Explore the pivotal role that reference data will play in the industry’s move to T+1 in our latest ITP Podcast featuring Matt Johnson, Director, ITP Industry Relations and Strategic Initiatives. Matt is joined by experts Russ Stamey, Industry and Capability Lead at Northern Trust and Jan Coughlan, Co-head of ALERT Product Management, to discuss the significance of SSI data quality, standardization and automation in reducing risk and preparing the industry for accelerated settlement. Listen now as they share their experiences and challenges, as well as the solutions that Northern Trust and DTCC have brought to clients.
Transcript:
Matt Johnson
Hello and welcome to the latest Institutional Trade Processing podcast from DTCC. For those who don't know me, I'm Matt Johnson, part of DTCC's Institutional Trade Processing business team based in London. At present, nearly all conversations are focused on the US move to a T+1 settlement cycle. There is a possibility of the UK and Europe moving in the next couple of years too and we also layer in the need for greater standardization and automation in post trade processes as well as reducing risks such as cyber and fraud. I wanted to focus on how all of this is achievable, more so from a reference data perspective. So therefore, SSIs are going to be front and center of today's podcast.
I'm very happy to be joined today by one of DTCC's prominent global custody clients as well as one of my DTCC colleagues. So let me introduce Russ Stamey, the industry and capability lead within Northern Trust and DTCC's very own Jan Coughlin, Co-Head of the ALERT product at DTCC. So hello both. Thanks for taking the time to take part today. I trust you are both well.
Russ Stamey
Great. Thanks, Matt. I appreciate the intro and thanks for the opportunity to speak today.
Jan Coughlin
Thank you, Matt.
Matt Johnson
Always a pleasure. So, I guess we'll just get straight into it right, as it's a podcast. So, Russ is it alright if I come to you first? Why are SSIs so important for the US move to T+1?
Russ Stamey
Well I think with not just US and Canada T + 1, but as you mentioned other countries potentially looking to move to shortened settlement cycle. With that move you're taking effectively 50% out of the timeline for exception resolution between trade date and settlement dates. Really taking the only day of exception resolution out of the process. So, with that I think it's increasingly important to have good quality data upfront to avoid the need to do that exception resolution process. And kind of what we've seen in the past is, you know, apart from liquidity issues, one of the major drivers for settlement errors or inefficiency is standing settlement instruction data or incomplete or incorrect standing settlement instruction data. So, you know, for me that's one of the key requirements to have success as you're looking at shortening the settlement cycle globally is just around making sure that SSI data is as clean and timely as possible.
Matt Johnson
Yeah, that's really interesting. I guess that point is going to resonate with most. I mean, Jan, is that something you also see from our broader clients?
Jan Coughlin
Yes, definitely. I think echoing Russ's sentiment there, with accelerated settlement cycles it’s critical the industry moves away from manual processes. We can't have PDFs of SSIs being shared over e-mail, requiring manual interpretation and manual re-keying. There is very little standardization when SSIs are manual, they're coming in from various custodians, various formats. It makes it incredibly difficult for consumers to interpret and digest. And that lack of standardization, it just makes it impossible for consumers to automate consumption.
Jan Coughlin
From an ALERT perspective, I think with a global community, made-up of 3,400 buy-side and sell-side participants across multiple asset classes, we've got 15 million SSIs. The DTCC ALERT platform provides that much needed standardization and automation capabilities that are critical to support accelerated cycles. I think what will resonate is obviously in recent years in partnership with the global custodian community, we've developed automated and systemic capabilities. Our global Custodian Direct (GCD), it enables global custodians to manage the maintenance of those SSIs on behalf of buy-side clients. It's been an extremely successful program delivering automation and standardization across the community, with nearly 8 million SSIs now managed by source providers.
Matt Johnson
Well, you guys got quite a lot there in a very short amount of time. I'll come back to Russ and kind of put you on the spot a little bit, I guess. So, regarding Northern Trust’s SSI strategy, what are the main points of focus maybe apart from what you discussed already?
Russ Stamey
So, yeah, let me talk a little bit about the history kind of where our focus has been and where it's where it's going. So initially when we started looking at automation of SSI data and delivery of data to ALERT through the ALERT GCD application that Jan mentioned, it was focused more largely on client needs. So, we were seeing a lot of client demand globally for the ability to provide automated custody SSI data into the alert tool, which we and most of our clients view as the industry standard for SSI maintenance. So that that was the initial focus was getting a service created and a data store created where we could seamlessly integrate with ALERT GCD and provide the custody cacash and securities SSI directly into ALERT. Not only for the initial updates but also the ongoing maintenance of that data. So that was the focus probably the first two or three years of our journey. Probably shifted a little bit over the past couple of years to more around client onboarding, so how we get more data into ALERT contributing to some of the numbers that Jan mentioned around the SSI data that's stored in the system.
