Fund groups in the UK could save as much as £290 million a year by automating fund transactions, as part of a new post-trade service launched by Euroclear.
The revolutionary ‘order-through-to-settlement’ service unveiled by Euroclear will significantly reduce operational costs, mitigate counterparty risks and will help to reduce settlement problems.
Until now, trades in the fund industry have been settled manually, making it expensive, time-consuming and vulnerable to errors.
The service works by enabling the electronic routing of orders for UK investment funds and automates fund unit settlement for subscriptions and redemptions, among other efficiencies.
Trade to settlement cycles, or the time between which a trade is made and settled, can be reduced by up to 60%, or around four business days versus the typical 10 day timeframe.
The UK fund industry could also save between £70 million and £290 million a year through the automated transaction process, according to HM Treasury.
The landmark service has been launched in conjunction with International Financial Data Services (IFDS) and has brought on board M&G Investments as the first fund group client, as revealed by Wealth Manager.
John Trundle, chief executive officer of Euroclear UK & Ireland, said in a statement: ‘Together with IFDS, we are delighted to offer a much sought after solution for the fund industry – a single point of access for all investment fund transaction needs.
‘Fund transactions settle with us on a delivery-versus-payment basis, meaning that cash and fund units are exchanged electronically and simultaneously.
‘Full processing automation avoids major human processing errors,’ he added. ‘Moreover, we are pleased to offer a comprehensive and evolving range of related services to clients. For example, we recently introduced a centralised way to transfer funds, which will help to ease substantially the laborious and risky re-registration process.’
Laurence Mumford, retail chief operating officer at M&G, described Euroclear’s new fund settlement service is a ‘pivotal step towards increased efficiency in the post-trade services for investment funds’.