Pricing system could prove to be a stumbling block

Inertia is often seen as one of the main reasons why third-party distributors and fund providers have not yet adopted automated solutions. EMXCo’s Mr Wright is convinced of this theory. “It takes a while for people to move to the latest technology, because they are used to what they do, they are happy about they do. It is just natural inertia that you get with any technology adoption.” However, a shift in the price in favour of the distributor or the fund provider, or a balancing of the costs, could prove a good strategy.

At the present, subscription to the EMXCo system is free for the distributor, while fund providers pay an initial fee of £19,000 (?27,500) plus a per transaction fee, which is on average £4.31 (?6.30). But it has not always been like that.

“Our service was a paid subscription service for distributors and fund promoters. But we realised that we needed to make it free for the distributors. Those distributors have quite thin margins, and did not want to invest a lot in technology. It made a big difference to us when we shifted the price in the model,” remembers Mr Wright.

EMXCo’s pricing model seems to be quite unusual. Euroclear, for example, charges distributors only, not the agents or fund promoters, for the use of Fundsettle. Mr Nicora explains that the tariff, “an integrated fee for an integrated service,” varies depending on the volume. “Typically a client that has 5,000 orders a month, which is 166 orders a day, would pay around ?6 per transaction”. This is following a tariff reduction implemented in April 2005. “For that kind of client, the tariff was around ?9,” he says.

Euroclear has recently introduced a monthly minimum fee of ?1000, after which clients pay the real costs. “The distributor has to have a minimum volume of 50 orders a month flowing through the platform. The idea of the minimum fee is just to make sure that clients have some form of sophistication in the management of the funds,” says Mr Nicora.

There are changes on the horizon. “We are looking at means to rebalance the costs,” says Mr Nicora. And he explains that although the distribution side will continue bearing most of the costs of the platform, new additional services planned for Fundsettle will allow to a reduction in distributors’ fees.

For the use of its order-routing platform Vestima+, Clearstream, like Euroclear, charges distributors only, who will have to pay “on a per order basis plus a negligible initial fee,” states Mr Seyll. The tariff level depends on the global volume that the distributor routes to Clearstream, “It could vary from x to 5x”, he says.