Property vs Securities Trading

For electronic conveyancing, the focus and attention has been on government electronic conveyancing initiatives. The blame game for quite a while has been a politically driven one, vis a vis the parochial nature of one state vs another. You end up with a situation where lawyers (as a collective) and the banks as an industry can (quite wrongly in my view) point the finger at and blame the state governments. It is quite convenient.

Analytically, you need to look at the conveyancing cycle to get a better understanding of the business. Then you can apportion the blame.

First lets look at share trading. It has been electronic for close on 20 years. There are very similar parallels with the property and mortgage business. In share trading there are three distinct phases in a conducting a share trade

1. the contract. share trading is all screen trading and the bid / offer systems is conducted by the ASX via SEATS - and can be accessed by brokers and the public alike.
   
2. the financial settlement. this is conducted by CHESS (part of the ASX and stands for Clearing House Electronic Subregister System). Brokers operate client accounts and brokers settle the money side of things (T3 or T1) for transfer of client funds.
   
3. registration. this is maintained by companies like Computershare, Perpetual, LINK on behalf of the public companies you and I invest in.
   

There is not one single distinct system that controls the industry. Ditto for futures trading and securities trading of bills and bonds.

These industries are turbo-charged. With the above, you ask yourself where is the paper?

Within Australia, where are the stand out changes in the property and mortgage industry? You have to look and segment the market and look at who is responsible for which part

1. the Contract.

This can be broken down into several parts
1.1 the market place which determines the price, and this is ruled by -

1.1.1 the electronic market place - web sites like realestate.com.au rule
1.1.2 estate agents still play a role like brokers do in some share trading but not at all times

In the future we will see properties traded online with a bid / offer auction system.

1.2 the legal side of the contract -

1.2.1 rules of vendor disclosure
1.2.2 the Contract of Offer and Acceptance
1.2.3 digital signatures

This is the space where companies like 247legal.com.au play a role. Where all the parts of the contract described in 1.2 can be conducted digitally, online in a collaborative fashion. We are close to finishing the development on incorporating (simple) digital signature technology into the system currently under development.

2. the Mortgage

This is the world ruled by Financial Institutions, mortgage brokers, credit agencies, valuers, mortgage insurers, lawyers and conveyancers. There are several steps in the mortgage chain which start at loan application and progress through approval, loan offer, security, settlement, registration, funding, securitisation, servicing and discharge. In the world of open and collaborative systems, the lending industry has made progress but this has been constrained to the mortgage broking industry. The truth is the banking systems are closed and introspective. They are inefficient and inelastic.

From the perspective of the interface with the government's electronic conveyancing systems the following rules

2.1 Loan Approval
2.2 Loan Contract
2.3 Security
2.4 Settlement
2.5 Registration

The government's electronic conveyancing proposal affects only 2.3, 2.4 and 2.5, but and the only but is, it must be national and it must be compulsory (or re-think the current approach of all parties must be party to the transaction)

Again, looking at the blame game, the government is not responsible for the earlier parts. The banks and the lawyers must devise and adopt open systems to deal with loan approval, loan contracts and security in innovative ways. And because governments have made a hash of developing national electronic settlement systems, private enterprise needs to step in and provide alternate solutions. We must stop blaming the government. Banks need to start adopting smart technology, smarter systems which allows lawyers and other suppliers to interact with their systems. They are doing this with mortgage brokers but I can attest that progress on any other front is non existent or at least not apparent.

3. Registration

Well not a lot needs to be said here that has not already been said. Governments have monopolies on this. National initiatives are imperative. Nirvana would be a single national property register.