EMXCo and Euroclear have launched a fully electronic and integrated order routing and settlement solution for UK fund transactions; a first for UK fund investors. According to the HM Treasury, the UK funds industry could save £70-290 million per year by embracing processing automation in place of paper-based fund unit settlement, which is exactly what the new platform is targeting. Decreased settlement risk and fewer errors are additional expected benefits.

Clients can expect substantial savings on their current operational processing costs by moving from manual to automated order routing and settlement, claims Euroclear and its EMXCo subsidiary; if they sign up to the new automated platform.

A typical distributor settling around 10,000 transactions a month may today expect to pay up to GBP 50,000 per month for administering these settlements and subsequent reconciliations. Under the new automated service, the same distributor doing the same levels of business can expect a monthly bill for all balance reconciliation, transaction management and communication charges of less than GBP 8,000. Clients processing lower volumes of transactions can also expect to make significant savings.

In expectation of deriving meaningful benefits from the new EMX/Euroclear UK & Ireland service, firms such as Brewin Dolphin, Cardale, Charles Stanley, Direct Sharedeal and Rathbones have already signed up during the course of the new platform's development during 2009.

Yannic Weber, chief executive officer of EMXCo and Euroclear UK & Ireland, said: "Having worked closely with the 26 members of the UK Fund Liaison Group, representing all segments of the fund industry, we are confident that the end-to-end fund-processing service we are providing fully meets market requirements. What is more, we are live now. And firms active in UK funds are already testing our new processing arrangements. We are eager to share with them the advantages of substantial operational cost savings and protection from counterparty and settlement risks, in accordance with the IMA recommendations for greater use of electronic funds processing."

Peter Fleming, head of UK investment administration at Skandia said: "This fully automated processing solution is great news for the industry and Skandia supports it. EMXCo and Euroclear UK and Ireland are in an ideal position to offer this service which we expect will remove operational risk and improve efficiency."

In addition to cost savings, the new service should deliver other benefits, such as:

• Decreased settlement risk and fewer errors in processing and transaction reporting, as manual intervention is eliminated.
• Up-to-date fund balances based on processed transactions at Euroclear UK & Ireland which are reconciled with the fund register on a daily basis, in full compliance with FSA rules.
• Settlement within four business days, as compared with up to ten days today.
• Electronic exchange of key transaction information among all relevant fund market participants, including fund managers, promoters, distributors, third party administrators.
• Back-office efficiency gains by settling UK fund transactions with a proven provider of primary and secondary trade services, where market participant already settle their UK equity and bond transactions.
• Use of highly resilient infrastructure, with strong user/owner governance and a solid track record of operational stability.

The rationale for Euroclear acquiring EMXCo in 2007 is embodied in this joint initiative. Together, the two organisations are delivering end-to-end, straight-through processing of UK fund transactions, from order routing through to cash and unit settlement, and safekeeping. Initially, funds domiciled in the UK, Channel Islands and Isle of Man are eligible for this service. The coverage of funds is intended to be expanded in the future.

How the service works
• A retail client places an order with its IFA to subscribe to or redeem units in a UK fund.
• The IFA routes the order to the EMX Message System via a platform or distributor.
• EMXCo routes the order to the fund manager (product provider). The manager confirms the order by sending an electronic contract note to the broker (via EMX).
• The settlement instruction can then be sent to Euroclear UK & Ireland, either bilaterally or via the direct input option through the EMX Message System.
• Euroclear UK & Ireland processes the instruction (both the cash and unit aspects) and electronically confirms the details of the transaction with the fund manager and its TPA.
• Confirmed receipt of the settlement instruction is sent from the fund manager to Euroclear UK & Ireland, which debits and credits the broker's account, and reports the settled transaction to the IFA, who informs the retail client.

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