Transaction network firm Calastone plots path to growth

Continental European business plans continue to develop, even as Asian business booms, according to Sebastien Chaker, Luxembourg-based managing director and head of Asia for the Calastone Transaction Network.

For an indication of how the IT firm developing, Chaker (pictured) is set to relocate to Hong Kong as business in the region ramps up following a similar pattern seen in Continental Europe, and prior to that in the UK market, where Calastone processed its first transaction message in 2008 following its establishment a year earlier.

By early 2010 it was present in Luxembourg, at which time Chaker joined. He has now had to make the decision to relocate in order to be able to keep up with the demands of Asian clients.

Driving the expansion

Calastone’s business is providing an electronic network that facilitates business between fund managers and distributors – routing orders, as well as providing settlement and reconciliation services.

Such networking has been ongoing for many years among its older competitors. But Calastone positions itself in terms of not forcing its users to buy or install any special IT equipment to make its services work. Its own IT has been designed to adapt to, say, the message standards used by clients, not the other way round.

This model means it minimises the upfront IT fixed costs of clients – a simple idea but effective as suggested by its growth in client numbers to date.

And with the volume of transactions growing – for example, because financial markets in Asia are growing overall, or because regulatory changes such as the Retail Distribution Review in the UK are increasing the number of share classes per fund in the market – demand is on an upward trajectory for IT solutions that can make it easier and cheaper to facilitate transactions between manufacturers and distributors.

Additionally, with no clear pathway to broader standardisation of messaging formats, the rationale for a business like Calastone’s is not going to go away anytime soon, as Chaker explains.

“If you just take the cross-border world – the Luxemburg and Irish funds – you are talking about 35% ISO standardisation over the past 12 years,” he says.

“That is covering direct clients that have used Swift, clients that have outsourced to Euroclear, Clearstream, and since 2010, Calastone transactions. That is quite low – 12 years and 35%. There is other automation that is more proprietary – and more costly. That is why we thought there is clearly a niche.

“There are two things that we have brought to the market. One is [questioning] who should actually pay for this. As long as people think that distributors will pay, will invest to automate the fund industry, then we will never go far. Our approach is: it is the fund managers’ industry, it is their responsibility and in their interest to make their products easily accessible to investors.

“The second real difference is the technology. Instead of saying to the distributor: ‘You have to pay if you want to distribute my product efficiently’ – and it is the only industry I can think of where this is the case – the difference is we go to the distributor and say: ‘What do you want to send me, what format, what file – if you do not have the capabilities for funds, if your order management system generates a fixed message like in the equity world, or if you can only send me an Excel spreadsheet, whatever you want I will do the work of transforming that to the format that the fund manager wants to receive’.”

Developing services

Apart from the order messaging between fund manager and distributor, Calastone is also developing its services to target a range of pre- and post-trade functions. It has already added these to the UK market in the past couple of years, such as its net settlement solution, reconciliation, and a re-registration pilot – linked to UK FSA moves to make it easier for investors and/or their advisers to switch platforms. It has also developed a payment service together with Barclays Corporate.

Chaker says a similar path will be followed in terms of adding to its existing services targeting cross-border clients in Luxembourg and Dublin. However, Calastone is also looking to increase its presence in individual European markets, such as Sweden and Germany.

And then there is Asia.

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