We asked Tom Buschman, Shell Treasury Centre Development Manager and leading the TWIST industry standard initiative, to provide an update on this integration standards initiative, which is formed by many influential market players in the FX marketplace.

Both banks and their clients have an interest in ensuring a financial market place, which allows its participants to transact efficiently and with low operational risks. In particular foreign exchange (FX) and cash market instruments are commodity products, transacted in fragmented markets with a need to connect many liquidity providers at various locations and their clients. Further, considerable human intervention is required for the initiation, execution, confirmation, netting and settlement of the transactions concerned. Where transacted amounts can be high and urgent processing often is required, controls need to be very strict around both execution and settlement.

Without commonly agreed standards, no individual trading platform, matching system, system vendor or bank can lay claim on providing effective straight through processing to its clients.

Efficiency through the use of market infrastructures.

Confirmation matching services and payment services have contributed to the automation of the settlement processes between banks and their clients. The emergence of web-based trading platforms has added the capability of automating the front-end trade execution. Yet the integration of such market infrastructures (trading platforms, matching services and payment services) has until recently not been based on fully efficient and controlled interfaces. It requires several interfaces between these market infrastructures and market participant credit management systems, risk management systems, pricing systems and back-office systems to automate the communication between market participants throughout the trade lifecycle. Where multiple banks, multiple market infrastructures and multiple vendors are involved, an agreement on the process flows and agreements on standards for these interfaces is essential to ensure a truly efficient and controlled market place. Without commonly agreed standards, no individual trading platform, matching system, system vendor or bank can lay claim on providing effective straight through processing to its clients.

TWIST standards initiative.

It is the objective of TWIST, the Treasury Workstation Integration Standards Team, to deliver non-proprietary integration standards to facilitate an efficient, controlled and open electronic dealing marketplace for financial instruments. It is a not for profit financial market working group, which focuses on the integration between electronic trading platforms, back office systems, payment systems and risk management / reporting systems. TWIST is a unique coalition formed and led by the treasury operations department of Shell that for the first time has brought together representatives of over 30 leading corporates and fund managers, banks, electronic trading platforms, consultancy firms, providers of treasury workstation solutions and clearing institutions. TWIST is open to market participants and service providers, irrespective of their size or role in the market place. The existing group of members clearly reflects this openness.

Effective straight through processing.

The work of TWIST is based on the concept of effective straight-through processing (STP). With effective STP, a treasury of a fund or corporate needs to input a deal only once. The transaction information will flow between a platform and the treasury management system, right through the trade life cycle of initiation, execution, confirmation, netting and settlement. It will also feed automatically any risk management and accounting processes. A controlled process of STP will ensure that high value and urgent transactions are processed at minimal operational risk. Preventative controls can be incorporated in the dealing process, validating transactions at the moment of execution instead of at the moment of its confirmation and settlement. Secure communication between client back-offices and operation departments of banks can enable the netting of positions and netting of settlements. The connection to payment processes can be improved with the use of more secure interfaces and improved communication protocols. Finally, direct links between their trading and settlement process and reporting systems allow both banks and their clients to achieve efficient and effective monitoring of positions and assessment of operational risks.

Reasons for TWIST to drive the development of market standards.

Historically, each electronic trading platform, banking system and treasury management system is built to its own specifications, and connecting them requires costly customised interfaces. The obvious solution is to have a single set of standard interfaces that all parties could implement, simplifying systems integration and allowing corporates greater choice of platforms, treasury management systems and banks. The development of such single standard interfaces requires close co-operation between various market players with different interests. Where banks and software vendors were driving towards proprietary solutions, and existing standards organisations were not in a position to avoid a further proliferation of practices, pro-active action was required in the beginning of 2001. This has led to the creation of TWIST.

TWIST approach and relationship with other standard initiatives.

Close co-operation between competing service providers (software providers and banks) requires an approach, which creates win-win situations for all involved. Core to this approach is the focus on qualitative, open and non-proprietary standards that do not require major efforts by software vendors and that are applicable for large as well as smaller organisations with limited resources but similar needs.

Incorporation of valuable work done by vendors, banks and other standards organisations ensures wide applicability and acceptance. Further, close co-operation of TWIST with FpML, SWIFT and other standard initiatives ensures alignment, avoids duplication and confusion and speeds up TWISTs own efforts to drive straight through processing. Within this context, TWIST has established early 2001 a close relationship with FpML (Financial products Markup Language), a standards organisation set up by major banks. TWIST has also been working closely with S.W.I.F.T., the international banking messaging and network co-operative, sincethe summer of 2001. By effectively bringing together various industry players and seeking a complementary approach, TWIST has gained the momentum needed to design the various standards required and ensure acceptance by key market participants.

TWIST and its results.

TWIST issued the first version of the treasury system interface standard in May of 2001. In September 2001 it published on its website www.twiststandards.org its second version. The published specifications for open standard interfaces at present include detailed instructions for foreign exchange trading, incorporating: trade and settlement confirmations; new trades; collections of trades; amendments; cancellations; allocations; rolls; aggregations; split settlements.

TWIST standards are designed based on an analysis of the process flow of transactions. The following process components have been identified:

Set up trading relationship
Trade origination
Trade execution and trade confirmation
Settlement
Reconciliation

For each of these process components, sub-processes can be identified (see graph). For all sub-processes, the TWIST group has defined the neces