09 Feb 2022
The Power of Positive Affirmation
For those who were hoping for an uplifting blog about how to be your best selves then this won’t be what you were hoping for (although as the confident, powerful and strong person you are you will no doubt be able to overcome the disappointment).
In this case the positive affirmation is that of one Repo counterparty with another, which admittedly may not sound like mindfulness incarnate but I assure you can help one achieve similar levels of inner calm.
Within securities lending - the Repo market's sibling within the world of securities finance - the idea that two counterparties would regularly compare and verify the key details of each transaction remain in line from execution to maturity has been widely accepted common practice for many years. Indeed automated reconciliation is often a standard part of the onboarding process when two counterparties first start trading securities loans with each other.
In the Repo market the equivalent process of ‘affirmation’ hasn’t quite achieved the same status with most firms automatically affirming their transactions for only a subset of their activity and in some cases not at all with manual processing still prevalent and differences often being dealt with after the fact or when trying to settle the closing leg of the transaction.
To some extent the fact that securities lending moved to automation on a more wholesale basis first is to be expected - it is in comparison to the Repo market a ‘higher volume, lower notional’ space. However the argument that the ‘lower volume, higher notional’ Repo market is less in need of automation appears increasingly anachronistic, particularly as the practical impact of recent regulations take effect.
It could be the Securities Financing Transaction Regulation (SFTR) highlighting booking discrepancies to a firm's regulator and its increasingly complex approach to reporting failed settlement on closing legs. It could equally be the settlement discipline regime of the Central Securities Depositories Regulation (CSDR) imposing fines for failed settlements at the CSD, particularly when you consider the fines are calculated based on market value in a market which is ‘low volume, high notional’. Whichever way you look at it, the idea that differences can be dealt with manually and after the fact starts to look increasingly outdated.
At Pirum the power of affirmation (or reconciliation) has long been our mantra and if you want to learn more about our Repo offerings please contact email@example.com. And remember the perfect moment is this one…
Director, Product Management