American Century Investments - Transforming Post Trade Processes with ITP

DTCC's Matt Johnson is joined by Attar Singh Sokhal and Cihan Kasikara from American Century Investments to talk about how ACI is leveraging DTCC's Institutional Trade Processing to transform their post-trade processes.

Learn more:
DTCC's CTM
DTCC's ALERT
ALERT Key Auto Select
ALERT Global Custodian Direct

The services described above are provided under the “DTCC” brand name by certain affiliates of The Depository Trust & Clearing Corporation (“DTCC”).  DTCC itself does not provide such services.  Each of these affiliates is a separate legal entity, subject to the laws and regulations of the particular country or countries in which such entity operates. See www.dtcc.com for a detailed description of DTCC, its affiliates and the services they offer. 

Certain DTCC ITP LLC services are subject to regulation by the U.S. Securities and Exchange Commission (“SEC”) and are offered by DTCC ITP Matching (US) LLC (“DTCC Matching”), which is set out in SEC Release No. 34-44188; File No. 600-32; 66 FR 20494 (April 17, 2001).  TradeSuite ID and CTM are services of DTCC Matching and are subject to SEC regulation when used for trades in which either the broker-dealer or its institutional customer is a U.S. entity and the securities in the trade are issued by a U.S. issuer. No other services offered by DTCC ITP LLC are regulated. 

Transcript

 Matt Johnson: Hello, everybody, and welcome to the first ITP podcast of 2022. For those that don't know me, I'm Matt Johnson, part of DTCC’s Institutional Trade Processing Solutions team. Today’s podcast will focus on post-trade change, automation, and optimisation. 

I'm very, very pleased to be joined by one of our prominent global investment manager firms, American Century Investments. Today I'm going to be talking to Cihan Kasikara and Attar Sokhal, who represent American Century Investments on the DTCC ITP Regional Advisory Councils, for the Americas and EMEA respectively. Cihan and Attar, it’s great to have you here. I hope all is well.

Cihan Kasikara: Good morning, great to be here.

Attar Sokhal: Good morning, nice to be here as well.

Matt Johnson: Great stuff. I guess to kick off and set the scene, so how long has ACI – American Century Investments – now been an ITP client?

Cihan Kasikara: Let me pick that up, MJ. For over 10 years, we've been utilising different services in various capacity. It is actually multiple different approaches, in different platforms, have been within ACI’s infrastructure.

Matt Johnson: A decade is a long time. That’s the sort of client we like: long-term business. I know we’re going to focus more on the post-trade aspects and the world that you guys manage, so at what point or when did American Century Investments start to really assess its current post-trade processes? And, maybe, what were the drivers of change?

Cihan Kasikara: About two, two-and-a-half years ago, just like many other investment managers, we started to focus on multiple transformational topics. One question that we asked was on core capabilities versus industry tools. That was really the key as the starting point for us. In addition to that, one other topic that we wanted to focus on was productivity within our operations.

Matt Johnson: When did American Century Investments really start to assess its current post-trade processes? I guess, more importantly, what were the drivers for that choice of change?

Cihan Kasikara: That was actually about two years ago. Just like many other investment managers, we'd been focusing on our transformation. One of the primary questions we asked was on core capabilities versus industry standard tools. That was really the key, strategic focus area for us. 

We didn’t own FIX connectivity with our broker dealers for post-trade lifecycle. Within that infrastructure, we need to manage our own matching engine. That requires constant change and maintenance. As we looked at our transformation journey, we made a decision to move our post-trade industry standard platforms and utilise the benefits within the industry. 

The other challenge is that you end up with bifurcated processes within the post-trade lifecycle when you look at different connectivities. That’s a productivity challenge for our business, and our focus was to consolidate those processes to gain efficiency.

Matt Johnson: Yes. It's abundantly clear to me, this was obviously a very well-planned and thought-out project, as you mentioned, going front and back across the full post-trade lifecycle for you guys. I guess coming more to an ITP-related question, so what was the catalyst to transition from that local matching solution onto a central matching platform such as CTM?

Attar Sokhal: That's a great question, MJ. I'll take that one. Our strategy is for that end-to-end, integrated workflow for our post-trade processes. As soon as a trade is booked by a trader, our vision is to ensure that all of our trades are flowing through a robust workflow that is fully integrated within our infrastructure. 

