How are settlement exceptions managed in Asia Pacific today?

Managing settlement exceptions has never been more challenging in Asia Pacific. Aside from the industry pushing for higher levels of standardized settlement, the upcoming Central Securities Depositories Regulation's (CSDR) Settlement Discipline Regime (SDR) will require firms settling trades with counterparties in the European Union (EU) or trading in EU-domiciled securities to ensure timely settlement or face mandatory buy-ins and penalties for failed trades.

To gain a better understanding of how firms manage settlement exceptions today, DTCC launched a survey conducted via virtual meeting and synchronous communication with 50 firms across Asia Pacific from 1 April to 31 May 2021.

Below is a snapshot of our findings.

Survey Participants

Outsourcer 72% 20% 4% Buy-side Sell-side Global Custodian/Custodian 4%

Buy-side firms comprised 72% of the total firms surveyed.

Key Markets

Multiple response permitted

40% 40% 28% China Hong Kong US

The US, Hong Kong and China were the most mentioned markets for cross-border trades. As a result, these markets may expose firms to significant settlement risk due to trade exceptions.

Location of survey participants

28% 24% 16% 10% 10% 4% 2% 2% 2% 2% Australia Hong Kong Malaysia Singapore South Korea Japan China Taiwan Thailand Vietnam

More than half of respondents were from Australia (28%) and Hong Kong (24%).


Multiple response permitted

Credit Risk 58% 40% 36% Fines imposed in that market License to trade in that market Credibility Risk 30% Other 10%

Firms also expressed other concerns that include overdraft charges, cash shortfalls arising from settlement fails and penalty charges and mandatory buy-ins to be imposed when the CSDR’s SDR is enforced.


Multiple response permitted

88% Email 66% Portal offered by custodians 8% Fax 8% Order Management System/Portfolio Management System

Many firms are relying on multiple manual touchpoints to monitor and receive settlement exceptions.


Among respondents who answered


concurred that it is useful for their executing brokers to publish settlement exceptions via a dashboard.


Among respondents who answered


agreed that using CTM™ and ALERT® help to reduce settlement fails.


47% Will have some impact 12% Will impact to a large extent 2% Will have no impact at all 39% Don’t know/Not sure
More than half (59%) of firms settling trades in the EU stated that the SDR will have some impact on their post-trade workflow.

Penalties on failed trades under CSDR's SDR


of respondents have not received any indication from their settlement agents on how penalties levied by the Central Securities Depositories (CSDs) will be communicated.


Among 20% of respondents who have some indication:
  • Existing fail reports
    (CSV files, portal reports)
  • Information to be confirmed
  • SWIFT messaging MT 548
  • SWIFT messaging MT 537
40% 30% 20% 10%

40% of respondents indicated that daily penalty amounts will be communicated via existing fail reports (CSV files, portal reports) while 30% are still waiting for information to be confirmed. The remaining firms shared that SWIFT messaging MT 548 (20%) and SWIFT messaging MT 537 (10%) will be the communication format.


Manual processing of settlement exceptions remains a concern
Based on our interviews with the survey respondents, inefficiencies arising from the lack of timely exchange of critical information with counterparties and manual monitoring of settlement exceptions are the biggest pain points with settlement processing today. As firms may be working with several custodians at any one time, settlement exceptions are often communicated via email and directly through individual custodian portals.

To resolve the operational challenge of using multiple manual touch points to retrieve and communicate settlement exceptions, a centralized platform that is accessible by all parties to a trade is needed to:

• consolidate, publish, and manage exception handling
• consume confirmation messages along the settlement chain

Our respondents also suggested a single window to view and resolve settlement exceptions in real-time. Ideally, this will also be the platform to handle post-trade processing from execution to settlement finality.

As the CSDR's SDR will have some impact for firms settling trades in the EU (59%), more stringent monitoring and efficient communication with counterparties will be required to process and settle trades on time. Operational cost is also expected to increase due to additional resources needed to manage penalties and mandatory buy-ins. With email exchanges and reports to handle, a more efficient and automated settlement process is needed to meet the tight settlement timeline.

Given that the US and China were highlighted as key markets that may bring significant settlement risk resulting from trade exceptions, automating the pre-matching and exception management process will be critical to ensure timely settlement. Because of time zone differences between the US and Asia Pacific and China is on a T+0 settlement cycle, a streamlined pre-matching process will also help to quickly clarify and resolve discrepancies in trade confirmation details between counterparties.

With firms facing challenges managing settlement exceptions, a review of existing post-trade processes is necessary to ensure settlement efficiency.

Survey questions

A mixed of close-ended and open-ended questions were used to provide quantitative data and qualitative data.


DTCC would like to thank all who participated in our survey interview.

For more information, please contact [email protected]