Service Automating Claims on Failed Transactions
June 7, 2010
A London-based firm says it has developed an online service for fund managers, banks and brokerages to electronically transmit claims to each other on interest claims, settlement fines, corporate action notices, dividends and income payments on failed securities transactions.
The two-year-old firm, Claimatrix, is now seeking participants for a pilot test of the service, which it will host out of its own facilities in London.
"Claimatrix eliminates the expensive processes associated with manual claims issuance and control," says Stuart McKinlay, chief executive officer of the firm, which is owned by Toronto venture capital firm, Capital Market Technologies.
Currently, financial firms typically file claims via fax or email, which can be subject to misinterpretation or dispute by the other party. As a rule of thumb, many firms don't even file claims under $500 in value because the manual process of sending claim forms and receiving responses doesn't provide a return on investment, says Cato, senior consultant with Claimatrix. That is because it could cost upwards of $400 just to process and file a claim.
End result: Firms are losing out on thousands of dollars each month in potential fees and don't understand their claims exposure to counterparties.
Claimatrix will charge a one time fee f $10 for the sender of the claims message to calculating the claim and send a claim form electronically as long as the information is automatically uploaded from the firm's settlement system. Claimatrix won't charge firms who fill out the 50-or-so required data fields on the claim form manually. The firm also won't be charging either the receiver of the claim or the sender of the claim for any further communications to resolve any potential disputes involving the claim.
Among the required elements: the intended trade settlement date, a description of the account, the identification code for the securities and any information required to prove the claim.
Besides allowing financial firms to send claims to counterparties electronically, Claimatrix can also calculate the total value of a claim or potential receipt of a claim by a counterparty each month. The hosted service will also aggregate claims across multiple business entities of the same firm.
Financial firms typically claim additional compensation from a counterparty for any corporate action entitlement, income and dividend payment they should receive in the event the trade fails to settle on time.
In the case of U.S. Treasury securities, the Treasury Market Practice Group and the Securities Industry and Financial Markets Association have come up with a penalty for late delivery of Treasuries calculated as a percentage of the purchase price of the Treasury bonds.
Claimatrix says its service meets the 2009 guidelines set by the International Securities Association for Institutional Trade Communication (ISITC) for how fund managers, custodian banks and broker dealers should communicate claims regarding failed settlements of U.S. Treasury securities.
McKinlay, former vice president of operations at global custodian bank State Street co-founded Claimatrix in 2008. The other founder is Richard Cato, a former head of operations projects at HSBC Investment Bank.
