SmartStream’s BPM suite, to

deliver a highly flexible cash management

solution that can be tailored to client-

specific environments. Organisations can

simply define business processes in terms

of workflow, rules, messaging and

notification, data interfaces in and out, and

model them, ensuring a faster time to benefit.

Using TLM, cash managers can monitor

different cash status levels within the

nostro, enabling the probability of

settlement failure to be determined and the

risk of potential loss resulting from the

incorrect positioning of currency balances

to be reduced. This reduces the cost of

covering overdrafts by ensuring responsible

parties are aware of funding requirements

as they occur, enabling them to act faster

and manage balances more efficiently.

Additionally, by reconciling real time

nostro account balances and movements

against internal trading systems ensuring

all investment and lending opportunities

are optimally exploited and risk is

effectively managed intra-day rather than

end of day or over the following days.

Improved visibility into cash exposure for

future value dates provides treasuries with

the information required to manage their

liquidity better. This potentially reduces

their costs by allowing the bank to operate

with more efficient liquidity ratios and

make better use of collateral and resources.

This visibility aims to deliver a holistic

overview of all of the relevant information

with drill down capabilities to access

granular detail on multiple operational

processes. Balances can be aggregated by

any means – balance, currency balance,

legal entity, geographic region, line of

business – and users can view equivalent

balances in any currency. A cash manager

can also view opportunity costs and

calculations against account balances to

highlight any revenue opportunities.

Unlike traditional solutions, TLM Cash

Management 2.0 combines centralised cash

management with intra-day reconciliation

enabling banks to build cash ladders for

forecasting daily cash flows accurately.

Banks can initiate realignments / account

sweeping before cash deadlines, reducing

liquidity risk and managing balances and

exposures across accounts and currencies.

Providing intra-day positions for corporate

customers is the first step in enabling the

corporate to manage their positions more

accurately thus enabling them to reinvest any

excess liquidity. Further, providing forecasting

functionality extends the corporate

customer’s cash management capability.

It supports institutions managing multiple

corporate accounts to show balances across

all accounts, geographies, or currencies

and analyse this data in a number of ways.

Further, the integration with TLM

WebConnect can deliver a self-service

element enabling corporates to view

account movements via a secure browser.

In an environment where SEPA is placing

increased pressure on cash management

operations, TLM Cash Management 2.0

drives operational efficiency to both

improve nostro operations and service

corporates more effectively through the

provision of accurate forecasting.

Recognising industry demands for greater visibility and control, TLM Cash Management2.0 enables banks to effectively manage, monitor and forecast cash flows based on real-time rather than projected balances. It is designed to capture transaction data fromany source, facilitating the calculation and projection of funding, borrowing and lendingrequirements on an enterprise-wide basis.

$16 billion. That’s the estimated investmentin SEPA compliance since 2002. Accordingto research findings from Aite Group,more than half of the respondents toEuropean cash management survey saidthat the regulatory environment was theirbiggest challenge, consuming so manyresources and budget that it is divertingattention from product innovation andother strategic initiatives.

However, while 60 percent rated technology

as “very important” or “extremely important”

to overall success that view is at odds with

operational reality, with a continued

reliance on manual processes and Excel

for cash forecasting in the majority of

banks. Without accurate views, corporate

customers cannot optimise their use of cash

and use excess liquidity for investments.

A similar picture emerged for internal

cash management, where the quality and

timeliness of data used to make decisions

is often diminished due to siloed process,

multiple systems and a dependence

on Excel spreadsheets. Aite estimates that

75 percent of European banks rely on

primarily manual cash management

processes to consolidate cash balances and

make forecasts.

It also reveals that multiple teams use as

many as 10 internal systems, often siloed by

geographic region, for cash management,

making an enterprise-wide view of cash

and liquidity almost impossible.

The changing nature of the corporate

treasurer is now the driving force behind

banks examining the solutions and

services they offer. While the role has

evolved dramatically, with a greater

emphasis on analysis and strategy, the tools

used to support it have not. Receivables,

payables and cash forecasting can no

longer rely on point solutions and manual

processes that introduce unnecessary risk

to the process and lack the forecasting

capabilities demanded by sophisticated

corporate customers.

Many banks lack the necessary drill-down

capabilities for more advanced analysis,

forecasting and optimal liquidity

management. 21 percent and 41 percent

respectively plan to offer these capabilities

over the next 24 months.

Technology will play a vital role in delivering

this vision, as banks look to create the

liquidity management tools and real-time

data customers demand. European banks

are moving away from in-house solutions

and, say Aite, are more open to vendor

solutions due to greater product

standardisation and the desire for greater

speed to market.

The ability to consolidate siloed solutions

and data into a single automated, enterprise

solution will deliver the global view across

currencies, accounts and legal entities

needed to effectively manage liquidity and

avoid unnecessary borrowing and risk.

It can enable banks to better understand

customer needs, serve them more cost

effectively and support differentiation,

while delivering visibility and control to

their operations.

Banks warn regulatory pressures and costs set to impact product innovation

Industry Research

7NewsMatch

8

Focus on Americas

SmartStream continues to support itsexisting customers and new clients in the Americas region by delivering volumeinsensitive, instrument solutions thathave delivered greater control andvisibility to the transaction lifecycle. We have increased our sales andrelationship management team to better support this growing customerbase, added expertise on our support desk and added capabilities to ourprofessional services team. Together, this strengthens our ability to be astrategic business partner to our clients.

SmartStream’s expertise in delivering

greater automation, integration and control

is reflected in the breadth and depth of

US client engagement projects. We continue

to work with leading investment banks

to help them manage surging volumes

across all instruments. We are also helping

a leading outsource service provider

to reconcile cheque images to meet its

customers’ needs in the Check21 world.

On the buy-side, leading hedge funds

have purchased or gone live this year on

SmartStream’s solutions for reconciliations

and corporate actions to help manage

their increasingly complex processing

needs. At Northern Trust, a leading global

custodian, we’ve worked with them to

create a global, centralised reconciliations

centre of excellence using our leading

TLM® Reconciliations solution.

Recognising the growing importance of

Latin America, highlighted by SWIFT’s

recent moves into the region with its office

in São Paolo, SmartStream has opened

an office based in Miami to serve the region.

We are already working with numerous

Latin American clients that are looking to

gain a competitive advantage through

differentiation. This dedicated office will

enable us to be closer to these clients

and the region. Banco de Bogotá, as you

can read about in this issue, is using the

Spanish language version of Corona to

deliver greater automation in the back

office – supporting its vision for higher

STP rates and greater transaction visibility.

SmartStream is committed to continue

investing and strengthening operations

in the Americas to meet clients needs –

whether buy-side, sell-side, custodian,

outsource provider or retail bank, to

become a strategic partner.

Lou LonghiRegional Director Americas, SmartStream

The current market issues have served to highlight, once again, that with new instruments and new trading infrastructures the need for efficient back office operations is greater than ever.

Building on our strengths

With increasing transaction volumes and falling margins on commoditisedproducts institutions are looking for newmethods to deliver lower operationalcosts and risk. This situation has beencompounded by the increased use ofmore complex instruments that must bereconciled at multiple points within thetransaction lifecycle.

One approach is to hire more people;

however ramping up operations in a short

period of time is tricky, due to lack of

available skilled staff and the huge costs

involved. Long term, throwing endless

resources at the back office is unsustainable.

