Inadequacies of middle-office resulting in settlement failures, survey finds
27 July 2021 London
Image: oatawa
In a recent Torstone Technology survey, 60 per cent of institutions said that settlement failures, attributed to inadequacies of the middle-office, are still a significant problem for their business.
In the global survey conducted in collaboration with GreySpark Partners, respondents attributed settlement failures to incomplete matching of settlement instructions, problems with meeting settlement deadlines, the inability to borrow or recover, and operational or technology issues.
As a result, 45 per cent of respondents said they intend to change their middle-office system entirely.
The survey also reveals concerns around the potential joint impact of the proposed US T+1 settlement cycle and incoming Central Securities Depositories Regulation (CSDR) on the middle-office.
Respondents indicated that while a shorter settlement cycle could reduce settlement risk, it will introduce operational challenges for banks and brokers, such as the need to navigate shorter timelines to reconcile and repair trades.
CSDR will introduce punitive charges and buy-ins for trades that fail to settle, and will drive up the cost of settlement failure — a risk that could increase under T+1, Torstone affirmed.
Data flow disruption and a lack of straight through processing (STP) in the middle-office were other significant issues mentioned by survey respondents.
Respondents highlighted widespread issues in facilitating the real-time transfer of static, trade and reference data from the back-office to the front-office and vice versa, as well as the problem of incorrect or missing data in the middle-office — resulting from fragmented and siloed front, middle and back-office functions that lack application programming interface-driven integration capabilities.
Survey respondents also voiced difficulties in automating failed trade notifications to the front-office due to fragmented systems’ reliance on manual processes.
Brian Collings, CEO for Torstone, said: “Fragmented legacy middle-office systems built with varying levels of functionality and automation are not only inefficient, time-consuming and costly but present significant operational challenges for banks and brokers of all sizes.”
He added: “Automation in the middle-office via STP platforms is key to solving these problems — remedying data connectivity issues, ensuring the timely delivery of trade data and confirmations to clients, reducing settlement risk as well as preparing for the possibility of a T+1 settlement cycle.”
Rachel Lindstrom, thought leadership manager at GreySpark, said: “A lack of investment, over many years, has stifled efforts to rationalise and automate processes in the middle-office in many banks and brokers. However, as firms look to achieve STP to reduce settlement failures and speed up trade processing, transformation programmes in many firms are shifting from the front-office to address challenges in the middle-office.”
The survey is based on responses from 58 individuals working in middle-office roles from leading buy and sell-side institutions in Europe, the Middle East and Africa, Asia Pacific and North America.
In the global survey conducted in collaboration with GreySpark Partners, respondents attributed settlement failures to incomplete matching of settlement instructions, problems with meeting settlement deadlines, the inability to borrow or recover, and operational or technology issues.
As a result, 45 per cent of respondents said they intend to change their middle-office system entirely.
The survey also reveals concerns around the potential joint impact of the proposed US T+1 settlement cycle and incoming Central Securities Depositories Regulation (CSDR) on the middle-office.
Respondents indicated that while a shorter settlement cycle could reduce settlement risk, it will introduce operational challenges for banks and brokers, such as the need to navigate shorter timelines to reconcile and repair trades.
CSDR will introduce punitive charges and buy-ins for trades that fail to settle, and will drive up the cost of settlement failure — a risk that could increase under T+1, Torstone affirmed.
Data flow disruption and a lack of straight through processing (STP) in the middle-office were other significant issues mentioned by survey respondents.
Respondents highlighted widespread issues in facilitating the real-time transfer of static, trade and reference data from the back-office to the front-office and vice versa, as well as the problem of incorrect or missing data in the middle-office — resulting from fragmented and siloed front, middle and back-office functions that lack application programming interface-driven integration capabilities.
Survey respondents also voiced difficulties in automating failed trade notifications to the front-office due to fragmented systems’ reliance on manual processes.
Brian Collings, CEO for Torstone, said: “Fragmented legacy middle-office systems built with varying levels of functionality and automation are not only inefficient, time-consuming and costly but present significant operational challenges for banks and brokers of all sizes.”
He added: “Automation in the middle-office via STP platforms is key to solving these problems — remedying data connectivity issues, ensuring the timely delivery of trade data and confirmations to clients, reducing settlement risk as well as preparing for the possibility of a T+1 settlement cycle.”
Rachel Lindstrom, thought leadership manager at GreySpark, said: “A lack of investment, over many years, has stifled efforts to rationalise and automate processes in the middle-office in many banks and brokers. However, as firms look to achieve STP to reduce settlement failures and speed up trade processing, transformation programmes in many firms are shifting from the front-office to address challenges in the middle-office.”
The survey is based on responses from 58 individuals working in middle-office roles from leading buy and sell-side institutions in Europe, the Middle East and Africa, Asia Pacific and North America.
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