A patent granted this month to Bank of New York Co. Inc. may generate an intellectual-property dispute.
The British patent is for what Bank of New York calls "a two-way electronic messaging interface model that facilitates communication between investment managers and custodian banks."
It sounds about as basic to financial processing as the hub-and-spoke method of managing mutual fund assets that State Street Corp. patented years ago, which touched off a 1998 court case and an explosion of business-method patent applications.
Bank of New York said a corresponding U.S. patent is pending on the software.
Like any patent, the messaging process will have to withstand challenges to its novelty. In the view of several IT experts, the method is based on short message service technology that has been available for more than a decade for business-process tracking, and that has recently been applied in risk management and other operational areas. Bank of New York appears to be trying to stake a first claim to its use in fund administration.
Recipients of the messages can be either the bank's own custody department or third-party custodians.
The messaging systems uses a Swift format known as the MT 598, which differs from the Swift network's standard message types because it allows for customization of messages without having to fill in designated, preformatted fields.
The Swift free-format message type is often used by fund managers to send reminder instructions.
The MT 598 is not typically used for payment or securities instructions, though fund managers and custodian banks use it for post-trade messages.
But Ahmad Sharif, a managing director with the bank, says there is more to its patent. "Not only does the methodology allow BNY to serve as an intermediary communications hub to forward Swift messages to third-party custodians, but BNY retains the business logic needed on what details they must send to their custodian banks and allows for the automatic reconciliation of positions," he said.
This story is adapted from one in today's
