INSIDE THIS ISSUE Consolidating reconciliations through BPO

Focus on Americas TLM® Corona – customer self-service

The web 2.0 advantage Reconciliations – moving up the lifecycle

ISSUE 10 2008
NewsMatch
SmartStream Technologies’ Magazine for the Financial Services Community

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

Take
Control
with Transaction Lifecycle Management ®
 2
Welcome to NewsMatch | CEO Comment
Ken Archer
Chief Executive Officer,
SmartStream
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…
2 Welcome to NewsMatch
CEO comment
Type here
4 Global News
Company news round-up
6 Product Focus
Proactive Cash Management
delivered by TLM
The back-office systems of the world's
largest investment banks are at breaking
point from escalating trading volumes…
Trading volumes on Friday, Aug. 10, were
so high that at least two top investment
banks’ credit derivatives teams had to work
over the weekend to clear confirmations.
One banker said it was lucky the spike
happened on a Friday, giving his team two
days to catch up, or they would not have
been 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
Eliminating the barriers to Straight Through Processing
through the delivery of enterprise-wide, real-time
Transaction Lifecycle Management solutions
7 Industry Research
Banks warn regulatory pressures and
costs set to impact product innovation
8 Focus on Americas
Building on our strengths
9 TCS Aspire Service
Consolidating reconciliations through BPO
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
10 Executive Viewpoint
Creating a reconciliations community
12 Trade Process Management
Supporting post-trade processing of
complex instruments
14 OTC Derivatives
The derivatives conundrum

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
Cash Management
Compliance Management
Corporate Actions
Exception Management
Reconciliations
Trade Finance
Trade Process Management
16 Customer self-service
Case Study – RZB
18 Reconciliations
Case Study – Northern Trust
20 Web 2.0
Set to transform customer services
NewsMatch 3
real-time, multi-instrument, enterprise-wide markets and to enter new geographies we
trade processing environments for are expanding our indirect operations by
the Middle Office with TLM Trade building relationships with trusted third
Process Management. parties. Our commitment to serve our
global client base with the highest level
Beyond product innovation we’re focused of service has never been stronger.
on strengthening our business through
operational excellence and greater client It’s through these continued investments
intimacy – in doing so we believe we can and with our clear and compelling
be a better strategic partner to our clients. technology vision that I believe we have
Operationally, we’re improving our already become a strategic partner to our clients.
robust product development processes to The news stories and features in this edition
ensure the quality of products and our new of NewsMatch highlight just how far the
composite, SOA-based, solutions remain at company has come over the last 12 months.
the highest level. We’re introducing new I’d encourage you to take a look at the
processes to capture market feedback on a magazine and see how we can help you
more frequent basis to identify common strengthen your operations.
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
Take
Control
with Transaction Lifecycle Management ®
22 STP in Latin America 28 Cash Management
Moving towards standardisation and Maximise funding and lending
Type here
greater efficiencies opportunities through enterprise-wide,
real-time cash management
24 Reconciliations
Case Study – ING IM Australia 30 TLM Corona
®
TLM Corona goes from strength to strength
26 SWIFTNet E&I
Streamlining payment exceptions
4

Delivering exception
ING IM gain visible results management at
from automated processes Commerzbank

ING Investment Management (ING IM) in Australia is

using TLM® Reconciliations to manage the reconciliation By extending its Corona implementation,
control requirements of around 1,000 portfolios with a Commerzbank aims to enhance
value of approximately AU$40 billion. Exception Management through rapid
investigations processing of historic
This has enabled it to move away from in a ‘semi-automated’ environment using Excel transaction data. Using Corona Archive,
spreadsheets, Access databases and other desktop tools to create automated, timelier the data can be maintained online
reconciliations processes. As a result, ING IM has gained greater visibility of the resulting without any limitations in systems
reconciliation items, a key element to reducing risk. Turn to page 22 for full case study. performance for reconciliation processes.

“The return on our investment is compelling.

