Shares Logistics

15 January 2006

Ten years is a long time in FM but the winners of the PFM Award 2005 for Expert Services - On Site, TNT Managed Services with CrestCo, clearly demonstrated the benefit of partnering for the long term

Crestco is the Central Securities Depository (CSD) for the UK and Ireland, and operates the CREST system. CREST is an advanced, low-cost settlement system provided for a wide range of corporate and government securities, including those traded on the London and Irish Stock Exchanges and virt-x. CrestCo is regulated by the UK’s Financial Services Authority, is one of the most efficient systems worldwide and is a leader in settlement risk reduction.

Ten years ago, traditional share deals involved the movement of a share certificate from the selling broker to the registrar, a process that was not only paper intensive but also delayed the transfer of money from the buyer to the seller. Previous attempts at modernisation of the system had failed spectacularly costing the UK taxpayer £400m, and the London markets were falling behind their competitors by not offering an improved settlement system.

In the early 1990’s the Bank of England was tasked with the introduction of an ‘electronic settlement system’ which would revolutionise how shares would be sold and bought throughout the UK and Ireland. It was against this backdrop that CrestCo was formed. There was no margin for error if the UK and the City of London were to maintain its position as a global financial player. The project’s stakeholders were incredibly high profile including the Government, the Bank of England, over 120 financial institutions, the Financial Services Authority and all the sellers or buyers of shares that were traded on the London Stock Exchange.

In December 1995 TNT Managed Services signed a contract worth over £2m per annum to provide CrestCo with a nationwide courier and sorting service for share certificates and stock transfer forms. In an eight month period from December 1995 to July 1996, TNT and CrestCo not only built a new IT system but recruited 60 new staff all of whom needed training and commissioned five new operating locations throughout the UK and Ireland. Called the Courier and Sortation Service (CCSS), it enables brokers in the UK and Ireland to deposit and settle physical stock. Following any trade on the Stock Market settlement must occur and involves the transfer of money and stock between buying and selling brokers. Facilities were created at Dublin, Glasgow, Leeds, Manchester and Birmingham in addition to two sites in London to handle operation. There is now an additional deposit office at CrestCo's City office.

Two factors were key to the success of the partnership - the employment and training of 60people and the creation of a bespoke IT solution. Investing time and money in training TNT employees to deliver the service to CrestCo and their customers is essential for the smooth operation of the contract. Additionally they needed to have knowledge and understanding of the financial sector to deal with CrestCo’s customers.

Originally, the CCSS handled between 50,000 - 100,000 transfers per week. However during the peak of the de-mutualisations, (Abbey National, BT, Woolwich) TNT has handled in excess of 250,000 transfers per week. Now the CCSS regularly receives, sorts and delivers over of 50,000 stock transfer forms and associated certificates each week. In financial terms this represents some £1.5bn worth of trades every week.

The bespoke IT solution was developed by both companies IT departments. TNT developed a system to communicate with CREST and facilitate the movement of secure electronic messages through encryption gateways. It has been altered and improved over the term ofcontract and both parties are always looking for improvements to the IT systems as new technology becomes available. Influencing factors include operational performance, entry of new products onto the CREST system such as the Gilts Market in 2000, changes in FSA Regulations and evolving security needs

Every change in IT requires extensive training and project management skills for not only Crest and TNT, but other users such as stockbrokers and registrars. Every single transaction document moving through CrestCo/TNT sites has or is given an individual barcode label, which is tracked and traced by TNT at various stages of the operation. All barcode information is linked to the central computer network so that progress through the system can be monitored.

A mirrored management system has been running for many years and delivers continuity between both companies at all levels. Operational meetings are held to discuss current issues, market trends, operational improvements as well as reviewing costs and developing strategy for the future.

In the ten years of the relationship between the two companies the contract has constantly evolved and improved. In addition to three IT rewrites, there have been a number of other challenges which have been jointly tackled. For example, changes in customer demand has resulted in several operating locations beingmoved. The northern operation was moved from Manchester to Leeds (now the largest volume site) and the Birmingham site was shut when volumes did not warrant the cost to the broker community. To halve the cost for rent and rates, the City based London operation was moved to Vauxhall, SW8. Through careful budgetary management and innovative technological and operation there has not been an increase of the charges to the UK and Ireland stock broker community for the use of CCSS service throughout the ten years that service has been provided.

The TNT / Crest partnership is an example of two organisations working together to deliver one of the most high profile changes to the UK and Ireland equity settlement systems. The importance of this partnership to the UK’s position as a global financial player is unquestioned moving some £75bn worth of share certificates every year.

This partnership is entering its third contract term taking it through to the end of 2008. According to Richard Crews, Deputy CEO of CREST. “We have been continuously impressed with how TNT has adapted its in-house technology over the term to enhance the service for our customers. CRESTCo regards TNT as a division of our own business and looks forward to continued shared success as we enter into our third term of contract."