Many large Tier 1 banks are already

operating with around 1,000 FTEs

performing reconciliations and are

concerned about the continued growth

of these teams as volumes increase.

Consolidating siloed systems and processes

through new business models can reduce

cost and risk through increased STP and

deliver enhanced customer service

strategies. The Aspire Service, powered by

SmartStream’s TLM® Reconciliations and

run by TCS offers the combined strength

of an industry leading BPO provider and

the industry leading reconciliations

software vendor.

The TCS Aspire Service can process core

and client-specific reconciliations, including

standard cash and stock, bespoke NAV

reconciliations and cash collateral

management, with client-aligned

investigations teams that are fully integrated

to the client business. Institutions of all

sizes, business models and geographic

locations struggling with back office volumes

can take advantage of this service to cost-

effectively reconcile all instrument types.

Due to the inherent flexibility within TLM,

business rules can be modelled to each

client’s business needs and that can rapidly

evolve when new products are developed

using a variety of instrument types. With

the industry’s most advanced matching

algorithms delivering unsurpassed

matching rates and supporting the widest

range of asset classes, TLM enables a faster

time to market for reconciling new

instrument and a quicker time to benefit.

This is possible due to the service delivering

lower and more predictable transaction

costs – either on a transaction or FTE basis

– with the flexibility to manage market

volatility. When volumes spike, more staff

are added, if they decline less staff are used

and a lower cost is incurred.

The on-demand scalability is applicable to

both large and small institutions who can

benefit from adopting best-in-class back

office operations. The TCS Aspire Service

provides an opportunity to access industry

-leading processes that will constantly

evolve to meet market, instrument and

regulatory needs. This removes one of the

biggest hurdles, purchasing cost, to

delivering greater control and visibility to

the transaction lifecycle and increasing STP.

TCS Aspire Service

Consolidating reconciliationsthrough BPONew TCS Aspire Service aims to boost STP rates and drive down cost and risk, while removing operational limitations.

[Institutions of all sizes, businessmodels and geographic locationsstruggling with back officevolumes can take advantage of this service.

9NewsMatch

10

Executive Viewpoint

What are the major pain points for anylarge institution in terms of managing itsreconciliations operation?Reconciliation operations have evolved

over time to meet changing business needs,

growth and new instruments. That has led

to them being spread across multiple

technologies and, in plenty of cases, still

performed manually. On top of this there

is no standardised operating model that is

scalable and has the capacity to keep pace

with an organisation that is rapidly

changing in terms of products, volumes,

locations and regulatory impact.

In addition, as the business continues to

develop and new instruments come on board

it is essential to identify those reconciliation

types that are strategic enablers and focus on

those as they will give the greatest return to

the firm.

How did Deutsche Bank go aboutmeasuring the effectiveness, time spent,overheads of its reconciliations?As part of a broader undertaking, a

functional domain analysis was performed

across the organisation to highlight as many

reconciliation types as possible and the

supporting technology. For all reconciliations

identified and managed by a central group

we also implemented a comprehensive set

of metrics, key performance indicators and

service level agreements. These all give us a

view of the technology costs, the personnel

costs, the operational costs in terms of

errors and also an overall perspective on

the quality of our reconciliations activity.

Did that prompt the review of theseoperations?First of all the question is how to enforce the

discipline of a metrics driven performance

model and optimise the process involved.

After that the question has to be asked

where service capacity can be centralised in

order to increase capacity in a cost efficient

manner. The reconciliations process has

matching rules that can be documented

and the resultant process can be

procedurised. Deutsche Bank for example

operates in all time zones around the world

and should use this advantage effectively to

place the exception data in the hands of the

process owners many hours earlier in the

business day.

What makes the TCS Aspire Service anattractive proposition?It’s attractive because it is a Business Service

Provision offering, delivering not only

operations capability but also technology

provision. As Deutsche Bank moves part of

its reconciliations into the Service, we can

focus on our reconciliation processing

efficiency and reduce overlaps in the

related technology required to support

these reconciliations, without having to

invest in new technology as a replacement.

Additionally, taking an entire service from

TCS Aspire means that Deutsche Bank will

not have to worry about technology

refresh costs in the future.

What makes it attractive to the industry as a whole?The same benefits that Deutsche Bank can

see in TCS Aspire should be attractive to

other organisations as a general benefit.

Additionally, organisations wishing to move

to newer reconciliations technology can

move into TCS Aspire which will take care

of the operations processing and the

technology, meaning dramatically reducing

the cost of accessing the latest

Creating a reconciliations community

As an institution that has embraced outsourcing, Deutsche Bankis in a unique position to outline its vision for delivering greaterefficiency and value from the back office. Martin Slumbers, Chief Operations Officer at Deutsche Bank discusses how thebank analysed its reconciliations processes and its reasoningbehind choosing to move to the TCS Aspire Service.

Martin SlumbersChief Operations Officer, Deutsche Bank

reconciliations technology. Lastly as

more organisations join TCS Aspire, the

configuration data for many different

reconciliation types will become available

for the TCS Aspire community, resulting

in greatly reduced implementation and

testing efforts.

Was there a comfort factor for DeutscheBank in TCS Aspire being a combinationof the leading outsource provider usingSmartStream’s market-leading technology?Yes. Moving to a BSP model requires a lot

of trust in the service provider so it was

important that we could trust both the

outsourcing provider and the technology

and both could demonstrate a substantial

track record within the financial services

industry. It was also just as important to

find a combination of providers who were

looking to use the latest tools and techniques

to develop a service where process

transformation and process efficiency were

more important than the traditional method

of judging success by the number of

resources working for any particular client.

What benefits does Deutsche Bank believe it will achieve with Aspire?Deutsche Bank believes that through

partnering with leading outsourcing and

technology providers in TCS Aspire its goals

will be achieved sooner. In no particular

order, these goals are the automating of as

many different reconciliation types as

possible, the streamlining of reconciliations

providing technology and therefore a

significant reduction in the cost of

reconciliations technology and also to

significantly increase the auto-match rates

for all reconciliation types (simple through

to complex multi-way reconciliations).

This could, of course be achieved via much

hard work within the bank and the support

of outsource and technology providers as

stand-alone relationships, but the creation

of TCS Aspire and its planned community

of reconciliation types and clients will

accelerate these goals not only for Deutsche

Bank but for other users of the service as well.

How will it measure these benefits?We will be measuring these benefits via

several criteria. Examples of these will be

less FTEs engaged in reconciliations type

activities, the financial benefits of retiring

reconciliations technology and ultimately,

due to the scale benefits that TCS Aspire

will bring, in reduced transaction costs and

less operational losses due to improved

reconciliation matching and investigation

capability. Ultimately TCS Aspire will also

be leveraging its knowledge base of

reconciliation types, common errors and

the technologies involved to recommend

(and possibly assist in) technology solutions

to actually remove some reconciliations at

source thus further reducing costs.

How soon does Deutsche Bank expect to realise these benefits?We expect to start seeing these benefits

from day one, i.e., as soon as a single

reconciliation type is live within TCS Aspire

and thereafter with increasing benefit as

more reconciliations are rolled out.

11NewsMatch

12

Type here

SmartStream’s Business Process

Management suite, TLM Control, forms

the foundation of the next generation

Trade Process Management (TPM) platform.

It consolidates fragmented and siloed

infrastructures for equities, fixed income,

treasury and derivatives to deliver integration

and control to the post-trade environment.

The inherent process and workflow agility

delivered by TLM Control has enabled

TLM TPM to be rolled out quickly, using a

set of standardised processes that are easily

adapted to meet the variations in behaviour

demanded by asset classes beyond the

traditional equity, fixed income, FX and

Money Market. The agility delivered by a

code-free approach allows this new iteration

of the TLM TPM solution to provide

greater levels of flexibility to meet the

constantly evolving needs of institutions.

The TLM TPM 2.0 release covers middle-

office confirmations and matching

functionality for equity and fixed income,

complemented by settlement instruction,

confirmation, status tracking and exception

handling not just for ‘vanilla’ equity and

fixed income but also for more complex

multi-settlement date instruments.

The in-built multi-settlement date capability

is critical for all manner of instruments

from repos with two settlement dates to

interest rate derivatives with multiple rate

fixings out into the future. It ensures

TLM TPM will have the functionality

moving forward to support new derivative

instruments that demand multiple

settlements with agreed terms – price,

date and currency. The visibility into

consolidated future cashflow requirements

across all asset classes is one of the key

benefits of the TLM TPM platform.

TLM TPM recognises the need for

different operational groups to access

different data views to perform tasks.

Functionally rich dashboards, utilising

[Business logic and process models can be simplyamended to match new requirements and permissionschanged to display a new profile in a dashboard.

Supporting post-trade processingof complex instruments

Trade Process Management

Steve MillerSenior Product Manager, SmartStream

As the buy-side continues to experience pressure to processgrowing business volumes in increasingly complex asset classes,SmartStream has released TLM® Trade Process Management 2.0 to address the post trade confirmation, settlement and exceptionmanagement needs of financial institutions.

NewsMatch 13

TLM WebConnect’s Design Studio, provide

different sets of user permissions to enable

users to access different dashboards and

business logic tools. Version 2.0 also offers

more operational monitoring and multiple

settlement date analytics out of the box.

This flexibility is critical in a market where

derivatives are putting huge pressure on

operational infrastructures. The use of TLM

Control and TLM WebConnect deliver a

faster time to benefit to institutions looking

to manage complex instrument lifecycles

and deliver greater operational control in

a shorter time.

Further, as market infrastructures and

instruments continue to evolve, the inherent

agility of TLM TPM ensures it can be extended

and enhanced using TLM Control. Business

logic and process models can be simply

amended to match new requirements and

permissions changed to display a new profile

in a dashboard. This enables institutions to

move away from static solutions with hard

coded business logic that cannot react to

institutions’ post-trade processing needs.

As a result of these improvements, TLM

TPM 2.0 enables trade confirmation

TLM Trade Process Management – solution overview

14

While outstanding confirmations forcredit derivatives have dropped by some70 percent after intervention by theFederal Reserve, there remain significantchallenges to automating the widerderivatives infrastructure.

Dr Mayiz Habbal, Managing Director of

the Securities and Investments Group,

Celent, explains: “The percentage of trades

confirmed electronically is now at 80

percent, but the volume of trading in all

derivatives continues to grow and not

all derivative types are experiencing the

same levels of automation.”

Institutions require systems and processes

to reduce the number of outstanding

items, while also automating processes

to avoid backlogs reoccurring. “It was

always going to be a bigger challenge in

the equity world because it is client-based,

versus credit where it is predominantly

interbank, so you have a bigger population

of participants and actors in the market

to penetrate in terms of automation,”

says Steve Miller, Senior Product Manager

at SmartStream.

According to recent figures from the

Bank for International Settlements (BIS)

the total amount of OTC derivatives

traded totalled $415 trillion in 2006, the

highest level since the BIS began compiling

data. However, with this growth has come

concerns that it is outpacing processing

capacity and expertise.

It is estimated that up to 30 percent of OTC

derivative trade confirmations contain an

error and require subsequent handling for

rebooking or amendment, exposing these

The derivativesconundrum

As derivatives volumes continue to soar,what are the implications for the

middle and back-office?

OTC Derivatives

NewsMatch 15

firms to operational risk and significant

back office costs. Cherie Graham of the

Derivatives Product Group at Brown

Brothers Harriman, says: “Another significant

challenge for asset managers is reconciling

OTC derivatives positions with

counterparties. The traditional tools rely

on fixed data formats for automation,

but these paradigms do not apply to

OTC derivatives.”

Frank Partnoy, derivatives expert and law

professor at the University of San Diego,

comments: “Many institutions do not ‘mark

to market’ complex derivatives to reflect

changes in value over time. The result is

that exposure, as in the case of sub-prime

instruments, can be buried and unexplained

for months. More and more, as a result of

recent experience with sub-prime and

other complex instruments, both investors

and regulators will want investment

managers to give them more transparency

through better operational practices,

including regular marking to market.”

The back office issues of instrument

complexity, lack of standardisation and

volume growth will only be magnified as

new OTC derivatives products are created

and used in different ways. The increased

backlogs, number of errors and staffing

issues highlight the need for automated

solutions that deliver a volume insensitive,

instrument agnostic approach is clear.

Steve Miller explains: “Fund managers

are concerned they are slipping down the

rankings compared to hedge funds. They

need to trade certain types of derivative

instruments now and know there will be

new OTC instruments in the near future.

The problem is they are prevented from

doing so because their middle and back-

offices are not geared to cope.”

The first step to overcoming these issues

and enabling greater automation is capturing

and exchanging data using agreed formats.

FpML’s product definitions – the ability to

represent dates, credit and equity

derivative trade structures in electronic

form – is supporting the drive for

automation. The key derivatives service

providers, SwapsWire, DTCC Deriv/SERV

and T-Zero, all use FpML as the underlying

standard to communicate trade information.

Peter Delano, Research Area Director,

TowerGroup, adds: “One paradox in strategies

to improve OTC derivatives processing

is the need for collaboration even though

individual institutions customise each

contract. As a result, solution providers

need their technology to be standardised

and flexible: standardised so that OTC

interactions are repeatable and efficient;

flexible to handle the customisation of

terms and range of counterparties.”

Steve Miller adds: “Institutions are currently

too reactive because of the way their

operations are structured. They want to

be more proactive in order to manage risk

more effectively and typically prefer to

purchase technology that is multifunctional,

product neutral and designed to handle

any security type. Many of the vendor

solutions today are geared to a single type

of security. SmartStream’s TLM Trade

Process Management solution takes a

different approach, to deliver an instrument

agnostic and volume insensitive post-trade

environment flexible enough to cope with

changing market demands.”

TowerGroup’s Delano comments: “Firms

that have flexible tools can enable their

portfolio managers and traders to employ

new derivatives faster, while meeting their

operational goals for efficient and error

free processing.”

“As volumes grow we will see automation

attempts move from the front office to the

middle and back-office. This will be due

to risk management concerns rather than

cost or operational efficiencies,” adds

BBH’s Graham.

The benefit of structured services

and standards such as FpML is clarity

of information, providing a clear,

documented position. With TLM

Trade Process Management, a firm can

extrapolate that data over all outstanding

deals to create a cash flow ladder. This

can be taken a step further and used over

all assets to examine the precise funding

levels required in each settlement location

to cover the firm’s obligations on each

settlement date.

