A unit of Thomson Financial Services has introduced a service that links institutional investors and managers with their custodian banks.
Officials at Thomson's Electronic Settlements Group said the new product, called Tradelinx, connects custodian banks and institutional investors for a quicker transfer of settlement and reconciliation information.
The group markets software and communications networks for banks and institutional investors. Thomson also owns American Banker.
The new service is designed for easy integration with Thomson's Oasys Global, a trading system that links investment managers with brokers, and Alert, an electronic data base for delivering instructions between brokers and institutions.
Paul Skuriat, business manager with Thomson, said many custodian banks receive trade details from institutions-by phone or fax. He said custodian banks, which hold securities for corporate clients, must then rekey the trade information into their own systems, which can lead to errors if information is incomplete or inaccurate.
Mr. Skuriat also said that many institutions were not adequately preparing for new regulations scheduled to go into effect next year.
The new Securities and Exchange Commission trade settlement rules, known as T-plus three, will require broker-dealer trades of U.S. corporate equity and debt securities to be settled in three days.
Currently, the trades must be settled in five days, or T-plus five.
The SEC rule, which was adopted in October 1993 and will go into effect in June 1995, "will affect a bank's ability to provide timely settlements," said Mr. Skuriat.
'There are many institutions that are not as ready as they should be. Most parties are looking at what other institutions are doing, and believe that it's not their problem," he said.
The SEC changed the rules, Mr. Skuriat said, so trades are paid off more quickly to lessen exposure to risk in the delivery of securities. In a T-plus-three environment, customers would have less time to renege on a deal.
Paul Werlin, an executive vice president with Raymond James & Associates, a Florida brokerage house, said the T-plus-five settlement cycle in use today is "antiquated.
"It was developed in a time when the electronic transfer of funds was a small portion of money transferred," said Mr. Werlin. "Now, everything is transferred electronically. Five days of float for unsettled items is way too much risk, especially with the volatility of the market."
Mr. Werlin said large institutions are prepared for the anticipated rule changes, but the "second- and third-tier" institutions, which he defined as "any operation between 5,000 and 10,000 trades a day. may not be.
Tradelinx costs $300 monthly for banks and $500 monthly for other institutions for the first 200 transactions. After 200 trades, the charge for the service is based on volume. High-volume transactions can go down to less than 15 cents each.