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22 Nov 2021

SDR: A settlement must be reached…

As with all regulations the news pages, company websites and industry forums are awash with opinions and perspectives on the approach needed to meet the requirements.

Some vendors are choosing to focus on niche aspects of settlement fails management and some promise wholesale solutions, so choosing the right partner is a key decision. We at Pirum have been long standing advocates of problem prevention, and this belief runs through the veins of the Pirum services since our creation of real time lifecycle management over 10 years ago. With regards to SDR it looks as though our clients agree with us.

 

You would have seen and heard about our future tech initiative, the brainchild behind our Front office services, and with it our first product aimed at the front office; Trade Risk Manager.

Our clients have helped us shape the first iteration of a product that will help them prevent settlement fails. From our analysis the anticipated CSD settlement fail costs for a mid to top tier client will be in the millions of euros. With the right tooling and a focus on the whole chain, these costs can be reduced to low thousands.

 

SDR is going live in February 2022 and in the spirit of prevention it makes sense to have your process and product adoption set before that date. Some impacted firms believe they can navigate the challenges of SDR with their current tooling and that may be true. If, post February 2022 this proves not to be the case it behoves firms to be connected to, or at least be aware of the vendors that can connect and support your business at short notice. Remember, it was not raining when Noah built the ark.

 

This is not the first regulatory change to hit the European Securities Finance market, but it is one of the more recent ones to impact global businesses no matter where they reside. The experience of regulation gives impacted firms the now habitual process of reviewing their front to back operating model.

The critical components to this review are to ensure that the current settlement rates across product and counterparty are analysed over a period of time.

The review should include the causes of a settlement failure by market, on both the open and close leg of a transaction, along with reviewing whether you have quick methods to cover a short position at short notice. Pirum’s recent collaboration with Wematch is one-way firms can seek inventory at short notice. If you cannot prevent a settlement failure, you can at least reduce the financial impact that it will have on settlement or beyond.

 

If Pirum can be of assistance in demonstrating our product suite or assisting with front to back analysis, please do not hesitate to contact your sales representative or email connect@pirum.com

 

 

Scott Brown

Director, Business Development