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Analysis: Amid Challenges, Is Swift Seeking to Reinvent Itself?
September 8, 2008
When Swift's annual Sibos conference opens in Vienna next week, the exhibition floor will be crowded with banks and technology vendors displaying their offerings and prospecting for new clients. The event, now in its 30th year, is a major success story and money-maker for Swift and, by all appearances, a vote of confidence from its financial industry owners and members.
But at the same time, as in past years, many of those in attendance will also be casting wary eyes on Swift, which can be perceived as either a partner or a competitor, depending on the circumstances, and has deep pockets to finance new business initiatives.
Swift spokespeople insist that when the messaging cooperative moves into areas such as developing software it is simply responding to customer demands for a broader range of services. La Hulpe, Belgium-based Swift said last month, for example, that six of the world's major prime brokerages had selected it to develop a centralized pre-settlement matching solution for equity and fixed-income trades originated by hedge funds.
"The brokers have agreed to oversee and provide transparency to the market on the evolution of the solution," said Swift in a statement. "They also value the fact that the Swift solution will offer choice in the marketplace for matching solutions, and will encourage further adoption of industry standards."
Last week, Swift partner Omgeo, which provides trade matching for hedge funds, prime brokers and executing brokers, issued a press release touting its market penetration, use of industry standards and partnerships with key players such as Advent Software, Linedata Services, Bloomberg AIM, Charles River Development, Eze Castle Software and Sophis. It didn't mention the Swift announcement.
Boston- and New York-based Omgeo uses the Swift network to send settlement instructions to custodian banks on behalf of its investment management clients. After they match the trade with the broker, Omgeo can enrich the transaction with standing settlement instructions and send it to the bank though a Swift gateway.
A few years ago FIX Protocol Ltd. (FPL) fought off Swift's attempt to provide the network for FIX traffic. And on occasion the cooperative looks for new uses for old solutions such as Accord, which it plans to tap for the prime broker matching platform. Accord is about 20 years old, say industry experts.
While Swift says it has the industry's best interests at heart, some standards groups and vendors have a slightly different take. Executives were only willing to speak about Swift for this article on a not-for-attribution basis because they are customers, competitors, or both.
"Swift is a network organization facing a challenge," asserted one securities professional. The day is coming when customers turn to alternatives to its services, he said, and in the meantime Swift is trying to "reinvent itself."
Swift is a standards facilitator, applications provider with a secure messaging service and operator of a managed network service, explained one network competitor. It makes most of its money on the transactions that pass through the system, but now it competes against intranets, secure private networks from providers like BT Radianz, and even the public Internet. Banks can use their own network, or a third party's, to send messages in the Swift format, just as securities firms commonly do with FIX messages. The traffic can be secured using private networks and encryption management and in the next few years a new Internet design, IPv6, will have strong, built-in security.
