As this external asset manager looks to gain scale and consolidate its relationships with custodian banks, Björn Recher, Chief Operating Officer, explains why FIX connectivity has become the key criteria.
For an increasingly complex business like Colin&Cie, automation is no longer a luxury but a necessity. Based in Switzerland and Luxembourg, the fast expanding external asset manager consequently believes that having a direct FIX trading connection with its custodian banks will be essential in future.
2020’s historic financial events have only reinforced that conviction. Both Switzerland’s new regulatory framework and the March market crash provided further evidence that a FIX connection is now a vital part of the digital infrastructure.
As Colin&Cie’s Chief Operating Officer, Björn Recher, looks to consolidate the firm’s custodian bank relationships, he believes FIX connectivity is one of the most important factor, even more so than for example pricing, and will only partner with custodians that provide it. “Going forward our vision is to have every key partner or key custodian connected through such a FIX interface,” says Björn Recher. “It’s basically a knock-out criteria. If as a custodian bank, you are not able to commit to providing a FIX interface within two to three years you are out.”
Cutting back on custodians
Like many independent asset managers, Colin&Cie currently works with a large number of custodian banks, over 20, which Recher regards as inefficient. He plans to cut that number down to six or seven key relationships, all of which must provide and maintain a FIX connection, he says. Currently, four of these partners do so, and he doubts whether all of the smaller custodians will be prepared to make the required investment.
Julius Baer approached Colin&Cie to see if it would like to be part of a pilot scheme to develop FIX connectivity in early 2018. A year later, in early 2019, the connection was up and running. The project took longer than both parties expected, as technology infrastructure projects often do, but it was still a reasonably smooth process, according to Recher.
“The good part of the project with Julius Baer was really that they listened to us so that we didn’t have to change any of our behaviour when we switched from manual trading to this fully automated process,” explains Recher. “Are we using bulk orders? Are we doing rebalancing? Are we targeting different accounts with different currencies? These were all key topics that led to some problems in projects with other banks; some challenges that still exist.”
Founded in 2009, in the midst of the credit crisis, Colin&Cie has prospered over the past decade. Thirty staff members now manage approximately CHF 2bn for clients, chiefly from Germany and Switzerland, with assets expanding by about 5-10% a year. But the firm’s increasing size and the new regulations in Switzerland, combined with the EU’s MiFID II, are making operations more complex, with the result that digital technology infrastructure is becoming the backbone of the business.
This year has emphasised the essence of automation. With people working from home at a time when market volatility has spiked to historic levels, there is a greater risk of trades being entered incorrectly, or breaching trading rules. Automated portfolio management systems connected to FIX minimise that danger. At the same time, the new regulatory requirements governing areas such as ensuring that products are suitable for clients, and documenting why, make gaining scale and efficiency through automation essential.
Looking forward, Recher would like to see FIX’s capabilities expand. They currently do not include currency or cash transactions. Further, he believes that a chat facility would help communication between external asset manager and custodian to avoid unclear trading instructions being rejected.
“A FIX connection is one of the very few initiatives that is really a win-win for both sides,” he concludes. “Because, of course, the custodian handles trades more effectively, but it’s also a very good opportunity for us to streamline our business.”
- FIX connectivity has become a key criteria for working with custodian banks, according to Colin&Cie.
- The external asset manager will only work with custodians committed to having a FIX connection.
- This will be the primary consideration as it cuts the number of custodians from over 20 to six or seven.