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Managing Trade Exceptions in Asia

by Hasan Rauf, Executive Director/Head of Business Development – APAC, DTCC | February 26, 2019

Managing Trade Exceptions in Asia
Hasan Rauf, Executive Director/Head of Business Development – APAC, DTCC

The management of post-trade exceptions remains a common industry challenge and was an important message that clients shared with DTCC in an in-person survey conducted during the second half of 2018, where 82% of individuals from our sample client group participated. Indeed, this common theme throughout conversations with clients in Singapore, Hong Kong and Australia highlights the challenges in the industry with manual processing to resolve trade exceptions.

The survey indicated that our clients’ primary concern if trades are not settled on settlement date is credibility risk being a high 39%, followed by fines imposed in that market at 27%, 25% for credit risk and license to trade at 9%. When asked which activity consumes a significant amount of a firm’s time managing and monitoring trades on settlement, more than half (59%) of our clients indicate that this is spent manually identifying, correcting and monitoring trade settlement. Time zone differences is another notable concern.

The respondents offered additional feedback for a solution that could address the following requirements:
- Communicates exceptions via a central portal – instead of relying on multiple email exchanges to communicate with counterparties.
- Enables post-trade exceptions to automatically be sent to the order management system, i.e. a one-stop shop to handle communications between the front and middle/back offices.
- Integrates with the various chat platforms to accelerate faster resolution of trade errors.
- Consolidates messages from single or multiple custodians to a single repository.
- Provides data analytics to identify causes of operational breaks.

The results of the survey reinforce that exception handling is a key component of the post-trade workflow – requiring human effort to fix trade exceptions, aside from cost. The findings coincide with DTCC’s decision to rethink how we can assist our clients – and the industry – with a more streamlined way to address a common pain point, following a thorough review of existing post-trade processes.

Identifying Root Causes

In the absence of a central, streamlined industry platform, manual intervention is needed to fix trade exceptions. Additionally, data is often consumed and processed from various disparate systems adopted by trading counterparties and market infrastructures for trade matching – often concealing the root cause of trade failure.

Offering a Single View to Manage Post-Trade Exceptions

In 2018, DTCC launched DTCC Exception Manager (DXM) to address the current state of exception management and provide users with the data and collaboration functions needed to reduce the time and effort to resolve today’s exceptions.

On average, one exception can create up to 30 email exchanges, introducing unnecessary operational risk for our clients. This observation is also shared by the respondents in our survey – they disclosed that the pain points in the middle and back offices are caused by email (82%) used as the common method of communication between counterparties, followed by missing or incomplete SSIs (75%), manual processes in post trade matching (73%) and incorrect settlement location for either party (71%).

DXM is a central venue to publish, view and communicate exceptions throughout the trade lifecycle process, and addresses the immediate concern of reducing the time and effort to resolve current post-trade exceptions by capturing, consolidating and facilitating exception resolution. The need for a central platform to view exceptions to achieve the ideal settlement operational process is a key priority among 40% of our clients surveyed, followed by standardized custodian formats to simplify processing errors at 31%. Only 4% selected individual broker/custodian portal to view trade exceptions as a key priority while 25% opted for all the above suggestions.

Communicating via a Common Platform

All firms in the trade lifecycle can leverage DXM to communicate via the platform secure communication functionality (chat) to resolve post-trade exceptions, including buy-side firms, custodian banks, prime brokers, outsourcers and their underlying clients, broker/dealers, clearing brokers and other settlement agents.

Offering different benefits to different users

Investment managers are provided with a single, consolidated, global view of “at risk” trades, eliminating the need to manage multiple counterparty feeds. Increased transparency and efficiency come from the configurable dashboard and chat communications.

It helps to reduce claims, buy-ins, market losses and and/or capital charges for broker/dealers, reducing manpower required for exception investigation and resolution. Mutual transparency on high risk trades ensures timely, pro-active action is taken to prevent trade failure.

For custodian banks, it offers visibility into client trades and creates a more proactive exception resolution process, eventually reducing the number of failed client trades. Effective collaboration using the data within the DXM platform enables faster issue identification, timely resolution of trade issues and accurate reporting.

Moving towards a no-touch workflow

While the middle and back offices have made much progress in automating complex work flows and processing higher volume of trades, more needs to be done to bring additional transparency to the trade lifecycle and realize the levels of straight through processing desired in institutional post-trade processing – to bring extensive returns, including the reduction of cost and risk for the underlying client.

With feedback from our client community, DTCC has started its journey to reduce the number of fails and post-trade exceptions resulting from breakdowns in the institutional trade processing chain, automate and standardize all stages of the trade lifecycle to mitigate operational risk and provide automated tools and integrated platforms to reduce operational cost. DXM is an important first step as we move towards the end state that our clients envision – to adopt a no-touch workflow using automation to manage and control efficient trade agreement and settlement instruction, with minimum or zero client intervention; trades should just settle.


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