What role do standing settlement instructions play in the tradeprocessing lifecycle?
To reduce risk and costs associated with trade failure, it is critical that all market participants implement an automated and standardised process for storing, updating and communicating account and standing settlement instruction (SSI) data. SSIs are a key reference data component in the trade life cycle. Settlement instruction data includes information such as place of settlement, account name and number, market, security type, bank identification codes and more. This data includes all of the account and settlement details that are needed for a trade to settle.
In fact, in an Omgeo survey of custodian banks worldwide, nearly 40 percent of respondents mentioned that 30 percent or more of their clients’ failed or amended trades were due to SSI issues often tied to a lack of automated SSI processes and missing SSI data. Bank respondents also highlighted that they primarily used manual methods to share their SSIs with their investment manager clients, including email, the most common method of sharing and updating SSI data.
There is significant opportunity for the industry to adopt automated solutions to improve the quality and accuracy of settlement instruction data. Automation introduces greater control of data and ensures compliance with industry standards. In the end, automation promotes an accelerated trade instruction process, provides a greater level of transparency and facilitates greater control over the operational process.
Why is quality trade settlement so important?
Participants and regulators of the financial markets are more and more focused on removing risk from the industry. The reduction of systemic risk is a key priority, but more broadly the focus remains on reducing all types of risk, including settlement and operational risk.
Securities settlement is a critical component of operational risk management as faster and more efficient settlement practices reduce counterparty risk exposure and promote the efficient use of capital. Improving settlement efficiency could be one of the most tangible and positive examples of changes to post-trade infrastructure since the onset of the global financial crisis.
One area gaining particular attention is the focus on reducing the time it takes to settle a trade, also known as shorter settlement cycles (SSC). Today, there is growing agreement among policymakers, regulators and market participants alike that shorter settlement cycles benefit the industry and investors.
The ability to access properly maintained SSIs is a key factor in operational risk mitigation, particularly as the global momentum towards shorter settlement cycles increases. The highest degree of accuracy will be needed in order for firms to adhere to shorter settlement time frames.
Could you explain the partnership with DTCC and how it will help standardise and centralise key client reference data functions?
Omgeo and DTCC have worked closely since Omgeo’s inception in 2001 when the firm was a joint venture between DTCC and Thomson Reuters (formerly Thomson Financial). This past October, DTCC completed its acquisition of Omgeo. As a result, there will be even more collaboration between DTCC, Omgeo and the industry around key initiatives including client reference data functions.
Recently, DTCC announced its goal is to provide a comprehensive, centralised platform to manage all client reference data, including regulatory compliance data, client on-boarding and KYC requirements, and SSIs. They are planning to provide this centralised solution by leveraging their assets, as well as those from Omgeo and another subsidiary, Avox.
Omgeo ALERT, the industry’s largest and most compliant online global database for the maintenance and communication of account and SSI, will be a key part of this initiative. Earlier this autumn, we announced that Omgeo had been partnering with DTCC to establish a user-governed global repository to store and communicate the ‘golden copy’ of SSIs for all products and geographies. This undertaking, known as the SSI communications hub, is part of an overall effort led by DTCC to standardise and centralise key client reference data functions and place them under user governance. ALERT will serve as the foundation for this service, coordinating and distributing SSIs between trade counterparties and supporting settlement across all markets and asset classes globally.
What parts are regulation and initiatives such as LEI playing in your product offerings?
Omgeo remains focused on continuing to meet the needs as regulatory and industry mandates take effect. In fact, ALERT is a key enabler of helping firms to meet Legal Entity Identifier (LEI) mandates. In May, Omgeo announced it was supporting the global LEI initiative by adding additional entity- and fund-level fields and data into ALERT. These enhancements are bolstered by Omgeo’s partnership with Avox, a subsidiary of DTCC -that provides the automated feed that populates legal entity data in ALERT.
With this partnership, entity-level pre-LEIs— which conform to the LEI standard and will transition to LEIs once the global system is established—are automatically populated within confirmed investment manager and broker/dealer ALERT accounts.
Clients can view entity-level pre-LEI information in ALERT, as well as their counterparties’ legal entity data via subscription. To date, more than 900 entity pre-LEIs have been automatically populated after Omgeo worked with individual clients to confirm their correct legal entity details and acronyms.
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