Russ Stamey
We've made tremendous progress over the past couple years and that's through partnership with DTCC and our clients. But we've been able to increase the volume of or the pace of onboarding some tenfold over the past two years and are now probably approaching close to over 96% of our SSI data being maintained within ALERT systemically through the GCD workflow. So that's kind of what our area of focus has been. I think there's still a lot of work to be done even though we're at pretty high percentages in terms of the current clients that we're supporting. We'll maybe talk a little bit later in the conversation, but I think the focus, probably for next year, is really going to be on how do we get some more of those manual clients, clients that are maintaining SSI manually outside of ALERT. How do we get them pulled into the to the ecosystem?
Matt Johnson
Yeah, absolutely. And I guess some of those high percentage numbers are music to Jan's ears.
Jan Coughlin
Well, definitely, definitely.
Matt Johnson
So just coming back to you Jan for a second because you mentioned a couple of things in your opening piece in regard to quality and data quality standardization automation. So, I mean, can you just like elaborate some more on the benefits of SSI automation and using that source data that you've referenced and how that improves quality?
Jan Coughlin
Yeah, yeah, certainly. So, I mean look, if we go back to how SSIs are communicated, buy-side clients, they will use a number of custodians and there's varying formats. Clients will need to interpret and upload that data into ALERT with manual intervention. We all know that that's prone to error, delays, just the sheer time it takes. But when clients utilize the Global Custodian Direct workflow, they simply assign their account. So, in ALERT terms, that's an access code, along with their account number at the global custodian to the global custodian. In ALERT terms, that's an SI controller and then the ALERT platform will communicate via automated messages. It will retrieve all the available custodian SSIs across all markets and asset classes and once clients’ accounts are linked in this manner, to Russ's point, the ongoing maintenance, or any subsequent updates, if there's a change in sub-custodian, they will automatically be updated. ALERT notifications will then be sent out to all the consuming permission brokers. So, it's a seamless automated workflow, connected directly to those source providers.
I think just one other point, I know Russ will be able to apply more color, is more recently we further evolved the functionality to provide clients with the ability to connect those accounts to Global Custodian but with a future effective date. This has significantly expedited the conversion process so when clients are transitioned from managing their own SSIs to that global custodian managed workflow.
Matt Johnson
Now Russ, I was going to move the conversation more over to you and obviously you've referenced that long standing partnership with DTCC that Northern Trust had over the years and obviously we know that's going to be a longer future effective relationship as well as we move things forward. So can you describe a little bit more around how the DTCC partnership has evolved with Northern Trust, especially in regards to Global Custodian Direct and you know, utilizing those future alert enhancements?
Russ Stamey
Yeah and just going back to what Jan mentioned a minute ago, I mean, you can't underestimate or understate the importance of data quality and accuracy, right, in this process. I think beyond the sheer volume of SSI data that we exchange with clients it's really the complexity of that data. I mean we're maintaining cash and securities SSI across some 100 markets with various market requirements and data requirements. So, it's and it's been very difficult for clients over the years who we were, as Jan mentioned, they may be taking SSI data from 50 different custodians in some cases of some of these larger investment managers to be able to interpret that data. It's coming in via PDF or spreadsheet or other or e-mail, interpret that data and get it into the correct format that goes into ALERT. So being able to automate that process has been key to Northern and just ensuring the integrity and the accuracy of the data that's in ALERT that we provide on behalf of the clients, I think that's key.
The other side of that is just the efficiency gains. Jan spoke well about the ability to send that data in an automated fashion. But we have things like sub custodian changes that happen. I mean, we may be pushing 10's of thousands of SSI updates across all of our clients. Prior to ALERT GCD, that information was shared manually with clients and clients had to go in and manually update that data and alert. Now that process is fully automated, we'll still obviously inform clients of the change, but then we're able to seamlessly make those changes on their behalf to that data and then that's seamlessly communicated on to the broker dealer. So, a lot of risks taken out of the process there. Similarly, on account onboarding, when we set up new accounts for a client, kind of gone are the days where we have to send those SSI details over to the clients and then they'll have to manually input those into ALERT. We can now do that seamlessly on day one. It's part of the transition before those accounts go live with the investment manager. So, a lot of operational efficiency to be had there.
So just in terms of the partnership and it kind of ties into what I some of the comments I just made, I mean we've obviously worked very closely with DTCC for the past six to seven years. Initially, as I mentioned, DTCC was a great partner as we were designing our SSI service, meaning the service that connected with GCD. Also really making sure our data store or all the kind of the back-end data that we had to update, to make sure that we got quality SSIs in an industry standard format and make sure that data was correct. DTCC has been a great partner there. We worked very closely with DTCC and the industry through the various ALERT working groups they have with the Global Custodian community to help constantly review and refine that best practice. So that's a great service that DTCC provides, apart from maintaining ALERT. Also acting as kind of that industry advocate and coordinator for any market changes and other things that drive changes in best practice around SSI.
