Latin American Capital Markets

250 ANDREW HOOK(FIX), Extensible Markup Language (XML), and SWIFT The use of performance toolsand benchmarking by asset managers will put pressure on settlement and clearingproviders. In the United States, the Securities Industry Association estimates cost savings related to STP andT+1 settlement to be $2.7 billion per yean while SWIFT putsthe global savings at $12 billion. 6 Translating these estimates to concrete cost savingsfor institutions will be a major challenge.In this proliferation of technologies and solutions, standardized solutions orplatforms for clearing and settlement have been slow to emerge. As more agreementsare reached internationally on best practices, regulatory standards, and linkages, morecomprehensive medium and small-size IT solutions will be possible. In the area ofpayment systems, for example, models for small but scalable RTGS systems are developing.The complexity and central importance of RTGS systems mean that totallyoff-the-shelf solutions do not make sense; however; with existing technology andexperience, such systems are much more standardized than they were even a fewyears ago. Such platforms are likely to develop in the next few years for securitiesmarkets as well.This strategic review is clearly evident in the United States, as institutions prepare for the shortening of the settlement period toT+1. Only the largest financial institutionsand those specifically specialized in securities processing will certainly remaitin the securities processing business; even some of these will modify their strategiesin order to optimize over a range of related securities functions, including custody, securities lending, and collateral management. Fund managers and smaller custodiansand subcustodians are more likely to look at outsourcing and alternative serviceproviders. For example, stiff competition among fund managers for clients may leadthese managers to focus more in-house resources on the competition for clients andless on securities processing and related issues.In the United States, GSTPA and Omgeo are competing for transaction processingto support T+1, and other companies are focusing on other parts of the transactioncycle. 7 While this work may not have an immediate impact on clearing and settlementin other parts of the world, including Latin America and the Caribbean, it willhave an impact in the longer term. Institutions in Canada, for example, are already gearing up for the switch to T+1 at the same time as in the United States, and institutionsin Mexico are likely to have a similar response. A coordinated shift in these countrietoT+1 will strengthen these markets and provide a reliable base for further expansion6 Further information can be found at www.sia.com and www.swift.com.7 For further information, see gstpa.org and omgeo.com.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub