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M&G to usher in electronic settlement of funds
A landmark deal between investment group M&G and Crest, the securities settlement system, could revolutionise the UK funds sector.
M&G is set to become the first investment group in the UK to enable transactions in its funds to be electronically settled on the Euroclear Crest system.
The move marks a watershed moment as it could pave the way for other investment groups to make fund dealing simpler and as easy as buying and selling shares and exchange traded funds (ETFs), which have been settled on Crest since the 1990s.
Currently all trades in the multi-billion pound fund industry are settled manually, making it expensive, time-consuming and vulnerable to errors.
These issues have proved frustrating for many financial advisers and wealth managers who regularly move clients between funds. They have welcomed the move by M&G, which is owned by Prudential (PRU.L), the FTSE 100 insurance company.
Mike Deverell, investment manager at Cheshire-based Equilibrium Asset Management and a columnist for Citywire Money, said: 'Trading is relatively manual so that's difficult if you're trying to switch from one fund to another, as there are issues of market timing.'
'It's about time this happened and all of the fund groups should get on it. Through Crest, the deal is immediately confirmed and guaranteed, it's all automatic, and you know you're going to get your money,' he said.
‘Switching between funds should get easier if both are dealt on a T+3 basis, than it is when the fund sold pays me in five days, or four days plus forward pricing, and the fund bought wants paying in three,’ he added.
The move by M&G follows an agreement with Euroclear, which bought Crest in 2002. It has worked closely with registrars to allow the system to accommodate funds.
As part of this process, IFDS Group, a Canadian specialist in investor services, has built an electronic link to Crest in order to exchange fund holding details in real time, with daily reconciliations of positions.
The settlement banks that will form part of the service will make and receive payments based on electronic instructions. Should any of them fold, their obligations will be met by the Bank of England, mitigating counterparty credit risk.
Furthermore, once the funds are registered on Crest, they can be moved between investors almost immediately, allowing for automatic re-registration.
As M&G is one of the biggest fund groups in the UK, managing over £200 billion as of last September, the move sets a precedent for fund providers and opens the way for other large groups that have expressed interest in the electronic settlement process.
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by Gavin Lumsden on May 22, 2013 at 16:58