Corona’s ability to provide users with rapid
SmartStream gains SWIFTReady Gold access to historic transaction data will
allow us to further automate investigation
SmartStream has achieved the highest level of handling and ultimately improve STP
certification awarded by SWIFT for their solutions, rates,” commented Karin Brehm, Assistant
recognising Corona, TLM Corona, TLM Reconciliations and TLM Trade Finance’s Vice President, on the purchase of Corona
SWIFT compliance, integration with the SWIFT environment and its contribution to Archive. “Corona Archive will facilitate
facilitating greater STP. The accreditation also proves the continued commitment and our investigations process across different
investment into SmartStream’s world leading Reconciliations solution. Commenting on instruments and assist in regulatory
the TLM Reconciliations accreditation Joel Luvigsen, Head of Partner Solutions, SWIFT compliance. We are planning to keep historic
said, “We are delighted that SmartStream continues to work with SWIFT to drive the data of the last 10 years in the system for
market forward for the benefit of our mutual customers. TLM Reconciliations is yet online retrieval.”
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.” WebConnect enables
rapid deployment
New website – now with mySmartStream
SmartStream has re-designed its website to make
it easier for you to find the information you Banco Popolare, implemented TLM Corona,
want. You will find better navigation, a robust to automatically match all relevant
search facility and more content on our range transaction data for Italian and foreign
of Transaction Lifecycle Management (TLM) accounts. TLM Corona highlights exceptions
products and solutions. By registering yourself as early as possible in the transaction lifecycle
on the website you’ll have access to ‘mySmartStream’ and provides the bank with a complete
which will save you re-registering in order to audit trail of its transactions for compliance
register for events, you will be able to browse purposes. The solution’s web-based user
and download the latest brochures, case studies interface, TLM WebConnect, has enabled
or research papers time after time. the bank to quickly and easily deploy
Simply visit: www.smartstream-stp.com TLM Corona across its operations.

Global News

US buy-side firms
select TLM
SmartStream’s TLM delivers the ability
for buy-side firms to automate and control
transactions across the middle and back
office from the reconciliations department
to the corporate actions function. A major
New York hedge fund, ranked in the Top
10 globally by asset size, has selected TLM
Corporate Actions to automate the firm’s
end-to-end event lifecycle. This will
enable the fund to cleanse external data
and prime broker feeds to create the
Golden Record for all events, including
voluntary response tracking and then
calculating 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.
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.
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.”
Banco Santander UBS extends
live on TLM investment with
SmartStream
Banco Santander has implemented TLM
Reconciliations to support the group’s
reconciliation consolidation strategy and
to better respond to current and future The Investment Bank is expanding its
market and regulatory challenges. The use of TLM Reconciliations to implement
implementation is based on a centralised a solution to cope with more complex
shared service to include reconciliations reconciliations and replace its existing
capabilities for cash, securities, and FX securities reconciliation system. TLM
confirmations, as well as intersystems WebConnect, SmartStream’s web portal,
reconciliation, and reconciliation of is being deployed across the firm’s global
complex treasury products such as SWAPS user community to provide greater
and OTC Derivatives. Luis Corbolan, operational visibility for users through its
Director of Reconciliation Operations, intuitive dashboards. Commenting,
Santander, commented: “TLM Reconciliations Richard Cummings, Regional Director,
has provided us with the flexibility and SmartStream UK, stated “We have been
scalability we needed to build a common a trusted supplier to UBS for a number of
reconciliation platform for the group. years, successfully deploying TLM across
By creating an agnostic reconciliations their global operations. We are delighted
processing capability we are able to handle that the Investment Bank has decided to
complex transactions like OTC derivatives expand its use of TLM Reconciliations to
as well as more standard instruments.” gain a further return on its investment.”
6
Proactive Cash Management
delivered by TLM
Recognising industry demands for greater visibility and control, TLM Cash Management
2.0 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 from
any source, facilitating the calculation and projection of funding, borrowing and lending
requirements on an enterprise-wide basis.
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
Product Focus
®
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.

