Providing access to a URL on the Internet can now be as good as providing a paper confirmation for an institutional trade. That’s the principle of a no-action letter recently granted by the Securities and Exchange Commission to vendor Omgeo, which sells the TradeSuite trade processing service to brokers and investment managers.
“This is a sign of the times in the trading industry,” says John Panchery, managing director for operations, technology and business continuity for the Securities Industry and Financial Markets Association. “Access now equals delivery.”
Under the terms of Rule 10b-10(a), clearing officials are required to provide confirmation to clients on or before the completion of a transaction. The SEC, in its letter to Omgeo, said it will not take enforcement actions against those who use the TradeSuite product “to satisfy the confirmation delivery requirements to Customers under Rule 10b-10(a), where the disclosures customarily provided on the back of the paper confirmations are provided electronically.”
Same Idea
Panchery, noting that the SEC has already given the fund industry approval for the use of electronic prospectuses, says the trading industry argued for the same idea in its disclosure standards. A bevy of big brokerages, including Goldman Sachs and Merrill Lynch, lobbied for the change, said a trading industry executive with a bulge-bracket firm, who didn’t want to be quoted by name.
“We thought what’s good for the fund industry, should be good for us,” the executive added.
SIFMA’s operations committee has been promoting electronic trading for years. That’s something that has been encouraged by utility and regulatory bodies. However, Omgeo says that lawyers and others at brokerages have been slow to jettison paper.
Nervous brokerage executives, Omgeo notes, feared there wasn’t enough space for various disclaimer and brokerage contract provisions in an electronic environment, so they continued to use paper and have been supplying the information on the back of the confirmation form-what’s called the confirm backer.
“The reality is that paper continued to come out because all these broker compliance officials weren’t comfortable not sending out the confirm-backer information,” says Lee Cutrone, managing director of industry relations for Omgeo.
Save Trees
Cutrone says electronic confirmation means the clearing process can be improved. This could save lots of trees, eliminating the trading industry’s need for millions of pieces of paper. It could also result in a substantial cost saving, he adds. The annual savings could come to $270 million, he estimates. “Add in the use of people’s time and the postage, and I think that figure could be doubled,” adds SIFMA’s Panchery.
Omgeo’s TradeSuite automates messaging and settlement for equity and fixed-income securities. Institutional brokers, investment managers and custodians use it for post-trade processing of domestic and cross-border trades of U.S. securities.
The letter represents another step toward eliminating all paper transactions, according to Omgeo. The firm is a hybrid vendor that began operations in May 2001, but whose predecessor firms go back to the 1980s and ’90s. Omgeo is half owned each by the Depository Trust and Clearing Corp. and Thomson Reuters.
Omgeo is preparing a new TradeSuite product that will contain the traditional confirmation information, but it will be sent out electronically instead of on the back of a paper form.
Recipients will be directed to a URL at one of Omgeo’s Web sites.
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