So, MJ, there were a number of reasons why we chose CTM as our matching engine. There were two business-case scenarios that created a great deal of exceptions on our existing matching tool that impacted our STP rates. The first one was linked to commission unbundling, which involves the execution and research tags linked back to MiFID II. We now currently utilise DTCC’s best practices, which has remedied those exceptions. 

Moving on to the second one, which was a little bit more complex, and it involved different prices for allocations on a single block, which was performed across all markets and regions. 

During our CTM journey, we worked closely with product owners of Match Advisor and VOB, which is View Only Broker, to assess the functionality that was provided to the sell side to view our splits ahead of time for confirmation matching. This actually has built great traction, and we continue to engage with DTCC and the sell side, on further integration.

Matt Johnson: That's really interesting. When you say that word ‘MiFID II’, it always brings me out in a bit of a cold sweat. (Laughter) I remember being stuck in the weed of a lot of those industry working groups back in those days, so it's good to see that we were able to bring something to market that was really valuable and actually working, and working well, for our client base. I really want you to embellish more, so is there anything more you want to share on this particular piece?

Attar Sokhal: Absolutely, MJ. Outside of those two scenarios, there were several brokers that were unable to support us on our existing matching tool but utilised CTM. We migrated many of our manual brokers as our phase one migration to CTM, improving our automation capabilities overnight. 

Now, American Century has got its own global model, and DTCC has a 24-hour support coverage, so we are able to call or generate a ticket on ServiceCentral for any of our ITP services. This actually provides us with a level of confidence that production issues are raised and the relevant remediation steps are taken. 

Now, MJ, the final point links back to industry development and changes. Whether there are regulatory changes, such as MiFID II or the CSDR regime that everybody is experiencing right now, having a vendor that provides end-to-end solutions helps to reduce the lead times to market, which is critical in today's dynamic environment. Having access to working groups that generates open discussions allows the industry to assess those impacts and creates a healthy forum for open dialogue.

Matt Johnson: Yes. No, it’s completely relevant points. I think what a lot of folks miss is the actual holistic, overall service. Not just the matching piece itself but what goes with it. You mentioned about Service Bureau being able to raise tickets. Even things having dedicated account managers, relationship managers, it’s all key to a real, fully holistic, post-trade service.

Yes, and I couldn't agree more. I think the point-to-point piece, people understand the benefits, but what they don't really understand then is what the knock-on impacts can be. I know Cihan spoke about managing internal black boxes and so on, and management tools to support the platform. Not everybody is on there, so, yes, the point-to-point piece resonates to some, but then you need to take that fuller, richer, holistic view as to what a vendor is actually going to provide to you guys. 

I've obviously got some more questions. How has the transition impacted American Century’s resource model and, probably more importantly, your overall operational efficiency?

Attar Sokhal: That's a good question, MJ. We migrated all of our international equity flow onto CTM, with an STP rate of around 99%. The transition has been very positive. Our operations team have benefited from CTM being fully integrated with our internal OMS system, which links back to our core vision of an end-to-end, integrated workflow. 

MJ, let's be clear here: the conformation matching is just one part of the workflow, but, by using CTM’s 4.0 UI for our users, we’ve experienced capabilities to manage exceptions effectively and match trades efficiently. We are now currently focusing our attention on settlement instructions, which pave the way to SSI enrichment through SWIFT, but let's leave that for American Century’s next podcast.

Matt Johnson: Okay, so you guys are on the hook for another podcast. I'm going to hold you to account for that one, for sure. (Laughter) I think another point to note, as well, is that 99% trade matching on T+0, which is such an important factor when it comes to settlement finality, especially with things like the settlement discipline regime for CSDR. 

If we could touch on the SSI piece a little bit more, Attar, if that's okay, I want to know, as well as the listeners here today. We’d be happy to hear your development, so your developments around the SSI enrichment piece. Can you share some more on that? 

Attar Sokhal: Yes, sure. We've been focusing our attention on SSI enrichment. We’ve been working closely with our IT teams to analyse and discuss suitable solutions that fit our long-term strategy. We are fully committed to ensure that enrichment takes place within our workflow. The wide-reaching benefits will outweigh the operational risks faced with incorrect SSIs, so you pretty much put on a good point. CSDR regime right now requires that enrichment to avoid those penalties and issues further downstream in terms of our processes. 

The transition that we're going through, ultimately, is going to shape our resource model. One of our key focuses is agility. Regardless of the asset class or the process, we are working towards a consistent workflow that allows our operations team to manage any asset class, any market, and deal with any counterparty with complete ease. 

