By Matthew Stauffer, DTCC Managing Director and Head of Institutional Trade Processing
In an effort to minimize settlement failure rates, policymakers are acting decisively. In Europe, the Settlement Discipline Regime (SDR), established as part of the Central Securities Depositories Regulation (CSDR), will enter into force in September 2020, introducing penalties for those who fail to comply with the regulation, including buy-side and sell-side firms. The SDR presents numerous challenges for firms all of which highlight the importance firms should place on fully automating their middle and back offices.
By September 2020, the SDR will impose:
- measures to prevent settlement failure which will require market participants to enhance the efficiency of allocation and confirmation processes;
- automated processing of all instructions to settle;
- matching of settlement instructions to support fully automated, continuous real-time matching throughout the day;
- and the introduction of cash penalties and buy-ins for settlement fails.
As such, the industry must now focus on what needs to be done to analyze why trades fail, how trade failure can be avoided and, if unavoidable, how exactly the SDR will affect them. This shifts the focus from rectifying a failed trade to identifying and preventing them before they fail.
How can DTCC help?
DTCC’s Institutional Trade Processing (ITP) services provide a complete product offering to support an optimal no-touch workflow for all settlement needs, giving you more time to focus on efficiently allocating and managing inventory.
In order to meet the T+2 settlement requirements of CSDR, ITP's central matching platform, CTMTM, provides automated straight through processing of trades. This involves seamless connectivity from trade execution to instruction, enabling same day confirmation and matching of trades globally therefore allowing counterparties to lock in trades to minimize operational risk.
An optimal workflow is achieved when CTM is used in conjunction with ALERT, the industry’s centralized SSI utility, to automatically enrich trades with account and standing settlement instructions ensuring delivery of golden source data on a just in time basis, therefore reducing the likelihood of SSI-related trade fails. To further enable smart enrichment, ITP has recently developed an ALERT Key Auto Select (AKAS) capability which now allows clients to select their preferred place of settlement and associated SSIs based on securities reference data and user defined rules. This feature provides users the ability to reconcile any discrepancies in preferred place of settlement (PSET) between counterparties on trade date as opposed to discovering these discrepancies further downstream.
Users can leverage the enriched trade data from CTM to create more accurate instructions to the marketplace, or choose ITP’s settlement notification service to create instructions on their behalf, further enabling timely settlement.
Timely settlement is also driven by the use of DTCC Exception Manager (DXM) which allows market participants to centrally publish, manage and communicate on exceptions throughout the trade lifecycle process. It enables faster resolution and consequently delivers a significant reduction in the number of trade exceptions which might otherwise delay settlement.
The SDR will create challenges and increased costs for unprepared firms. By leveraging the full suite of ITP services now, firms can comply with the upcoming mandates through an optimal no-touch workflow that will reduce settlement fails. To learn more about CSDR, SDR, and how DTCC ITP can help clients prepare, please visit www.dtcc.com/institutional-trade-processing or www.dtcc.com/csdr
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