Rob Frost, Chief Product Officer

In this blog, Rob Frost, Chief Product Officer, explains why problems associated with breaks and fails across securities finance do not result from an absence of technological solutions. The technology is already here. Removing friction and fail-associated costs from trades depends on the industry working together to adopt existing solutions – and doing so before it becomes a regulatory requirement.

Myth-busting breaks

Many practitioners and thought leaders in securities finance still talk about friction and inefficiencies due to a lack of technology and education.

I beg to differ. Breaks can already be prevented. Fails can be minimised. And, although challenges remain when it comes to SSIs, there are other areas within capital markets that already adopt SSI solutions and that we can learn from.

So, the issue isn’t a lack of technology or even education. It’s about adoption. About investment prioritisation and making a persuasive business case for automation.

Straight-through processing is already here

If everyone adopts current technology, the problems associated with breaks and fails reduce dramatically.

To illustrate, our data shows that Pirum clients that adopt our full post-trade automation service suite achieve up to 99.8% straight-through processing (STP). That’s a whisker away from fully automated, with the resulting benefits in improved settlement rates, accurate P&L, reduced latency, and with outliers identified, resolved and thereafter automated through exception management – all of which feeds through to facilitate accurate regulatory reporting.

Many of our global clients have already adopted this technology, thereby unlocking huge amounts of efficiencies. But maximum benefits can only be achieved if their counterparts adopt the automation as well.

How do we break the back of breaks?

By collectively working together to embrace automation. What’s also clear is that, if we as an industry don’t get ahead of this, regulators are likely to enforce adoption either directly or indirectly, as has already been observed in recent T+1 industry working groups.

As I’m sure readers will agree, transformation is always more stressful, difficult, and likely to cause additional costs when initiated by external parties that mandate their own timelines.

Indeed, if we look back at the T+1 shift in North America earlier this year, the evidence showed that while, on a macro level, the transition was smooth enough, for many individual firms the pain and cost was substantial.

And with both ESMA and the UK accelerating T+1 timelines, as well as South Korea proposing changes to short selling, the outside pressures to automate to ensure compliance are all too real.

Settlements up, fails down

Case in point: the report from the Bank of England Securities Lending Committee states that “the persistent level of settlement failure within the UK securities lending market would be significantly reduced with the adoption of:

  • Enhanced static data management
  • Real-time communication of position-impacting data between parties
  • Consistent trade and lifecycle event instruction discipline
  • Increased investment in pre and post trade automation
  • A market-wide adoption of industry best practices”

The technology to achieve the first four of these is already here, not only for the UK but for the global industry.

The last point, however, depends on cultural shift across the industry. If we don’t continuously seek to adopt and improve the way we work today, we will collectively struggle to scale our businesses for the future and be less able to leverage newer technologies, such as distributed ledger technology (DLT) and tokenisation, as well as artificial intelligence (AI), including generative AI, in the future.

The bottom line

The upside is already there for the taking and the benefits are tangible.

We’ve done it before, and we can help.

 

P.S. We will be at the ISLA Post Trade conference in London on November 6th. If you’re going and want to learn more, let’s meet.

Disclaimer: The information in this blog does not constitute legal or other advice; all content available is for information purposes only and your reliance on any suggestions provided is at your own risk.