Through increased STP rates, eliminating that manual touch, which reduces operational risks, will lead us to the end goal of efficiency. Overall, this provides us with an agile workforce that can adapt to any changes within our business, and that's the key point.

Cihan Kasikara: Just to add to that, as we look at the SSI enrichment and the higher-level STPs, our focus has been on exception-based processing, which brings us high level of efficiencies and productivity in our global operating model.

Matt Johnson: Yes, it's a great point. Thanks, Cihan. Also, as we focus on exceptions as well, which I think most of the market is doing, I'd like to pivot back if we may, just to the core matching component in a central trade manager piece. So, if you can – if you're happy to, obviously – provide some additional benefits as to what CTM has brought to American Century Investments.

Attar Sokhal: Sure, MJ. With our end-to-end, integrated workflow, the benefits from CTM are being amplified with the other ITP services that we utilise. Here are some of the additional benefits that we would like to share with the audience.

With our end-to-end, integrated workflow, the benefits from CTM are being amplified with other ITP services that we utilise. Here are some of the additional benefits that we would like to share with the audience. 

We’re a keen user of DTCC’s ALERT, where account SSIs are managed but, coupled with Global Custodian Direct, being GCD, has been a real game changer for us. We have now made great traction with GCD. The ability for custodians to manage SSIs upon ALERT is critical for settlement, especially with the upcoming CSDR regulation. Around 80% of our accounts are on GCD. We continue to have regular touch bases with our remaining custodians, to move them onto the GCD platform. 

Now moving on to AKAS, which we implemented during 2020, we opted for AKAS Hardwired, as the majority of our securities settle domestically in the correct locations. For the subset of securities that settle exceptionally, we built AKAS rules so that the country, security and method – the CSM – is correctly provided to the broker, informing them where they should settle the trade. This now goes hand in hand with PSET matching under confirmation level.

Matt Johnson: Cihan, was there anything you wanted to add to that?

Cihan Kasikara: As previously mentioned, we are focusing our attention on SSI enrichment. We're working closely with our IT teams to analyse and discuss suitable solutions that fit our long-term strategy. We are fully committed to ensure that enrichment takes place within our workflow. The wide-reaching benefits will outweigh the operational risks faced with incorrect SSI.

Matt Johnson: Yes. Again, the SSI component being absolutely critical to get into that settlement finality, especially as we're in a T+2 settlement cycle now, obviously huge amount of focus – more so in the US – on that accelerated settlement cycle to T+1. 

I guess it wouldn't be any ITP podcast with me on if we didn't mention CSDR. I know it has been referenced a few times. From an ACI perspective, what benefit will ITP services provide you guys in a CSDR environment?

Attar Sokhal: That’s a great question, MJ. The recent developments of CSDR around the postponement of mandatory by-ins has not deterred us from moving ahead with our long-term strategy of the end-to-end, integrated workflow. We are a firm believer of fail prevention under CSDR, but also stems true across all other trades, so focusing our attention on post-trade processes is key to be successful. 

We feel that ITP services play a significant part in our strategy, ensuring that services are well integrated with that point-to-point connectivity. We are already utilising CTM, DTCC’s ALERT, AKAS, along with the GCD platform, and continue to assess further capabilities from Match to Instruct and Exception Manager. These services all play a crucial part in the CSDR environment, and we feel that they should be integrated with the firm's infrastructure.

Now, we are also a data-driven organisation, so metrics and stats are extremely important to us. With the recent developments of DTCC’s, data analytics we’ll play a key role in that transparency. Our goal is to provide our end clients with a heightened operational experience that adds value. This will be achieved by our strategy of that end-to-end, integrated workflow.

Matt Johnson: Unfortunately, it brings us to the end of the podcast. I could sit here all day, chatting to these guys. There's so much more that I could definitely learn from them. I personally found this extremely interesting and insightful. I'm sure our listeners will, too.

I think most importantly for me, it's fantastic to hear our DTCC ITP can partner and collaborate with our clients in order to create that post-trade optimisation that makes sure workflows are as automated as possible. 

Guys, it goes without saying that it has been a pleasure talking to you. Thank you so much for taking the time, and I look forward to holding Attar to task on that second podcast at some point this year.

Attar Sokhal: Thank you, MJ and DTCC, for having us on this podcast, and for the audience listening in on American Century's operational roadmap. Thank you very much.