With U.S. T+1 implementation fast approaching on May 28, 2024, market participants have less than two months to optimize their post-trade pre-settlement processes to ensure readiness. Specifically, many firms are targeting improvements to their affirmation process. DTCC’s Val Wotton, Managing Director and General Manager, DTCC Institutional Trade Processing (ITP), answers key questions about affirmations and what’s next.
Related: A launch status check for T+1
DC: In a T+1 environment, what is the deadline to have trades affirmed?
VW: As per SEC Exchange Act Rule 15c6-2, Broker Dealers must ensure completion of allocations, confirmations, and affirmations with their counterparties for 100% of trades as soon as technologically practicable and no later than end of the day on trade date. As only buy-side firms can perform allocations, they are directly impacted by the tight timeframe. For that reason, DTCC recommends completing the allocation process by 7:00 pm ET on trade date to allow ample time for confirmations and affirmations to be finalized by the Depository Trust Company’s (DTC) cutoff time of 9:00PM ET on trade date.
DC: If transactions are not affirmed by 9:00PM ET on trade date, will it be considered a failed trade?
VW: No. For firms that are unable to make the 9:00PM ET DTC cutoff and the cutoff for affirmed Prime Brokerage activity to settle via DTCC’s Continuous Net Settlement System (CNS), bilateral transactions can be settled by having the deliverer issue a night delivery order (NDO) by 11:30PM ET on trade date or a day delivery order (DDO) on T+1. NDOs and DDOs are more costly and more operationally intensive than those affirmed by 9:00PM ET. Because of this, DTCC recommends that market participants leverage automated post-trade workflows, including the affirmation process, to seamlessly affirm trades by 9:00PM ET on trade date, including the use of DTCC system TradeSuite ID.
Roughly two-thirds of trading activity in TradeSuite ID is Prime Broker flow that nets in CNS at NSCC. This flow is currently at 95% affirmation by 11:30 AM ET on T+1, and we are confident it will reach similar levels of efficiency at 9PM on T by the T+1 implementation date. However, one-third of transactions are settled bilaterally, which is where DTCC is working with the industry to improve affirmation rates.
DC: How is the industry currently performing in terms of affirmations completed by the DTC cutoff time?
VW: In March 2024, 74.95% of transactions were affirmed by the DTC cutoff time of 9:00PM ET on trade date. This number grew from 74.5% in February 2024, and from 73% in January. When considering each segment:
- Prime Broker affirmation rates have increased from 81% in January to 83% in February and March, marking continued progress towards meeting the T+1 affirmation regulation. As more Prime Brokers move to real time affirmation, this rate is expected to increase in April.
- Investment Managers who auto affirm via a central match, rebounded to 91% after seeing a small drop from 92% in January to 89% in February. In March, ITP added 30 new Investment Managers to the CTM auto affirmation workflow, bringing the current total of Investment Managers using this capability to 399. 280 of these Investment Managers are enabled for CTM’s Match to Instruct (M2i) workflow. As Investment Managers continue to on-board and configure their Brokers, this rate will continue to increase.
- Custodian and Investment Manager self-affirmation rates saw a growth of 4% over the course of two months - from 51% to 53% between January and February, and from 53% to 55% in March. It is important to note that over 1,370 TradeSuite IDs were added in Q1 2024 so far, providing Investment Managers with greater transparency into affirmation rates, as well as enabling them to move to an Auto Affirmation (central) model, as needed, to achieve significantly higher affirmation rates. More than 700 of these newly added TradeSuite IDs were added in the month of February, surpassing the total number of new TradeSuite IDs during the entire year of 2023.
Related: DTCC comments on industry’s affirmation progress
DC: What is CTM’s Match to Instruct (M2i) workflow and how does it help achieve T+1 settlement?
VW: CTM’s M2i workflow significantly increases same day affirmation (SDA) rates on DTC-eligible securities when a trade match occurs between an Investment Manager and Executing Broker. Clients utilizing the workflow benefit from central matching and auto-affirmation capabilities that are typically more efficient than local matching and affirmation by Custodians. Today, most CTM Investment Managers leveraging M2i to match and affirm their U.S. trades achieve a near 100% affirmation rate by 9:00pm ET on trade date, achieving the level of straight through processing necessary to meet their counterparties’ T+1 SDA requirements and cut-off times.
