Progress on Post Trade
Efficiency in post-trade processing is being achieved via automation with the benefits coming in the form of reduced costs and faster and more reliable settlement of transactions.
Omgeo, a post-trade services company that is jointly owned by data group Thomson Reuters and the Depository Clearing & Trust Corp, the U.S. post-trade financial services group, has leveraged cost reductions across its own product and technology operations—achieved through internal infrastructure and technology investments—to offer pricing incentives for its customers.
“We understand that the industry is facing challenges across the board, and firms are responding to tougher market conditions,” said Tim Keady, managing director of sales and solution delivery at Omgeo. “By delivering targeted price reductions, introducing best practice cost incentives and streamlining middle office processes, Omgeo has taken tangible steps to bring increased efficiency to the global markets.
“As local markets continue to introduce shorter settlement cycles around the world, we will look to do everything we can to support our clients in this effort.”
The most recent pricing changes include those related to incenting clients to verify trades on the same day they are executed, known as same day affirmation (SDA), via Omgeo Central Trade Manager (Omgeo CTM) and Oasys-TradeMatch, its trade allocation and central matching service for U.S. domestic securities.
Trades verified on the transaction date, or T+0, have a much higher chance of settling on time and are less likely to fail, making SDA a key contributor to improved settlement efficiency and an important enabler of shortened settlement cycles.
“There are lots more movement toward shorter settlement cycles, which Omgeo believes in,” Keady said. “These pricing changes give us the ability to partner with our customers and to drive best practices globally.”
With Omgeo Alert, clients can reduce trade failure risk by sharing accurate standing settlement instruction (SSI) data that is compliant with market standards.
Shortening the trade settlement cycle is an achievable goal, according to a 2012 report by the Depository Trust & Clearing Corp and Boston Consulting Group, a consultancy, as 68% of surveyed firms supported the move—and 27% viewed it as a top priority.
The Depository Trust & Clearing Corp and Boston Consulting Group anticipate that it would take three years for the U.S. financial industry to move to a point where trade settlement occurs two days after the trade is enacted, a concept known as T+2. The U.S. currently uses T+3.
The industry as a whole is in favor of a move to shortened settlement cycles, and many firms view it as a top priority.
For instance, Clearstream, the international central securities depository (ICSD), will launch its direct settlement link to the Russian market later this month following the opening of a main account at the National Settlement Depository (NSD), the new Russian CSD.
The new direct link to the Russian CSD will complement Clearstream’s existing settlement services by further opening up access to the Russian capital markets via an efficient channel and offering a single access point, the Russian CSD.
Clearstream is also preparing to offer over-the-counter delivery versus payment settlement in the short term (whereby delivery occurs only if and when payment occurs) while offering free of payment settlement in the meantime.
The Moscow Exchange, for example, is set to launch a T+2 securities trading system with partial collateral and deferred settlement of trades.
Countries in the European Union also aim to have a T+2 system in place across all 27 member states by 2015 in order to improve efficiencies across markets and reduce rates of trade failure. Much of Europe currently uses T+3 although nations such as Germany already operate T+2. The U.S., meanwhile, which uses T+3, wants to adopt T+2 so there are similarities between global jurisdictions. In Asia and Latin America, trades settle anywhere between one and three days, while Canada is also T+3.
“2013 opens a new page in Russia’s movement towards full scale integration into the global financial system,” said Eddie Astanin, chief executive of Russia’s National Settlement Depository, in a statement. “Less than a year ago, the law on central securities depository was adopted, and now we see that such institutions as Clearstream recognize the effectiveness of our efforts and correctness of our strategy.”
Phase 5 of the uncleared margin rules (UMR) took effect from September 2021.
Temporary equivalence is set to expire on June 30 2022.
IRS trading volumes have fragmented without an equivalence agreement.
Phase 5 of the uncleared margin rules came into effect on 1 September.
Triparty repos can be executed across U.S. Treasury securities to central clearing.