Banks warn regulatory
pressures and costs set to
impact product innovation
$16 billion. That’s the estimated investment
in SEPA compliance since 2002. According
to research findings from Aite Group,
more than half of the respondents to
European cash management survey said
that the regulatory environment was their
biggest challenge, consuming so many
resources and budget that it is diverting
attention from product innovation and
other 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
Industry Research
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,
NewsMatch 7
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.
8
Building on our strengths
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.
SmartStream continues to support its
existing customers and new clients in
the Americas region by delivering volume
insensitive, instrument solutions that
have delivered greater control and
visibility to the transaction lifecycle.
We have increased our sales and
relationship management team to
better support this growing customer
base, added expertise on our support
desk and added capabilities to our
professional services team. Together,
this strengthens our ability to be a
strategic business partner to our clients.
Focus on Americas
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
Lou Longhi
Regional Director Americas,
SmartStream
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.

Consolidating reconciliations
through BPO
New TCS Aspire Service aims to boost STP rates and drive down cost
and risk, while removing operational limitations.
With increasing transaction volumes
and falling margins on commoditised
products institutions are looking for new
methods to deliver lower operational
costs and risk. This situation has been
compounded by the increased use of
more complex instruments that must be
reconciled at multiple points within the
transaction 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
TCS Aspire Service
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.
NewsMatch 9
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.
[
Institutions of all sizes, business
models and geographic locations
struggling with back office
volumes can take advantage
of this service.
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.
10

Creating a reconciliations community

As an institution that has embraced outsourcing, Deutsche Bank

is in a unique position to outline its vision for delivering greater
efficiency and value from the back office. Martin Slumbers,
Chief Operations Officer at Deutsche Bank discusses how the
bank analysed its reconciliations processes and its reasoning
behind choosing to move to the TCS Aspire Service.
Martin Slumbers
Chief Operations Officer,
Deutsche Bank

What are the major pain points for any
large institution in terms of managing its
reconciliations 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 about
measuring 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 these
operations?
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 an
attractive 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

Executive Viewpoint

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 Deutsche
Bank in TCS Aspire being a combination
of the leading outsource provider using
SmartStream’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.
NewsMatch 11
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.
12
Supporting post-trade processing
of complex instruments
As the buy-side continues to experience pressure to process
growing business volumes in increasingly complex asset classes,
SmartStream has released TLM® Trade Process Management 2.0
to address the post trade confirmation, settlement and exception
management needs of financial institutions.
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.
[
Business logic and process models can be simply
amended to match new requirements and permissions
changed to display a new profile in a dashboard.
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.
Type Process
Trade here Management
Steve Miller
Senior Product Manager,
SmartStream
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
 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 TLM Trade Process Management – solution overview
institutions’ post-trade processing needs.

As a result of these improvements, TLM

TPM 2.0 enables trade confirmation
14

The
derivatives
conundrum
As derivatives volumes continue to soar,
what are the implications for the
middle and back-office?

While outstanding confirmations for the equity world because it is client-based,

credit derivatives have dropped by some
70 percent after intervention by the
Federal Reserve, there remain significant
challenges to automating the wider
derivatives 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
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

OTC Derivatives

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
[
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.
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
NewsMatch 15
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.
16
Delivering service innovation
over the Internet
In a competitive market, how do you
deliver a brand that stands out from the
crowd? For Raiffeisen Zentralbank
Österreich AG (RZB), part of the Austrian
Raiffeisen Banking Group, it was to create
an innovative service that reduces risk
and costs, while also delivering greater
self-service to clients.
Walfried Lemerz
Head of Transaction Services,
Infrastructure Department, RZB
Customer self-service
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.
Case Study | RZB
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.
 NewsMatch 17

[
“It’s an innovative step and we think this
We want to create a near-STP process, so that the sort of self-service option is the future
data goes from TLM Corona to the core bank system of banking relationships. We want our
to provide an automated response. We’re at the customers to be actively involved in the
beginning of that vision, but we feel that with TLM reconciliation and investigation process,”
Corona we have the foundations in place to make says Lemerz. “We believe that if you
give the customer more power through
that a reality. the right self-service tools then customer
service and satisfaction will improve.”

