If you clicked on this article, you’re likely a buy-side manager who’s used DTCC’s OASYS product for years. It’s been the default system for sending trade allocations and step-out information on US equities since 1990. Or you might find yourself on the sell–side, as a broker who’s trying to process client instructions and settle trades on time. This article hopes to shed some light on how firms are dealing with the migration from OASYS to CTM and offer some observations on ways we’ve addressed certain issues.
Originally part of Thomson, OASYS merged with DTCC to form OMGEO in 2000. They became wholly owned by DTCC in 2013. While antiquated, OASYS was an effective system that market participants relied heavily on for many years. As AUM continued to grow at some of the largest buy-side shops, the cost of using OASYS became an issue for many firms in the financial services community, leading some to look for more cost-effective solutions. To keep the competition at bay, DTCC decided to alter its pricing schedule and announced it would decommission OASYS in favor of Central Trade Matching (CTM), a system designed for global trading.
At the time of that announcement, the 2021 target date seemed far enough away that many believed there would be ample time to work out the bugs prior to the migration. We now know this wasn’t the case. Both managers and broker/dealers have since learned that CTM simply could not replicate some of the key functionality of its predecessor, OASYS. Unfortunately, there’s no going back. CTM’s shortcomings continue to cause trade breaks, settlement issues, and the headaches.
Two key issues with CTM:
1) CTM did not recognize “step-out” allocations (e.g., executed by one broker but cleared by another), and
2) CTM did not recognize manager-assigned “use codes” like Execution-only (Hard dollar), Research, (Soft Dollar), or Client Directed (Directed), all commonly used categories for investment managers and broker/dealers alike. CAPIS has always been proud of its Operations department and their ability to accurately and efficiently settle trades on time. We are happy to be a resource for our clients who continue to struggle with CTM, often finding out the information they thought they were sending us was not what we received.
“Technologically, CTM didn’t perform anything like OASYS,” said Francine Cook, Operations Manager at CAPIS. She added that our clients were experiencing similar issues:
- Trade matching methodology
- Block allocations
- Processing step-outs correctly
With regard to the methodology used to match trades, “We learned that every client was different in terms of initial configuration. Some used MIFID II methodology, where execution and research totals were broken out, thus causing participants to match using the wrong numbers,” Cook explained. “As a result, we had to learn our clients’ configurations in order to process them correctly. Like everything else, testing took time. We were learning a whole new system.”
With block allocations, one recurring issue dealt with client configurations set to match on commission totals for the entire block order. Unfortunately, they often had unique commission rules at the allocation level, which caused mismatches and forced us to amend the block in order to match. Another issue we discovered had to do with the tolerances that could be set to facilitate matching. For example, if a client had no tolerance set, rounding differences, such as a one penny difference in the SEC fee on sales due to rounding would cause trades to mismatch.
To complicate things even more, step-out functionality was simply not available using CTM. To address this, brokers such as CAPIS had to amend and book trades manually. In some cases, we developed a work around. Some clients would categorize a client (directed) trade as a “step-out”. Knowing which clients used this misnomer, CAPIS would book the trades accordingly. Eventually, DTCC provided us with the functionality to process a step-out correctly, by mapping BIC codes versus the clearing broker’s MPID used in OASYS.
Adjusting to new systems always involves a learning curve. CTM is no different. As a broker, we’re expected to get things right or fix them quickly. After all, the buy-side votes with their wallets. Once CAPIS was aware of the issues with CTM and after working with clients eager to address them, we were able to find collaborative solutions. It took a lot of hard work from some very talented people (both front and back office), but it’s always satisfying to find solutions that have a positive impact on everyone involved.
CAPIS is fortunate to have long-term relationships with clients willing to help find solutions to problems such as this. It’s nice that we’re able to return the favor. As one client put it, “Your settlements team is the best. I’ve had some real pain with some brokers moving to CTM, but not with CAPIS.” She added, “they are picking up trades, picking up step-outs and billing everything correctly. If only I could get the other brokers to emulate!”
If you have any questions, comments, or concerns, please let us know. Your feedback is always appreciated. CAPIS is happy to be a resource for you.
For questions or to learn more about CAPIS, please reach out to [email protected] and follow us on Twitter (@capisinc) and LinkedIn for more updates and insight from our team.
