Settlement processes are attracting more attention as regulators require shorter and more certain settlement, with potential penalties for noncompliance.
DTCC (the Depository Trust & Clearing Corporation) has released a new paper looking at structural transformation underway in the capital markets and the need for industry consensus to ensure full automation of SSIs (Standing Settlement Instructions).
SSIs represent a significant proportion of trade failures, as missing or incomplete SSIs create one of the biggest pain points for firms, DTCC says. A global failure rate of just 2 percent is estimated to result in costs and losses up to USD 3 billion.
The significant number of manual touch points relating to SSIs during the settlement process sees trade data handled by many disparate systems from matching engines to counterparties and settlement organizations, while flowing across an array of market infrastructure facilitators.
“Settlement processes are now attracting more attention as regulators require shorter and more certain settlement with the potential of penalties for noncompliance,” said DTCC managing director and head of institutional trade processing Matthew Stauffer.
“Removing manual touch points in the settlement process will have a tremendously positive impact in efficiency and security,” he added.
Further, it is estimated that roughly half of institutional participants are communicating critical SSI information manually, such as by email, rather than on a secure platform. In addition to being inefficient, this introduces cyber security risk, DTCC says.
Moving to automated SSI processes can help, the paper argues.
“When the SSI workflow is automated, the most immediately noticeable improvement—beyond cost savings and security—is data quality,” it says, also noting other benefits such as timeliness, efficiency, and reduced processing risk.
“Achievement of full SSI automation throughout the industry is very much a community effort, as everyone ultimately benefits. However, there are participants across the industry who remain unaware of the tools and help available for them to start and complete the journey.”
Some of the tools are detailed in the white paper, available here.