Mitigating Risk

Towards a No-Touch Post-Trade Workflow

By Joe Parsons of Global Custodian | Jan 15, 2019

Turning User Feedback Into Improved Market Insights

DTCC ALERT is a web-based global database for the maintenance and communication of account and standing settlement instructions (SSIs). Bill Meenaghan, DTCC Executive Director, Product Management, discusses developments in ALERT over the past year as well as in other DTCC services.

 

Global Custodian: When we spoke at the end of 2017, there were several new developments in the offing. How have they progressed?

Bill Meenaghan: That’s true; and we’ve done a lot this year, particularly in relation to custodians, taking several steps from product design towards client implementation.

GC: One of the new capabilities you mentioned for 2018 was an SSI auto-select feature. Is that now available?

BM: Yes. Our ALERT Key Auto Select (AKAS) feature is now available in the cloud. It has just gone live and is our one of DTCC’s first cloud-based services. We expect clients to start deploying in early 2019. AKAS enables DTCC to derive country and security types based on the security identifier, such as ISIN, CUSIP or SEDOL of a security. The service can then pick the appropriate SSI for the transaction concerned. Clients can either default to that standard choice or, if they prefer, add rules to choose a different SSI. The aim is to reduce settlement errors; specifically those that are due to the wrong SSIs being used. We estimate that a good portion of the 20% of settlement fails that the industry sees are due to an incorrect SSI being selected. The resources currently employed to manage these types of pre-settlement and fail management processes are significant. However, the rules that we’ve introduced in ALERT can largely reduce these types of fails and help firms keep costs down. It adds settlement certainty to the process as both sides agree where a security will settle.

A major focus of ours is in enabling, through the use of our services, a no-touch processing workflow – the goal of which is to extend trade matching, enrichment, and settlement notification capabilities to reduce exceptions and support the goal of minimal touch processing. This will provide an end-to-end market utility workflow to facilitate trade settlement across asset classes. Instructions for settlement can flow directly from a match or affirmation, eliminating the need to separately instruct and then match settlement data. Essentially, the system leverages settlement information in ALERT and creates pre-matched settlement instructions from the trade match between the broker-dealer and investment manager.

This year, we’ve also seen a growth in the client base for the ALERT GlobalCustodian Direct (GC Direct) workflow, which we introduced in late 2015. This helps to automate the management and flow of SSIs between the custodian and the investment manager, using ISO 20022 compliant messages. It also allows custodians to manage settlement instructions on behalf of their buy-side clients, which has resulted in a significant reduction in SSI-related fails. There are essentially two data flows that concern us: from the custodian to the investment manager and from the investment manager to the executing broker. Clients who’ve moved onto GC Direct have seen a measurable drop in SSI related fails and an increase in straight through processing (STP). Given the scale of a global custodian’s operations, an increase of even a few percentage points in STP translates into considerable cost savings. Some have achieved fail reduction rates of over 50%.

GC: Your area of interest seems to be moving downstream?

BM: We’re continuing to move beyond our traditional focus on post-match, pre-settlement. We’ve launched a product this year called DTCC Exception Manager, a platform to publish, view and communicate on exceptions throughout the trade lifecycle process and that supports all securities transactions globally. In 2019, we are aiming to launch capabilities around settlements management which will allow us to follow transactions all the way through the trade lifecycle. The industry’s current post-trade processing for institutional securities transactions from trade matching to trade settlement provides multiple opportunities to further reduce costs and risk.

This article was originally published in Global Custodian.


 

 

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