The T-Charter, a voluntary code of best practice for transition managers, has been declared “a significant step forward for the industry” by BlackRock Merrill Lynch.
The T-Charter, which was launched in October 2007 after 3 years of consultation and negotiation, was designed to help asset owners make a more informed assessment and comparison of the services offered by different transition managers.
“T-Charter improves transparency and most importantly helps clients understand issues relevant to transition management,” comments Peter Walker, head of EMEA transition management, BlackRock Merrill Lynch.
BlackRock Merrill Lynch has been a strong supporter of the code since its inception and was actively involved in its drafting.
The T-Charter introduces 10 key commitments covering disclosure, conflicts of interest, client confidentiality, resources available to transition managers, systems and processes, cost estimation, dealing strategy and practices, evaluation, errors and compliance.
Although initially developed in the UK, the T-Charter provides a code of best practice that is relevant globally, according to BlackRock Merrill Lynch. To date 17 firms have signed up to it to promote best practice, consistency and transparency.
However, a small number of signatories to the T-Charter have questioned whether the code offers sufficient protection to transition participants. These concerns focus mostly on pre-hedging, which is not prohibited by the charter. The practice of pre-hedging involves trading on a bank’s account ahead of a transition event with potential economic gain to the transition manager. Pre-hedging can potentially create a conflict of interests between the transition manger and the client, note some market participants.
BlackRock Merrill Lynch, which stresses that it does not condone pre-hedging, says the practice was not ruled out of the T-Charter because it is ultimately up to clients to decide whether or not to ask their managers to trade ahead of a transition.
To prevent abuse, the T-Charter requires full disclosure of all pre-hedging transactions and a clear understanding of the revenue benefit that may accrue to the transition manager as a result of this activity.
This is the latest in a series of announcements that have been changing the face of the transition management industry over the last 15 years. The focus of the business has shifted from simple trading implementation strategies to more complex ones, with providers offering a diverse suite of services to asset owners including trading analytics, project and risk management.