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Why Does Settlement Exception Management Matter for Firms in Asia Pacific?

By John Wu, DTCC Associate Director, Business Development – North Asia/Australia and New Zealand | August 11, 2021

Settlement exception management is a critical component of post-trade and settlement processing to prevent settlement failures. While trades may fail due to missing, inaccurate, or delayed settlement instructions and mismatch of trade information, timely management of settlement exceptions will help firms avoid operational risk and financial risk, as well as reputational and relationship damage with counterparties.

When the Central Securities Depositories Regulation’s (CSDR) Settlement Discipline Regime (SDR) goes into effect in February 2022, the significance of trade failures for firms with investment interests in the European Union (EU) will go beyond soured relationships. CSDR was first established in 2014 to harmonize settlement discipline and standards for Central Securities Depositories (CSDs) operating securities settlement systems across the EU, without directly impacting firms in Asia Pacific. However, this will change with the SDR component of CSDR.

Aimed at improving settlement efficiency and timely settlement, the extra-territorial reach of the SDR will require firms in Asia Pacific – as well as any part of the world – that trade with counterparties in the EU or firms that trade in EU-domiciled securities to settle their trades within the mandated trade date plus two days (T+2) timeframe.

Managing Exceptions and Complying with Regulations

In a recent survey1 conducted by DTCC across 50 Asia Pacific firms, more than half (59%) of market participants settling trades in the EU stated that the SDR will have some impact on their post-trade workflow.

The survey found that many firms are still depending on multiple touch points and human intervention to monitor and receive settlement exceptions. Among the multiple channels that firms are using to manage settlement exceptions, email and portal set up by custodians topped the list at 88% and 66%, respectively.


Firms should capitalize on the upcoming SDR regulatory requirements as a catalyst for change – to eliminate breaks and close gaps in the institutional post-trade processing chain.


Respondents also stated that because of costly financial implications for trade fails under the SDR, more stringent and efficient communications with counterparties will be expected to process and settle trades on time.

In addition to introducing mandatory buy-ins, firms will also be liable for cash penalties. A single trade fail may not prove too costly, however numerous trade fails will lead to increased operational costs, in addition to the administrative strain of the SDR.

According to DTCC’s survey, the biggest pain points with settlement management is manually monitoring trade exceptions and delayed communication of critical information with counterparties. Conversations on settlement exceptions are often communicated using email or based on information retrieved from portals offered by custodians. This inefficient process of relying on multiple error-prone manual interactions to address and manage settlement exceptions can result in unnecessary or excessive delays in moving toward settlement finality.

Embracing Change

Firms must ensure operational and technical readiness across their middle and back offices to meet the regulatory requirements imposed by the SDR. A review should also extend to the front office as the buy-in process will most likely require front-to-back office participation. Specifically, post-trade and settlement processes should be upgraded or enhanced to quickly identify and resolve settlement exceptions to facilitate timely settlement.

To drive settlement efficiency and, ultimately, avoid trade fails it is critical for firms to seriously consider a centralized platform to manage and communicate exceptions in real-time. Additionally, a streamlined and automated post-trade process is important to quickly clarify and resolve discrepancies and anomalies in trade matching and confirmation details between counterparties to minimize exceptions from occurring at the outset.

Firms should capitalize on the upcoming SDR regulatory requirements as a catalyst for change – to eliminate breaks and close gaps in the institutional post-trade processing chain. To automate and standardize all stages of the post-trade lifecycle to mitigate operational risk, firms will need a single integrated platform to manage and control efficient trade agreement, standing settlement instructions, execution, exceptions to settlement finality. This proactive approach will future proof firms’ post-trade processes and operations for evolving regulatory and market requirements obligations to come.

1 Click here to view the survey findings.

John Wu
John Wu

DTCC Associate Director, Business Development – North Asia/Australia and New Zealand


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