DC: How many market participants are utilizing CTM’s M2i workflow?
VW: As of March 28, out of the 425 Investment Managers that have implemented CTM auto affirmation, 289 are live with one or more of the 36 Brokers on the CTM Match to Instruct (M2i) workflow. 50 of those Investment Managers went live with the M2i workflow in February.
DC: What is the difference between implementing auto affirmation and being live with a Broker on M2i?
VW: Investment managers can enable CTM’s M2i workflow regardless of whether their brokers are enabled as well. If one or more of their brokers are enabled on CTM’s M2i, they can “go live” and fully automate with one, or all, of them. Investment managers utilizing CTM’s M2i workflow with a broker who is also enabled see a dramatic increase in their SDA rates with that broker. As they go live with other M2i enabled brokers, their SDA rates will increase accordingly. For their brokers who are not using CTM’s M2i workflow, the investment manager can auto affirm the broker’s TradeSuite ID confirms via a second match process in TradeMatch (a component of TradeSuite ID).
Brokers who are enabled on CTM’s M2i workflow can only be fully automated with investment managers who are also enabled on M2i. With others, they still submit their confirms to TradeSuite ID.
DC: What is unique about the affirmation process in the U.S., and how does it impact global markets in a T+1 environment?
VW: Affirmation, a critical step in post-trade processing in the U.S., entails acknowledgement by the affirming party – be it a buy-side firm, Custodian, or Prime Broker – that the trade details submitted by the Broker align with theirs. In the U.S., this affirmation process takes place prior to the transmission of settlement instructions to DTC via TradeSuite ID. In many markets outside the US, the affirmation process is embedded within the depository system in what is known as pre-settlement matching between the local Broker and the local Custodian (acting on behalf of the buy-side firm).
As U.S. T+1 approaches, non-U.S. buy-side firms actively investing in U.S. markets are advised to collaborate with their local Custodians and determine an optimal affirmation arrangement. Buy-side firms bear the responsibility for timely affirmation regardless of whether they perform it themselves or delegate the task to their Custodians. Given time zone disparities in different regions, it is recommended they leverage solutions that automatically affirm trades upon matching and agreement to achieve timely settlement.
DC: How do DTCC solutions support the industry in accelerating the affirmation process?
VW: DTCC’s ITP services support no touch processing for clients around the globe. To enhance the straight-through processing of U.S. institutional trades, DTCC has introduced CTM’s Match to Instruct (M2i) workflow (which includes use of CTM, TradeSuite ID, and SSI enrichment via ALERT). With this workflow, which includes various affirmation options depending on the Broker’s setup, trades that are allocated, confirmed, and matched by the institutional investor and its Brokers in CTM automatically trigger trade affirmation and delivery of instructions for DTC-eligible securities directly to the U.S. depository for settlement. This auto-affirmation process eliminates any manual intervention by the institutional investor or their Custodian to affirm the trade, as the central match serves as the actual affirmation.
Clients using automated workflows such as CTM’s M2i workflow to match and affirm U.S. trades are approaching a 100% SDA rate by 9:00 PM ET on trade date.
To enable CTM’s M2i workflow, an institutional investor will need a subscription to CTM, TradeSuite ID and ALERT. They will also need to secure their own TradeSuite ID Number, which is the identifier used to attribute the institutional investor as the “Institution” on the confirmation. This TradeSuite ID Number is separate from the Custodian’s omnibus TradeSuite ID identifier, so the affirmation can automatically be generated at the investor level, without the need for any further Custodian or Broker action.
DC: What should market participants be doing at this stage to prepare for T+1?
VW: With less than two months left until the T+1 implementation date, time is of the essence. Market participants must ramp up their preparations and end-to-end testing. Further, in the U.S. and globally, it is important that Investment Managers continue to collaborate with their Custodians to develop multi-purpose solutions. Embracing automation to optimize settlement workflows is key to ensuring readiness for T+1.