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Acronyms for the new millennium?


We are being constantly bombarded with acronyms, some we feel familiar with - EDI, EAI, STP, ERP - even if we are not yet doing them justice, or just as we think we are, along come some more CLS, SIPN, GSTPA, to stop us feeling complacent. Will the old acronyms remain in the old Millennium? Of course not! They will move forward with us and the list will merely get longer.

What are they really all about though? Basically, they all arise from the same business imperatives, the need for speed, accuracy and cost control in order to deliver improved service to customers, eliminate risk and gain competitive advantage. Some are more generic expressions of this desire, EDI (Electronic Data Interchange) for example, whilst others are very specific CLS (Continuous Linked Settlement).

At the highest level, the best way to achieve these aims is automation of process and information flow via electronic messaging, hardly a revolutionary idea. But the range of messaging is ever increasing:

There is a general increase in the use of electronic means for reporting trades and surveillance, and this will surely continue. Electronic access is a good way to tap into what is going on as an automatic by-product of the processing itself, rather than to rely on manual reporting. It can also be much more immediate.

Settlement periods for securities trades are reducing, meaning less time to deal with the settlement process and resolve inefficiencies in the information flows. Processing needs to be more automatic and therefore more electronic. Trades need to match first time and as soon after the trade is agreed as possible.

Electronic Trading Exchanges are proliferating. In addition, orders can be placed and executed automatically through automated order processing services. Securities trading and investing is becoming more international. For speed and accuracy and for dealing at a known price, electronic connections are needed Settlement exchanges are themselves becoming more automated and support automated submission of transactions, often intra-day.

Trading, settlement and administration tasks are becoming sub-divided more and more with specialist organisations performing particular functions such as dealing, fund management, custody and depositories. As this trend grows and fewer and fewer organisations do everything, then the need to inter-connect efficiently and reliably between them increases. Organisations seek to reduce the error rate in the processing of transactions and also reduce the risk implicit in the trading and safe custody activities. The use of networks, in particular, the Internet, is growing at an incredible rate and is available to all at low cost.

Whether a firm is looking for the strategic, operational or opportunity benefits, that come with automation of internal and external information flows, the basic components of the solution are the same:

In order to exchange information, your systems need to understand the data being received, and be able to present data being sent in a format that can be understood by another system, either within or outside the company. The standards debate continues with ever more options available. The need to conform to multiple and evolving messaging standards and custom variants is a real issue.

The communications infrastructure which enables the messages to flow from A to B consists of both the physical network as well as the protocol or transport layer. Users must be satisfied that the network is secure, particularly where the network is being used for funds transfer or transaction initiation. Even where enquiries on confidential information are required, it is vital that sufficient protection is in place to prevent unauthorised access to the information. One way to help with security is to have a means whereby an instruction can be verified or authenticated once received to ensure that it originated from the alleged issuing party. This may require independent verification or complex point to point authentication codes. This one of the selling points of S.W.I.F.T's new Secure IP Network (SIPN) above the Internet.

End to end computer links require significant extra processing to cope with them adequately. It is not always a good idea to continue to make systems more and more complex. If it is to remain competitive, any financial organisation today requires multiple application systems, in order to provide the functionality needed by different departments. Furthermore, changing requirements and external forces such as competitive pressures and market changes, will dictate that at any given time some of these application systems will need replacing, enhancing or upgrading, whilst others must be left intact as they are functioning satisfactorily.

Therefore a decentralised application architecture is required in which the interactions between systems are explicit, well-defined and controllable. Monolithic application architectures cannot respond to changing requirements in realistic timescales and so become more and more difficult and dangerous to maintain. Legacy systems are not suited to the multitude of interfaces to external services that may be required. An extra layer or 'middleware' between the legacy systems and the external services can unify the access issues as far as the internal systems are concerned, whilst still dealing with the multitude of issues that might be involved in communicating with one or other external service.

The middleware must be able to handle the fact that external systems will differ in the format of messages, the nature of messages, the secrecy requirements of messages etc. A system cannot handle all of these issues in a general way, although there is commonality which enables a common framework to be adopted. The requirements for the middleware may include such facilities as message enrichment and repair and even a degree of business functionality. Processing is placed where it is most appropriate. This will mean that the layer will be more than a straightforward message re-formatter and can understand in a business sense the messages it is sending and receiving.

Why Middleware?
It is important that when planning for the introduction or an expansion in automated activity that it is not approached in a piece-meal way. A strategic view needs to be taken, not least because several of your internal systems may need to be integrated and you should be looking for commonality of processing and thus the sharing of resources, rather than dealing with each system completely separately.

The benefits middleware, can bring to your integration project are functionality, facilitation of operational streamlining and control, as well as valuable tools for assisting development and testing. By choosing experienced, financially oriented middleware vendors, you will also have access to a wealth of experience that can be tapped into even if the ultimate aim is to 'go it alone'.

Middleware provides a well-defined point for enrichment and transformation of data in a way that is non-invasive to both the source and destination applications. Where applications are bought-in packages, the fact that middleware transformation and enrichment is under your control, rather than relying on the package vendor for enhancements, is a necessary benefit given that each financial organisation has its own unique requirements.

Middleware allows separation of the transport, protocol and networking issues from the application interfacing issues. Therefore an existing production application interface will continue to work if centralised hardware is distributed, or vice versa, or the transport mechanism is changed (e.g., for reasons of security or scalability). This will almost certainly not be true of specific vendor-provided or bespoke point-to-point interfaces which often have assumptions regarding the transport mechanism. Middleware allows additional feeds or users of information to be brought on-line with no impact on in-place applications. It provides a framework for process control and uniform monitoring of connections and information flows. It also provides facilities for capturing, replaying and simulating, information flows when applications are being developed or tested. Middleware allows information feeds to be simultaneously routed to live and test systems. It allows new systems to be brought on-line in a controlled fashion: e.g., routing rules could be used to switch only a limited part of an information flow to a new system for pilot running. Middleware allows changes in the interface specification of one application (e.g., in a new version) to be accommodated without changing other existing applications.

So whichever particular acronym you are currently grappling with, it is as well to remember you have probably been there before and no doubt will be again. Look beyond the latest acronym and what do you see? Information flow between systems in the required format at the right time. Electronic information flow is a fact of financial business life and its use is growing at an accelerating rate because of the benefits it provides in many areas of service, efficiency and the potential for cost-reduction.

Financial businesses should be planning for the impact of this growth. A strategic approach to dealing with the problem will yield greater benefits more quickly than a piece-meal approach.

Linda Letch
Senior Business Consultant,
Trace Financial Limited


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