Creating a Global Difference in 'Commonware' & "Customware'
April 25, 2011
The Egyptian stock market shut down Jan. 27, with street protests leading eventually to the overthrow of the government led for more than three decades by Hosni Mubarak. The question? When would the market re-open? And what would happen to the securities that American and other foreign institutions thought they owned?
As January turned to February and then to March, answers were hard to come by. That's where, however, where a global fund services firm like Citigroup gets the chance to show that its own feet on the street make a difference.
"There was enormous uncertainty as to what was going on," said Andred Gelb, head of Citi's securities and fund services in Europe, the Middle East and Asia. And Citi's job quickly became trying to reduce the uncertainty, even if it could not remove it. Citi operates in 60 countries and prides itself on talking to the exchanges, clearinghouses, depositories and local fund managers that know what's going on.
Because civil unrest can cause huge financial unrest. Governments, in worst cases, can simply decide to take over securities or cash that foreign investors previously had a claim on. Governments, you could say, are the ultimate counterparty.
In the case of Egypt, Citi gave its customers "the most up-to-date information that was available," even if it couldn't predict safely when the market actually would re-open, Gelb said. That would not come until March 22. But even then, uncertainty reigned. And institutions were looking to glean any piece of information that would indicate whether, for instance, government bonds were trading "at a vastly discounted price," warranting a purchase.
Citgroup's fund services include taking custody of shares, holding them, and redistributing, as well as financing the borrowing of securities, fund administration and middle-office services, as well as cash management and handling exchange of assets into different currencies.
Which it hopes demonstrates to institutional investors as well as brokers that it has greater control of the "value chain" for funds than rivals, such as the fund services operations of BNY Mellon and State Street.
Citi's securities and fund services business tries to establish that control, worldwide, by a combination of what Mike McGovern, its global head of technology, says is a combination of "commonware" and "customware."
The "commonware" is a set of applications, middleware and infrastructure in all countries in which it operates. The "customware" are the applications and services that it develops to serve individual clients, usually large institutions, who need some services delivered in the fashion in which they want to or must operate with.
This means, McGovern said, that Citigroup can enforce consistent transformation and definition of asset values and other fund data, while still providing some room for adaptation. The common system used worldwide for fund administration and other purposes is "flexible and customizable at the edges," McGovern maintains.
The central application is known as Secore, for "securities core" application. This computing platform is the bedrock platform in custody and related operations that Citigroup uses across 50 or so core markets. For its large buy-side customers, the platform provides custody services, worldwide. For broker-dealers, it acts as a direct custody and clearing service.
The "commonware" also includes basic fund administration services. For "long" asset managers, such as investment funds, Citigroup has brought in code from a provider of wholesaling services to companies in the financial services industry, known as Multifonds. For hedge funds and other alternative types of asset managers, the "commonware" includes the Geneva product from Advent Software. This is a comprehensive system for allowing alternative investment managers and their operations managers to keep on top of holdings in their portfolios.
The key: Providing access, in real-time, to data that any part of an organization can rely on. Data that is consistently presented, whether on a web portal that small buy-side firms rely on or on a direct feed to terminals sitting on the desks of managers at the largest institutional investing firm.
Citigroup maintains the consistency of the data by pulling the relevant reference and transaction data into a Global Information Warehouse that feeds its Secore application as well as those of Citi customers.
The warehouse's main data center is in Maryland, with a backup in Texas. There are parallel centers in Singapore to serve Asian customers and Germany to serve European ones. All told, the infrastructure Citi operates for its fund services business constitutes the third-largest private data network in the world, McGovern contends. This is based on the number of devices of all types connected together.
The "commonware" also includes a single set of middle-office software, aka middleware, that processes trades for fund managers. The Middle Office Trade Operations, or MOTO, software takes care of executed orders, block transactions and allocations of parts of trades to different accounts.