Since the Calastone Transaction Network went live in 2008, it has grown exponentially. When Calastone was established, transactions in the mutual funds industry were nothing short of archaic. Transaction messaging was still conducted by phone, fax, email, and excel spreadsheet; and the industry had been lacking a transaction network capable of handling and interpreting instructions that was accessible to all. Calastone’s vision was always to make the whole mutual fund market fully electronic, while allowing trading partners to communicate regardless of format or protocol.
At the time of the network’s foundation, the only suppliers of automated order routing services were expensive and inflexible, which meant that the industry was not willing to adopt change. They were not working cohesively with all of the different parties involved in the transactions – the TA, the fund manager and distributor – as they were ineffective in allowing them to communicate in their preferred formats, while forcing them to buy additional software that was costly and time consuming to integrate with. ‘Calastone came in and quickly gained a good understanding of the various issues – from the distributor, to the fund houses. Calastone enabled the different parties to come together and adopt its network as the solution for sending electronic orders.’ Wong Soon Shyan, Chief Operating Officer, iFAST Financial (Singapore).
Calastone was originally focussed on just the UK market, but the network expanded quickly, with offices opening in Australia in 2011 and Asia in 2012. Calastone Australia now has over 750 funds live on the network, with over $59bn of funds processed since launch. The global network now covers 29 countries and territories, supporting over 1,000 clients.
Calastone recently achieved one of its most significant milestones. The network now hosts over 10,000 trading links worldwide. This expansion provides common infrastructure, meaning that using a single connection to Calastone, fund managers are able to more easily enter new markets in order to distribute their funds. As the network expands, distributors also benefit, as they’re able to trade with more fund managers in more markets. The growth to 10,000 trading links is representative of industry participants’ need and desire to work together to create full STP across the whole global funds market.
Calastone has transformed the industry over the past eight years, and the cost, risk and efficiency benefits to all trading parties cannot be overstated – ‘There is ease in sending orders, and ease in receiving confirmation, without the risk of sending to the wrong party or double faxing.’ Wong Soon Shyan, Chief Operating Officer, iFAST Financial.
As the international industry grows, the need to adopt automation increases significantly. Calastone is therefore continuing on its path of expansion, with the first trades between New Zealand and Australia recently processed. The Mutual Recognition of Funds (MRF) programme has also allowed the network to maintain links between Hong Kong and Mainland China, as we are now able to provide our Hong Kong clients with the ability to conform to their defined messaging standards and protocols. This has allowed clients to trade and sell funds into China, while saving them time, resources and cost.
However, expanding into new markets is not always easy, and some markets, especially Asia, are less willing to adopt to change than others. Calastone’s commitment to delivering a low cost solution will be key to expanding successfully. Commenting on Calastone’s expansion into Asia, Wong Soon Shyan of iFAST Financial said: There are countries in Asia that are still relying on faxing orders and confirmations – this method is prone to error and inefficient. We all know which direction we should take i.e. automation. Cost is an issue, probably the biggest issue. Calastone has been able to create a solution that is acceptable to all parties.’
There are also a huge number of other operational challenges that the global industry still need to address. Since launch, Calastone has extended its product to drive efficiency across the whole transaction lifecycle, and not just through Order Routing. One such area of inefficiency was around managing settlements. Calastone launched its commercial settlement system to market in the UK, driving efficiencies through the settlement process. Nigel Jenkinson, IFDS, added: ‘Settlements that are based on matched net settlement add significant value to the back office function, because it increases the distributors’ ability to reconcile, which drives efficiency across the industry. It’s not just helping the distributors and Fund Managers improve liquidity, but it means that we as a TA, can focus on enquiries that add more value to the client experience.’
In addition, Calastone’s Trade Notification, Transfers and Reporting services will all be key in achieving higher STP rates. Nigel Jenkinson, IFDS, commented ‘We’re currently driving a 97% STP for the platforms and nominee population, and Calastone plays a huge role in allowing us to achieve that.’ As the network and the industry grow together, the need and willingness to adopt automation will become greater and greater. Because of this, there is no doubt that Calastone will reach 20,000 trading links in less than half the time the network reached 10,000.