[As volumes grow we will see automation attempts move from the front office to the middle and back-office.This will be due to risk management concerns rather than cost or operational efficiencies.

16

In a competitive market, how do youdeliver a brand that stands out from thecrowd? For Raiffeisen ZentralbankÖsterreich AG (RZB), part of the AustrianRaiffeisen Banking Group, it was to createan innovative service that reduces riskand costs, while also delivering greaterself-service to clients.

RZB has gained a reputation as a service-

oriented bank, offering customised banking

solutions to each individual market.

“Although we are an Austrian bank, we

define our ‘home’ market as Central and

Eastern Europe and have been active in these

markets for many years with its 17 banks

in 16 markets,” explains Walfried Lemerz,

Head of Transaction Services, Infrastructure

Department at RZB. “We pride ourselves

on providing tailor-made solutions

and services that meet the needs of each

particular market.”

The bank had been successfully using

SmartStream’s Corona Enterprise Edition

and upgraded to TLM® Corona with a view

to extending its integrated reconciliation

and investigation capabilities to customers

over the internet. Using TLM WebConnect

as a secure browser interface, RZB customers

were able to proactively raise exception

cases and create greater customer self-service.

The outsourced payment processing unit

Raiffeisen Data Service Centre currently

employs in its investigations department

25 customer service employees responsible

for payments processing, including

reconciliations and investigations, not only

for RZB but also for customers of the

RZB Group. “Clearly if we can reduce the

costs in this centre we can deliver a more

cost-effective service to our clients,” says

Lemerz. We believe with TLM Corona we

have the solution that will enable us to

deliver greater self-service elements and

efficient, more personal customer service

that will differentiate us from other banks.”

Customers currently email, fax or call

RZB’s Service Centre where staff input

the query into the Corona Investigations

module. The web-based solution will

remove that step, negating the need for

data re-entry that is a source of potential

errors and risk. RZB customers can enter

transaction details via a secure browser,

open a query and trigger an investigation

case at the touch of the enter key.

Delivering service innovationover the Internet

Customer self-service

Walfried LemerzHead of Transaction Services, Infrastructure Department, RZB

Case Study | RZB

NewsMatch 17

Once the query has been raised, RZB staff

will then investigate the case as normal.

To increase its reputation as a service-

oriented bank, RZB will continue to use

TLM Corona as the key element in

delivering this vision. RZB currently has

a high success rate, with around 90 percent

of all queries resolved within 48 hours but

is looking to improve that even further.

“We want to create a near-STP process, so

that the data goes from TLM Corona to the

core bank system to provide an automated

response. We’re at the beginning of that

vision, but we feel that with TLM Corona

we have the foundations in place to make

that a reality,” explains Lemerz. “We’ve

calculated an ROI within three years by

reducing the amount of time our employees

spend on investigations. That will enable

us to use their time more effectively to

perform higher value work.”

RZB has piloted the online service with

two Baltic banks and has also received

interest from domestic Austrian banks.

The bank is aiming for at least 20 percent

of customers – banks, private individuals

and corporates – to take up the service.

“It’s an innovative step and we think this

sort of self-service option is the future

of banking relationships. We want our

customers to be actively involved in the

reconciliation and investigation process,”

says Lemerz. “We believe that if you

give the customer more power through

the right self-service tools then customer

service and satisfaction will improve.”

[We want to create a near-STP process, so that the data goes from TLM Corona to the core bank system to provide an automated response. We’re at thebeginning of that vision, but we feel that with TLMCorona we have the foundations in place to make that a reality.

18

Case Study | Northern Trust

Reconciliations

Driving a new reconciliation methodology at Northern Trust

Bob SturgisNorthern Trust

The Northern Trust Company is a leading global custodian with more than $4 trillion in assets under custody. Global Reconciliations across Northern’sOperations was recently centralisedunder Bob Sturgis. A main priority of this new group was to consolidatereconciliation systems onto a globalplatform, one that could handle more than 30 million transactions amonth running through its operations.To achieve this vision, Northern selectedTLM® Reconciliations as its enterprise-wide reconciliations solution.

A long standing SmartStream customer

– moving to TLM was a natural step for

the bank as they looked to take advantage

of the improved matching and assignment

capabilities in the next generation solution.

NewsMatch 19

Delivering value through continuous process improvement

High on Northern’s and Sturgis’ agenda

when selecting a reconciliations solution

was ensuring it would create an environment

for continuous process and operational

improvement. According to Sturgis:

“A significant advantage with TLM vs.

other platforms is the very flexible match

rules that allow us to quickly adjust our

rules as we discover opportunities.”

Northern’s managers have been able to

monitor their operational processes, and

when they see opportunity for improvement,

quickly implement those ideas, contributing

to better STP rates and better service levels

for Northern’s customers.

Transaction-based reconciliationFor years, Northern Trust has been at the

forefront of implementing a transaction-

based reconciliation methodology.

Many firms are just now evolving from a

positional reconciliation to the more granular

method of transaction-based reconciliation.

For example, custodians typically view

their overall position in IBM stock on a

given day and compare that position to the

DTCC (Depository Trust & Clearing

Corporation) records. The problem with

the big picture delivered by the position

approach is it lacks the detail of

transactions beneath the total number.

“The positional reconciliation could mask

errors in client accounts,” comments Sturgis.

“Transaction-based provides a detailed

reconciliation and lowers the risk for

our clients.”

The benefits of adopting a transactional

reconciliation approach can go further,

according to Sturgis. In Northern’s case,

higher STP rates and lower cost of operations

went hand-in-hand with risk reduction.

Sturgis explains: “We were pleased with

the tremendous value from our DTCC

reconciliation effort. Significant work

around the data and match rules produced

a match rate in excess of 98 percent. This

led to a 67 percent decrease in Northern’s

exception counts. For our team, there’s less

work to reconcile, but more importantly,

there are fewer exceptions assigned to our

internal processing groups.”

Extending the straight through processThere is a second aspect of the TLM

implementation that Northern found

to be valuable.

The auto-assignment process, as Northern

calls it, is built on TLM’s integrated workflow,

which allow exceptions to be passed straight

through to the departments responsible

for investigating and resolving them. This

eliminated the tedious work and errors

involved in having someone manually

judge where an exception should be resolved.

Looking ahead: reconciling more complex instruments

As Sturgis looks ahead to where the next

big improvements will come from, he

highlights an important initiative to

extend the benefits of TLM’s transactional

reconciliation capabilities to other, more

complex instruments.

Northern is performing ETD (Exchange

Traded Derivatives) derivatives reconciliations

on TLM Reconciliations in the UK, so

the firm is already familiar with tackling

complex instruments. The current project

drawing attention is mortgage-backed

securities (MBS).

The implementation plan is similar to

the one Northern put in place for DTCC.

Moving from positional to transactional

reconciliation. MBS and CMOs

(Collateralised Mortgage Obligations) are

resource-intensive instruments, requiring

more effort to identify and resolve these

exceptions than an equities break. Says

Sturgis: “We expect that as we saw a big

jump in productivity with the DTCC rec,

we’ll see a similar improvement in

complex fixed income transactions.”

[Significant work around the data and match rules produced a match rate in excess of 98 percent. This led to a 67 percent decrease in Northern’s exception counts. For our team, there’sless work to reconcile, but more importantly, there are fewerexceptions assigned to our internal processing groups.

