Twist and doubts

The need for foreign exchange market participants to communicate in the same tongue led to the creation of Twist, an industry-standard set of messages. But as Clive Davidson discovers, widespread adoption of the highly praised language has encountered a few teething problems

In October, the Treasury Workstation Integration Standards Team (Twist) published a complete set of standard messages for foreign exchange trading and loans and deposits. The messages cover the full trade lifecycle, from trade origination through to settlement and reconciliation, for spot, forwards, swaps and options. The publication represents significant progress for the industry initiative, which has the support of major players from all sectors of the market, but it also marks a watershed for Twist. Publication occurred as questions about the direction and progress of the initiative were beginning to surface, and the organisation now has to convince the industry to put its standards into practice. In some ways its work has just begun, as its supporters are well aware.

Twist, which won the Risk Technology Development of the Year award 2002 (Risk January 2002, page 60), was the brainchild of oil giant Shell, which was looking to achieve greater efficiency and openness and reduced operational risk in its dealings with the electronic forex market. It proposed creating a set of standard messages for communication between market participants – corporates and other buy-side firms, electronic trading platforms, banks, brokers and others – that would support automation of processes and straight-through processing (STP) of transactions. The standards would be based on Extensible Markup Language (XML), a standard data format created for the internet and widely used by business applications in all sectors.

Led by Tom Buschman, treasury development manager for Shell Treasury, Twist focused initially on recruiting treasury management system (TMS) suppliers, electronic trading platforms and banks. It scored early successes in signing up leading TMS suppliers such as Stockholm-based Trema and New York-based Wall Street Systems (WSS) – although not its own supplier, California-based SunGard Treasury Systems – and banks such as Barclays Capital and ABN Amro, and California-based Currenex Global Financial Exchange (in which Shell has a minority stake). Since then, membership has grown to over 30 organisations, representing the full spectrum of the trade lifecycle, including market data providers Bloomberg and Reuters, interbank players such as electronic foreign exchange trading platform EBS and London-based inter-dealer brokers Icap and Tullett & Tokyo Liberty, and global consultancies such as Bearing Point (formerly KPMG Consulting) and PricewaterhouseCoopers.

These organisations have brought considerable market knowledge and technical expertise to Twist, which has enabled it to draft its specifications in a relatively short time. However, member organisations are among those that have begun asking what is next for the initiative, and to question whether the standards will manage to migrate into the real world of trading, with its inertia, vested interests and cost barriers.

Divergence of interest
“Twist has always been delivery driven and there has been good progress over the last two years in meeting milestones,” says Philippe Velay, chief technology officer of Trema. “Now, because the membership has grown, there seems to be some divergence of interest, so it will require more effort to get consensus on where the focus should be.”

Finland-based treasury system technology supplier Exidio is an enthusiastic supporter of Twist, but along with Trema and WSS, it is one of just a handful of organisations that have so far actually implemented support for the new standards. It has created a Twist-based interface between its Web-based application for managing the internal trading requirements of an organisation with a central treasury, called Trezone, and the TMS of Scandinavian supplier WM-data (which is not a Twist member).

As Exidio’s chief operating officer Timo Koivisto notes, Twist’s working method has differed from other standards initiatives in that it has published its specifications before field-testing them. “So we have recommendations that work well in theory, but [whether] they work in practice remains to be seen,” he says.

As the initiative attempts to move from theory to practice, it has lost momentum, says Frank Smith, a financial markets operations veteran who held senior positions at Citibank and electronic trading platform company Atriax until its demise earlier this year, and who is now an independent consultant. “Twist covered a lot of ground early on, but as with many things the devil is in the detail, and recently it has slowed down significantly,” he says. The danger is that while the industry might applaud the ideals of the initiative, it might lose patience with the pace of its development. “The world expects you to deliver as you go along. It won’t wait for a big-bang approach,” he says.

Meanwhile, US technology market research company Gartner Research raised a number of concerns about the initiative in a research note, ‘Twist: Opportunity for a True Corporate Treasury Standard’, published in June this year. It highlighted the limited number of corporates that have signed up, and the challenges Twist faces in terms of developing a more formal organisational structure and communicating its message. It warned that Twist faced potential competition from other standards bodies such as Financial product Markup Language (FpML) and banking co-operative messaging service provider Swift. And it suggested that “Twist’s perceived connection to Currenex, heightened by its close relationship with Shell, may stand in the way of more universal adoption and support”.

But while Twist is undoubtedly at a critical point in its development, it is certainly aware of the dangers it faces, and it has a strategy for dealing with them. Furthermore, some of the doubts and fears about the initiative appear to be due to difficulties the organisation has had in disseminating information on its activities, rather than lack of progress itself.

