SEI Investments is about to begin selling automated sweep software for bank trust departments.
The software, called Intra-Day Sweep, will shorten the time-consuming cash sweep process and reduce the possibility of costly errors, the company said.
It was designed to replace the laborious, largely manual process by which bank trust departments calculate a client's sweepable assets - those that can be moved into short-term money market accounts.
SEI, an Oaks, Pa., asset management and technology company, has offered a similar product for other bank departments for several years, but this is the first time it has designed one for bank trusts, said Dennis McGonigle, an executive vice president.
A separate product for bank trusts was necessary, he said, because back-office technology in bank trust departments is different from that of other bank departments.
Sweep accounts are short-term money market instruments into which banks move, or sweep, depositor assets to get a better return on those assets. The accounts used are generally taxable money market funds, nontaxable money funds, or other similarly liquid vehicles. The assets are held in the funds briefly - often overnight.
Ellen Marquis, the vice president in charge of Intra-Day Sweep, said its goal "is to make the sweep as seamless for the bank as it is for the client."
Mr. McGonigle said that currently, a bank trust department might perform hundreds or even thousands of sweep transactions a day. Many trust departments do the necessary accounting and trading work manually, which is time-consuming and increases the risk that the bank will not complete some transactions before money funds close at the end of the day, he said.
Money funds calculate their net asset values at 4 p.m., so any funds swept into the accounts afterward will not get invested until the next day - which can cost the bank money. If a bank misses the daily investment deadline, it is still obligated to pay depositors the yield that they would have gotten had the deposits been invested.
Because of the time-consuming nature of these transactions, and the pressures caused by having multiple clients, it is not uncommon for a bank trust department to miss that deadline, Ms. Marquis said. Losses can amount to hundreds of thousands, or even millions, of dollars a year, she said.
Mr. McGonigle said that automating the procedure reduces the risk that banks will miss deadlines; Ms. Marquis added that it will also enable trust officers to focus on other work.
SEI is also developing sweep software that would invest money immediately, but Ms. Marquis said such a product is still about two years away from completion. The Intra-day sweep system enables a bank to sweep its deposits into a money fund within about half an hour after the client requests the transaction, she said.
Pete Crane, a vice president at money-market analysis firm Imoneynet.com, said that banks began offering sweep accounts to depositors about a decade ago as a way of keeping them from withdrawing cash to pursue better returns. Over the past five years such accounts have become widespread, he said. Observers disagree on the size of the business, but it is believed to involve about 10% of the roughly $2 trillion in money market funds, he said.
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