Move to streamline processing gets a new spark from leading SMA distributor. The Depository Trust & Clearing Corporation and Citigroup (DTCC) plan to centralize and simplify processing for separately managed accounts (SMAs) in a service open to all SMA-industry participants.

The DTCC says its managed account service will automate the process of opening new accounts and streamline the flow of information required to process SMAs and increase efficiencies while reducing errors and operational risks. The service will link SMA sponsors, managers and service providers and simplify connectivity and communication by instituting a standardized protocols.

"We are extremely pleased that the leading managed account sponsor and outsourcer have agreed to pilot this service with us," says Ann Bergin of DTCC Distribution Services.

One way to put it

Smith Barney, Citi's brokerage unit, is the biggest SMA distributor in the business, with assets under management of more than $200 billion and an overall marketshare of nearly 30%. Citi's Global Transaction Services (GTS) is one of the two or three leading SMA processors, a service it offers as an outsourced alternative to in-house administration.

"The combination of Citigroup's leadership position in this market, coupled with our operational capabilities and infrastructure, will bring an unprecedented level of efficiency to this growing segment," adds Bergin.

More accurately, Citi's participation gives the initiative a hope in hell. A previous stab at rationalizing connectivity in the SMA space, though praised by the Money Management Institute (MMI) as vital to industry growth, fell flat about 20 months ago.

Most SMA managers loved that initiative, which featured the DTCC as a kind of clearing house for SMA transactions conducted against a backdrop of standardized communication. Of course they would: SMA processing means more than just fiddling with a bunch of -- by institutional standards -- small accounts; it also means communicating with sponsors about every little thing to do with those accounts. Faced with an unappetizing spaghetti plate of in-house communication formats, managers would just as soon have communications standardized across the industry.

But Smith Barney and its main rival Merrill Lynch, the two biggest sponsors, seemed indifferent to the earlier DTCC-MMI initiative. Some say that's because the two wirehouses had just come off big SMA-platform renovations and were keener to see how those would work out than to start switching things around to suit the DTCC.

No attempt to streamline SMA-processing communications is likely to work without buy-in from most if not all the wirehouses, which together account for about 80% of SMA distribution. It simply isn't worth most managers' bother to switch to a protocol and pay the DTCC as a new "utility" provider if their biggest customers aren't playing along.

With Smith Barney in the vanguard, however, the effort stands a chance. This may be especially true now that Citi has an additional strategic stake in helping to differentiate its GTS unit from others in a crowded field of SMA-administration outsourcers. GTS has emerged, in the short space of 18 months, as one of the two or three biggest processors. But holding that position through the coming shake-up could mean the difference between dominating SMA back-office outsourcing or not. And a close connection with the DTCC's new communication standard -- which it supports with a translation platform help firms comply with DTCC gateway standards without having to reconfigure existing systems -- might just do the trick. -FWR

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