The money market fund business is one of the fastest-moving sectors in treasury operations. With rising interest rates, short-term capital has poured back into money market funds as treasurers rethink their cash management strategies. But access remains a critical, yet largely unaddressed issue. Ed Lopez, Calastone’s President of Global Money Market Services, writes that the time has come for a technology solution which matches the pace of growth in this market.
Money market funds (MMFs) are back in vogue. Rising policy rates coupled with banking sector instability have brought record levels of inflows into MMFs. This also means new investors coming to the table and a jump in transaction volumes. In short, there are more trades that need to be settled. This is happening despite the current position of the US debt ceiling and the banking sector concerns.
But volume is not everything. The technology teams within funds need to handle those transactions efficiently and profitably whatever the size of the customer base. These new investors and investments bring with them new systems, messages sets and processes. Investors are increasingly expecting these to be supported “out-the-box” from the provider(s) they choosei. With technology evolving faster than ever, there is a need to address the increasing numbers of less sophisticated/technically capable investors looking for more easy to use solutions that are better integrated with the fund. That need for low-cost efficiency and convenience is why scrutiny of the way MMF transactions function and the total cost of the technology that underlies the short-term fund market is also growing.
Be ahead of the curve
Financial technology has come a long way in the past 10 years, with investors becoming accustomed to platforms that are user-friendly, multi-functional and low-cost. But the tech platforms where these funds are typically traded have not kept pace with this revolution in functionality and convenience. They lack the ease of integration with existing systems and access to real-time data that are the hallmarks of consumer financial applications.
So it is time for technology teams to rethink the tech they deploy for MMF trading. In a world where a retail banking customer has access to applications that perform complex operations yet are efficient and intuitive to use, fund providers and their investors deserve technology that is at least as efficient as the retail norm.
Any compelling financial trading platform needs to deliver at least three things: seamless connectivity to all trading partners; full functionality without excessive maintenance cost or downtime; security and freedom from risk.
That is what we aim to deliver through Calastone Money Market Services.
Less stress, more service
Trading-platform connectivity should not be a pain point for IT teams, whether in terms of technology integration or cost. It should not require additional resources to implement add-ons or multiple integrations to expand the range of connected partners. It should provide seamless access to all banks, financial portals and counterparties such as transfer agents and asset managers. It also needs to handle all processes related to MMF investing – not just trade transactions, but also settlement, reporting and cash sweep reporting – in a single automated space.
When it comes to evaluating a trading platform in action, what really counts is functionality and flexibility. For instance, the ability to automate your settlements or sweeps processes shouldn’t be a huge, protracted technology project. However, without the right experience and capabilities, technology teams that’re looking after large-scale legacy systems can quickly find themselves scoping out an unenviable task that seems prohibitive in terms of time and cost and resources.
The other issue facing teams managing an existing trading platform is the fact that legacy technology is that it carries higher risk – the risk attached to outdated communication protocols or as a result of manual processing, which can introduce some degree of error.
Ultimately platforms should make life easier for the technology teams who deploy them, automating transaction processes in a way that cuts the costs of onboarding and servicing customers and increases data security.
So, how are firms ensuring their MMF trading platform continues to evolve while also remaining secure and low-risk?
A future scenario
Imagine if you had a provider who would build to your technology and automate a laborious process that you have problems with.
At Calastone we do just that. You identify an area where you want to automate – trade sending (seamless integration with any portal or investor system), settlements (automated payments and full transparency), reporting (automated investment information delivery) or cash sweeps (automated bank balance reporting) – and our delivery team quickly integrates the solution you need with your system. Mostly importantly, your investors will find your platform functionality enriched and see a world of difference in how you are supporting them.
All you have to do is ask
In an ideal world, fund providers and investors would not even have to think about the trading platforms they use, or the functions they do or don’t have. They would simply use them, have everything they need at their fingertips – and the technology teams would spend time on value creation instead of system troubleshooting.
That’s the way it should be – and the way it can be – if you get the technology right. All you have to do is ask.
