Trade settlement has undergone tremendous change in recent years and more is on the way. That means that banks, financial institutions and other capital market participants will need to analyze and optimize their trade settlement processes to comply with new regulations and remain competitive in the market.
In February 2022, the U.S. Securities and Exchange Commission proposed reducing the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (T+2) to one business day (T+1) by 2024. This will be a much harder lift than the 2017 shift from a three-day settlement cycle (T+3) to a T+2 cycle, because aftermarket trades will essentially have to be settled in less than 12 hours.
In addition to the proposed changes in the U.S. markets, EU market participants are adjusting to the final stage of the Central Securities Depository Regulation (CSDR), or the Settlement Discipline Regime (SDR), which went into effect on February 1, 2022. Under SDR, CSDs operating in the European Economic Area (EEA) will, among other things, be liable for cash penalties for failed trade settlement.
Both of these regulatory changes will have a significant impact on market participants.
“As the trade lifecycle speeds towards T+1 settlement, firms of all sizes and levels of complexity are evaluating their readiness to meet this new mandate,” Jason Ganovsky, Sr. Director of Solution Engineering for Financial Services at Celonis, said. “At the same time assessing the impact of new rules and regulations such as CSDR continues to put pressure on middle and back office operations.”
It’s not just external pressures that are pushing market participants to evolve their trade settlement processes.
“Firms are always on the lookout for ways to optimize the trade settlement life cycle with an eye towards increasing liquidity, reducing risk and minimizing the costs associated with manual trade intervention,” Ganovsky said.
With so many fragmented systems, touched by multiple groups, from front to mid to back office, evaluating an organization's readiness to compress the trade lifecycle or comply with new regulations is a significant challenge. Traditional methods of business process discovery will invariably fall short in these complex landscapes. Traders may have a limited view of specifically where, how or why trades fail to settle or get booked correctly while back office personnel may lack the business context of trade misbookings or manual interventions that could lead to a more streamlined process.
With Celonis even the most complex trade processes can be automatically and continuously mapped to show a complete and objective view of all trades, even in high volume products such as forex (FX). With insights that are only capable of being delivered by process mining the Celonis Execution Management System (EMS) can quantify the impact of trade settlement and booking failures in terms of liquidity, capital at risk and the impact of straight through processing across all products and desks.
More importantly the Celonis EMS allows firms to take action on the insights gained through process mining. Through Action Flows and the embedded Machine Learning Workbench, a root cause analysis of failed or misbooked trades can be performed instantly, prioritized vs other failed/misbooked trades and escalated for an immediate resolution.
Using the EMS, Celonis customers have realized significant reductions of after-trade corrections and lower risk exposure through accelerated trades.
Existing Celonis EMS users should also check out the Post-Trade Settlement analysis app by Accenture in the EMS Marketplace.This Execution App is designed to give EMS users faster access to operational data, up-to-date analytics, and better reporting of the trade settlement process. It can also help organizations identify delays in the settlement process and corrective actions or early warnings.