The Depository Trust & Clearing Corporation (DTCC) has released a new paper addressing issues of trade failures in the institutional post-trade marketplace where greater technology adoption could help with growing problems in an era of cost pressures, heightened regulatory requirements, and increasing cybersecurity focus.
According to analysts, Standing Settlement Instructions (SSIs) represent a significant proportion of trade failures, as missing or incomplete SSIs create one of the biggest pain points for firms. The significant number of manual touch points relating to SSIs during the settlement process sees trade data handled by many disparate systems from matching engines to counterparties and settlement organizations while flowing across an array of market infrastructure facilitators.
The white paper, A Roadmap to Automation: How an SSI Utility Benefits All Participants, looks at the structural transformation underway in the capital markets and the need for industry consensus to ensure SSIs become fully automated.
From the efficiency perspective alone, a global failure rate of just 2 percent is estimated to result in costs and losses up to $3 billion. Beyond cost savings, automation can help address security concerns as sometimes communication still occurs via email instead of through secure networks. In fact, it is estimated that roughly half of institutional participants are sending critical SSI information manually rather than on a secure platform which is inefficient and introduces cybersecurity risk.
“Settlement processes are now attracting more attention as regulators require shorter and more certain settlement with the potential of penalties for noncompliance,” said Matthew Stauffer, Managing Director and Head of Institutional Trade Processing at DTCC. “Removing manual touch points in the settlement process will have a tremendously positive impact in efficiency and security.”
According to DTCC, the move from manual to automated SSI processes, and ultimately to custodian-managed SSIs, is underway with more than 3,600 firms already leveraging DTCC’s ALERT platform. Using ALERT’s Global Custodian Direct (GC Direct) workflow, custodians and prime brokers can administer settlement instructions for their buyside clients with industry standard compliant messaging. GC Direct has just passed the milestone of more than 1 million SSIs now managed by custodians and prime brokers, where early adopters are reporting a reduction in fails of 40-50 percent.