Then finally, the future effective that Jan mentioned, that was something that we've been partnering with DTC for a couple of years on. Initially through the design and kind of build out of the service and then through kind of an early adopter of the service. But you know prior to future effective, we were in a process where we were having to onboard clients to the GCD workflow in a rather sequential process. We would queue up 1 client, get all the testing and data review and onboarding done and then move on to the next client. The process worked but it definitely slowed the pace of onboarding. So, with future effective now, as Jan mentioned, we're able to queue multiple clients concurrently giving them the ability to immediately review the SSI data that we're planning to populate. The clients pick and agree with Northern Trust on a feature effective date for the change and then on that feature effective date when that date arrives that data is automatically converted where we will then begin populating that data in in GC Direct.
So really what that's allowed us to do is, you know over the past couple of years we've been able to increase the pace of our onboarding to GCD, some 400%. So, significant gains there and it's really allowed us to meet our targets for getting more client data into the GCD workflow.
Matt Johnson
That's a fantastic overview.
I think it's fair to say that we greatly appreciate the relationship and the work that we do with Northern Trust.
Jan Coughlin
I was just going to say you know that's a testament to the 96% coverage that Russ and the Northern Trust team have got to. I mean that's phenomenal. To have that amount of your data set now managed by the Global Custodian Direct workflow, phenomenal.
Russ Stamey
Yeah, it's a great partnership and yeah, it goes without saying I certainly appreciate all the assistance DTCC has provided and not just at Northern, but all the progress the entire community has made and automating SSI over the past couple of years because it's really been some significant gains made.
Matt Johnson
Yeah, obviously we only have one hour in time for these podcasts because we don't want them to go on for too long. But something that I've heard, I mean you've really clearly expressed the automation benefits and standardization and so on. But something I think sometimes gets a little overlooked is you know risk reduction as well. I've heard words such as manual, e-mail, PDF, excel and so on. So how does ALERT also help with that additional risk that we see now in regards to fraud and kind of cyber intervention and so on?
Russ Stamey
Yeah, Jan, you want me to take that one or?
Jan Coughlin
I can go.
Russ Stamey
Have at it
Jan Coughlin
For me, there's two main points to draw out. I'm really tying it back to that compressed settlement cycle and I think the first thing is, I can see there being an increased demand in timely secure FX cash, SSI support, funding requirements and I think in ALERT, we've got 2.8 million, cash instructions either sourced directly from Global Custodians or if it's a buy side that’s managing those cash SSIs, they're mandated to utilize the data authentication. So, meaning instructions have to be updated and validated by the clients themselves. So, from a consumption perspective, brokers have got access to authenticated cash instructions negating the need for lengthy call backs and mitigating the risks across transmitting in a manual format.
And I think just on that point, I mean I've heard how creative fraudsters have been, you know? It was certainly heightened during the pandemic. I mean fraudsters intercepting files, mimicking emails, even hosting company profiles on the net to interject themselves into the call-back process. Hence clients now they're having to embed even more controls, more processes around the communication of SSI's when they're manual.
The second point really for me is, just more broadly, manual clients across all asset classes. It is the 21st century, we simply can't have PDF's being passed over e-mail. Those risks, as Russ said, timeliness, they're error prone. It's going to make it really challenging to get that data in the right place.
Russ Stamey
Yeah, I think Jan, I think you covered it perfectly. I don't know how much more I could say. I mean similar to all the work that we and our clients and probably all the industry participants have done to try to get cash instructions automated into secure channels like Swift Messaging or other secure means outside of fax and e-mail. Similar for SSIs, I mean if we're exchanging settlement details that needs to be in an automated secure channel and automated secure data store. I see tremendous benefits in taking the whole exchange of e-mail out of the equation when it comes to providing and updating SSI data with our clients and then between the clients and the counterparties.
So, one of the huge benefits of getting this process into this automated GCD workflow is the fact that we cannot just automate the process but also take advantage of all the systemic information security controls built into our respective systems and processes. Just closing on that, there's still a big manual client community out there. So, clients potentially that are not on ALERT that are exchanging SSI, in what I'm assuming is probably a manual way with counterparties, I think that's really has to be our focus going forward. It's like how do we tap into that community and get them pulled into this ecosystem so that we can get automate that maintenance of that data as well?
Matt Johnson
I think that's a really important way that we can close out. Unfortunately, we are at time. We never have enough time for these conversations, and as always, I've probably learned more in these last 15 to 20 minutes and what I've done seeing through various seminars and industry conferences. So, thanks again to you both for taking the time. We are going to close the conversation there. Obviously, if there's any more information that you may need, please reach out to myself or Jan if you have our details or your DTCC account manager or relationship manager. Once again, thanks for listening and we look forward to talking to you again in our next series of podcasts that will coming up soon. Take care.