True electronic dealing of unit trusts does not exist in the UK and is unlikely to do so for more th...
True electronic dealing of unit trusts does not exist in the UK and is unlikely to do so for more than a year despite the emergence of fund supermarkets and EMX. IFAs and product providers alike think Autif's trading platform EMX, will revolutionise the way in which business is conducted in the unit trust industry. It won't.
EMX will make things easier but paper-based administration tasks will not be driven out of the industry without further movement from the Government and an equity settlement group known as CrestCo.
Trades will be able to take place on EMX, valuations will be quicker and more efficient, and contract notes can be sent electronically. Yet settlement, an often time consuming process and a headache for IFAs and providers, still has to take place the old fashioned paper way.
Essentially EMX puts an electronic face to the operation but the moment the requests hit the administration system of a product provider it hits a wall of paper. This is not EXM's fault. It is because unit trusts are not capable of being electronically settled due to legislation. Serious changes need to be made to unit trust regulations before they can become truly electronic and therefore electronically traded.
There is a solution looming. Equities settlement house CrestCo has been working on a solution for sometime and think that it is not far off. In fact it hopes to be able to offer fully electronic Oeic settlement later this year. Unit trusts may take another year due to the regulation differences between them and the company-based structure of Oeics. In the meantime CrestCo has speeded up the settlement process of unit trusts by putting into place some more efficient paper based solutions.
Only a handful of UK unit trust companies have seemed to realise this, and unsurprisingly several of them are the original backers of the EMX project. M&G and Gartmore are both are connected to the Crest system, which is typically just a system used by stockbrokers. Another important clue to the importance of both EMX and Crest should be the presence of Caroline Lee as the chief executive of EMX. Previously Lee worked for Crest, heading up its unit trust settlement project.
The key players seem to realise what is going on but few others appear to have a clue. For the majority of the industry EMX is synonymous with a stand alone electronic trading platform. It isn't, its a messaging system providing quotations and valuations. It has the potential to be the hub of an totally electronic trading system but only if unit trust groups join Crest and only if The Government changes the rules on Crest settling unit trusts.
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