20

Web 2.0, the second generation Internet-

based services that use the Web as a platform,

have generally been limited to consumer-

focused applications. However, web-based

applications using rich user interfaces are

due to make an impact on the financial

services sector.

While Facebook and Myspace currently

have limited value to the financial services

industry, the driving principles behind

them – networking, collaboration and

participation – are applicable today.

They have the potential to significantly

change how information is shared

both within an organisation and to

its customers.

Web 2.0 is a compelling draw for

institutions battling to gain market share

because the concept and technology is,

by its very nature, inclusive. Services and

applications can be made more compelling

through greater levels of interactivity. For

example, banks can roll out more self-service

elements in a secure environment to

customers to raise payment exceptions

and start an investigation.

“In today’s Web 2.0 world, self-service

and extensibility are essential. But to

achieve those you need to use the right

technology,” says Neil Vernon, Senior

Product Manager, SmartStream.

“SmartStream, with its WebConnect thin

client across the range of TLM® products

and solutions is pioneering the use of

Web 2.0 in areas such as reconciliations

and exception management.”

Web 2.0 set to transform customer services

Neil Vernon Senior Product Manager,SmartStream

Matthew NelsonSenior Analyst, Investment Management, TowerGroup

The potential to significantly change the way institutionsconnect to, service and support customers.

Type hereWeb 2.0

NewsMatch 21

The importance of these developments in

the securities industry has been highlighted

in a recent report by Matthew Nelson,

Senior Analyst, Investment Management

at TowerGroup. He believes that Web 2.0

technology will dramatically change the

software applications used by securities

firms and how they are used within an

organisation and outside to communicate

with customers, trading partners and the

wider market.

“By embracing the concepts of collaboration

and participation, Web 2.0 applications

have the potential to change the way firms

work,” he says. “More and more financial

services institutions will use the Web 2.0

concept to make their services and

applications richer and more compelling

to users, whether that’s internal staff

or a customer.”

The TowerGroup research, “Web 2.0 May

Be the Future of the Internet, but What

Does It Mean to Securities Firms?” highlights

several areas where Web 2.0 technology

can be applied to the securities market,

beyond the obvious knowledge management

and collaborative tools.

The four areas it believes offer the greatest

potential are:

• Investment research

• Information distribution

• Client interaction

• Business partner interaction

Says Nelson: “Forward thinking software

firms are developing user interfaces as

thin client, such as SmartStream with

WebConnect, offering Web 2.0 technologies

without sacrificing the performance and

functionality associated with desktop

applications. WebConnect looks and feels

very similar to its original thin-client

interface but with no local software installed.”

“The advantages of the Web 2.0 model are

compelling. Why install software in a thick

client model, when you can use the

internet to dramatically reduce roll out

times,” says Vernon. “This method also

helps to overcome user acceptance issues

that can often impact on the effectiveness

of new solution roll outs. WebConnect

delivers a consistent user experience and

as a result end user training is reduced

and productivity is increased.”

Delivering transactional data tobusiness partners and customersCrucial to the success of Web-based

technology and particularly those that

drive collaboration across an enterprise

is rich functionality. TLM WebConnect

doesn’t compromise on this or in the

delivery of information to users;

management, operational users and

customers can all share a single source

of real time transaction information.

“With WebConnect, users gain all of the

rich capabilities of a traditional application

with the ease of delivery of a web

application to quickly and easily compare

data sets from different systems and drill

down,” says Vernon. “Clients can access

a range of SmartStream applications to

manage transaction lifecycles. TLM

WebConnect ensures that irrespective

of which application a user is in, the

experience is the same.”

TLM WebConnect’s design recognises

the need for operational staff to react to

immediate situations. It provides users

with a dynamic workspace where multiple

live windows operate and interact

concurrently – supporting seamless multi

tasking. “We make data comparison simple,

with the ability to move data between

windows and by providing standard

spreadsheet functionality,” says Vernon.

“The dynamic workspace also recognises

the fact that users are frequently

interrupted with urgent requests – rather

than having to stop the task at hand, exit

the application and log back in users can

simply open a new window and respond.”

“The development of web-based user

interface for exception-centric applications

offers firms the ability to engage business

partners – counterparties, brokers, clients

– in a secure application that will enable

collaboration,” adds Nelson. “Working with

partners in a more self-service environment

enables them to correct transactions,

enrich information and close exceptions

faster, in a more efficient manner.”

For example, an institution offering an

outsourced reconciliation service can

bring partners into the process by sharing

information on broken transactions to

dramatically reduce investigation time.

Similarly, a fund manager could be bought

into the Corporate Actions processing

lifecycle earlier.

With Web 2.0 evolving the internet into

a more collaborative workspace, enabling

customers to build their own views of

portfolios, news, and other user-specific

content in a lightweight interface will add

significant value.

“As securities firms and their clients

become increasingly global, tools that

help to break down geographical barriers

will become essential to acquiring and

retaining clients. Web 2.0 applications

will be one of those tools and will play a

key role in the internet strategy of every

securities firm,” concludes Nelson.

[Forward thinking software firms are developing userinterfaces as thin client, such as SmartStream withWebConnect, offering Web 2.0 technologies withoutsacrificing the performance and functionality associatedwith desktop applications.

22

According to SWIFT representative Michel

Corthouts, Regional Director, Latin America:

“Latin American banks have begun to shift

towards a more global banking model,

similar to that found in Europe or the US –

before their cash and payments operations

reflected a more localised approach.” This

change has been characterised by more

robust and innovative offerings in lending,

credit and investment services. Banks

have also been adopting initiatives designed

to improve efficiencies and standardise

international back-office banking systems.

As an example, SWIFT’s Latin American

office has been working closely with

institutions in Brazil, Mexico, and Colombia

to implement the organisation’s financial

messaging platform. This will allow for the

integration of banks’ payment and securities

operations with international banking

standards and help to facilitate the flow

of payments among countries.

SWIFT representative Lambert Timmermans,

Commercial Manager, Latin America, says:

“Until recently, banking operations within

each country developed their own localised

financial messaging systems and there was

a lack of integration within and among

regions.” However, with an increase in

intra-regional financial activity and higher

transaction volumes, this is likely to change.

Colombia’s Banco de Bogotá is reflective of

general efforts by banks across the region

that recognise the strategic value in

automation and centralisation to deliver

greater transaction visibility and improve

straight through processing (STP). The

bank operates 500 retail branch offices, five

corporate service centres and six subsidiaries,

servicing both the corporate and retail

market segments. It maintains a strong

international presence through subsidiary

and agency offices in Panama, Miami,

New York and the Bahamas, and strategic

partnerships with banks in other locations.

STP in Latin America

Foreign investment, deregulation, stronger currency valuation,economic growth and low interest rates have helped to create a productive environment for Latin America’s financialinstitutions. The region’s banks have benefited from greaterdemand for cash and payment services, the transfer oftechnology and capital flows, consolidation and soundbusiness management.

Moving towards standardisation and greater efficiencies

[Latin American banks have begun to shift towards a moreglobal banking model, similar to that found in Europe orthe US – before their cash and payments operationsreflected a more localised approach.

NewsMatch 23

Banco de Bogotá continues to reinforce its

position as a leader in Colombia’s commercial

banking sector through cost-effective

operations. Today, the bank uses SmartStream’s

Corona reconciliation software to support

its vision for cost-effective, international

back office operations that can support

higher transaction volumes.