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.
18

Case Study | Northern Trust

Driving a new reconciliation

methodology at Northern Trust
Bob Sturgis
Northern Trust

The Northern Trust Company is a

leading global custodian with more
than $4 trillion in assets under custody.
Global Reconciliations across Northern’s
Operations was recently centralised
under Bob Sturgis. A main priority
of this new group was to consolidate
reconciliation systems onto a global
platform, one that could handle
more than 30 million transactions a
month running through its operations.
To achieve this vision, Northern selected
TLM® 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.

Reconciliations

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.
[
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.
Transaction-based reconciliation
For 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 process
There 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.
NewsMatch 19
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.”
20
Web 2.0
set to transform
customer services
The potential to significantly change the way institutions
connect to, service and support customers.
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.
Type 2.0
Web here
Neil Vernon
Senior Product Manager,
SmartStream
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
Matthew Nelson
Senior Analyst, Investment
Management, TowerGroup
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.”

[
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.
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 to
business partners and customers
Crucial 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
NewsMatch 21
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.
22

Moving towards standardisation

and greater efficiencies

Foreign investment, deregulation, stronger currency valuation,

economic growth and low interest rates have helped to
create a productive environment for Latin America’s financial
institutions. The region’s banks have benefited from greater
demand for cash and payment services, the transfer of
technology and capital flows, consolidation and sound
business management.

According to SWIFT representative Michel operations with international banking

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
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

[
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.
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
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


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.
NewsMatch 23
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
Case Study | ING Investment Management Australia
Reconciliations – move up
the transaction lifecycle
ING Investment Management Australia has
reduced costs and improved process visibility
using TLM® Reconciliations.
Creating automated reconciliations
processes in a more timely manner, along
with greater visibility of the resulting
reconciliation items, is a key element to
reducing risk. It was one of the important
drivers behind ING Investment
Management (ING IM) in Australia
choosing TLM Reconciliations to manage
the reconciliation control requirements
of around 1,000 portfolios with a value of
approximately 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.
Reconciliations
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.

[
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.
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.”
NewsMatch 25
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 control and risk management the institution is implementing the
functions have significantly improved due solution’s investigation and workflow
to the redeployment of staff to analysis- functionality. “I believe ING IM will
based roles. These staff now use the time see further benefits from the project’s
previously taken up with purely completing next phase, helping us to deliver even
reconciliations to ensure greater data greater efficiencies,” says Parkinson.
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
26

Streamlining
payment exceptions
The handling of payment investigations remains one of the
most resource intensive back-office activities, representing
a significant cost for the banking industry, hampering efforts
to deliver effective customer service. However, recent changes
to SWIFTNet services present an opportunity for institutions
to make a step change in payments processing.
Catherine Banneux
Senior Product Manager,
Banking Industry Division, SWIFT

Launched in September 2006, SWIFTNet
Exceptions and Investigations (E&I)
protocol is designed to deliver greater
automation in payments by replacing free
format messages. This XML-based
protocol uses the existing SWIFTNet
InterAct service to enable institutions to
exchange messages in an automated and
interactive way through its Store and
Forward 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.

SWIFTNet E&I

[ …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.
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 reduction
Substantial 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.
NewsMatch 27
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
Maximise funding and lending
opportunities through enterprise-wide,
real-time cash management
The cash management function has been something of a poor
relation in the back-office. All too frequently manual and
batch-based processing within individual silos are still the
norm and banks fail to adopt an enterprise-wide approach.
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
Cash Management
Christos Elefteriadis
Lead Principal Business Consultant,
SmartStream
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

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
[
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.
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
TLM Cash Management – the solution at work
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.
NewsMatch 29
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.
30
TLM Corona goes from
®
strength to strength
Delivering increased transaction visibility and
supporting customer self-service initiatives.
The data flexibility delivered by TLM
Corona 7.3 enables it to pull transactional
details from any external bank system
and deliver the data to the user. As a
result, TLM Corona can now provide
a single interface into any bank system
– delivering a data and source agnostic
solution for banks.
Rudolf Schnepf
Product Manager – Reconciliations,
SmartStream
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
[
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
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
 NewsMatch 31

