Deutsche Bank – Breaking the settlement failure chain
There are several solutions available to financial institutions, which could potentially reduce the regularity of trade settlement fails.
One way to minimise settlement fails would be to obtain better transparency into the trading lifecycle. Market participants would then be able to procure more accurate insights into what is happening during the entire transaction process and start to implement tools that allow for multiparty workflows to take place.
Visibility of both sides of the instruction makes it simpler to identify which party needs to act to resolve the issue. There are several ways to achieve this, one of which is the adoption of Swift’s Unique Transaction Identifier (UTI). A UTI is a unique alpha numeric code that is assigned to a securities trade, enabling for the trade to be tracked from end to end throughout the settlement lifecycle. By incorporating the UTI into the settlement process, trading counterparties will be able to identify operational risks or problems during the transaction lifecycle, thereby helping them to avert potential fails.
A useful tool for the market to improve settlement liquidity and reduce the value of penalties is the use of partial settlement. Within a settlement instruction, each party can indicate that they are open to allowing a partial delivery to take place. A partial delivery is one where the seller delivers the shares available in their inventory to the buyer in return for a proportionate amount of cash proceeds. This reduces the outstanding amount that is failing and therefore reduces the size of any penalty.
Furthermore, integration of innovative technologies, such as artificial intelligence, Blockchain or distributed ledger technology (DLT), into existing processes could also potentially drive down settlement fail rates, especially if atomic settlement becomes a reality.
https://flow.db.com/securities-services/breaking-the-settlement-failure-chain