In one of the earlier blogs in our T+1 series, Paul Chambers discussed the importance of ensuring that post-trade allocations and affirmations steps are optimally processed to avoid delays and inconsistencies. This is fundamental in the smooth and efficient running of the confirmations process, to support and instill accuracy in the settlements process.
Process and behavioral change
For T+1 to make successful in-roads into a more robust and efficient post-trade infrastructure, clear examination and a review of the confirmation process must become a reality. With time constraints, focus on completeness on T+0 is essential.
Traditionally confirmation processes do not begin until trades have been fully allocated with the correct SSI information and populated with other key static and delivery information.
In T+1 firms must consider a more co-ordinated approach into how the affirmation and allocation processes can lead to wholesale automation of the confirmation issuance, matching and subsequent follow up activities.
The confirmations process relies heavily on the quality and availability of data positioned across the entirety of the trade booking process, including reference data, fund information, legal identifiers, product descriptions, legal texts, and regional and jurisdictional variation.
The compressed timelines will challenge confirmations teams and their existing practices. Assessing whether their current processes are suited to a T+1 settlement window.
Updating legacy technology systems and processes
All firms will need to review legacy processes and systems performance throughout the transaction lifecycle to improve efficiency and increase automation of the confirmation issuance and matching process.
Technology exists today to help firms address the key challenges of streamlining the confirmation process, through extrapolation of the economics and non-economics, providing client or product specific templating, routes to legal input, distinct distributional channels, and monitoring of delivery.
However, this only gets you so far. If you get your house in order, how do you know if your clients have carried out their own due diligence? A firm’s success in reaching T+1 settlement in totality is a bilateral one.
Dependent on the model in use, delivering the confirmation is only the initial stage in the process. The return of the confirmation and agreement to it is of equal if not more importance and influencing your clients to respond on T+0 to allow for any amendment processes will become a challenge in this unfamiliar environment.
In mitigation, some commentators are recommending the broader adoption of ‘no-response affirmation’. However, for this to be a success, guaranteed delivery and ‘proof of view’ must be accomplished. This leads to a wider conversation on newer technologies like blockchain.
Fuel for thought. Some progression has been made in this area, but I fear not enough to achieve critical mass in time for T+1.
Less sophisticated clients will shun investment, and shoehorn existing processes into a more compressed timeline. Spending costly resources in reviewing, signing, and returning the confirmation via fax or email. This will lead to staff having to react fast, validate signatures against mandates, and scrutinize standard settlement instructions in a short space of time. The effects to any netting in the settlement process will require consideration.
The move to a T+1 settlement environment will be an upheaval to most confirmations teams. Especially those products which traditionally sit around the edges of automation, where standardization has yet to be adopted, and where automated market infrastructures have yet to materialize.
Think of this as an 80/20 exercise, where 20% of your processes will increasingly become a burden to your business operation if not addressed as part of this T+1 initiative.
The next two blogs in our T+1 series will examine the impact of T+1 on the reconciliations process:
- Taking control of your Reconciliations: achieving greater efficiency
- Taking control of your reconciliations: data, aggregation, validation and enrichment