Standard Settlement Instructions (SSIs) remain to be one of the leading causes of trade failures and trade settlement mismatches. Here at Quorsus we have been looking at SSIs as part of our drive to improve matching and settlement efficiency (in light of both CSDR and T+1).
Three significant FMIs in the settlement and matching space have identified SSIs as a priority issue. DTCC have identified incomplete or inaccurate SSIs as one of the three primary reasons for a trade failure, likewise, EquiLend have established through their Settlement Monitor tool that 43% of fails are due to incorrect SSIs for securities lending. Despite the availability of SSI solutions, the industry still has SSIs as a core issue. Bloomberg recently hosted client working groups and the two most common failed trade causes identified were place of settlement (PSET) and SSIs. *
Over the past two decades securities processing has been driving automation and straight through processing (STP) but now with CSDR and the U.S. and Canada moving to T+1 there is a regulatory pressure that is driving operational STP.
A trade doesn’t need to fail before an SSI discrepancy can be identified, and in a reduced settlement cycle, timeliness and accuracy are both fundamental. This calls for clean, accurate and up-to-date reference data (including SSIs) and a strong exception management process supported by workflow tools and SLAs. Proactivity to identify and resolve any discrepancies prior to settlement are essential, particularly when you are trading with counterparties in different time zones and in a reduced settlement cycle. Every participant is responsible for ensuring their SSIs are accurate and available to their counterparties, this is best achieved via a secure central electronic golden source which can be accessed at any time. Tools such as DTCC ALERT (which supports 80% of the industry**) assist in publishing and maintaining accurate data which is both complete and compliant with market requirements.
A robust exception management process should utilise electronic confirmation tools that allow you to enrich your confirmations with your SSIs. This enables a process that facilitates you and your counterparties with maximum time and opportunity to identify an SSI discrepancy and ultimately reduce your operational risk. All parties need the chance to identify exceptions as close to the trade execution time as possible. The industry move to T+1 exemplifies this requirement; AFME estimates the available post-trade processing time will be reduced by approximately 83%, with settlement teams only having 2 core business hours between the end of the trading window and the start of the settlement window, compared to 12 core business hours in a T+2 environment***
Increased headcount is unlikely to be the answer to improving your data and post-trade efficiency and even automation will not be a solution if informed decisions are not being taken. The first step is to understand your data and your pain-points; without understanding the root-cause of trade discrepancies, the processes and associated risks and controls, you cannot automate and design an efficient process. The goal is not to purely automate but to improve a process and drive efficiency. As part of your process review, KRIs and KPIs should be aligned to industry best practices and regulatory requirements, and these should form part of your governance and MI framework.
If you were to assess your readiness for T+1, or simply to review your organisation and the challenges around existing data, the following questions should be asked:
- How fast and accurate can you be?
- Are you limited by outside utilities? Can you influence alongside your peers?
- Are you limited by your own clients and agent banks?
This is not just a one-off exercise but the solution to building a sustainable process. If you need help answering these questions, please email chiefclientoffice@quorsus.com to get in touch with our team of experts.
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**DTCC ALERT supports 80% of the industry making it the world’s largest community of SSI database subscribers, with 13.1M+ SSIs, 1,900+ Investment Managers, and 1,400+ Broker Dealers. https://www.dtcc.com/-/media/Files/Downloads/Institutional-Trade-Processing/ALERT/DTCC-ITP-ALERT-Infographic.pdf
*** https://www.afme.eu/Portals/0/DispatchFeaturedImages/AFME_Tplus1Settlement_2022_04.pdf