EquiLend
Gabi Mantle
30 August 2022
Following on from our policy update on CSDR settlement discipline in SFT 309, EquiLend associate director for post-trade solutions Gabi Mantle reflects on how CSDR fails reporting and cash penalties has impacted settlement efficiency and market behaviour
Image: Gabi Mantle
From EquiLend's perspective, how well have market participants adapted to the introduction of the settlement fails reporting and cash penalties regimes that were enacted in February?
Market participants are focusing on getting trade booking details right at the outset of the transaction – that is a key advantage of using NGT. For off-platform transactions, we see more attention being paid to post-trade processes, leading to greater use of post-trade tools such as Settlement Monitor, our centralised, global fails management solution. We are also observing greater use of our SSI Repository to match trade economics and static data faster, thereby reducing the risk of fails.
Overall, we are seeing varied responses to the new regime, with some market participants adding resources to pre-matching and fails management teams while others are opting to cancel potentially failing trades before they can fail.
How far have these changes contributed to improvements in settlement efficiency for securities financing transactions?
A combination of factors has helped the overall market to reduce settlement fails, and therefore penalties. There has been greater emphasis on getting bookings right first time on NGT, on using Settlement Monitor to prevent fails by pre-empting trade mismatches higher up the timeline, on addressing static data setup issues through use of the SSI Repository, and keeping trade allocation bookings in line through Unified Comparison.
These renewed priorities have coupled with an increased take-up in automated collateral solutions such as EquiLend Exposure. Our clients are benefiting from greater visibility to the trades causing exposure disputes and faster connection to triparty agents, both of which reduce latency in covering new contracts so lenders can release instructions more quickly into the market.
Between February and July, clients using our Settlement Monitor solution experienced, on average, a 30 per cent decrease in the number of failing returns. Overall settlement rates are also up. We are definitely noting greater focus on settling new contracts and returns on time, and the numbers are showing improved settlement efficiencies.
What primary challenges have clients encountered in adapting to the settlement fines reporting and cash penalties regime introduced in February?
The primary challenges faced in settling trades on time are varied. They include mismatched or missing settlement instructions (SSIs) and delayed collateral agreement caused by a lack of visibility into the cause of collateral disputes. This may also include trade mismatches, a lack of visibility into expected penalties, inability to prioritise pending trades efficiently, fragmented returns processes leading to settlement delays or fails, and other significant challenges.
EquiLend’s Trading and Post-Trade Solutions provide automation and enhanced efficiency through every step of a trade lifecycle. NGT facilitates point-of-trade matching, which is proven to reduce trade economic mismatches virtually to zero. Settlement Monitor facilitates pre-matching for both contracts and returns, providing visibility to SSIs, collateral coverage status, potential CSDR penalties and time left to market cut-offs, all in an easy-to-navigate user interface (UI) with workflow capabilities. Across the EquiLend Post-Trade Solutions group, our SSI Repository enables easy sharing of SSIs, EquiLend Exposure facilitates faster collateral agreement and Returns offers seamless, automated returns processing and reject visibility.
What forthcoming service releases does EquiLend have in its development pipeline to support further post-trade efficiency improvements for securities finance transactions?
We have seen a notable influx of queries about our Post-Trade Solutions from clients that want to increase settlement efficiency. We launched Settlement Monitor earlier this year to help our clients prevent fails and penalties and introduce better settlement workflows, we further enhanced EquiLend Exposure’s triparty agent connectivity, and we introduced a solution to support fixed-income returns automation. These new offerings have played a crucial role in our clients’ ability not just to comply with CSDR requirements but to become more efficient overall.
Our Post-Trade Suite is constantly evolving, and we are excited to be focused on further innovations coming in our automated Returns, Recalls and EquiLend Exposure solutions in 2022 and beyond.
Alongside our automation solutions, we also offer clients a Post-Trade Premium Service, through which we provide dedicated EquiLend staff resources to understand the client’s strategic goals, analysing data and workflows and working in tandem with our clients and their counterparties to improve processes, save time and reduce risk. A recent PTS Premium Service project helped one of our clients reduce returns rejects by 29 per cent and facilitated new returns relationships, resulting in a 65 per cent volume increase in automated returns.
Another recently announced innovation from EquiLend, our 1Source initiative, is designed to eliminate reconciliations altogether, which will have a significant impact on how firms manage their post-trade processes. 1Source is currently being designed in tandem with many market participants with a goal of developing a “single source of truth” for securities finance lifecycle events. Built on distributed ledger technology, 1Source will serve as a central repository for trade and lifecycle information, meaning the laborious and costly work of manually chasing down resolutions to misaligned trade data may soon become a thing of the past.
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