Previously, all reconciliation activities

were processed manually through

the bank’s individual branches. The

implementation of Corona has created

more centralised banking operations,

delivering higher matching rates and

greater STP. This has enabled it to

reduce operational costs and risks.

Fernando Enrique Escobar, International

Bank and Treasury Operations Manager,

says: “Corona has been extremely well-

received by its users, who appreciate the

application’s ease of use, Spanish-language

instructions, flexibility and integrated

matching and investigations capabilities.”

Mr. Escobar also praises the solution’s

seamless installation process, and short,

two week implementation cycle.

Banco de Bogotá has become aware of

the importance of centralised accounting

processes and is moving forward with

this new structure to establish a General

Accounting Management Division.

In addition to other benefits, this will enable

easy and speedy reconciliation processes.

According to Mr. Escobar: “Corona

will be an integral part of this initiative;

helping the bank to achieve its long-term

goal of creating a centralised platform

through which all cash and payment

transactions flow.”

With SWIFT aiming to bring greater

standardisation to Latin American markets

and the region’s strategic and economic

importance to global banking groups growing,

the region will undoubtedly continue to

evolve. New, more complex instruments

will be traded, volumes will continue to rise

and financial institutions will increasingly

require solutions that deliver control and

visibility to their middle and back-office

operations. This will enable them, like

Banco do Bogotá, to reduce operational

cost and risk and be confident in their ability

to handle future volumes.

24

Reconciliations

Creating automated reconciliationsprocesses in a more timely manner, alongwith greater visibility of the resultingreconciliation items, is a key element toreducing risk. It was one of the importantdrivers behind ING InvestmentManagement (ING IM) in Australiachoosing TLM Reconciliations to managethe reconciliation control requirements of around 1,000 portfolios with a value ofapproximately AU$40 billion.

As part of the specialist investment network

of the Dutch ING Group, ING IM has

a strong presence in Australia and prides

itself on offering investment management

expertise across all major asset classes.

ING IM used to perform daily cash

reconciliations for all accounts and fortnightly

or sometimes monthly reconciliations

of its securities in a ‘semi-automated’

environment using Excel spreadsheets,

Access databases and other desktop tools.

A team of seven people produced and

managed the reconciliations function, with

a further two staff analysing the end result

and checking data integrity.

However, as Steve Parkinson, Director of

Operations at ING IM, explains, these

processes did not produce the “control”

environment that the institution desired.

“With semi-manual processes and the time

it took to reconcile securities we believed

we were leaving ourselves exposed to

unnecessary data integrity risk, particularly

on the securities side.” he adds.

To reduce this risk, ING IM wanted to

build a “control” environment around

best-in-class, packaged technology to give

it confidence that the data supplied from

its investment system reflected actual

positions within its portfolios. To support

this vision, ING IM selected SmartStream’s

TLM Reconciliations due, says Parkinson,

to it being “the market leading solution

with a good reputation and excellent

references from other organisations.”

As part of its initial roll out, ING IM

selected around 70 portfolios that

represented a cross section of its overall

business and the securities held within

them. “That analysis took around five

months because of the many different

types of securities, along with the differing

format of data received from third parties,

even though we used SWIFT messages

where we could,” explains Parkinson.

With the analysis complete, TLM

Reconciliations was implemented for

approximately 80 percent of the securities

held within those first 70 portfolios. A

second phase added a further 700 portfolios

for the same security types, while the third

phase included another 150 portfolios to the

solution. A final phase will shortly see the

remaining portfolios migrated.

With the majority of its portfolios now

utilising TLM Reconciliations, ING IM

completes all of its cash, securities

reconciliations at settlement and securities

holdings reconciliations on a daily basis.

This more proactive approach has helped

ING IM to reduce risk and deliver greater

visibility of it’s reconciliation items.

Reconciliations have now moved from

being performed irregularly on a settled

basis to a daily traded basis, moving the

process further up the transaction lifecycle.

Reconciliations – move upthe transaction lifecycleING Investment Management Australia hasreduced costs and improved process visibilityusing TLM® Reconciliations.

Case Study | ING Investment Management Australia

NewsMatch 25

As a result of the greater automation

delivered by TLM, ING IM has reduced

the number of staff needed to perform

reconciliations. However, as Parkinson

explains, the project ROI wasn’t based on

reducing headcount but ensuring existing

staff and the skills they had developed

were used more effectively.

“The number of FTE equivalents has

been reduced from seven to 0.5 managing

the lifecycle of a trade from execution up

to settlement and 1.5 performing daily

cash and securities at settlement as well as

the holdings reconciliations,” he comments.

“The FTE equivalent saving has been

transferred into analysis. We are now spending

much more time discovering why an issue

occurred in the first place, strengthening our

processes and supporting more robust

back-office operations.”

The control and risk management

functions have significantly improved due

to the redeployment of staff to analysis-

based roles. These staff now use the time

previously taken up with purely completing

reconciliations to ensure greater data

integrity and help reduce risk within

the portfolios.

Says Parkinson: “The overall number of

reconciliation items has also been substantially

reduced and we are now performing

reconciliations in a timelier manner.

That, combined with a decrease in failed

trades, means we have reduced risk

within ING IM.”

This risk reduction has also been

accompanied by increased transparency

into reconciliation and exception

processes. The Chief Operating Officer

down to individual users can log into

TLM Reconciliations and view any

exception items within any portfolio.

However, this is just the start of ING

IM’s use of TLM Reconciliations.

After migrating its remaining portfolios,

the institution is implementing the

solution’s investigation and workflow

functionality. “I believe ING IM will

see further benefits from the project’s

next phase, helping us to deliver even

greater efficiencies,” says Parkinson.

[We are now spending much more time discovering why an issue occurred in the first place, strengthening ourprocesses and supporting more robust back-office operations.

26

SWIFTNet E&I

Launched in September 2006, SWIFTNetExceptions and Investigations (E&I)protocol is designed to deliver greaterautomation in payments by replacing freeformat messages. This XML-basedprotocol uses the existing SWIFTNetInterAct service to enable institutions toexchange messages in an automated andinteractive way through its Store andForward capabilities.

Despite the drive for greater automation

in recent years the continued use of free

format or proprietary format messages for

enquiry related communication blunted

the effectiveness of solutions designed to

enable more streamlined exception and

investigation management. SWIFT calculated

that between three and five percent of

payment instructions led to an enquiry.

“When we first examined the issue in 2003

we found that only five percent of enquiries

were automated due to the use of MT199

and MT299 messages. The lack of message

standardisation hampered automation

solutions, which added structure and

formalised payments exceptions and

investigations but couldn’t overcome the

lack of standards,” says Catherine Banneux,

Senior Product Manager, Banking Industry

Division at SWIFT.

“Free format messages lack the structure

and granularity needed to quickly understand

why the payment instruction had failed

and this meant investigations could take

a long time to complete.”

The cost of dealing with these enquiries

varies according to the level of automation

within each bank. A report commissioned

by SWIFT identified a number of key

challenges, including the high costs incurred

by manual investigation handling, the

financial risk of manual processes and slow

resolution times, and poor customer service.

What is apparent from SWIFT’s research

is that institutions using an automated

exception management and investigations

solution such as SmartStream’s TLM® can

see a substantial reduction, up to €4.80,

in the cost per enquiry.

However, it is not simply a case of transactional

cost; staff productivity was also proven to

increase. Investigators using automated

systems solve, on average, 23 enquiries per

day compared to just 14 when using

a combination of manual and interactive

systems. Customer service can also

be improved through automated systems,

with enquiry turnaround time cut from

an average of 5.5 days to 3.6.

The combination of automated solutions

and new SWIFT Standards XML with a

SWIFTNet messaging service and a rule

book is helping to create a more

streamlined, automated exceptions and

investigations process. Currently 26 banks,

including ABN Amro, Bank of New York,

Barclays, JPMorgan Chase, Royal Bank of

Scotland and Wachovia, have subscribed

to the SWIFTNet E&I solution. Many of

these will be live by the end of the year,

with others joining early in 2008. Together,

they represent more than 30 percent of the

SWIFT payments volume, and even more

of the US Dollar clearing payments volume.

As banks’ payment and cash management

divisions come under increasing regulatory

and competitive pressure to improve

operational efficiency, automation will

become increasingly important. For example,

the Single Euro Payment Area (SEPA) will

force banks to lower their operational costs

around payment processing and drive the

need for higher payments STP. The UK

Faster Payments initiative mandated

for May 2008 will require all low-value

electronic payments up to £10,000 to be

cleared same day or next day depending

on payment initiation. To meet this

requirement, institutions must implement

near-real time processing models.

Streamlining payment exceptions

Catherine Banneux Senior Product Manager, Banking Industry Division, SWIFT

The handling of payment investigations remains one of themost resource intensive back-office activities, representing a significant cost for the banking industry, hampering effortsto deliver effective customer service. However, recent changesto SWIFTNet services present an opportunity for institutions to make a step change in payments processing.

NewsMatch 27

[…the Single Euro Payment Area (SEPA) will force banks tolower their operational costs around payment processingand drive the need for higher payments STP.

While many processing units achieve

impressive STP rates, management of

exceptions and investigations remains one

of the most resource-intensive activities

for a payments institution. With SEPA,

Faster Payments and other initiatives

such as Basel II driving exceptions and

investigation capabilities further into

business processes, institutions will

require integrated enterprise-wide

solutions such as SmartStream TLM.

Potential for significant cost reductionSubstantial staff and communication

related savings can be achieved as a result

of automation and increased productivity,

enabling investigators to concentrate on

more critical cases.

SmartStream’s TLM Payments and

Investigations solution can enable institutions

to leverage existing investments in SWIFTNet

to create enterprise-wide exception

management processes that can deliver

greater visibility and control to the payments

process. It helps organisations to tackle

the five main enquiry types that SWIFT

identified as accounting for 76 percent of

total payment queries:

• Unable to apply

• Return of funds

• Modification

• Request for cancel

• Beneficiary claims non-receipt of funds

SWIFTNet E&I is designed to support

improvement in the enquiries process,

increasing efficiency by reducing cost and

operational risk while improving customer

service. When combined with a solution

such as SmartStream’s TLM Payments

and Investigations it offers significant

opportunities for institutions to drive cost

from their operations, enabling them

to standardise customer service processes

across the organisation. Workflow

definitions and rules, such as the no bypass

rule, ensure institutions can better inform

customers and provide shorter turn-

around times.

“Cost reduction with SWIFTNet E&I is

not simply a reduction in FTE. It’s the cost

of an open position if an exception isn’t

managed effectively, potential liabilities

arising from a missed payment, interest and

charges related to missed payment deadlines,”

explains Banneux.

There is also the issue of institutions’

ability to absorb new business and remain

competitive as payment volumes increase.

This is particularly true of the larger

institutions that are planning to white label

their payment processing for smaller players

to meet customers’ cross-border payment

needs under SEPA. Manual operations

that cannot cope with high volumes and

the related exceptions create processing

bottlenecks and further impact bank

payment processing costs.

Says Banneux: “Without automation, banks

will have to hire and train new staff just

to clear the bottlenecks. SWIFTNet E&I and

exception management solutions enable

banks to absorb new business and do it at

a relatively low cost while maintaining

the customer service levels its clients expect.”

Although the protocol was designed for

treasury payments, it can also address some

of the issues raised by compliance projects

such as FATF7 and Basel II. For that reason,

says Banneux, SWIFT is keen to move the

solution into the securities industry, outside

of pure payments investigations, to support

efficiency drives and boost STP rates.

28

Cash Management

Maximise funding and lendingopportunities through enterprise-wide,real-time cash management

Christos ElefteriadisLead Principal Business Consultant,SmartStream

The current approach at some banks is

neither real-time, reliable nor particularly

secure. With manual intervention comes

the increased risk of errors and the lack of

a clear audit trail. However, given the slim

margins in banking today, there are

opportunities to gain a greater Return on

Capital Employed (ROCE) through more

efficient cash management processes.

By moving to a more automated real-time

cash management process, banks can lower

costs, improve investment decisions, boost

liquidity management and gain the

predictability and visibility needed to affect

ROCE. Having access to timely, secure

transaction data – real-time information

from internal and external sources – can

influence the firm’s cash balances and add

value to lending and funding decisions

at the earliest possible opportunity.

Cash managers need a system that allows

for multiple feeds from a variety of sources.

Overnight batch files can still be utilised,

but supplemented by real-time feeds with

details of other movements and status

updates, including data from front-office

The cash management function has been something of a poorrelation in the back-office. All too frequently manual andbatch-based processing within individual silos are still thenorm and banks fail to adopt an enterprise-wide approach.

NewsMatch 29

systems and custodians. These flows can

be clearly marked so that the cash manager

is alerted to exceptions (such as a settlement

break on a transaction) that may already

be included on the cash balance.

This enables the cash manager to make an

informed decision to include new trades or

updated information in their balance. Intra-

day updates such as cancellations, trade

confirmations and amendments can then be

sent through the cash management system.

With SEPA forcing firms to differentiate

themselves through service offerings rather

than price, real-time enterprise cash

management is an invaluable tool. Removing

silos and delivering timely data can enable

the cash manager to make the most accurate

balance calculations to inform lending and

funding decisions and deliver greater value.

Traditionally, banks looked at spot cash

flows to predict trends short term. However,

it’s possible to take a longer view, letting

the cash manager use their market

knowledge to the best possible effect when

making lending and funding decisions.

Much of the success of the investment

decision rests with having accurate data

at their disposal. That high quality data

flow is only achievable with an integrated

cash management system such as

TLM® Cash Management, delivering real

time information.

In a perfect world lending decisions would

be based on internal data, however, not

everything is settled in time, data is missed

or repeated and cash receipts aren’t expected.

The use of an enterprise, real-time solution

offers numerous benefits. It allows cash

managers to map cash, enabling them to

reconcile expected movements with actual

movements to move from the traditional

end-of-day settlement reconciliation

(often completed the following day), to

reconciliation on the same day.

As a result, errors can be investigated on

the day they appear or become apparent

and corrected while markets are still open.

This prevents breaks from occurring,

lowering the likelihood of claims and

reducing the burden on Claims Departments.

Better quality data, provided in real-time,

helps to prevent unnecessary use of overdraft

facilities or having too much cash tied up

in low interest positions. This visibility into

cash positions facilitates intra-day liquidity

management, enabling cash managers to

take advantage of differentials between

borrowing and lending rates during the day.