UK – Head Office

[ This new level of self-service gives

corporate customers greater control
and visibility into their transactions.

www.smartstream-stp.com

UK – Head Office India

St Helen’s Unit 7, Plot 15
1 Undershaft Western Industrial
London Co-Operative Estate Ltd
EC3A 8EE MIDC
Tel +44 (0)20 7898 0600 Andheri East
Mumbai 400 093
UK – Product Centre Tel +91 22 6641 2525
movements and true cash positions if a The drivers behind automating this process 1690 Park Avenue
Aztec Avenue Italy
payment has stalled or failed enabling are lowering operational risk reduction Almondsbury Via Annibale Caretta, 1
them to better control liquidity, cash and the need to lower operational costs. Bristol 20131 Milano
BS32 4RA Tel +39 02 742 09 41
and risk. For the bank it means they Customers, including Erste Bank in Austria,
Tel +44 (0)1454 617020
can deliver innovative trade finance, are now processing SWIFT MT 600 Luxembourg
cash and payment services. (Precious Metals Confirmation) messages Australia 33 Boulevard Prince Henri
3 Spring Street 1724 Luxembourg
and reconciling them with TLM Corona’s Level 8 Tel +352 26 63 48 10
Central to SmartStream’s development proven matching capabilities. Suite 1
Sydney NSW 2000 Singapore
plan for TLM Corona is bringing new web Tel +61 (0)2 8249 4359 70 Anson Road
components into the user interface and As announced at Sibos last year, TLM #26-01 Apex Tower
Austria 079905 Singapore
creating new user-defined dashboards. Corona’s supported language list has
Vienna Twin Tower Tel +65 6 224 76 89
TLM Corona 7.3 includes interfaces for expanded to include Chinese and is now Wienerbergstrasse 11
cash, payments, revenues, FX, money live at China’s second largest bank. We 1100 Vienna Spain
Tel +43 (0)1 313 54 0 c/ Goya, 15 - 6º drcha.
markets, derivatives, precious metals, continue to extend the local language 28001 Madrid
securities holdings, transactions, capabilities available in TLM Corona to China Tel +34 91 598 49 30
15/F NCI Tower
settlements, corporate actions and trade support our customers’ global operations Office 1525 Switzerland
confirmations and more will be added and ambitions. 12A Jianguomenwai Av Seefeldstrasse 69
Chaoyang District CH-8008 Zürich
over the coming year.
100022 Beijing Tel +41 (0) 43 488 37 58
Tel +86 (10) 8523 3042
For example, TLM Corona’s development USA
France 61 Broadway
has continued with support for customers 33, rue Galilée Suite 2824
reconciling precious metals transactions. 75116 Paris NY 10006
Tel +33 1 444355 54 Tel +1 212 763 6500
The continued rise in precious metals
trading has prompted operations Germany 250 N.E. 25th Street
An der Welle 4 Miami
departments to look for greater
60422 Frankfurt Florida 33139
automation. This is because outstanding Tel +49 (0)69 7593 8013 Tel +1 212 763 6500
confirmations are still managed manually,
which takes time and creates risk.

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 Take
Control
with Transaction Lifecycle Management ®

SmartStream’s Transaction Lifecycle  Cash Management

Management (TLM®) software solutions
 Compliance Management
bring operational efficiency, real-time
visibility and risk control to the Middle  Corporate Actions
and Back Office.  Exception Management
Highly scalable, automated processes track
 Reconciliations
and control entire transaction lifecycles as  Trade Finance
they break through organisational silos and  Trade Process Management
extend beyond the enterprise. Collaborative,
flexible processing environments are created that
support, not limit your business.

Integrated human and system workflow at the

heart of SmartStream’s TLM solutions provides
robust processes and a complete audit trail of every
transaction. Regulatory compliance is made easier
while risk and costs are reduced.

To find out more, please call:

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