Take the issue of potential competition from other standards bodies; Twist has been careful to work with groups such as FpML and Swift, which are also based on XML, and to ensure that its standards are compatible with theirs and do not overlap existing work. Several individuals from Twist member organisations are also involved in the other initiatives. For example, Currenex’s financial software architect Bill Specht and WSS’s Web product development manager Rick Schumacher have served on FpML and Twist committees, while staff at RCP Consultants, a financial technology consultancy and software developer based in Oxfordshire, England, are members of the FpML forex working group and the Swift forex modelling group as well as Twist. These people tend to expect or advocate that all the initiatives will converge at some point in the future.

“The close working relationship between the Twist effort and that of FpML has kept these two standards consistent on common elements,” says Specht. “This consistency must be continued, and in time the two should be integrated or merged.”

Gavin Smith, global markets business manager at RCP, agrees. “What is needed is a convergence [between Twist, FpML and Swift]. If that could be achieved then you would have something the industry could unite around,” he says.

As far as Gartner’s concerns about the role of Shell and Currenex goes, it is difficult to find any evidence to substantiate the suggestion that their involvement has stood in the way of the adoption of the Twist standards so far. Most participants believe it was essential to have a corporate with the muscle and resources of Shell to get the initiative off the ground, and there is universal praise for the efforts of Buschman. “Without Tom [Buschman] this group wouldn’t have worked,” says Koivisto. “His enthusiasm and positive attitude have been the driving force throughout.” And none of the other participants Risk talked to have expressed any reservations about Currenex and its role. All have welcomed its participation and say it has contributed appropriately, while several participants have praised the expertise and work of Currenex’s Specht in the formulation of the message standards.

And despite its reservation, Gartner still recommends that the industry – and in particular corporates – get behind the initiative. Its report concludes: “Banks wanting to drive corporate treasury outsourcing or wanting access into the corporate treasury supply chain need to monitor Twist development and be prepared to support or interface to this standard. Corporates should examine this standard as a potentially useful development that will assist in the standardisation of the corporate supply chain both internally and externally. Corporates will find they have a unique window of opportunity to drive this standardisation effort, as opposed to having a standard thrust upon them, by participating in Twist now.”

Other participants agree with this final point. “Twist is different in that it is being led by the buy side,” says RCP’s Smith. “Most other standards initiatives are led by one big vendor or groups of banks setting standards. The key thing is for enough of the buy side to get together and say to vendors ‘This is what we want’. It needs bottom-up pressure.”

The concern is now to get more corporates on board. Buschman points to recent efforts Twist has made to take its message to corporates at trade shows and elsewhere, and endorsements of the initiative by the UK and Dutch Associations of Corporate Treasurers. “The [UK] Association of Corporate Treasurers is keen to see ways in which the operational processes of treasury can benefit from the introduction of standards, particularly where these also support effective integration of the processing of financial transactions,” says Richard Raeburn, the organisation’s chief executive. “Control and efficiency are key issues for all involved in treasury management, and we see the Twist initiative as helping to reinforce these. We are therefore happy to see the standard developing, and look forward to our members contributing their experience and views.”

More support
In addition to corporates, other major banks and software suppliers are expected to announce their support soon, says Buschman. Banks and corporates should be encouraged by Twist’s support of the newly launched CLS Bank for reducing forex settlement risk – the latest release of the standards includes messages for CLS settlement. The publication of the standards was also accompanied by a document on requirements for reliability and security in the use of Twist. At the same time, Twist has also installed a validator mechanism developed by RCP on its website that enables organisations to check that messages they develop are Twist compliant. And to complete the coverage of the transaction lifecycle chain, two of the major network services providers have said, although off the record for the moment, that they plan to endorse Twist and support the transport of its messages in the near future.

These and other promised new members will have to materialise if Twist is to retain its momentum. However, the initiative is winning the arguments, believes Stephen Crompton, former treasurer and deputy finance director of SmithKline-Beecham (now GlaxoSmithKline), who has been advising Twist. One of the other areas where Twist is unique is that it is not only specifying message formats but defining the processes in which they are used as well, says Crompton. “Arguably the biggest development in the last nine months has been the acceptance of the value of defining industry-standard processes as well as message types,” he says. This sets the messages firmly in the context of process automation and STP.

“Corporates understand the enormous value of true end-to-end STP,” says Crompton. “As treasury software incorporating [the latest release of the] standards becomes available, the level of use of internet trading platforms using Twist standards will grow significantly.”