EMX Introduces Settlement Service for UK Mutual Funds

EMX, the purchase, sales and valuations system for investment funds developed on behalf of the UK fund management industry, is to introduce new settlement capabilities for mutual fund industry. EMX will roll out enhancements through the course of 2002, with

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EMX, the purchase, sales and valuations system for investment funds developed on behalf of the UK fund management industry, is to introduce new settlement capabilities for mutual fund industry.

EMX will roll out enhancements through the course of 2002, with paperless direct debit and debit cards first to go live in February.. The enhancements are split into 3 main areas:

1 Paperless direct debit and debit card processing

2 Paperless renunciation, electronic contract notes and remittance advice

3 Links to payment systems

The functionality included within sections 1 and 2 will be described in detail, the links to payment systems being limited to an overview.

Paperless Direct Debit & Debit Card Processing Limited functionality is to be introduced to enable the intermediary to enter direct debit or debit card details into the order message. This will then allow the product provider to process the order upon receipt, safe in the knowledge that they are in receipt of the payment details.

Points for Attention

The input process does not perform any modulus checking and therefore the product provider must be aware that the entered data may be rejected by BACS, if the data has been incorrectly entered.

The product provider can only act on the instructions if the direct debit or debit card details have not been re keyed at any point, i.e. the details are passed straight through automatically.

The product provider must have a suitable merchant agreement that will enable the product provider to process details that have been entered by a third party.

EMX will not validate if any of these restrictions have been adhered to, but will simply forward the data automatically.

Coverall Renunciation

The current necessity for product providers to receive signed renunciation before they will release funds for sale (repurchase) deals is seen as a great barrier to any form of automated settlement. In effect settlement timing cannot be exact for sales until that renunciation is received. By providing a coverall renunciation, the settlement period for sales, as well as that for buy transactions can be defined at the valuation point. This then allows settlement to continue in a defined manner, in a set period.

EMX Co cannot impose coverall renunciations; the market participants themselves must put them in place. Each participant will have to put in place a series of bi and multilateral agreements with their counterparties. These agreements will have to be negotiated separately i.e. with each counterparty and where necessary, the participants agent and or the counterparty’s agent. EMX Co can provide a sample agreement, and this may have to be modified as required. The paperless renunciation may also require additional indemnity, tighter confirmation of money laundering regulations and monies to be paid to registered holders only. But all of these are dependent on the requirements of the various parties.

Electronic Contract NotesEMXCo are to provide, on its, priced deal message all data items that are required to generate or act as a contract note. The fields will be optional for the first 6 months and so it will be up to the parties to agree that the priced deal message can be used as contract note during that period. Once the intermediary receives the priced deal message, the intermediary can manipulate the data, as they deem appropriate. The data could be used as input data into other systems, or as input data to a print process that would generate the actual contract note.

The priced deal message can be extracted in one of three ways, manually from the web, using the new download facility from the web (which will be available within that timeframe) or by an extract process from the intermediary’s own hub.

Care must be taken when populating the priced deal message, if that data is to be used as the contract note, as mistakes could be costly, if the intermediary is to act on that data. Furthermore where possible, the priced deal message should be returned to the intermediary on the same day as the valuation point. A significant number of product providers already provide this service, and it is widely recognised as of significant benefit to the intermediary to be able to act on deals on the same day as the valuation point.

The priced deal message can be populated with data relating to non-EMX generated deals as well as EMX generated deals. If a non-EMX deal is to be entered onto the priced deal message, additional identification will also need to be entered identifying the deal and its source.

Electronic Remittance Advice

The electronic remittance advice is a message that can be generated by the payer to accompany a payment, detailing the transactions that are covered by that payment. These could include EMX generated or non-EMX generated transactions. The message is to be generated from data held within the payer’s system(s).

Both the Intermediary and Product Provider, dependent on which side is making the payment, can generate the remittance advice.

Once the remittance advice is generated and transmitted, it could be used as a source of input data into both clearance and reconciliation processes, dependent on the particular requirements of the participants.

Links To Payment SystemsOnce the electronic remittance advice is generated it will be used as the source of information for the links to the payment system, be it BACS, CHAPS, Crest or a Central Settlement Bank. The agreed payment would be sent to the appropriate payment system to enable the transfer of funds to take place.