Tony Freeman, DTCC Executive Director, Industry Relations, joined Jonathan Ehrenfeld, Securities Manager, SWIFT, to discuss progress with the Post-Trade Risk Alerting (PtRA) initiative during the panel, Post-Trade Risk Alerting: Meet an innovative new service that eliminates operational and regulatory risks, at Sibos in Toronto.
The PtRA initiative is spearheaded by SWIFT, with the goal to eliminate operational risks as well as the risk of violating Standard Settlement Instructions (SSIs), which are a series of instructions that delineate that key information remains consistent from one cash settlement to another. By deploying these detection techniques on live traffic and at the earliest point in the trade flow, SWIFT hopes PtRA will provide increased transparency and surveillance, alerting SWIFT users in time to take immediate, pre-emptive action.
During the panel, Freeman and Ehrenfeld presented SSI validation as a primary use case example for PtRA. The presentation emphasized the high cost of resolving failed trades, including the more obvious clear cut costs and the hidden costs, as well as a focus on how regulation can help to improve coordination issues.
These costs, are “very diffuse across the industry so the problem doesn’t get the attention that it deserves,” Freeman said.
Freeman sees the PtRA initiative in a positive light because financial organizations’ messaging requirements have become increasingly complex whether they communicate with clients or market infrastructures. “The current settlement failure rate of two percent accounts for about $3 billion in losses every year,” Freeman said. “PtRA allows clients to identify and resolve incorrect or missing SSIs before a settlement problem occurs.”
Freeman highlighted an industry trend during the presentation, namely improved regulation, which would aid in coordination issues. European Union’s regulatory response to the 2008 financial crisis named Central Securities Depositories Regulation (CSDR) includes a section called for settlement discipline measures which aims to increase the EU settlement rate from 97 percent to over 99 percent, according to Freeman.
“Improved regulation can help because it solves the coordination issue. It makes all market participants improve at the same time, leading to a structural improvement,” Freeman said.
While additional possibilities or applications for PtRA are conceivable, the initiative remains a SWIFT project and therefore its potential would have to be worked out by SWIFT, Freeman said.