The Marco Polo Network announced today the launch of a Straight Through Processing initiative for the emerging markets of Asia, Latin America, Africa and Eastern Europe. Which sounds like good news for investors in those markets. But what is the Marco Polo Network anyway?
Its self-description says it is a financial services company headquartered in New York, and focused on securities processing opportunities in Asian, Latin American, African, and Eastern European securities markets. Its aim is to deliver a global order routing and settlement network for the emerging markets, enabling fund managers and broker-dealers to execute and settle cross-border transactions cheaply and securely. It will achieve this by hooking them up to brokers and custodians in those markets, in conjunction with a cast of vendors which includes ADP/Wilco, Worldcom/MCI and Javelin Technologies. Wilco will supply the order processing and settlement piece in the shape of its GLOSS system, while Worldcom/MCI supplies the telecommunications.
The idea is to bring all the usual benefits of global STP – the exchange of data between the parties to a trade in standardized SWIFT/FIX formats via a secure private network, to T + 1 timetables if necessary – to markets where the absence of rolling DvP on T + 1 is only one of the problems confronting the trader or investor. Wisely, the company is hooking up London, Hong Kong and Singapore as part of the deal. “We are using emerging markets a bit loosely, because Hong Kong and Singapore are part of our offer although they are really not emerging markets, and most of the STP providers do not really focus or get as deep as we do.” admits Bob Bush, Chief Development Officer at Marco Polo Network in New York.
Bush says the company was formed by a group of ex-Lehman Brothers bankers in the Spring of 2000. It is still small – the initial five people has risen to just under twenty – but Bush says the ambition is to democratise access to emerging markets and slash transaction costs. “There are hosts of funds- hedge funds, global funds, international funds as well as broker dealers and other financial intermediaries who have an interest in the emerging markets,” he says. “When we say `access’ we mean that up to now the way that you would typically do a trade in Malaysia or South Africa was by phone and fax. We want to make sure that there is a streamlined and automated way for the order to go from order capture through settlement.”
Bush rebuts the argument that the volumes are insufficient to justify the investment by pointing out that one of the main reasons emerging markets see so little activity is the high cost of transactions. “Because there is a lot of manual processing and manual intervention the cost of processing becomes exorbitant,” he says. “When you do not have ready access and when your costs are high, it affects the amount of flow that will go into these markets. The whole rationale for our business is to create services and solutions that will help bring liquidity to the emerging markets as well as some selected countries. How we do that is by streamlining access and lowering transaction costs. We think those two things will bring liquidity directly to our core markets.”
So far, Marco Polo Network has very few clients, but the company is confident it will recruit them. “Over the last few months we have had dozens of conversations with fund managers and broker dealers about the functionality of the system, the costs they have incurred and the accessibility issues they face in these markets,” says Bush. “As we have been testing the system, we have had various funds professionals give us feedback on the functionality and the development of the system. We are now open for business and are aggressively seeking clients. The last three to six months have been working with potential clients, understanding their needs and their concerns and putting them in the development cycle.”
The primary focus is the fifty-odd asset managers and broker dealers clearers that account for the bulk of trading activity in the core markets identified by the Marco Polo Network. “They are our primary client base and primary interest,” says Bush. “However, there are literally thousands of other funds that go beyond that core group of fifty-odd.” News that these so-called smaller clients are using the system will be awaited eagerly, especially at Marco Polo Network headquarters, because the company only gets paid through access fees and transaction charges. “We charge an access fee to the network, which we are willing to waive for customers, depending on the amount of business they give us on the transaction side,” says Bush. But Marco Polo Network is also hoping to get paid by broker-dealers, for driving order flow towards them. “We are now working out a pricing scheme so that we get a share of brokers’ commission,” adds Bush.
Marco Polo Network is keen to encourage custodians onto its network, and claims they are intrigued by the potential savings in operational costs. Indeed, the company is offering broker-dealers and fund managers a choice of custodian (and local broker) where they have no preference. The better-known global STP solutions – or Virtual Matching Utilities (VMUs), as they are now known – are also being invited to inter-operate with Marco Polo Network. “They are primarily focusing on the US and cross-border into Europe,” says Bush. “In public data they have released, they say emerging markets are five to seven years away for them. They have a lot of fish to fry. So our solution is actually meant to support big consortiums like those, do the linking to the markets that they are not focusing on, and then link to the Omgeos and gstp/axion4s of this world. We want to make sure that anyone using either the GSTP initiative or Omgeo is able to get on to our network as well. In short, we are an extension of those systems. We become the last mile into the secondary markets and the rest of the world for the two global STP systems.”
Mike West, Wilco, comments:
MPN will use the Gloss bureau service on an outsourcing basis via our New Jersey-based data centre. We have added some order management and routing functionality to the Gloss bureau service that will capture the order and route it via FIX messaging to the local broker in the emerging market. The broker will route the executed order back, via FIX, to Gloss for back office settlement processing.