Through examining projected cash balances

and expected movements that won’t settle

on time, cash can be carried forward

and included in the next day’s balance.

For financial institutions these capabilities

provide a valuable method for monitoring

payments and receipts made on behalf of

clients in real-time, in exactly the same way

a bank does. As a result:

• Funding and investment decisions can

be optimised when they are based on

actual, rather than expected, information.

• Account sweeping can be based on

actual data preventing possible account

overdrafts.

• A client expecting to receive a larger

amount of money can monitor the

receipt of the funds. If there are any

problems it can proactively take actions

in order to see to that the money really

is transferred on time.

When you consider the benefits of

using real-time data, both from internal

and external sources, banks shouldn’t

be hesitating to invest in enterprise cash

management systems. Banks who use a

single, automated global cash management

solution will optimise the funding and

lending business and at the same time,

de-risk operations and lower costs.

[This visibility into cash positions facilitates intra-day liquidity management, enabling cash managers to take advantage of differentials between borrowing and lending rates during the day.

TLM Cash Management – the solution at work

30

TLM Corona

The data flexibility delivered by TLMCorona 7.3 enables it to pull transactionaldetails from any external bank systemand deliver the data to the user. As aresult, TLM Corona can now provide a single interface into any bank system– delivering a data and source agnosticsolution for banks.

Increased data visibility helps to deliver

greater control to the transaction lifecycle.

Where exceptions occur, TLM Corona can

support more effective investigations, as

the same look up mechanism can be

used to pull data from external systems –

payment systems, core banking systems or

trade finance systems – and attach it to an

exception case. The same data can then be

used to create an outgoing SWIFT message

while the original payment instruction

forms the basis of the investigation. This is

a key functionality TLM Corona provides

in order to support SWIFTNet Exceptions

and Investigations (E&I) workflows.

These workflow enhancements in TLM

Corona can also help banks to develop

automatic resolution of investigation cases.

Banks using TLM Corona’s thin client

delivery can position themselves as customer

service innovators, providing online

investigation capabilities to their clients.

This new level of self-service gives corporate

customers greater control and visibility into

their transactions. For the bank it means

lower cost-per-customer while improving

the overall service level to clients.

At large corporates, treasury and cash

management teams can manage accounts

online and where transaction breaks occur

raise an exception case through the TLM

Corona WebConnect user interface and

create a case for investigation. This provides

corporates greater visibility into cash

TLM® Corona goes from strength to strength

Rudolf SchnepfProduct Manager – Reconciliations,SmartStream

Delivering increased transaction visibility and supporting customer self-service initiatives.

[Central to SmartStream’s development plan forTLM Corona is bringing new web components into the user interface and creating new user-defined dashboards.

NewsMatch 31

UK – Head OfficeSt Helen’s1 UndershaftLondonEC3A 8EETel +44 (0)20 7898 0600

UK – Product Centre1690 Park AvenueAztec AvenueAlmondsburyBristolBS32 4RATel +44 (0)1454 617020

Australia3 Spring StreetLevel 8Suite 1Sydney NSW 2000Tel +61 (0)2 8249 4359

Austria Vienna Twin TowerWienerbergstrasse 111100 ViennaTel +43 (0)1 313 54 0

China15/F NCI Tower Office 152512A Jianguomenwai AvChaoyang District100022 BeijingTel +86 (10) 8523 3042

France33, rue Galilée75116 ParisTel +33 1 444355 54

GermanyAn der Welle 460422 FrankfurtTel +49 (0)69 7593 8013

IndiaUnit 7, Plot 15Western Industrial Co-Operative Estate LtdMIDCAndheri EastMumbai 400 093Tel +91 22 6641 2525

ItalyVia Annibale Caretta, 120131 MilanoTel +39 02 742 09 41

Luxembourg33 Boulevard Prince Henri1724 LuxembourgTel +352 26 63 48 10

Singapore 70 Anson Road#26-01 Apex Tower079905 Singapore Tel +65 6 224 76 89

Spainc/ Goya, 15 - 6º drcha.28001 MadridTel +34 91 598 49 30

SwitzerlandSeefeldstrasse 69CH-8008 ZürichTel +41 (0) 43 488 37 58

USA61 BroadwaySuite 2824NY 10006Tel +1 212 763 6500

250 N.E. 25th Street MiamiFlorida 33139Tel +1 212 763 6500

movements and true cash positions if a

payment has stalled or failed enabling

them to better control liquidity, cash

and risk. For the bank it means they

can deliver innovative trade finance,

cash and payment services.

Central to SmartStream’s development

plan for TLM Corona is bringing new web

components into the user interface and

creating new user-defined dashboards.

TLM Corona 7.3 includes interfaces for

cash, payments, revenues, FX, money

markets, derivatives, precious metals,

securities holdings, transactions,

settlements, corporate actions and trade

confirmations and more will be added

over the coming year.

For example, TLM Corona’s development

has continued with support for customers

reconciling precious metals transactions.

The continued rise in precious metals

trading has prompted operations

departments to look for greater

automation. This is because outstanding

confirmations are still managed manually,

which takes time and creates risk.

The drivers behind automating this process

are lowering operational risk reduction

and the need to lower operational costs.

Customers, including Erste Bank in Austria,

are now processing SWIFT MT 600

(Precious Metals Confirmation) messages

and reconciling them with TLM Corona’s

proven matching capabilities.

As announced at Sibos last year, TLM

Corona’s supported language list has

expanded to include Chinese and is now

live at China’s second largest bank. We

continue to extend the local language

capabilities available in TLM Corona to

support our customers’ global operations

and ambitions.

COPYRIGHT AND LEGAL NOTICECopyright in all published material including photographs, drawings and images inthis magazine remains vested in SmartStream Technologies and third partycontributors to this magazine as appropriate. Accordingly neither the whole nor anypart of this magazine can be reproduced in any form without express prior permissionof SmartStream Technologies in which the copyright resides. Articles, opinions andletters from solicited or unsolicited third party sources appearing in this magazine donot necessarily represent the views of SmartStream Technologies. Further, whileSmartStream Technologies has taken all reasonable steps to ensure that everythingpublished is accurate it does not accept any responsibility for any errors or resultingloss or damage whatsoever caused and readers have the responsibility to thoroughlycheck these aspects for themselves.

[This new level of self-service givescorporate customers greater control and visibility into their transactions.

UK – Head Office

www.smartstream-stp.com

SmartStream’s Transaction LifecycleManagement (TLM®) software solutionsbring operational efficiency, real-timevisibility and risk control to the Middleand Back Office.

Highly scalable, automated processes trackand control entire transaction lifecycles asthey break through organisational silos andextend beyond the enterprise. Collaborative,flexible processing environments are created thatsupport, not limit your business.

Integrated human and system workflow at theheart of SmartStream’s TLM solutions providesrobust processes and a complete audit trail of everytransaction. Regulatory compliance is made easierwhile risk and costs are reduced.

TakeControl

� Cash Management

� Compliance Management

� Corporate Actions

� Exception Management

� Reconciliations

� Trade Finance

� Trade Process Management

To find out more, please call:

Americas +1 212 763 6523Europe +44 0207 898 0631 Asia +65 6224 4761 info@smartstream-stp.com www.smartstream-stp.com

with Transaction Lifecycle Management®